REG - Nat Bank of Canada - MD&A - Part 1 <Origin Href="QuoteRef">NA.TO</Origin> - Part 1

National Bank of CanadaAnnouncement

29/10/2014 15:45

RNS Number : 1625Q
National Bank of Canada
27 August 2014
National Bank of Canada
27 August 2014
Regulatory Announcement (Part 1)
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MANAGEMENT 'S DISCUSSION
AND ANALYSIS
August 26, 2014
The following Management's Discussion and Analysis (MD&A) presents the financial condition and operating results of National Bank of Canada (the Bank). This analysis was prepared in accordance with the requirements set out in National Instrument 51-102, Continuous Disclosure Obligations, released by the Canadian Securities Administrators (CSA). It is based on the unaudited interim condensed consolidated financial statements for the third quarter and nine months ended July31,2014 and 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. The figures for the year ended October31, 2013 have been adjusted to reflect changes in accounting standards and the impact of 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 dividend was the same as a two-for-one split of common shares. A financial information supplement issued on January 31, 2014, entitled "Supplementary Financial Information - Adjusted to Reflect Changes in Accounting Standards and the Common Stock Split" is available at nbc.ca. This MD&A should be read in conjunction with the unaudited interim condensed consolidated financial statements for the third quarter and nine months ended July31,2014 and with the 2013 Annual Report. All amounts are presented in Canadian dollars. Additional information about the Bank, including the Annual Information Form, can be obtained from the Bank's website at nbc.caand SEDAR's website at sedar.com.
Financial Reporting Method
4

Accounting Policies and Financial Disclosure
14
Highlights
5

 Accounting Policies and Critical Accounting Estimates
14
Financial Analysis 
6

 Accounting Policy Changes
14
 Consolidated Results
6

 Financial Disclosure
16
 Results by Segment
8

Additional Financial Disclosure
17
 Consolidated Balance Sheet
11

 Risk Disclosures
18
 Acquisition
13

Capital Management
19
 Related Party Transactions
13

Risk Management
23
 Off-Balance-Sheet Arrangements
13

Additional Financial Information
36
Caution Regarding Forward-Looking Statements
From time to time, the Bank makes written and oral forward-looking statements, such as those contained in the "Major Economic Trends" and the "Outlook for National Bank" sections of the 2013 Annual Report, in other filings with Canadian securities regulators, and in other communications, for the purpose of describing the economic environment in which the Bank will operate during fiscal 2014 and the objectives it has set for itself for that period. These forward-looking statements are made in accordance with current securities legislation. They include, among others, statements with respect to the economy-particularly the Canadian and U.S. economies-market changes, observations regarding the Bank's objectives and its strategies for achieving them, Bank-projected financial returns and certain risks faced by the Bank. These forward-looking statements are typically identified by future or conditional verbs or words such as "outlook," "believe," "anticipate," "estimate," "project," "expect," "intend," "plan," and similar terms and expressions.
By their very nature, such forward-looking statements require assumptions to be made and involve inherent risks and uncertainties, both general and specific. Assumptions about the performance of the Canadian and U.S. economies in 2014 and how that will affect the Bank's business are among the main factors considered in setting the Bank's strategic priorities and objectives and in determining its financial targets, including provisions for credit losses. In determining its expectations for economic growth, both broadly and in the financial services sector in particular, the Bank primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies.
There is a strong possibility that express or implied projections contained in these forward-looking statements will not materialize or will not be accurate. The Bank recommends that readers not place undue reliance on these statements, as a number of factors, many of which are beyond the Bank's control, could cause actual future results, conditions, actions or events to differ significantly from the targets, expectations, estimates or intentions expressed in the forward-looking statements. These factors include strategic risk, credit risk, market risk, liquidity risk, operational risk, regulatory risk, reputation risk, and environmental risk, which are described in more detail in the "Risk Management" section beginning on page 60 of the 2013 Annual Report, and in particular the general economic environment and financial market conditions in Canada, the United States and certain other countries in which the Bank conducts business, including the regulatory changes affecting the Bank's business, capital and liquidity; the situation with respect to the restructured notes of the master asset vehicle (MAV) conduits, in particular the realizable value of underlying assets; changes in the accounting policies the Bank uses to report its financial condition, including uncertainties associated with assumptions and critical accounting estimates; tax laws in the countries in which the Bank operates, primarily Canada and the United States (including the new reporting regime set out in sections 1471 to 1474 of the U.S. Internal Revenue Code of 1986 (FATCA)); and changes to capital adequacy and liquidity guidelines and to the manner in which they are to be presented and interpreted.
The foregoing list of risk factors is not exhaustive. Additional information about these factors can be found in the "Risk Management" and "Other Risk Factors" sections of the 2013 Annual Report. Investors and others who rely on the Bank's forward-looking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. Except as required by law, the Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time, by it or on its behalf. The Bank also cautions readers not to place undue reliance on these forward-looking statements.
The forward-looking information contained in this document is presented for the purpose of interpreting the information contained herein and may not be appropriate for other purposes.

FINANCIAL REPORTING METHOD
(millions of Canadian dollars, except per share amounts)
When assessing its results, the Bank uses certain measures that do not comply with IFRS, as issued by the IASB and set out in the CPA Canada Handbook. Securities regulators require companies to caution readers that net income and other measures adjusted using non-IFRS criteria are not standard under IFRS and cannot be easily compared with similar measures used by other companies.
Financial Information




Quarter ended July31 


Nine months ended July31 




2014



2013
(1)

% Change


2014



2013
(1)

% Change
























Excluding specified items 





















Personal and Commercial 


190



179

6


520



495

5



Wealth Management 


75



55

36


228



163

40



Financial Markets 


187



155

21


459



409

12



Other 


(25)



(15)




(21)



3




Net income excluding specified items 


427



374

14


1,186



1,070

11



Items related to holding restructured notes(2)


30



(3)




57



106





Acquisition-related items(3)


(16)



(6)




(35)



(18)





Reversal of provisions for income tax contingencies(4)





37







37





Impairment losses on intangible assets(5)












(29)





Item related to employee benefits(6)












26




Net income 


441



402

10


1,208



1,192

1
























Diluted earnings per share excluding specified items(7)

$
1.20


$
1.07

12

$
3.34


$
3.04

10



Items related to holding restructured notes(2)


0.09



(0.01)




0.17



0.33





Acquisition-related items(3)


(0.05)



(0.01)




(0.10)



(0.06)





Reversal of provisions for income tax contingencies(4)





0.11







0.11





Impairment losses on intangible assets(5)












(0.09)





Item related to employee benefits(6)












0.08




Diluted earnings per share(7)

$
1.24


$
1.16

7

$
3.41


$
3.41

























Return on common shareholders' equity





















Including specified items 


20.1
%


21.0
% 




19.1
%


21.7
% 





Excluding specified items 


19.4
%


19.5
% 




18.8
%


19.4
% 



(1) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2 to the unaudited interim condensed consolidated financial statements.
(2) During the quarter ended July 31, 2014, the Bank recorded $5million in financing costs ($4million net of income taxes) related to holding restructured notes (2013: $4million, $3million net of income taxes). In addition, during the quarter ended July 31, 2014, the Bank recorded $47million in revenues ($34million net of income taxes) to reflect a rise in the fair value of those notes (2013: nil). During the nine months ended July 31, 2014, the Bank recorded $14million in financing costs ($10million net of income taxes) related to holding restructured notes (2013: $6million, $5million net of income taxes) and $92million in revenues ($67million net of income taxes) to reflect a rise in the fair value of those notes (2013: $151million, $111million net of income taxes). 
(3) During the quarter ended July 31, 2014, the Bank recorded $22million in charges ($16million net of income taxes) related to the Wealth Management acquisitions (2013: $8million, $6million net of income taxes) and consisting mostly of retention bonuses and TD Waterhouse integration charges; these charges also include the Bank's share in the integration costs incurred by Fiera and its share in the integration costs, impairment losses and intangible asset amortization related to the Bank's interest in TMX. For the nine months ended July 31, 2014, these charges stood at $46million ($35million net of income taxes) and, for the same period in 2013, they stood at $25million ($18million net of income taxes).
(4) During the quarter ended July 31, 2013, $37million in income tax provisions had been reversed following a revaluation of contingent income tax liabilities.
(5) During the nine months ended July 31, 2013, the Bank had recorded $39million ($29million net of income taxes) in intangible asset impairment losses on technology developments.
(6) During the nine months ended July 31, 2013, the Bank had recorded a $35million decrease in past service costs ($26million net of income taxes) to reflect changes to the provisions of its pension plans and other post-retirement plans subsequent to changes in accounting standards.
(7) Reflecting the stock dividend paid on February 13, 2014. See Note 13 to the unaudited interim condensed consolidated financial statements. 

HIGHLIGHTS
(millions of Canadian dollars)


Quarter ended July31 


Nine months ended July31 


2014



2013
(1)

% Change 


2014



2013
(1)
% Change



















Operating results 

















Total revenues 
$
1,460


$
1,285

 14

$
4,100


$
3,900
 5

Net income 

441



402

 10


1,208



1,192
 1

Net income attributable to the Bank's shareholders 

423



387

 9


1,157



1,145
 1

Return on common shareholders' equity 

20.1
%


21.0
% 




19.1
%


21.7
% 


Earnings per share(2)(dollars)


















Basic 
$
1.26


$
1.16

9

$
3.44


$
3.43


Diluted 

1.24



1.16

7


3.41



3.41



















EXCLUDING SPECIFIED ITEMS(3)

















Operating results

















Total revenues 
$
1,427


$
1,291

 11

$
4,036


$
3,761
 7

Net income 

427



374

 14


1,186



1,070
 11

Net income attributable to the Bank's shareholders 

409



359

 14


1,135



1,023
 11

Return on common shareholders' equity 

19.4
%


19.5
% 




18.8
%


19.4
% 


Efficiency ratio(4)

58.4
%


59.3
% 




58.6
%


60.0
% 


Earnings per share(2) (dollars)


















Basic 
$
1.22


$
1.07

14

$
3.38


$
3.06
10


Diluted 

1.20



1.07

12


3.34



3.04
10



















Per common share(2) (dollars)

















