REG - Nat Bank of Canada - Financial Statements - Part 2 <Origin Href="QuoteRef">NA.TO</Origin> - Part 4
29/10/2014 15:46
- Part 4: For the preceding part double click ID:nRSb1668Qc
Deposits(1) 2,301 (32) (79) (195)
Liabilities related to transferred receivables 6,175 (2) 10 (187)
8,476 (34) (69) (382)
Carrying value as atJuly 31, 2013 Change in the total fair value (including the change in the fair value attributable to credit risk) for the quarter ended July 31, 2013 Change in the total fair value (including the change in the fair value attributableto credit risk) for the nine months ended July 31, 2013 Change in fair value
since the initial
recognition of the
instrument
Financial assets designated at fair value through profit or loss
Securities 3,527 (76) 95 304
Loans 54 (5) (2) −
3,581 (81) 93 304
Financial liabilities designated at fair value through profit or loss
Deposits(1) 1,596 (2) (39) (84)
Liabilities related to transferred receivables 6,974 97 102 (174)
8,570 95 63 (258)
(1) For the quarter ended July 31, 2014, the change in the fair value of deposits designated at fair value through
profit or loss attributable to credit risk was a $3 million gain ($1 million loss for the quarter ended July 31, 2013). For
the nine months ended July 31, 2014, this change was a $4 million loss (an insignificant amount of loss for the nine months
ended July 31, 2013).
NOTE 5 - SECURITIES
Available-for-Sale Securities
As at July 31, 2014
Amortizedcost Grossunrealizedgains Grossunrealizedlosses Carryingvalue
Securities issued or guaranteed by
Canada 4,646 43 (1) 4,688
Provinces 2,970 174 (2) 3,142
Municipalities and school boards 288 15 − 303
U.S. Treasury, other U.S. agencies and other foreign governments 128 − − 128
Other debt securities 342 49 (1) 390
Equity securities 403 85 (6) 482
8,777 366 (10) 9,133
As at October 31, 2013
Amortizedcost Grossunrealizedgains Grossunrealizedlosses Carryingvalue
Securities issued or guaranteed by
Canada 5,646 30 (16) 5,660
Provinces 2,480 159 (22) 2,617
Municipalities and school boards 286 17 (1) 302
U.S. Treasury, other U.S. agencies and other foreign governments 387 3 − 390
Other debt securities 292 40 (2) 330
Equity securities 391 58 (4) 445
9,482 307 (45) 9,744
Impairment Losses Recognized
At the end of each financial reporting period, the Bank determines whether there is objective evidence of impairment for
each available-for-sale security. During the quarter ended July 31, 2014, $2 million in impairment losses ($11 million for
the quarter ended July 31, 2013) was recognized in Gains (losses) on available-for-sale securities, net in the Consolidated
Statement of Income. For the nine months ended July 31, 2014, $6 million in impairment losses ($28 million for the nine
months ended July 31, 2013) was recognized. In addition, during the nine months ended July 31, 2014 and 2013, no amount was
reversed in the Consolidated Statement of Income to recognize subsequent increases in the fair value of previously impaired
debt securities.
Unrealized Gross Losses
As at July 31, 2014 and as at October 31, 2013, the Bank concluded that the unrealized losses on available-for-sale
securities were mainly due to market price fluctuations and to changes in foreign exchange rates and that there is no
objective evidence of impairment requiring an impairment loss to be recognized in the Consolidated Statement of Income.
