REG - Nat Bank of Canada - Financial Statements - Part 2 <Origin Href="QuoteRef">NA.TO</Origin> - Part 2
29/10/2014 15:46
- Part 2: For the preceding part double click ID:nRSb1668Qa
and securities loaned 598 90
Derivative financial instruments, net (727) (170)
Due from and to clients, dealers and brokers, net (207) 932
Interest and dividends receivable and interest payable (69) (20)
Current tax assets and liabilities 59 (194)
Other items (575) (548)
1,681 (411)
Cash flows from financing activities
Issuance of preferred shares 350 200
Redemption of preferred shares for cancellation (104) (200)
Issuance of common shares 67 69
Redemption of subordinated debt (526) −
Share issuance expenses (7) (4)
Dividends paid on shares (471) (430)
Change in other items (2) (164)
(693) (529)
Cash flows from investing activities
Acquisition of TD Waterhouse Institutional Services (Note 20) 722 −
Purchases of available-for-sale securities (4,060) (4,425)
Sales of available-for-sale securities 4,603 4,320
Net change in premises and equipment (89) (123)
Net change in intangible assets (92) (86)
1,084 (314)
Impact of currency rate movements on cash and cash equivalents 244 (40)
Increase (decrease) in cash and cash equivalents 2,316 (1,294)
Cash and cash equivalents at beginning 3,596 3,249
Cash and cash equivalents at end(2) 5,912 1,955
Supplementary information about cash flows from operating activities
Interest paid 1,653 1,590
Interest and dividends received 3,487 3,417
Income taxes paid 252 313
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
(1) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2.
(2) This item is the equivalent of Consolidated Balance Sheet item Cash and deposits with financial institutions. The
Bank is required to maintain balances with central banks and other regulatory authorities. The total of these balances was
$206 million as at July 31, 2014 ($355 million as at July 31, 2013). In addition, $2 million was held in escrow as at July
31, 2014($7 million as at July 31, 2013).
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (millions of Canadian dollars)
Note 1 Basis of Presentation 43 Note 12 Hedging Activities 61
Note 2 Accounting Policy Changes 43 Note 13 Share Capital 62
Note 3 Fair Value of Financial Instruments 46 Note 14 Non-Controlling Interests 64
Note 4 Financial Instruments Designated at Fair Value Through Profit or Loss 52 Note 15 Capital Disclosure 64
Note 5 Securities 53 Note 16 Trading Activity Revenues 65
Note 6 Loans 55 Note 17 Share-Based Payments 65
Note 7 Financial Assets Transferred But Not Derecognized 58 Note 18 Employee Benefits 66
Note 8 Other Assets 59 Note 19 Earnings Per Share 67
Note 9 Deposits 59 Note 20 Acquisition 68
Note 10 Other Liabilities 60 Note 21 Structured Entities 68
Note 11 Subordinated Debt 60 Note 22 Segment Disclosures 71
NOTE 1 - Basis of Presentation
On August 26, 2014, the Board of Directors authorized the publication of the Bank's unaudited interim condensed
consolidated financial statements (the consolidated financial statements) for the third quarter and nine months ended July
31, 2014. The common share information presented in these consolidated financial statements has been retrospectively
adjusted to reflect the stock dividend of one common share on each issued and outstanding common share declared on December
3, 2013 and paid on February 13, 2014. The effect of this stock dividend was the same as a two-for-one split of common
shares, as described in Note 13.
The Bank's consolidated financial statements have been prepared in accordance with section 308(4) of the Bank Act (Canada),
which states that, except as otherwise specified by the Office of the Superintendent of Financial Institutions (Canada)
(OSFI), the financial statements are to be prepared in accordance with International Financial Reporting Standards (IFRS),
as issued by the International Accounting Standards Board (IASB) and set out in the CPA Canada Handbook. None of the OSFI
accounting requirements are exceptions to IFRS.
These consolidated financial statements have been prepared in accordance with IAS 34 -Interim Financial Reporting using the
accounting policies described in Note 1 to the audited annual consolidated financial statements for the year ended October
31, 2013, except for the accounting policy changes described below in Note 2. Future accounting policy changes are also
presented in Note 2. Since these consolidated financial statements do not include all of the annual financial statement
disclosures required under IFRS, theyshould be read in conjunction with the audited annual consolidated financial
statementsand accompanying notes for the year ended October 31, 2013.