Dividends declared 
$
0.48


$
0.44



$
1.40


$
1.26


Book value 










25.18



22.60


Share price 


















High 

49.15



39.68




49.15



40.02



Low 

45.19



36.33




41.60



36.18



Close 

48.80



39.51




48.80



39.51
















































As at July31, 
2014


As at October31, 2013 
(1)
% Change



















Financial position

















Total assets 









$
198,822


$
188,219
6

Loans and acceptances 










103,399



97,338
6

Deposits 










114,944



102,111
13

Equity attributable to common shareholders 










8,272



7,487
10

Capital ratios under Basel III(5)


















Common Equity Tier 1 (CET1) 










9.1
%


8.7
% 



Tier 1 










12.0
%


11.4
% 



Total 










14.8
%


15.0
% 


Impaired loans, net of total allowances







(182)



(183)



As a % of average loans and acceptances 










(0.2)
%


(0.2)
% 


Assets under administration and under management 










337,379



258,010
 31

Total personal savings 










171,489



157,515
 9

Earnings coverage 










9.73



8.72


Asset coverage 










4.92



3.76




















Other information

















Number of employees 










20,014



19,691
 2

Number of branches in Canada 










452



453

Number of banking machines 










939



937

(1) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2 to the unaudited interim condensed consolidated financial statements.
(2) Reflecting the stock dividend paid on February 13, 2014. See Note 13 to the unaudited interim condensed consolidated financial statements.
(3) See the Financial Reporting Method section on page 4.
(4) The efficiency ratio is presented on a taxable equivalent basis. For additional information, see Note 22 to the unaudited interim condensed consolidated financial statements. 
(5) The ratios have been calculated using the "all-in" methodology, and the October31, 2013 ratios have not been adjusted to reflect changes in accounting standards.

FINANCIAL ANALYSIS
Consolidated Results
Financial Results
For the third quarter of fiscal 2014, National Bank is reporting $441million in net income, up 10% from $402million in the third quarter of 2013, and diluted earnings per share of $1.24, up 7% from $1.16 in the same quarter of 2013.
Excluding specified items, third-quarter net income totalled $427million, up 14% from $374million in the third quarter of 2013, and third-quarter diluted earnings per share stood at $1.20, up 12% from $1.07 in the same quarter of 2013. For the third quarter of 2014, the specified items included, net of income taxes, $34million in revenues to reflect a rise in the fair value of restructured notes; $4million in financing costs related to holding these notes; and $16million in items related to the Wealth Management acquisitions, including the Bank's $1million share in the integration costs incurred by Fiera and $5million in charges related to the Bank's interest in TMX. For the third quarter of 2013, net income had included the following specified items, net of income taxes: $3million in financing costs related to holding restructured notes, $4million in charges related to the Wealth Management acquisitions, and the Bank's $2million share in the integration costs incurred by Fiera. A $37million reversal of provisions for income tax contingencies had also been recorded in the third quarter of 2013.
For the first nine months of fiscal 2014, the Bank's net income totalled $1,208million, an increase of 1% from $1,192million in the same nine-month period of 2013. Nine-month diluted earnings per share stood at $3.41, unchanged from $3.41 in the same period of 2013. Excluding specified items, nine-month net income totalled $1,186million, up 11% from $1,070million in the same period of 2013, and nine-month diluted earnings per share stood at $3.34, up 10% from $3.04 in the same period of 2013. The specified items recognized for the first nine months of fiscal 2014 included, net of income taxes, $67million in revenues to reflect a rise in the fair value of restructured notes, $10million in financing costs related to holding these notes, and $35million in charges related to the Wealth Management acquisitions. In the first nine months of fiscal 2013, net income had included the following specified items, net of income taxes: $111million in revenues to reflect a rise in the fair value of restructured notes, $5million in financing costs related to holding these notes, $18million in charges related to the Wealth Management acquisitions, $29million in intangible asset impairment losses, and a $26million decrease in past service costs recorded by the Bank to reflect changes to provisions in its pension plans and other post-retirement plans subsequent to changes in accounting standards. In the first nine months of fiscal 2013, a $37million reversal of provisions for income tax contingencies had also been recorded.
Return on common shareholders' equity was 19.1% in the first nine months of fiscal 2014 compared to 21.7% in the same period of 2013.
Total Revenues 
For the third quarter of 2014, the Bank's total revenues amounted to $1,460million, a $175million year-over-year increase. Excluding the specified items related to holding restructured notes and related to the Wealth Management acquisitions, total revenues rose 11%. Growth in net interest income was driven by higher personal and commercial loans and deposits and by the net interest income generated in Wealth Management, partly offset by a decrease in net interest income from trading activities. Non-interest income rose 25% owing to solid performance by the Financial Markets segment; to greater activity in the Wealth Management segment, including the acquisition of TD Waterhouse Institutional Services (TD Waterhouse) completed during the quarter ended January31, 2014; and to the rise in the fair value of the restructured notes.
For the first nine months of fiscal 2014, total revenues amounted to $4,100million versus $3,900million in the same nine-month period of 2013, a 5% increase driven partly by 3% growth in net interest income. Excluding specified items, non-interest income rose $209million or 11%, mainly due to revenue growth related to Wealth Management's activities; to solid performance by the Financial Markets segment, including the revenues from the Credigy Ltd. subsidiary; and to revenues generated on the disposal of investments. This increase was tempered by decreases in credits fees, insurance revenues, and gains on available-for-sale securities.

Provisions for Credit Losses
For the third quarter of 2014, the Bank recorded $49million in provisions for credit losses, $1million more than in the same quarter of 2013, a slight increase that came mainly from higher provisions for credit losses on credit cards.
For the first nine months of fiscal 2014, the Bank recorded $151million in provisions for credit losses, $18million more than in the same nine-month period of 2013, as higher provisions for credit losses on personal and credit card loans have been recorded in 2014 and recoveries of corporate loan losses had been recorded in the first quarter of 2013. 
As at July31, 2014, gross impaired loans stood at $411million, a $16million increase since October31, 2013 that stems from personal loans and commercial loans. Impaired loans represented 6.3% of the tangible capital adjusted for allowances as at July31, 2014, down 0.2% from 6.5% as at October31, 2013. As at July31, 2014, the allowances for credit losses exceeded gross impaired loans by $182million versus $183million as at October31, 2013.
Non-Interest Expenses
For the third quarter of 2014, non-interest expenses stood at $879million, up $71million or 9% from the same quarter of 2013. Excluding the specified items related to the Wealth Management acquisitions, non-interest expenses stood at $866million, an 8% increase. The increase in non-interest expenses stems essentially from higher compensation and employee benefits attributable to growth across the Bank's business segments.
For the first nine months of fiscal 2014, non-interest expenses rose $115million or 5% year over year. Excluding the specified items recorded in the first nine months of fiscal years 2014 and 2013, non-interest expenses were up $106million or 4%. This increase came mainly from business growth that led to higher variable compensation, from the TD Waterhouse acquisition completed during the first quarter of 2014, and from the promotion of banking services.
Income Taxes
For the third quarter of 2014, income taxes stood at $91million compared to $27million in the same quarter of 2013. The third-quarter effective income tax rate was 17% versus 6% in the same quarter of 2013. This variance was mainly due to a $37million reversal of provisions for income tax contingencies that had been recorded during the third quarter of 2013.
For the nine months ended July31, 2014 and 2013, the effective income tax rates were 17% and 14%, respectively.

Results by Segment
The Bank carries out its activities in three business segments. For presentation purposes, other operating activities are grouped in the Other heading. Each segment is distinguished by services offered, type of clientele and marketing strategy.
Personal and Commercial
(millions of Canadian dollars) 

Quarter ended July31 

Nine months ended July31 


2014


2013
(1)

% Change

2014


2013
(1)

% Change

















Operating results















Net interest income 

 433


 407

 6

 1,263


 1,205

 5

Non-interest income 

 263


 258

 2

 740


 729

 2

Total revenues 

 696


 665

 5

 2,003


 1,934

 4

Non-interest expenses 

 388


 374

 4

 1,142


 1,115

 2

Contribution 

 308


 291

 6

 861


 819

 5

Provisions for credit losses 

 48


 46

 4

 149


 142

 5

Income before income taxes 

 260


 245

 6

 712


 677

 5

Income taxes 

 70


 66

 6

 192


 182

 5

Net income 

 190


 179

 6

 520


 495

 5

Net interest margin 

 2.24
%

 2.27
% 



 2.25
%

 2.30
% 



Average interest-bearing assets 

 76,620


 71,150

 8

 75,200


 70,055

 7

Average assets 

 82,129


 77,251

 6

 80,793


 76,022

 6

Average deposits 

 43,144


 40,780

 6

 42,694


 39,831

 7

Average loans and acceptances 

 81,755


 76,912

 6

 80,415


 75,674

 6

Net impaired loans 

 182


 169

 8

 182


 169

 8

Net impaired loans as a % of average loans and acceptances 

 0.2
%

 0.2
% 



 0.2
%

 0.2
% 



Efficiency ratio 

 55.7
%

 56.2
% 



 57.0
%

 57.7
% 



(1) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2 to the unaudited interim condensed consolidated financial statements.
In the Personal and Commercial segment, net income totalled $190million in the third quarter of 2014, up 6% from $179million in the third quarter of 2013. Third-quarter total revenues increased by $31million year over year owing to higher net interest income, which rose $26million, and to a $5million increase in non-interest income. The higher net interest income came mainly from growth in personal and commercial loan and deposit volumes, tempered by a narrowing of the net interest margin, which was 2.24% in the third quarter of 2014 versus 2.27% in the same quarter of 2013, resulting mainly from smaller deposit margins.
Personal Banking's total revenues rose $24million, mainly due to higher loan volume, particularly mortgage loans and home equity lines of credit. Commercial Banking's total revenues rose $7million owing mainly to growth in loan and deposit volumes and in credit fees. This increase was partly offset by smaller net interest margins on deposits, a decrease in credit fees on bankers' acceptances, and a slowdown in foreign exchange transactions.
The segment's third-quarter non-interest expenses increased by $14million or 4% year over year, mainly due to employee compensation. At 55.7%, the efficiency ratio for the third quarter of 2014 improved by 0.5% compared to the same quarter of 2013.
The segment's third-quarter provisions for credit losses were $48million, $2million more than in the same quarter of 2013. This slight increase was mainly due to higher provisions for credit losses on credit cards. 
For the first nine months of fiscal 2014, the Personal and Commercial segment posted net income of $520million, up $25million or 5% from $495million in the same nine-month period of 2013. The segment's nine-month total revenues grew 4%, as Personal Banking's revenues were up primarily due to higher mortgage loan volume and Commercial Banking's revenues were up 2% partly due to growth in loan and deposit volumes. The segment's nine-month contribution rose $42million or 5% and its nine-month provisions for credit losses were $7million higher than in the same period of 2013. At 57.0%, the nine-month efficiency ratio improved by 0.7% when compared to the same period of 2013. 