Master Asset Vehicles
As at July 31, 2014, the face value of the restructured notes of the MAV conduits and of the other restructured notes held
by the Bank was $1,527 million ($1,727 million as at October 31, 2013), of which $1,294 million was designated as
Securities at fair value through profit or loss under the fair value option, and an amount of $233 million was classified
in Available-for-sale securities ($1,506 million designated as Securities at fair value through profit or loss and $221
million classified in Available-for-sale securities as at October 31, 2013). The change in the face value of the
restructured notes of the MAV conduits during the first nine months of fiscal 2014 was mainly due to capital repayments and
disposals. During the nine months ended July 31, 2014, the Bank participated in two optional redemption unwind processes
for restructured notes of the MAV II conduits and disposed of certain notes, classified in Securities at fair value through
profit or loss, for a face value of $199 million. In exchange, the Bank received $179 million in cash and liquidation trust
units with a fair value of $9 million as at July 31, 2014 and classified these units in Available-for-sale securities.
The Bank has committed to contribute $835 million ($886 million as at October 31, 2013) to a margin funding facility
related to the MAV conduits in order to finance potential collateral calls. As at July 31, 2014 and as at October 31, 2013,
no amount had been advanced by the Bank.
NOTE 5 - SECURITIES (cont.)
Establishing Fair Value
The carrying value of the restructured notes of the MAV conduits and of the other restructured notes held by the Bank in an
investment portfolio as at July 31, 2014, designated as Securities at fair value through profit or loss, was $1,203
million, and $78 million was classified in Available-for-sale securities ($1,293 million designated as Securities at fair
value through profit or loss and $68 million classified in Available-for-sale securities as at October 31, 2013). The notes
held in an investment portfolio with one or more embedded derivatives were designated as Securities at fair value through
profit and loss under the fair value option, and the other notes were classified in Available-for-sale securities.
In establishing the fair value of the restructured notes of the MAV conduits and ineligible assets, the Bank applied the
same methodologies used as at October 31, 2013. For additional information, see Note 6 to the audited annual consolidated
financial statements for the year ended October 31, 2013. In addition, the Bank adjusted its assumption on the liquidity of
the MAV I notes to reflect market conditions; for the restructured notes of the MAV I and MAV II conduits for Class C, it
also adjusted its weighting for broker quotes. During the quarter ended July 31, 2014, revenues totalling $47 million (a
negligible amount for the quarter ended July 31, 2013) were recognized in Trading revenues (losses) in the Consolidated
Statement of Income to reflect a rise in the fair value of the restructured notes. For the nine months ended July 31, 2014,
the rise in the fair value of the restructured notes amounted to $92 million ($151 million for the nine-month period ended
July 31, 2013). The carrying value of the restructured notes, designated as Securities at fair value through profit or
loss, was within estimated fair value ranges as at July 31, 2014. The credit ratings of the restructured notes of the MAV
conduits have not changed from October 31, 2013.
The Bank's valuation was based on its assessment of the conditions prevailing as at July 31, 2014, which may change in the
future. The most significant assumptions used to determine the fair value of the restructured notes are observable discount
rates, the credit ratings of the notes and the broker quotes on the MAV II Class A-1, A-2, B and C notes. Furthermore,
there may be valuation uncertainty resulting from the choice of valuation model used. The sensitivities of these
assumptions on fair value as at July 31, 2014 were as follows:
- A 10-basis-point change in the discount rate would result in a $6 million decrease or increase in the fair value.
- A decrease in the credit rating by one letter grade would result in a decrease in the fair value between a range of $4
million to $7 million.
- An increase in the credit rating by one letter grade would result in an increase in the fair value between a range of
$2 million to $3 million.
- A 100-basis-point change in the liquidity premium spread would result in a $12 million decrease or increase in the
fair value.
- A 10% change in the weighting used to determine the discount rate would result in a $2 million decrease or increase in
the fair value.
- A 10% change in the weighting attributed to the discount rate and the broker quotes on the MAV II Class A-1, A-2, B
and C notes would result in a $7 million decrease or increase in the fair value.
- A 1% change in the broker quotes on the MAV II Class A-1, A-2, B and C notes would result in a $4 million decrease or
increase in the fair value.