The consolidated financial statements are presented in Canadian dollars, which is the Bank's functional and presentation
currency.
NOTE 2 - ACCOUNTING POLICY CHANGES
Effective Date - November 1, 2013
As required by the IASB, on November 1, 2013, the Bank adopted the following new or amended accounting standards.
IAS 19 − Employee Benefits
In June 2011, the IASB issued an amended version of IAS 19, introducing significant changes to the accounting of employee
benefits, primarily for defined benefit pension plans. The main changes to the revised standard are as follows:
- The expected return on plan assets is no longer used in calculating the pension plan expense. The discount rate used
to measure the accrued benefit obligation must also be used to measure the return on plan assets.
- Past service costs are recognized when a plan is amended, with no deferral over the vesting period.
- Additional annual disclosure is to be provided regarding the characteristics of defined benefit plans and the risks
to which entities are exposed by participating in those plans.
- The revised standard requires that all actuarial gains and losses be immediately recognized in Other comprehensive
income. The recognition of actuarial gains and losses can no longer be deferred. This last amendment has no impact on the
Bank since it already recognizes actuarial gains and losses in Other comprehensive income.
The requirements of the amended version of IAS 19 have been applied retrospectively. The impacts of adopting the amendments
on the Consolidated Balance Sheet as at October 31, 2013 are presented below. There is no impact on the Consolidated
Balance Sheet as at November 1, 2012.
As at October 31, 2013
Consolidated Balance Sheet
Increase in Other assets 15
Decrease in Other liabilities 6
Increase in Retained earnings 21
NOTE 2 - ACCOUNTING POLICY CHANGES (cont.)
Retrospective adoption of the changes had the following impacts on the Consolidated Statement of Income and the
Consolidated Statement of Comprehensive Income for the third quarter and nine months ended July 31, 2013.
Quarter ended July 31, 2013 Nine months ended July 31, 2013
Consolidated Statements of Income and Comprehensive Income
Increase in Compensation and employee benefits (19) (22) (1)
Decrease in Income taxes 5 6
Decrease in Net income (14) (16)
Increase in Other comprehensive income - Actuarial gains and losses on employee benefit plans 13 38
Increase (decrease) in Comprehensive income (1) 22
Decrease in earnings per share (dollars)
Basic (0.04) (0.05)
Diluted (0.04) (0.05)
(1) This amount includes a $35 million decrease in past service costs, less a $4.5 million reduction recorded under
the previous IAS 19, resulting from changes that had been made to provisions in the Bank's pension plans and other
post-retirement plans in the first quarter of 2013.
IFRS 10 - Consolidated Financial Statements
IFRS 10 replaces the consolidation guidance in IAS 27 - Consolidated and Separate Financial Statements and in
interpretation SIC-12 - Consolidation - Special Purpose Entities, by establishing a single consolidation model based on
control for all interests held in all types of entities (investees). According to IFRS 10, control is based on the concepts
of decision-making authority regarding the investee's relevant activities, exposure or rights to variable returns from its
involvement with the investee, and the ability to use its power to affect the amount of returns. An entity must consolidate
the entities it controls and present consolidated financial statements.
The Bank retrospectively adopted IFRS 10, the impact of which is the deconsolidation of NBC Capital Trust (the Trust).
Under IFRS 10, the Bank does not control the Trust because the Bank's interest does not expose it to variable returns. The
Bank's earnings per share has not been affected. The impacts of the deconsolidation are as follows:
- A $225 million increase in Deposits on the Consolidated Balance Sheet as at October 31, 2013 and as at November 1,
2012, representing the Trust's deposit note.
- A $229 million decrease in Non-controlling interests on the Consolidated Balance Sheet as at October 31, 2013 and as
at November 1, 2012, representing the trust units issued by the Trust.
- A $4 million increase in Other liabilities on the Consolidated Balance Sheet as at October 31, 2013 and as at
November 1, 2012, representing accrued interest payable on the deposit note.
- Decreases in Net income and equivalent decreases in Non-controlling interests of $3 million and $9 million on the
Consolidated Statement of Income for the third quarter and nine-month period ended July 31, 2013, respectively.