Wealth Management
(millions of Canadian dollars) 
Quarter ended July31 

Nine months ended July31 

2014


2013
(1)

% Change

2014


2013
(1)

% Change 
















Operating results excluding specified items(2)














Net interest income 
79


68

16

 235


 202

 16

Fee-based revenues 
170


145

17

 485


 416

 17

Transaction-based and other revenues 
86


78

10

 272


 241

 13

Total revenues 
335


291

15

 992


 859

 15

Non-interest expenses 
233


215

8

 682


 634

 8

Contribution 
102


76

34

 310


 225

 38

Provisions for credit losses 
1


1


 2


 2


Income before income taxes 
101


75

35

 308


 223

 38

Income taxes 
26


20

30

 80


 60

 33

Net income excluding specified items 
75


55

36

 228


 163

 40

Specified items after income taxes(2)
(11)


(6)



(28)


(17)



Net income 
64


49

31

 200


 146

 37

Average assets 
10,349


9,061

14

 10,486


 9,051

 16

Average deposits 
24,046


21,623

11

 24,249


 21,263

 14

Average loans and acceptances 
8,338


7,814

7

 8,232


 7,817

 5

Net impaired loans 
2


2


 2


 2


Net impaired loans as a % of average loans and acceptances 
%

% 



%

% 



Efficiency ratio excluding specified items(2)
69.6
%

73.9
% 



68.8
%

73.8
% 



(1) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2 to the unaudited interim condensed consolidated financial statements.
(2) See the Financial Reporting Method section on page 4.
In the Wealth Management segment, net income excluding specified items totalled $75million in the third quarter of 2014 versus $55million in the same quarter of 2013, a strong 36% increase that came mainly from favourable synergies generated by the segment's recent transactions and from growth in assets under administration and under management. Excluding specified items, the segment's total revenues rose 15% owing to growth across all revenue streams as well as to the TD Waterhouse acquisition completed in the first quarter of 2014.
Excluding specified items, all relating to the acquisitions of recent years, third-quarter non-interest expenses stood at $233million compared to $215million in the same quarter of 2013, an 8% increase that came mainly from the higher variable compensation associated with greater business volume for the segment and from the TD Waterhouse acquisition. At 69.6%, the efficiency ratio for the third quarter of 2014 improved by 4.3% compared to the same quarter of 2013.
Excluding specified items, Wealth Management's net income for the first nine months of fiscal 2014 totalled $228million, up $65million or 40% from the same period in 2013.The segment's nine-month total revenues amounted to $992million compared to $859million in the same period of 2013, and nine-month non-interest expenses stood at $682million versus $634million in the same nine-month period of fiscal 2013. These revenue and non-interest expense changes were driven by the same factors provided for the third quarter. At 68.8%, the nine-month efficiency ratio improved by 5.0% when compared to the same period of 2013.


Financial Markets
(taxable equivalent basis)(1)















(millions of Canadian dollars) 

Quarter ended July31 

Nine months ended July31 


2014


2013
(2)

% Change

2014


2013
(2)

% Change
















Operating results















Trading activity revenues 
















Equities 

93


87

7

256


210

22


Fixed-income 

80


62

29

184


188

(2)


Commodities and foreign exchange 

18


27

(33)

56


69

(19)


191


176

9

496


467

6

Financial market fees 

94


68

38

221


197

12

Gains on available-for-sale securities, net 

(1)


19



12


24



Banking services 

64


55

16

183


173

6

Other 

97


63

54

235


186

26

Total revenues 

445


381

17

1,147


1,047

10

Non-interest expenses 

188


170

11

518


500

4

Contribution 

257


211

22

629


547

15

Provisions for (recoveries of) credit losses 








(12)



Income before income taxes 

257


211

22

629


559

13

Income taxes 

70


56

25

170


150

13

Net income 

187


155

21

459


409

12

Non-controlling interests 

5


1



10


6



Net income attributable to the Bank's shareholders 

182


154

18

449


403

11

Average assets 

87,673


89,986

(3)

85,472


86,516

(1)

Average deposits 

11,539


6,750

71

10,568


6,154

72

Average loans and acceptances (Corporate only) 

7,965


7,319

9

7,932


7,023

13

Net impaired loans 



1





1



Net impaired loans as a % of average loans and acceptances 

%

% 



%

% 



Efficiency ratio 

42.2
%

44.6
% 



45.2
%

47.8
% 



(1) For additional information, see Note 22 to the unaudited interim condensed consolidated financial statements. 
(2) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2to the unaudited interim condensed consolidated financial statements.
In the Financial Markets segment, net income totalled $187million for the third quarter of 2014, up $32million from $155million in the same quarter of 2013. On a taxable equivalent basis, the segment's total revenues amounted to $445million versus $381million in the third quarter of 2013, with the increase being driven by all revenue items except gains on available-for-sale securities. The growth in trading activity revenues came from equities and fixed-income business activity, whereas commodities and foreign exchange business activity resulted in a 33% decrease. Financial market fees were up owing to greater merger and acquisition activity as well as to greater equity issuances in the markets, whereas gains on available-for-sale securities had been higher in 2013. The segment's third-quarter Other revenues grew 54% year over year given sustained revenue growth at Credigy Ltd. and the disposal of portfolios from this entity. 
At $188million for the third quarter of 2014, non-interest expenses were up $18million year over year, particularly because of the higher variable compensation associated with revenue growth. Provisions for credit losses were nil for the third quarters of 2014 and 2013. 
For the first nine months of fiscal 2014, the segment's net income totalled $459million, up $50million or 12% from the same period in 2013. On a taxable equivalent basis, nine-month total revenues amounted to $1,147million versus $1,047million in the same period of 2013, a $100million year-over-year increase that was mainly due to growth in trading activity revenues, in particular client business in equities and financial market fees. The increase in nine-month Other revenues stems mainly from a disposal of investments and from sustained growth by Credigy Ltd.
For the first nine months of fiscal 2014, the segment's non-interest expenses increased year over year. The segment did not record any provisions for credit losses for the first nine months of 2014, whereas $12million in recoveries of credit losses had been recorded for the first nine months of 2013.


Other
(taxable equivalent basis)(1)







(millions of Canadian dollars) 

Quarter ended July31 

Nine months ended July31 


2014

2013(2)

2014

2013(2)








Operating results excluding specified items(3)







Net interest income 

(76)

(67) 

(194)

(184) 

Non-interest income 

27

21 

88

105 

Total revenues 

(49)

(46) 

(106)

(79) 

Non-interest expenses 

57

43 

120

107 

Provisions for credit losses 


1 


1 

Income before income taxes 

(106)

(90) 

(226)

(187) 

Income taxes 

(81)

(75) 

(205)

(190) 

Net income excluding specified items 

(25)

(15) 

(21)

3 

Specified items after income taxes(3)

25

34 

50

139 

Net income 


19 

29

142 

Non-controlling interests 

13

14 

41

41 

Net income attributable to the Bank's shareholders 

(13)

5 

(12)

101 

Average assets 

26,348

20,042 

28,386

20,743 

(1) For additional information, see Note 22 to the unaudited interim condensed consolidated financial statements. 
(2) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2 to the unaudited interim condensed consolidated financial statements.
(3) See the Financial Reporting Method section on page 4. 
For the Other heading of segment results, net income was nil in the third quarter of 2014 compared to $19million in the same quarter of 2013. Excluding specified items, there was a $25million net loss this third quarter versus a $15million net loss in the third quarter of 2013. The higher net loss was particularly driven by higher variable compensation and by business development expenses.
For the first nine months of fiscal 2014, net income totalled $29million versus $142million in the same nine-month period of 2013. Excluding specified items, there was a $21million net loss for the first nine months of fiscal 2014 versus $3million in net income for the same period in 2013, explained by a lower contribution from Treasury and by the same reasons provided for the quarter. 

Consolidated Balance Sheet
Assets
As at July 31, 2014, the Bank had total assets of $198.8billion compared to $188.2billion as at October31, 2013, a $10.6billion or 6% increase. Cash and deposits with financial institutions increased by $2.3billion. Securities increased by $1.1billion since October31, 2013 due to securities at fair value through profit or loss, whereas securities purchased under reverse repurchase agreements and securities borrowed increased by $0.6billion since October31, 2013.
Master Asset Vehicles (MAV)
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 $1,527million ($1,727million as at October31, 2013), of which $1,294million was designated as Securities at fair value through profit or loss under the fair value option, and an amount of $233million was classified in Available-for-sale securities ($1,506million designated as Securities at fair value through profit or loss and $221million classified in Available-for-sale securities as at October31, 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 MAVII conduits and disposed of certain notes, classified in Securities at fair value through profit or loss, for a face value of $199million. In exchange, the Bank received $179million in cash and liquidation trust units with a fair value of $9million as at July31, 2014 and classified these units in Available-for-sale securities.
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 $1,203million, and $78million was classified in Available-for-sale securities ($1,293million designated as Securities at fair value through profit or loss and $68million classified in Available-for-sale securities as at October31, 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 October31, 2013. For additional information, see Note 6 to the audited annual consolidated financial statements for the year ended October31, 2013. In addition, the Bank adjusted its assumption on the liquidity of the MAVI notes to reflect market conditions; for the restructured notes of the MAVI and MAVII conduits for Class C, it also adjusted its weighting for broker quotes. During the quarter ended July31, 2014, revenues totalling $47million (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 $92million ($151million 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 October31, 2013.
The Bank has committed to contribute $835million ($886million as at October31, 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 October31, 2013, no amount had been advanced by the Bank.
Loans and Acceptances
As at July 31, 2014, loans and acceptances increased since October31, 2013 owing to growth across all credit business, except for customers' liabilities under acceptances, which decreased by $0.4billion. The following table provides a breakdown of the main loan and acceptance portfolios.
(millions of Canadian dollars)