Determining the fair value of restructured notes of the MAV conduits is complex and involves an extensive process that
includes the use of quantitative modelling and relevant assumptions. Possible changes that could have a significant impact
on the future value include (1) changes in the value of the underlying assets, (2) changes regarding the liquidity of the
restructured notes of the MAV conduits which are not currently traded on an active market, (3) the impacts of a marked and
prolonged economic slowdown in North America and certain European countries, and (4) changes in legislation.
NOTE 6 - LOANS
Credit Quality of Loans
As at July 31, 2014
Residential mortgage Personal and credit card Business and government (1) Total
Neither past due(2) nor impaired 38,332 29,000 27,000 94,332
Past due(2) but not impaired 278 246 141 665
Impaired 53 76 282 411
Gross loans 38,663 29,322 27,423 95,408
Less: Allowances on impaired loans
Individual allowances 7 13 183 203
Collective allowances − 22 2 24
Allowances on impaired loans 7 35 185 227
38,656 29,287 27,238 95,181
Less: Collective allowance on non-impaired loans(3) 366
Loans, net of allowances 94,815
As at October 31, 2013
Residential mortgage Personal and credit card Business and government (1) Total
Neither past due(2) nor impaired 36,213 27,674 24,022 87,909
Past due(2) but not impaired 314 245 99 658
Impaired 46 70 279 395
Gross loans 36,573 27,989 24,400 88,962
Less: Allowances on impaired loans
Individual allowances 7 13 170 190
Collective allowances − 20 2 22
Allowances on impaired loans 7 33 172 212
36,566 27,956 24,228 88,750
Less: Collective allowance on non-impaired loans(3) 366
Loans, net of allowances 88,384
(1) Business credit portfolios are closely monitored and a monthly watchlist of problem commitments is produced. The
watchlist is analyzed by the loan portfolio managers concerned, who then submit a report to Credit Risk Management.
(2) A loan is past due when the counterparty has not made a payment the day of the contractual expiry date.
(3) The collective allowance on non-impaired loans for credit risk was created taking into account the Bank's
overall credit portfolio.
NOTE 6 - LOANS (cont.)
Loans Past Due But Not Impaired
As at July 31, 2014 As at October 31, 2013
Residentialmortgage Personal andcredit card Business andgovernment(1) Residentialmortgage Personal andcredit card Business andgovernment(1)
Past due but not impaired
1 month late 132 83 61 168 89 24
2 months late 51 35 17 52 50 14
3 months late and more(2) 95 128 63 94 106 61
278 246 141 314 245 99
(1) As at July 31, 2014, the fair value of financial collateral held against loans that were past due but not
impaired was $29 million ($7 million as at October 31, 2013).
(2) Comprises fully secured loans for which, in the opinion of management, there is reasonable assurance that
principal and interest will ultimately be collected. Credit card receivables are included in this category because they are
written off only when payment is 180 days in arrears.
Impaired Loans
As at July 31, 2014
Gross Individualallowances Collective allowances Net
Loans
Residential mortgage 53 7 − 46
Personal and credit card 76 13 22 41
Business and government 282 183 2 97
411 203 24 184
As at October 31, 2013
Gross Individualallowances Collective allowances Net
Loans
Residential mortgage 46 7 − 39
Personal and credit card 70 13 20 37
Business and government 279 170 2 107
395 190 22 183
Allowances for Credit Losses
Nine months ended July 31, 2014
Residential mortgage Personal and credit card Business and government Total Total
Individual allowances Collectiveallowances Individual allowances Collectiveallowances Individual allowances Collectiveallowances Individual allowances Collectiveallowances
Allowances on impaired loans
Balance at beginning 7 − 13 20 170 2 190 22 212
Provisions for credit losses 5 − 86 30 28 2 119 32 151
Write-offs (6) − (26) (30) (20) (2) (52) (32) (84)
Write-offs on credit cards − − (62) − − − (62) − (62)
Recoveries 1 − 2 2 5 − 8 2 10
Balance at end 7 − 13 22 183 2 203 24 227
Collective allowance on
non-impaired loans(1) 366
Total allowances 593
Nine months ended July 31, 2013
Residential mortgage Personal and credit card Business and government Total Total
Individual allowances Collectiveallowances Individual allowances Collectiveallowances Individual allowances Collectiveallowances Individual allowances Collective allowances
Allowances on impaired loans
Balance at beginning 7 − 7 18 173 3 187 21 208
Provisions for credit losses 4 − 84 24 19 2 107 26 133
Write-offs (4) − (20) (27) (30) (3) (54) (30) (84)
Write-offs on credit cards − − (60) − − − (60) − (60)
Recoveries − − − 5 2 1 2 6 8
Balance at end 7 − 11 20 164 3 182 23 205
Collective allowance on
non-impaired loans(1)
Balance at beginning 369
Write-offs (3)
Balance at end 366
Total allowances 571
(1) The collective allowance on non-impaired loans was established taking into account the Bank's overall credit
portfolio, except for a $3 million amount as at October 31, 2012 for loans and credit facilities secured by restructured
notes of the MAV conduits.