IFRS 7 - Financial Instruments: Disclosures
The amendments to IFRS 7 require disclosure about legally enforceable rights of set-off for financial instruments under
master netting agreements or similar arrangements. The Bank retrospectively adopted these amendments, which had no impact
on its results or financial position since the standard only affects disclosures. The required IFRS 7 disclosure amendments
will be presented in the audited annual consolidated financial statements as at October 31, 2014.
IFRS 11 - Joint Arrangements
IFRS 11- Joint Arrangements replaces IAS 31- Interests in Joint Venturesand SIC-13- Jointly Controlled Entities -
Non-Monetary Contributions by Venturers. Under IFRS 11, a joint arrangement is an arrangement in which two or more parties
have joint control. Joint control means the contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require the unanimous consent of the parties sharing control. Under IFRS 11, a
joint arrangement must be classified as either a joint operation or a joint venture, depending on an assessment of the
rights and obligations of the parties to the arrangement.
A joint operation is a joint arrangement wherein joint operators have rights to the assets and obligations for the
liabilities. A joint operator shall account for the assets, liabilities, revenues and expenses relating to its interest in
a joint operation in accordance with the IFRS standards applicable to the particular assets, liabilities, revenues and
expenses. A joint venture is a joint arrangement wherein the joint venturers have rights to the net assets of the
arrangement. A joint venturer accounts for its interest in a joint venture using the equity method.
The Bank retrospectively adopted IFRS 11 and concluded that the joint arrangements in which it has rights constitute joint
ventures. Since these investments had already been accounted for using the equity method under IAS 31, there was no impact
on the Bank's consolidated financial statements.
IFRS 12 - Disclosure of Interests in Other Entities
IFRS 12 applies to entities that hold interests in subsidiaries, joint arrangements, associates and non-consolidated
structured entities. It requires additional disclosure that enables financial statement users to assess the nature of, and
risks associated with, an entity's interests in other entities and the effects of those interests on the entity's financial
position, financial performance and cash flows. The Bank retrospectively adopted IFRS 12, and the required disclosures will
be presented in the audited annual consolidated financial statements as at October 31, 2014. However, certain disclosures
related to structured entities are presented in these consolidated financial statements.
IFRS 13 - Fair Value Measurement
IFRS 13 defines fair value, sets out in a single standard a framework for measuring fair value and requires disclosures
about fair value measurements. Prospective adoption of this standard did not have a significant impact on the Bank's
consolidated financial statements. The required quarterly disclosures are presented in the consolidated financial
statements; the additional annual disclosures required will be presented in the audited annual consolidated financial
statements as at October 31, 2014.
Effective Date - November 1, 2014
IAS 32 - Financial Instruments: Presentation
IAS 32 was amended to clarify the requirements for offsetting financial assets and financial liabilities in order to reduce
inconsistencies in current practice. The Bank is currently assessing the impact these amendments will have on the
consolidated financial statements.
IFRIC Interpretation 21 - Levies
IFRIC Interpretation 21 (IFRIC 21) provides guidance on when to recognize a liability to pay a levy imposed by a government
that is accounted for in accordance with IAS 37 - Provisions, ContingentLiabilities and Contingent Assets. IFRIC 21 is to
be applied retrospectively and the Bank is currently assessing the impact of adopting this interpretation.
Effective Date - November 1, 2017
IFRS 15 - Revenue from Contracts with Customers
In May 2014, the IASB issued a new standard, IFRS 15, which replaces the current revenue recognition standards and
interpretations. IFRS 15 provides a single comprehensive model to use when accounting for revenue arising from contracts
with customers. The new model applies to all contracts with customers except those that are within the scope of other IFRS
standards such as leases, insurance contracts and financial instruments. IFRS 15 is to be applied retrospectively, and the
Bank is currently assessing the impact of adopting this standard.
Effective Date - November 1, 2018
IFRS 9 - FinancialInstruments
In July 2014, the IASB issued a complete and final version of IFRS 9, which replaces the current standard on financial
instruments. IFRS 9 sets out requirements for the classification and measurement of financial assets and financial
liabilities, for the impairment of financial assets, and for general hedge accounting. Macro hedge accounting has been
decoupled from IFRS 9 and will be considered and issued as a separate standard. IFRS 9 provides a single model for
financial asset classification and measurement that is based on contractual cash flow characteristics and on the business
model for holding financial assets. With respect to measuring financial liabilities designated at fair value through profit
or loss, the standard prescribes that fair value changes attributable to an entity's own credit risk be accounted for in
Other comprehensive income unless they offset amounts recognized in Net income. The IASB and OSFI are permitting early
adoption of these new requirements for recognizing changes in an entity's own credit risk.