As at July31, 2014

As at October31, 2013 

As at July31, 2013










Loans and acceptances







Consumer loans

27,369

26,064

25,665

Residential mortgages

38,663

36,573

35,896

Credit card receivables

1,953

1,925

1,911

Business and government

36,007

33,354

34,056




103,992

97,916

97,528

As at July 31, 2014, loans and acceptances totalled $104.0billion, a $6.1billion or 6% increase since October31, 2013. Consumer loans were up 5%, due primarily to home equity lines of credit and personal loans. Rising 6%, residential mortgages were also up as at July31, 2014. Loans and acceptances to business and government increased by 8% since October31, 2013, mainly due to corporate and government financing activities and to loans to companies in the energy sector. Compared to a year ago, loans and acceptances increased $6.5billion or 7%, and consumer loans and residential mortgage loans rose, respectively, by 7% and 8%. Loans and acceptances to business and government also contributed to the growth, rising 6% from a year ago, mainly because of corporate loan financing. 
Liabilities
As at July31, 2014, the Bank had total liabilities of $188.8billion compared to $179.3billion as at October31, 2013.
As at July31, 2014, the Bank's deposit liability stood at $114.9billion, rising $12.8billion or 13% from $102.1billion as at October31, 2013. The following table provides a breakdown of total personal savings.
(millions of Canadian dollars)

As at July31, 2014

As at October31, 2013

As at July31, 2013










Balance sheet







Deposits

44,657

42,652

42,064










Off-balance-sheet







Full-service brokerage 

104,209

94,550

91,035

Mutual funds 

18,671

16,633

16,137

Other 

3,952

3,680

3,639




126,832

114,863

110,811

Total

171,489

157,515

152,875

At $44.7billion as at July 31, 2014, personal deposits were up $2.0billion since October31, 2013 owing essentially to Bank initiatives undertaken to grow this type of deposit. Since the beginning of the fiscal year, personal savings included in assets under administration and under management grew 10% due to acquisition-driven business growth and to a recovery in stock markets. Personal deposits were up $2.6billion from a year ago, while personal savings included in assets under administration and under management were up $16.0billion. 
Since October31, 2013, business and government deposits grew $8.5billion or 15%, partly due to covered bond issuances totalling 2.0billion euros. At $4.7billion, deposits from deposit-taking institutions rose $2.3billion since October31, 2013, mainly attributable to U.S. government financial institutions. Other financing activities decreased since October31, 2013, essentially due to a decrease in obligations related to securities sold short. 


Equity
As at July 31, 2014, the Bank's equity was $10.0billion compared to $9.0billion as at October31, 2013, an increase that stems mainly from higher retained earnings and from a $350million preferred share issuance. 
As at August 22, 2014, there were 327,901,202 common shares and 15,474,176 stock options outstanding. For additional information on share capital, see Note 17 to the audited annual consolidated financial statements for the year ended October31, 2013 and Note 13 to the unaudited interim condensed consolidated financial statements.
Acquisition
TD Waterhouse Institutional Services
On November 12, 2013, through a subsidiary, the Bank completed the acquisition of Toronto-Dominion Bank's institutional services known as TD Waterhouse Institutional Services. This acquisition marks another step in the Bank's expansion of its wealth management platform across Canada. The final purchase price is $260million.The net assets acquired include client list intangible assets totalling approximately $58million. The purchase price exceeded the fair value of the net assets acquired by $206million. This excess amount was recorded on the Consolidated Balance Sheet as goodwill and mainly represents synergies and the benefits expected from combining the acquired operations with those of the Bank. The tax deductible portion of the goodwill is $155million. The acquired receivables, consisting mainly of loans to clients for the purchase of securities, had an acquisition-date fair value of $448million. This amount also represents the gross contractual amounts receivable, which the Bank expects to fully recover.
An amount of $1million in acquisition-related costs was included in Non-interest expenses in the Consolidated Statement of Income for the nine months ended July31, 2014. The consolidated financial statements include the results of the acquired business as of November12, 2013. During the quarter ended July31, 2014, the acquired business contributed approximately $12million to the Bank's total revenues and $4million to its net income (excluding integration costs). For the nine months ended July31, 2014, the contributions to total revenues and net income amounted to $39million and $16million, respectively. If the Bankhad completed the acquisition on November 1, 2013, total revenues would have been approximately $4,102million and net income approximately $1,209million for the nine months ended July31, 2014. 
Related Party Transactions
The Bank's policies and procedures regarding related party transactions have not significantly changed since October31, 2013. For additional information, see Note28 to the audited annual consolidated financial statements for the year ended October31,2013. 
Off-Balance-Sheet Arrangements
In the normal course of business, the Bank is party to various financial arrangements that, under IFRS, are not required to be recorded on the Consolidated Balance Sheet or are recorded at amounts other than their notional or contractual values. These arrangements include, among others, transactions with structured entities, derivative financial instruments, issuances of guarantees, the margin funding facility of the MAV conduits, credit instruments, and financial assets received as collateral. A complete analysis of these types of arrangements, including their nature, business purpose and importance, is provided on pages 45 and 46 of the 2013 Annual Report. For additional information on guarantees and a description of obligations under certain indemnification agreements, see Note 25 to the audited annual consolidated financial statements for the year ended October31, 2013.
For additional information about financial assets transferred but not derecognized and structured entities, see Notes 7 and 21, respectively, to the unaudited interim condensed consolidated financial statements.

ACCOUNTING POLICIES AND FINANCIAL DISCLOSURE 
Accounting Policies and Critical Accounting Estimates
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.
The 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 October31, 2013, except for the accounting policy changes described below. Also described below are future accounting policy changes.
In preparing consolidated financial statements in accordance with IFRS, management must exercise judgment and make estimates and assumptions that affect the reporting date carrying amounts of assets and liabilities, net income and related information. Some of these accounting policies are considered critical given their importance to the presentation of the Bank's financial position and operating results and require difficult, subjective and complex judgments and estimates because they relate to matters that are inherently uncertain. Any change in these judgments and estimates could have a significant impact on the Bank's consolidated financial statements. The critical accounting estimates remain substantially unchanged from those described on pages 48 to 51 of the 2013 Annual Report, except for the changes described below in the Accounting Policy Changes section. Additional information on fair value determination is provided in Notes 3, 4 and 5 to the consolidated financial statements, and additional information on the consolidation of structured entities is provided in Note21 to the consolidated financial statements.
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 October31, 2013 are presented below. There is no impact on the Consolidated Balance Sheet as at November 1, 2012.
(millions of Canadian dollars)




As at October31, 2013











Consolidated Balance Sheet









Increase in Other assets






15


Decrease in Other liabilities






6


Increase in Retained earnings






21


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 July31, 2013.
(millions of Canadian dollars)

Quarter ended July31, 2013

Nine months ended July31, 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 $35million decrease in past service costs, less a $4.5million 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 $225million increase in Deposits on the Consolidated Balance Sheet as at October31, 2013 and as at November 1, 2012, representing the Trust's deposit note.
- A $229million decrease in Non-controlling interests on the Consolidated Balance Sheet as at October31, 2013 and as at November 1, 2012, representing the trust units issued by the Trust. 
- A $4million increase in Other liabilities on the Consolidated Balance Sheet as at October31, 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 $3million and $9million on the Consolidated Statement of Income for the third quarter and nine-month period ended July31, 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 October31, 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 October31, 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 October31, 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. 
Financial Disclosure
During the third quarter of 2014, no changes were made to the policies, procedures and other processes that comprise the Bank's internal control over financial reporting that had or could reasonably have a significant impact on the Bank's internal control over financial reporting.

ADDITIONAL FINANCIAL DISCLOSURE
The Financial Stability Board (FSB) develops financial stability standards and seeks to promote cooperation in the oversight and monitoring of financial institutions. OSFI has asked Canadian banks to apply certain recommendations issued by the FSB. The recommendations seek to enhance transparency and measurement with respect to certain exposures, in particular structured entities, subprime and Alt-A exposures, collateralized debt obligations, residential and commercial mortgage-backed securities, and leveraged financing structures.
The Bank does not market any specific mortgage financing program to subprime or Alt-A clients. Subprime loans are generally defined as loans granted to borrowers with a higher credit risk profile than prime borrowers, and the Bank does not grant this type of loan. Alt-A loans are granted to borrowers who cannot provide standard proof of income. The Bank's Alt-A loan volume was $629million as at July31, 2014 ($661million as at October31, 2013).
The Bank does not have any significant direct position in residential and commercial mortgage-backed securities that are not insured by the Canadian Mortgage and Housing Corporation (CMHC). Credit derivative positions are shown in the table below.
Leveraged financing structures are defined by the Bank as loans granted to large corporate and financial sponsor-backed companies that are typically non-investment grade with much higher levels of debt relative to other companies in the same industry. Leveraged finance is commonly employed to achieve a specific objective, for example, to make an acquisition, complete a buy-out or repurchase shares. Leveraged finance risk exposure takes the form of both funded and unfunded commitments. As at July31,2014, total commitments for this type of loan stood at $1,043million ($865million as at October31, 2013). Details about other exposures are provided in the table on structured entities in Note 21 to the unaudited interim condensed consolidated financial statements.
Credit Derivative Positions (notional amounts)
(millions of Canadian dollars)

As at July31, 2014

As at October31, 2013 



Credit portfolio

Trading

Credit portfolio

Trading





Protection
purchased

Protection
sold 

Protection
purchased

Protection
sold 

Protection
purchased

Protection
sold 

Protection
purchased

Protection
sold 

































Credit default swaps


















Indices, single names 



















and other

55


593

253

42


1,071

235


Tranches on indices




1




1

Total return swaps



40

7




9

The FSB created the Enhanced Disclosure Task Force (EDTF), a working group that, on October29, 2012, published a report entitled Enhancing the Risk Disclosures of Banks, which contains 32 recommendations. As at October31, 2013, the Bank has made every effort to ensure overall compliance with those recommendations and is continuing to enhance its risk disclosures to meet the best practices on an ongoing basis. The risk disclosures required by the EDTF are provided in the 2013 Annual Report, in this Report to Shareholders, and in the documents entitled Supplementary Regulatory Capital Disclosure for the Third Quarter Ended July 31, 2014 and Supplementary Financial Information for the Third Quarter Ended July31, 2014, which are available on the Bank's website at nbc.ca. In addition, on the following page is a table of contents that users can use to locate information relative to the 32 recommendations.

Risk Disclosures
The following table lists the references where users can find information that responds to the EDTF's 32 recommendations.