NOTE 7 - FINANCIAL ASSETS TRANSFERRED BUT NOT DERECOGNIZED
In the normal course of its business, the Bank enters into transactions in which it transfers financial assets such as
securities or loans directly to third parties, in particular structured entities. In some of those transactions, the Bank
retains substantially all of the risks and rewards related to those financial assets. The risks include credit risk,
interest rate risk, foreign exchange risk, prepayment risk and other price risks, whereas the rewards include income
streams associated with the financial assets. As such, those financial assets are not derecognized and the transactions are
treated as collateralized or secured borrowings. The nature of those transactions is described below.
The following table provides additional information about the nature of the transferred financial assets that do not
qualify for derecognition and the associated liabilities.
As at July 31, 2014 As at October 31, 2013
Carrying value of financial assets transferred but not derecognized
Securities(1) 35,188 33,677
Residential mortgages 15,127 14,280
50,315 47,957
Carrying value of associated liabilities(2) 30,640 28,543
Fair value of financial assets transferred but not derecognized
Securities(1) 35,188 33,677
Residential mortgages 15,408 14,464
50,596 48,141
Fair value of associated liabilities 30,754 28,632
(1) The amount related to the securities loaned represents the maximum amount of the Bank's securities that can be
lent. For obligations related to securities sold under repurchase agreements, the amount includes the Bank's own financial
assets as well as those of third parties.
(2) Associated liabilities include obligations related to securities sold under repurchase agreements before the
offsetting impact of $2,442 million as at July 31, 2014 ($1,029 million as at October 31, 2013) and liabilities related to
transferred receivables. Liabilities related to securities loaned are not included, as the Bank can lend its own financial
assets and those of third parties. The carrying value and fair value of liabilities related to securities loaned were
$8,522 million as at July 31, 2014 ($7,555 million as at October 31, 2013).
The following table specifies the nature of the transactions related to financial assets transferred but not derecognized.
As at July 31, 2014 As at October 31, 2013
Carrying value of financial assets transferred but not derecognized
Securities backed by insured residential mortgage loans and other securities sold to CHT 15,819 14,903
Securities sold under repurchase agreements 14,324 13,297
Securities loaned 20,155 19,674
Residential mortgages transferred to a mutual fund 17 83
50,315 47,957
- More to follow, for following part double click ID:nRSb1668QeRecent news on National Bank of Canada
See all newsREG - Nat Bank of Canada - Publication of Suppl.Prospcts
AnnouncementREG - Nat Bank of Canada - Report to Shareholders Part 2
AnnouncementREG - Nat Bank of Canada - Report to Shareholders Part 1
AnnouncementREG - Nat Bank of Canada - Press Release Q1 2025
AnnouncementREG - Nat Bank of Canada - Publication of Suppl.Prospcts
Announcement