IFRS 9 also introduces a new impairment model for financial assets not measured at fair value through profit or loss that
requires recognition of expected credit losses rather than incurred losses as applied under the current standard. As for
the new hedge accounting model, it provides better alignment of hedge accounting with risk management activities. However,
the current hedge accounting requirements may continue to be applied until the IASB finalizes its macro hedge accounting
project. In general, IFRS 9 is to be applied retrospectively, and the Bank is currently assessing the impact of adopting
this standard.
NOTE 3 - Fair Value of Financial Instruments
Fair Value and Carrying Value of Financial Instruments by Category
Financial assets and financial liabilities are recognized on the Consolidated Balance Sheet at fair value or at amortized
cost in accordance with the categories set out in the accounting framework for financial instruments. The Bank did not
classify any financial assets as held to maturity.
As at July 31, 2014
Carrying value and fair value Carrying value Fair value Total carrying value Total fairvalue
Financial instruments classified as at fair value through profit or loss Financial instrumentsdesignatedat fair valuethrough profitor loss Available-for-sale Loans and receivables and financial liabilities at amortized cost Loans and receivables and financial liabilities at amortized cost
FINANCIAL ASSETS
Cash and deposits with financial
institutions − − − 5,912 5,912 5,912 5,912
Securities 42,943 2,689 9,133 − − 54,765 54,765
Securities purchased under reverse
repurchase agreements and
securities borrowed − 415 − 21,604 21,604 22,019 22,019
Loans and acceptances 2,498 83 − 100,818 101,575 103,399 104,156
Other
Derivative financial instruments 6,086 − − − − 6,086 6,086
Due from clients, dealers and brokers − − − 935 935 935 935
Other assets − − − 1,194 1,194 1,194 1,194
FINANCIAL LIABILITIES
Deposits − 2,301 112,643 (1) 113,238 114,944 115,539
Other
Acceptances − − 8,584 8,584 8,584 8,584
Obligations related to securities sold short 16,249 − − − 16,249 16,249
Obligations related to securities sold under
repurchase agreements and
securities loaned − − 20,344 20,344 20,344 20,344
Derivative financial instruments 4,370 − − − 4,370 4,370
Due to clients, dealers and brokers − − 1,732 1,732 1,732 1,732
Liabilities related to transferred receivables − 6,175 10,201 10,314 16,376 16,489
Other liabilities 88 − 2,289 2,289 2,377 2,377
Subordinated debt − − 1,885 1,913 1,885 1,913
(1) Including embedded derivative financial instruments.
As at October 31, 2013(1)
Carrying value and fair value Carrying value Fair value Total carrying value Total fairvalue
Financial instruments classified as at fair value through profit or loss Financial instrumentsdesignatedat fair valuethrough profitor loss Available-for-sale Loans and receivables and financial liabilities at amortized cost Loans and receivables and financial liabilities at amortized cost
FINANCIAL ASSETS
Cash and deposits with financial
institutions − − − 3,596 3,596 3,596 3,596
Securities 40,778 3,222 9,744 − − 53,744 53,744
Securities purchased under reverse
repurchase agreements and
securities borrowed − − − 21,449 21,449 21,449 21,449
Loans and acceptances 1,526 62 − 95,750 96,323 97,338 97,911
Other
Derivative financial instruments 5,904 − − − − 5,904 5,904
Due from clients, dealers and brokers − − − 1,101 1,101 1,101 1,101
Other assets − − − 891 891 891 891
FINANCIAL LIABILITIES
Deposits − 1,846 100,265 (2) 100,639 102,111 102,485
Other
Acceptances − − 8,954 8,954 8,954 8,954
Obligations related to securities sold short 18,909 − − − 18,909 18,909
Obligations related to securities sold under
repurchase agreements and
securities loaned − − 19,746 19,746 19,746 19,746
Derivative financial instruments 4,858 − − −
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