Pages






2013 
Annual Report 

Report to Shareholders(1)

Supplementary 
Regulatory Capital
Disclosure(1)













General








1

Location of risk disclosures

10

18






Management's Discussion and Analysis

18, 53 to 85, 90 and 93

19 to 35






Consolidated Financial Statements

Notes 1, 5, 7, 15 and 22

Note 6






Supplementary Regulatory Capital Disclosure




4 to 26 


2

Risk terminology and risk measures

60 to 84





3

Top and emerging risks

60





4

New key regulatory ratios

76 and 80

19 and 28













Risk governance and risk management







5

Risk management organization, processes and key functions

61 to 64





6

Risk management culture

61





7

Key risks by business segment, risk management and risk appetite

18, 61 and 62





8

Stress testing

53, 62, 67 and 74 to 78















Capital adequacy and risk-weighted assets (RWA)







9

Minimum Pillar 1 capital requirements

55

19



10

Reconciliation of the accounting balance sheet to










the regulatory balance sheet




4 to 6


11

Movements in regulatory capital

56

20



12

Capital planning

53 to 59





13

RWA by business segment and by risk type

18 and 58

21
7 


14

Capital requirements by risk and RWA calculation method

58 and 65 to 67

21
7 


15

Banking book credit risk



21
7 and 10 to 15


16

Movements in RWA by risk type

59

22
8 


17

Assessment of credit risk model performance

64, 67 and 73


10 to 15












Liquidity







18

Liquidity management and components of the liquidity buffer

77 to 79

29













Funding







19

Summary of encumbered and unencumbered assets

79

30



20

Residual contractual maturities of balance sheet items and 










off-balance-sheet commitments

140 to 143

32 to 35



21

Funding strategy and funding sources

80 to 82

31













Market risk







22

Linkage of market risk measures to balance sheet

72

24 and 25



23

Market risk factors

71, 75, 135, 137 and 179

26 and 27



24

VaR: assumptions, limitations and validation procedures

73, 74 and 135





25

Stress tests, stressed VaR and backtesting

73 to 75, 135 and 137















Credit risk







26

Credit risk exposures 

132, 133 and 149 to 152

23 and 55 to 57
9 to 22 and 18 to 24(2)


27

Policies for identifying impaired loans 

69 and 108





28

Movements in impaired loans and allowances for credit losses

90, 93 and 149 to 151

55 to 57
18


29

Counterparty credit risk relating to derivatives transactions

69, 70 and 161 to 163

24
23


30

Credit risk mitigation 

68 to 70


20 and 22












Other risks







31

Other risks: governance, measurement and management

64 and 82 to 85





32

Publicly known risk events

No risk event

No risk event


(1) For the third quarter and nine-month period ended July31, 2014.
(2) These pages are included in the document entitled Supplementary Financial Information for the Third Quarter Ended July 31, 2014.

CAPITAL MANAGEMENT
The Bank's capital management policy sets out the principles and practices that the Bank incorporates into its capital management strategy and the basic criteria it adopts to ensure that it has sufficient capital at all times and is prudently managing such capital to satisfy any future capital requirements. The Bank has maintained adequate capital ratios through internal capital generation, balance sheet management and issuances and repurchases of shares and subordinated debt securities. For additional information on the capital management framework, see the Capital Management section on pages 53 to 59 of the Bank's 2013 Annual Report. 
In December 2012, OSFI released the Capital Adequacy Requirements (CAR) Guideline, which took effect in January 2013 and was updated in April 2014. The guideline reflects the changes to capital requirements adopted by the Basel Committee on Banking Supervision (BCBS), which are commonly referred to as BaselIII. These changes, along with global liquidity standards, seek to strengthen the resiliency of the banking sector and financial system. In addition to those measures, OSFI now requires that regulatory capital instruments other than common shares have a non-viability contingent capital (NVCC) clause to ensure that investors bear losses before taxpayers should the government determine that rescuing a non-viable financial institution is in the public interest.
The new Basel III regulatory framework sets out transitional arrangements for the period of 2013 to 2019. OSFI has introduced two methodologies for determining capital. The "all-in" methodology includes all of the regulatory adjustments that will be required by 2019 while retaining the phase-out rules for non-qualifying capital instruments. The "transitional" methodology, in addition to applying the phase-out rules for non-qualifying capital instruments, also applies a more flexible and steady phasing in of the required regulatory adjustments. The Bank will disclose its capital ratios calculated according to both methodologies in each quarter until the start of 2019. Nevertheless, OSFI has been requiring Canadian banks to meet the 2019 minimum "all-in" requirements since the first quarter of 2013 for Common Equity Tier 1 (CET1) and since the first quarter of 2014 for Tier 1 capital and total capital. Furthermore, to ensure an implementation similar to that of other countries, OSFI has decided to phase in the credit valuation adjustment (CVA) charge over a period of five years beginning in 2014. In the first year, only 57%, 65% and 77% of total CVA will be applied to the calculation of the CET1, Tier 1 and total capital ratios, respectively, and these percentages will gradually increase each year until they reach 100% by 2019. 
As such, the Bank must now maintain a CET1 capital ratio, Tier 1 capital ratio and total capital ratio of at least 7.0%, 8.5% and 10.5%, respectively, all of which include the 2.5% capital conservation buffer. In March 2013, OSFI designated Canada's six largest banks, a group that includes National Bank, as Domestic Systemically Important Banks (D-SIBs). For these banks, a 1% surcharge will apply to their capital ratios as of January 1, 2016. Consequently, as of that date, the Bank and all other major Canadian banks will have to maintain a CET1 capital ratio of at least 8.0%, a Tier 1 capital ratio of at least 9.5% and a total capital ratio of at least 11.5%, all determined using the "all-in" methodology.
In addition to regulatory capital ratios, OSFI also requires Canadian banks to meet a financial leverage test. Leverage or the assets-to-capital multiple (ACM) is calculated by dividing the Bank's total assets, including certain off-balance-sheet items, by its total regulatory capital in accordance with the transitional requirements for Basel III. In January 2014, after the BCBS updated the BaselIII rules for the leverage ratio, OSFI announced that the new BaselIII leverage ratio would replace the ACM as of January 1, 2015. The new leverage ratio is calculated by dividing Tier1 capital by total on- and off-balance-sheet assets. Items deducted from Tier1 capital will also be excluded from the calculation of the leverage ratio.
New disclosure requirements pursuant to Pillar 3 of the Basel II framework came into force in the third quarter of 2013. Canadian financial institutions must use a disclosure template for their "all-in" regulatory capital and must present a reconciliation of all regulatory capital items back to the balance sheet. These two requirements are presented in the Supplementary Regulatory Capital Disclosure report published quarterly and available on the Bank's website at nbc.ca. Furthermore, a complete list of capital instruments and their main features is now available on the Bank's website under Investor Relations > Capital and Debt Information > Main Features of Regulatory Capital Instruments.
The following table presents the regulatory capital ratios determined using the "all-in" methodology and the regulatory targets under Basel III.



Capital ratios
Minimum capital ratios to be maintained



As at July31,
2014
(1)
As at October31, 
2013
(2)
BCBS 
2014


OSFI 
2014
(3)
OSFI 
January 1, 2016
(3)(4)










Common Equity Tier 1 (CET1)

9.1
%
8.7
% 
4.0
%

7.0
% 
8.0
% 
Tier 1

12.0
%
11.4
% 
5.5
%

8.5
% 
9.5
% 
Total

14.8
%
15.0
% 
8.0
%

10.5
% 
11.5
% 
(1) Basel III ratios, including a portion of the CVA charge.
(2) Basel III ratios, excluding the CVA charge; these ratios have not been adjusted to reflect changes in accounting standards. 
(3) Includes the 2.5% capital conservation buffer. 
(4) Includes the 1% surcharge applicable to D-SIBs.

Management Activities
On November 15, 2013, the Bank redeemed, at nominal value, for cancellation $500million in notes maturing in November 2018. On December 13, 2013, the Bank redeemed for cancellation debentures with a nominal value of US$25million maturing in February 2087.
On February 7, 2014, the Bank issued 14,000,000 Non-Cumulative 5-Year Rate-Reset Series 30 First Preferred Shares at a per-share price of $25.00 for gross proceeds of $350million. Given that the Series 30 preferred shares satisfy the non-viability contingent capital requirements, they qualify for the purposes of calculating regulatory capital under Basel III.
On February 15, 2014, the Bank redeemed the outstanding 2,425,880 Non-Cumulative Series 24 First Preferred Shares and the outstanding 1,724,835 Non-Cumulative Series 26 First Preferred Shares at a per-share price of $25.00 plus the periodic declared and unpaid dividend. Given the fact that these instruments were already grandfathered, subject to a phase-out under the Basel III transition rules, the impact of this redemption on the capital ratios was negligible.
Movement in Regulatory Capital(1)
(millions of Canadian dollars) 



Nine months ended 
July31, 2014








Common Equity Tier 1 (CET1) Capital 





Balance at beginning 



5,350


Issuance of common shares (including Stock Option Plan) 



77


Repurchase of common shares 





Contributed surplus 



17


Dividends on preferred and common shares 



(488)









Net income attributable to the Bank's shareholders 



1,157


Removal of own credit spread net of income taxes 



4


Removal of reserves arising from property revaluation 



26


Other 



(84)









Movements in accumulated other comprehensive income 







Translation adjustments 



8



Available-for-sale securities 



79









Change in goodwill and intangible assets (net of related tax liability) 



(307)


Other, including regulatory adjustments and transitional arrangements 







Change in defined benefit pension plan asset (net of related tax liability) 



(21)



Change in amount exceeding 15% threshold 







 Deferred tax assets 



19



 Significant investment in common shares of financial institutions 



24



Change in other regulatory adjustments(2)



15

Balance at end



5,876








Additional Tier 1 Capital 





Balance at beginning 



1,652


New Tier 1 eligible capital issuances 



350


Redeemed capital 





Change in non-qualifying Additional Tier 1 subject to phase-out 



(104)


Other, including regulatory adjustments and transitional arrangements 




Balance at end 



1,898








Total Tier 1 Capital



7,774








Tier 2 Capital 





Balance at beginning 



2,184


New Tier 2 eligible capital issuances 





Redeemed capital 



(531)


Change in non-qualifying Tier 2 subject to phase-out 



245


Change in eligible collective allowances 



(22)


Other, including regulatory adjustments and transitional arrangements 




Balance at end



1,876








Total Regulatory Capital 



9,650

(1) Figures are presented on an "all-in" basis.
(2) Represents the change in investments in the Bank's own CET1 and shortfall of total provisions to expected losses. 


RWA by Key Risk Drivers
CET1 RWA increased by $3.4billion, totalling $64.7billion as at July31, 2014 compared to $61.3billion as at October31, 2013. This increase was mainly due to the coming into force of the CVA charge (the CVA charge had not been included in the RWA calculation as at October31, 2013) and to organic growth. The Bank's risk-weighted assets are presented in the following table.
Capital Adequacy Under Basel III(1)
(millions of Canadian dollars)






As at July31, 2014
As at October31, 2013



Exposure 
at default
Risk-weighted
assets

Capital 
requirement
(2)
Risk-weighted 
assets





Standardized
Approach

Advanced
Approach

Other

Total


Total
















Credit risk













Retail














Residential mortgages
40,388

69

4,414


4,483

359
4,565


Qualifying revolving retail
4,992


1,012


1,012

81
1,440


Other retail
12,213

516

4,435


4,951

396
5,625

Non-retail














Corporate
47,950

2,702

20,362


23,064

1,845
22,174


Sovereign
21,162


486


486

39
418


Financial institutions
3,273

127

852


979

78
743

Banking book equities(3)
469


469


469

38
437

Securitization
4,077


2,200


2,200

176
2,269

Other assets
22,228



5,004

5,004

400
4,337
















Counterparty credit risk














Corporate
8,176

308

53


361

29
229


Sovereign
10,560


9


9

1
10


Financial institutions
51,546


1,893


1,893

151
2,425


Trading portfolio
9,846

363

3,085


3,448

276
2,524


Credit valuation adjustment charge(4)


1,914



1,914

153
-

















Regulatory scaling factor



2,313


2,313

185
2,255

Total - Credit risk
236,880

5,999

41,583

5,004

52,586

4,207
49,451
















Market risk














VaR



780


780

62
775


Stressed VaR 



1,351


1,351

108
1,109


Interest-rate-specific risk


1,310



1,310

105
1,498

Total - Market risk


1,310

2,131


3,441

275
3,382
















Operational risk


8,676



8,676

694
8,418
















Total
236,880

15,985

43,714

5,004

64,703

5,176
61,251

(1) Figures are presented on an "all-in" basis, and the October31, 2013 figures have not been adjusted to reflect changes in accounting standards.
(2) The capital requirement is equal to 8% of risk-weighted assets. 
(3) Calculated using the simple risk weight method.
(4) Calculated based on CET1 risk-weighted assets.


Risk-Weighted Assets Movement by Key Drivers(1)
(millions of Canadian dollars) 






Quarter ended 



July31, 2014

April30, 2014

January31, 2014



Non-counterparty
credit risk

Counterparty
credit risk(2)

Total

Total

Total













Credit risk - Risk-weighted assets at beginning 
44,926

6,918

51,844

52,030

49,451


Book size 
716

366

1,082

(141)

1,209


Book quality 
(27)

324

297

(120)

(697)


Model updates 
(672)


(672)




Methodology and policy 




1,625


Acquisitions and disposals 






Foreign exchange movements 
18

17

35

75

442

Credit risk - Risk-weighted assets at end 
44,961

7,625

52,586

51,844

52,030











Market risk - Risk-weighted assets at beginning 




3,888

4,110

3,382


Movement in risk levels(3)




(447)

(222)

728


Model updates 








Methodology and policy 








Acquisitions and disposals 







Market risk - Risk-weighted assets at end 




3,441

3,888

4,110











Operational risk - Risk-weighted assets at beginning 




8,503

8,487

8,418


Movement in risk levels 




173

16

69


Acquisitions and disposals 







Operational risk - Risk-weighted assets at end 




8,676

8,503

8,487













Risk-weighted assets at end




64,703

64,235

64,627

(1) Figures are presented on an "all-in" basis.
(2) Calculated based on CET1 risk-weighted assets.
(3) Also includes foreign exchange movement that is not considered material.
The change in the "Model Updates" line reflects revisions to models that follow the Advanced IRB approach for exposures related to residential mortgages and to retail term loans and credit lines.
Regulatory Capital Ratios 
The CET1 capital ratio, determined using the "all-in" methodology, was 9.1% as at July31, 2014 versus 8.7% as at October31, 2013.The increase in the CET1 capital ratio was essentially due to net income, net of dividends, and to the issuance of common shares related mainly to exercised stock options, partly offset by the impacts of the TD Waterhouse Institutional Services acquisition and of the coming into force of the CVA charge. The Tier 1 and the total capital ratios determined using the "all-in" methodology were, respectively, 12.0% and 14.8% as at July31, 2014 versus 11.4% and 15.0% as at October31, 2013. The change stems essentially from the above-mentioned factors, the removal of ineligible capital instruments and the $350million preferred share issuance.
The assets-to-capital multiple was 18.8 as at July31, 2014 versus 18.4 as at October31, 2013.
Regulatory Capital and Capital Ratios Under Basel III(1)
(millions of Canadian dollars)
As at July31, 2014
As at October31, 2013




Common Equity Tier 1 Capital (CET1) 
5,876
5,350
Tier 1 Capital 
7,774
7,002
Total Regulatory Capital 
9,650
9,186
CET1 Risk-Weighted Assets 
64,703
61,251
Tier 1 Capital Risk-Weighted Assets
64,972
Total Regulatory Capital Risk-Weighted Assets
65,375
Capital ratios 



Common Equity Tier 1 (CET1) 
9.1
%
8.7
% 

Tier 1
12.0
%
11.4
% 

Total 
14.8
%
15.0
% 
Assets-to-capital multiple
18.8
18.4
(1) Figures are presented on an "all-in" basis except for the assets-to-capital multiple, which is presented in accordance with the transitional requirements for Basel III, and the October31, 2013 figures have not been adjusted to reflect changes in accounting standards. 
Dividends
On August26, 2014, the Board of Directors declared regular dividends on the various series of first preferred shares and a dividend of 48cents per common share payable on November1, 2014 to shareholders of record on September25, 2014.

RISK MANAGEMENT
The Bank aims to maintain its financial performance by continuing to ensure prudent management and a sound balance between return and the risks assumed. The Bank views risk as an integral part of its development and the diversification of its activities and advocates a management approach consistent with its business expansion strategy. The Bank's governance structure for risk management has remained largely unchanged from that described in the 2013 Annual Report.
Managing risk requires a solid understanding of every type of risk found across the Bank. In addition to providing assurance that risk levels do not exceed acceptable thresholds, effective risk management can be used to control the volatility of the Bank's results. Despite the exercise of stringent risk management and the mitigation measures in place, risk cannot be suppressed entirely, and the residual risks may occasionally cause important losses. 
Certain risks are discussed below. For additional information, see the Risk Management and Other Risk Factors sections on pages 60 to 85 of the 2013 Annual Report as well as Note 5 to the audited annual consolidated financial statements for the year ended October31, 2013, which covers the management of risks associated with financial instruments, on pages 127 to 143 of the 2013 Annual Report. Risk management information is also provided in Note 6 to the unaudited interim condensed consolidated financial statements, which covers loans.
Credit Risk
Credit risk is the risk of a financial loss if an obligor does not fully honour its contractual commitments to the Bank. Obligors may be borrowers, issuers, counterparties or guarantors. Credit risk is the most significant risk facing the Bank in the normal course of business.
The amounts in the following table represent the Bank's maximum exposure to credit risk as at the financial reporting date without taking into account any collateral held or any other credit enhancements. These amounts do not take into account allowances for credit losses nor amounts pledged as collateral. The table also excludes equity securities.
Gross Credit Risk Exposure Under the Basel II Asset Categories
(millions of Canadian dollars)

As at July31,
2014

As at October31,
2013




Drawn

Undrawn
commitments

Repo-style
transactions
(1)

OTC
derivatives

Other
off-balance-
sheet items
(2)

Total

Total















Retail













Residential mortgages

35,069 

5,319 


 


40,388

38,414


Qualifying revolving retail

2,620 

2,372 


 


4,992

4,574


Other retail

11,000 

1,199 


 

14

12,213

11,976



48,689 

8,890 


 

14

57,593

54,964

Non-retail













Corporate

32,975 

12,626 

8,128

49 

2,348

56,126

48,721


Sovereign

18,209 

2,855 

10,394

166 

98

31,722

34,833


Financial institutions

2,411 

221 

50,878

669 

640

54,819

52,108



53,595 

15,702 

69,400

884 

3,086

142,667

135,662

Trading portfolio

 

 


9,846 


9,846

8,074

Securitization

1,223 

 


 

2,854

4,077

4,307

Total - Gross Credit Risk

103,507 

24,592 

69,400

10,730 

5,954

214,183

203,007















Standardized Approach

5,628 

324 

4,741

621 

1,003

12,317

9,669

AIRB Approach

97,879 

24,268 

64,659

10,109 

4,951

201,866

193,338

Total - Gross Credit Risk

103,507 

24,592 

69,400

10,730 

5,954

214,183

203,007

(1) Securities purchased under reverse repurchase agreements and sold under repurchase agreements as well as securities loaned and borrowed.
(2) Letters of guarantee, documentary letters of credit, and securitized assets that represent the Bank's commitment to make payments in the event that a client cannot meet its financial obligations to third parties. 
In order to meet OSFI's mortgage loan disclosure requirements, additional information has been provided in Supplementary Financial Information for the Third Quarter Ended July31, 2014 and in Supplementary Regulatory Capital Disclosure for the Third Quarter Ended July 31, 2014, which are available on the Bank's website at nbc.ca. 

To reduce counterparty risk, certain derivative financial instruments traded over the counter are settled directly or indirectly by central counterparties. The table below shows the distribution of notional amounts with respect to these financial instruments.
(millions of Canadian dollars)

As at July31, 2014

As at October31, 2013




OTC-traded



OTC-traded






Settled by 

Not settled 



Settled by 

Not settled 




Exchange-traded

central

by central

Exchange-traded

central

by central




contracts

counterparties

counterparties

contracts

counterparties

counterparties















Interest rate contracts

92,658

250,636

189,014

21,725

86,304

231,335
Foreign exchange contracts

85


136,386

207


91,206
Equity, commodity and













credit derivative contracts

14,311

726

31,408

12,330

280

27,548
Market Risk
Market risk is the risk of financial loss resulting from adverse movements in underlying market factors. Managing this risk is a core competency for the Bank in its trading, investing and asset/liability management activities. 
The following tables provide a breakdown of the Bank's Consolidated Balance Sheet into financial assets and liabilities by those that carry market risk and those that do not carry market risk, distinguishing between trading positions whose main risk measures are VaR and stressed VaR (SVaR) and non-trading positions that use other risk measures.
Reconciliation of Market Risk with Consolidated Balance Sheet Items
(millions of Canadian dollars)
As at July31, 2014





Market risk measures







Balance
sheet

Trading
(1)
Non-Trading
(2)
Not subject to market risk

Non-traded risk primary 
risk sensitivity












Assets









Cash and deposits with financial institutions
5,912

39
5,591
282

Interest rate(3)


Securities










At fair value through profit or loss
45,632

42,956
2,676

Interest rate(3)and other(4)



Available-for-sale
9,133

9,133

Interest rate(3)and equity(5)


Securities purchased under reverse repurchase










agreements and securities borrowed
22,019

22,019

Interest rate(3)(6)


Loans, net of allowances
94,815

2,581
92,234

Interest rate(3)


Customers' liability under acceptances
8,584

8,584

Interest rate(3)


Derivative financial instruments
6,086

5,414
672

Interest rate


Accrued benefit asset
141

141

Other


Other
6,500

6,500






198,822

50,990
141,050
6,782














Liabilities









Deposits
114,944

2,550
112,394

Interest rate(3)


Acceptances
8,584

8,584

Interest rate(3)


Obligations related to securities sold short
16,249

16,249




Obligations related to securities sold under repurchase










agreements and securities loaned
20,344

20,344

Interest rate(3)(6)


Derivative financial instruments
4,370

4,161
209

Interest rate


Liabilities related to transferred receivables
16,376

2,580
13,796

Interest rate(3)


Accrued benefit liability
227

227

Other


Other
5,870

88
5,782




Subordinated debt
1,885

1,885

Interest rate(3)



188,849

25,628
157,439
5,782



(1) Trading positions whose main risk measures are VaR and SVaR. For additional information, see the tables on the following pages as well as the Market Risk Management section in Note 5 to the audited annual consolidated financial statements as at October31, 2013. 
(2) Non-trading positions that use other risk measures. 
(3) For additional information, see the tables on the following pages as well as the Market Risk Management section in Note 5 to the audited annual consolidated financial statements as at October31, 2013. 
(4) See the Master Asset Vehicles section in Note 5 to the unaudited interim condensed consolidated financial statements.
(5) The fair value of equity securities classified as available-for-sale is disclosed in Notes 3 and 5 to the unaudited interim condensed consolidated financial statements.
(6) These instruments are recorded at amortized cost and subject to credit risk for capital management purposes. For transactions with maturities of more than one day, the interest rate risk is included in the VaR and SVaR measures when they relate to trading activities.


(millions of Canadian dollars)
As at October31, 2013(1)





Market risk measures






Balance
sheet

Trading
(2)
Non-Trading
(3)
Not subject to market risk

Non-traded risk primary
risk sensitivity 











Assets








Cash and deposits with financial institutions
3,596

5
2,806
785

Interest rate(4)


Securities









At fair value through profit or loss
44,000

40,790
3,210

Interest rate(4) and other(5)



Available-for-sale
9,744

9,744

Interest rate(4) and equity(6)


Securities purchased under reverse repurchase 









agreements and securities borrowed
21,449

21,449

Interest rate(4)(7)


Loans, net of allowances
88,384

1,588
86,796

Interest rate(4)


Customers' liability under acceptances
8,954

8,954

Interest rate(4)


Derivative financial instruments
5,904

5,252
652

Interest rate(8)


Accrued benefit asset
131

131

Other(9)


Other
6,057

6,057





188,219

47,635
133,742
6,842












Liabilities








Deposits
102,111

2,055
100,056

Interest rate(4)


Acceptances
8,954

8,954

Interest rate(4)


Obligations related to securities sold short
18,909

18,909



Obligations related to securities sold under repurchase









agreements and securities loaned
19,746

19,746

Interest rate(4)(7)


Derivative financial instruments
4,858

4,559
299

Interest rate(8)


Liabilities related to transferred receivables
15,323

2,028
13,295

Interest rate(4)


Accrued benefit liability
202

202

Other(9)


Other
6,737

109
6,628



Subordinated debt
2,426

2,426

Interest rate(4)



179,266

27,660
144,978
6,628


(1) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2 to the unaudited interim condensed consolidated financial statements.
(2) Trading positions whose main risk measures are VaR and SVaR. For additional information, see the Market Risk Management section in Note 5 to the audited annual consolidated financial statements as at October31, 2013. 
(3) Non-trading positions that use other risk measures. 
(4) For additional information, see the Market Risk Management section in Note 5 to the audited annual consolidated financial statements as at October31, 2013. 
(5) See the Master Asset Vehicles section in Note 6 to the audited annual consolidated financial statements as at October31, 2013. 
(6) The fair value of equity securities classified as available-for-sale is disclosed in Notes 3 and 5 to the unaudited interim condensed consolidated financial statements.
(7) These instruments are recorded at amortized cost and subject to credit risk for capital management purposes. For transactions with maturities of more than one day, the interest rate risk is included in the VaR and SVaR measures when they relate to trading activities. 
(8) See Notes 15 and 16 to the audited annual consolidated financial statements as at October31, 2013. 
(9) See Note 22 to the audited annual consolidated financial statements as at October31, 2013. 


The first table below shows the VaR distribution of trading portfolios by risk category as well as the correlation effect. The second table shows the SVaR distribution, i.e., the VaR of the Bank's current portfolios obtained following the calibration of risk factors over a 12-month stress period.
VaR of Trading Portfolios by Risk Category(1)
(millions of Canadian dollars)



Quarter ended 

Nine months ended



July31, 2014

April30, 2014

July31, 2013

July31, 2014

July31, 2013



Low

High

Average

Period end

Average

Period end

Average

Period end

Average

Average























Interest rate

(3.9)

(6.7)

(4.8)

(5.9)

(4.8)

(6.1)

(6.4)

(5.8)

(4.8)

(6.8)

Foreign exchange

(1.5)

(2.6)

(2.0)

(2.5)

(1.8)

(2.1)

(0.8)

(1.1)

(1.9)

(0.7)

Equity

(3.5)

(5.6)

(4.5)

(3.5)

(4.9)

(4.7)

(4.2)

(4.7)

(4.7)

(4.8)

Commodity

(0.7)

(1.5)

(1.0)

(1.1)

(0.9)

(0.9)

(1.1)

(1.1)

(1.0)

(1.2)

Correlation effect(2)

n.m.

n.m.

5.7

6.1

5.5

6.8

5.4

5.1

5.7

5.9

Total trading VaR

(5.7)

(7.9)

(6.6)

(6.9)

(6.9)

(7.0)

(7.1)

(7.6)

(6.7)

(7.6)

SVaR of Trading Portfolios by Risk Category(1)
(millions of Canadian dollars)



Quarter ended 

Nine months ended



July31, 2014

April30, 2014

July31, 2013

July31, 2014

July31, 2013



Low

High

Average

Period end

Average

Period end

Average

Period end

Average

Average























Interest rate

(6.9)

(11.8)

(8.9)

(10.3)

(9.8)

(11.1)

(8.7)

(7.3)

(9.4)

(9.5)

Foreign exchange

(2.5)

(6.3)

(4.3)

(6.3)

(4.3)

(4.1)

(1.1)

(1.1)

(4.3)

(1.1)

Equity

(6.0)

(16.7)

(11.0)

(7.2)

(13.2)

(12.1)

(6.5)

(8.5)

(12.1)

(6.8)

Commodity

(0.6)

(2.6)

(1.2)

(0.9)

(1.4)

(0.6)

(1.8)

(2.0)

(1.3)

(1.9)

Correlation effect(2)

n.m.

n.m.

14.0

15.1

13.7

13.8

8.9

8.1

13.9

9.1

Total trading SVaR

(8.8)

(16.1)

(11.4)

(9.6)

(15.0)

(14.1)

(9.2)

(10.8)

(13.2)

(10.2)

n.m. Computation of a correlation effect for the high and low is not meaningful, as highs and lows may occur on different days and be attributable to different types of risk.
(1) Amounts are presented on a pre-tax basis and represent one-day VaR or SVaR using a 99% confidence level.
(2) The correlation effect is the result of the diversification of types of risk. 
As shown in the tables, the total trading VaR and SVaR are generally lower than the sum of the individual risk factor results, which shows the correlation effect. Average trading VaR was $6.6million for the quarter ended July31, 2014, down $0.3million from the quarter ended April30, 2014, mainly due to lower equity VaR.Average trading SVaR was $11.4million for the quarter ended July31, 2014, down $3.6million from $15.0million the preceding quarter. This decrease was mainly caused by a lower SVaR for the equity risk category. Trading VaR was relatively stable during the third quarter, posting highs and lows in May2014, whereas trading SVaR peaked in early May 2014 and subsequently decreased towards the end of the quarter.


Daily Trading Revenues
The following table shows daily trading revenues and VaR. Daily trading revenues were positive more than 98% of the days for the quarter ended July31, 2014. Net daily trading losses in excess of $1million were recorded on only one day. None of these losses exceeded the VaR limit.
Quarter ended July31, 2014
(millions of Canadian dollars)
Interest Rate Sensitivity - Non-Trading Activities (Before Tax)
The following tables present the potential before-tax impact of an immediate and sustained 100-basis-point increase or decrease in interest rates on net interest income for the next 12 months and on the economic value of equity in the Bank's non-trading portfolios, assuming no further hedging is undertaken.
(millions of Canadian dollars)









As at July31, 2014



Impact on equity

Impact on interest income



Canadian dollar

U.S. 
dollar

Total

Canadian dollar

U.S. 
dollar

Total















100-basis-point increase in the interest rate

(102)

(3)

(105)

13

8

21

100-basis-point decrease in the interest rate

78

(1)

77

(13)

(11)

(24)















(millions of Canadian dollars)









As at October31, 2013 



Impact on equity

Impact on interest income



Canadian dollar

U.S. 
dollar

Total

Canadian dollar

U.S. 
dollar

Total















100-basis-point increase in the interest rate

(148)

15

(133)

(13)

17

4

100-basis-point decrease in the interest rate

122

(17)

105

2

(19)

(17)



Liquidity Risk
Liquidity risk is the risk that the Bank will be unable to honour daily cash and collateral pledging commitments without resorting to costly and untimely measures. Liquidity risk arises when sources of funds become insufficient to meet scheduled payments under the Bank's commitments. Liquidity risk stems from mismatched cash flows related to assets and liabilities as well as the characteristics of certain products such as credit commitments and non-fixed-term deposits. 
Regulatory Context
The regulatory environment with respect to liquidity has evolved significantly since the financial crisis. The Bank is working closely with international and national regulators to implement regulatory liquidity standards.
In December 2010, the Basel Committee on Banking Supervision (BCBS) issued a document entitled Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring, which essentially covered a proposed application of two regulatory ratios: the Liquidity Coverage Ratio (LCR), which is intended to see banks through severe short-term stress, and the Net Stable Funding Ratio (NSFR), whose objective is to ensure that banks have the long-term funding needed to fund less liquid assets. The LCR rules were finalized in January 2013 and will come into effect in January 2015. In January 2014, BCBS issued a new consultative paper to finalize the NSFR rules and is still on schedule to implement this ratio in 2018. The Bank has already begun monitoring both ratios and reports them to OSFI monthly. 
In February 2012, OSFI updated its liquidity management guideline for financial institutions. The revised guideline was developed based on the BCBS's Principles for Sound Liquidity Risk Management and Supervision. The Bank is in compliance with this guideline. 
In April 2013, the BCBS issued a paper on intraday liquidity entitled Monitoring Tools for Intraday Liquidity Management. The intent of this document is to provide guidance for banks on their management of intraday liquidity risk and ability to meet payment and settlement obligations on a timely basis. The implementation schedule proposed ranges from January2015 to January2017 at the latest.
On May 30, 2014, OSFI issued its final Liquidity Adequacy Requirements (LAR) guideline. The LAR guideline is the new liquidity framework proposed by OSFI. It contains the following six chapters: Overview, Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), Net Cumulative Cash Flow (NCCF), Liquidity Monitoring Tools and Intraday Liquidity Monitoring Tools. The Net Cumulative Cash Flow (NCCF) metric is defined as a monitoring tool that calculates survival period. It is based on the assumptions of a stress scenario prescribed by OSFI that aims to represent a combined systemic and bank-specific crisis. 
In July 2014, OSFI also issued Public Disclosure Requirements for Domestic Systemically Important Banks on Liquidity Coverage Ratio, a draft guideline that is based on the BCBS's final LCR rules that prescribe a common disclosure framework with standardized formats across the banking industry.
Lastly, in August 2014, the Government of Canada's Department of Finance issued a consultation paper on a proposed bail-in regime applicable to D-SIBs entitled Taxpayer Protection and Bank Recapitalization Regime. The Bank is currently assessing the impact of adopting this regime and must provide comments on the proposal by September 12, 2014.
Liquid Assets
To protect depositors and creditors from unexpected crisis situations, the Bank holds a portfolio of unencumbered liquid assets that can be easily liquidated to meet financial obligations. This portfolio consists of highly liquid securities, most of which are issued or guaranteed by governments, and of cash loans with maturities less than 30 days. The majority of unencumbered liquid assets are denominated in Canadian or U.S. dollars. Moreover, all assets that are readily transferable into cash are considered liquid assets. The Bank does not consider any central bank's emergency liquidity facilities in its liquidity reserve. The following tables provide information on the Bank's encumbered and unencumbered assets.


Liquid Asset Portfolio
(millions of Canadian dollars)





As at July31,
2014

As at October31, 
2013 





Bank-owned liquid assets
(1)
Liquid
assets
received
(2)
Total liquid assets

Encumbered liquid assets
(3)
Unencumbered liquid assets

Unencumbered liquid assets














Cash and deposits with financial institutions

5,912
5,912

996
4,916

3,548

Securities











Issued or guaranteed by Canada, U.S. Treasury,












other U.S. agencies and other foreign governments

16,060
18,104
34,164

24,183
9,981

10,964


Issued or guaranteed by provinces

11,376
12,011
23,387

19,351
4,036

3,615


Issued or guaranteed by municipalities and school boards 

790
209
999

137
862

682


Other debt securities

4,157
1,388
5,545

1,577
3,968

2,365


Equity securities

21,189
29,698
50,887

32,901
17,986

16,092

Loans











Securities backed by insured residential mortgages

2,176
2,176

530
1,646

620

As at July31, 2014

61,660
61,410
123,070

79,675
43,395



As at October31, 2013 

57,310
58,757
116,067

78,181


37,886









(millions of Canadian dollars)

As at July31, 2014

As at October31, 2013 









Unencumbered Bank-owned liquid assets by entity






National Bank (parent)

30,864

26,355


Domestic subsidiaries

7,260

8,475


Foreign subsidiaries and branches 

5,271

3,056





43,395

37,886









(millions of Canadian dollars)

As at July31, 2014

As at October31, 2013 









Unencumbered Bank-owned liquid assets by currency






Canadian dollar

27,526

24,533


U.S. dollar

14,712

12,840


Other currencies

1,157

513





43,395

37,886

Liquid Asset Portfolio - Average(4)
(millions of Canadian dollars) 




Quarter ended July31, 2014



Bank-owned liquid assets
(1)
Liquid
assets
received
(2)
Total liquid assets

Encumbered liquid assets
(3)
Unencumbered liquid assets










Cash and deposits with financial institutions
9,092
9,092

335
8,757

Securities








Issued or guaranteed by Canada, U.S. Treasury, 









other U.S. agencies and other foreign governments 
17,160
19,457
36,617

26,398
10,219


Issued or guaranteed by provinces 
11,925
12,334
24,259

19,984
4,275


Issued or guaranteed by municipalities and school boards 
787
201
988

133
855


Other debt securities 
3,359
1,356
4,715

1,488
3,227


Equity securities 
21,372
27,753
49,125

32,262
16,863

Loans








Securities backed by insured residential mortgages 
1,991
1,991

665
1,326

65,686
61,101
126,787

81,265
45,522

(1) Bank-owned liquid assets include assets for which there are no legal or geographic restrictions.
(2) Securities received as collateral with respect to securities financing and derivative transactions and securities purchased under reverse repurchase agreements and securities borrowed.
(3) In the normal course of its financing activities, the Bank pledges assets as collateral in accordance with standard terms. Encumbered liquid assets include assets used to cover short sales, obligations related to securities sold under repurchase agreements and securities loaned, guarantees related to security-backed loans and borrowings, collateral related to derivative financial instrument transactions and asset-backed securities.
(4) The average is based on the sum of the end-of-period balances of the three months of the quarter divided by three. 


Summary of Encumbered and Unencumbered Assets
(millions of Canadian dollars)







As at July31, 2014 




Encumbered assets(1)

Unencumbered assets 

Total

Encumbered 
assets as % 
of total assets 




Pledged as 
collateral

Other(2)

Available as 
collateral

Other(3)
















Cash and deposits with financial institutions

56

940 

4,916

 

5,912

0.5 

Securities

22,509

 

31,063

1,193 

54,765

11.3 

Securities purchased under reverse repurchase 











agreements and securities borrowed


16,249 

5,770

 

22,019

8.2 

Loans, net of allowances 

27,447

 

1,646

65,722 

94,815

13.8 

Customers' liability under acceptances


 


8,584 

8,584

 

Derivative financial instruments


 


6,086 

6,086

 

Due from clients, dealers and brokers


 


935 

935

 

Investments in associates and joint ventures


 


677 

677

 

Premises and equipment


 


381 

381

 

Goodwill


 


1,271 

1,271

 

Intangible assets


 


1,039 

1,039

 

Other assets


 


2,338 

2,338

 

Total

50,012

17,189 

43,395

88,226 

198,822

33.8 

























(millions of Canadian dollars)







As at October31, 2013(4)




Encumbered assets(1)

Unencumbered assets 

Total

Encumbered 
assets as % 
of total assets 




Pledged as 
collateral

Other(2)

Available as 
collateral

Other(3)
















Cash and deposits with financial institutions

48

 

3,548

 

3,596

 

Securities

21,205

 

31,178

1,361 

53,744

11.3 

Securities purchased under reverse repurchase 











agreements and securities borrowed


18,909 

2,540

 

21,449

10.0 

Loans, net of allowances 

20,266

 

620

67,498 

88,384

10.8 

Customers' liability under acceptances


 


8,954 

8,954

 

Derivative financial instruments


 


5,904 

5,904

 

Due from clients, dealers and brokers


 


1,101 

1,101

 

Investments in associates and joint ventures


 


684 

684

 

Premises and equipment


 


404 

404

 

Goodwill


 


1,064 

1,064

 

Intangible assets


 


898 

898

 

Other assets


 


2,037 

2,037

 

Total

41,519

18,909 

37,886

89,905 

188,219

32.1 

(1) In the normal course of its financing activities, the Bank pledges assets as collateral in accordance with standard terms. Encumbered assets include assets used to cover short sales, obligations related to securities sold under repurchase agreements and securities loaned, guarantees related to security-backed loans and borrowings, collateral related to derivative financial instrument transactions, asset-backed securities, residential mortgage loans securitized and transferred under the Canada Mortgage Bond program, assets held in consolidated trusts supporting the Bank's funding activities and mortgage loans transferred under covered bond programs.
(2) Other encumbered assets include assets for which there are restrictions and therefore cannot be used for collateral or funding purposes as well as assets used to cover short sales.
(3) Other unencumbered assets are assets that cannot be used for collateral or funding purposes in their current form. This category includes assets that are potentially eligible as funding program collateral (for example, Canada Mortgage and Housing Corporation insured mortgages that can be securitized into mortgage-backed securities under the National Housing Act (Canada)).
(4) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2 to the unaudited interim condensed consolidated financial statements.


Funding Risk
Funding risk is defined as the risk to the Bank's ongoing ability to raise sufficient funds to finance actual or proposed business activities on an unsecured or secured basis at an acceptable price. The Bank maintains a good balance of its funding through appropriate diversification of its unsecured funding vehicles, securitization programs and secured funding. The Bank also diversifies its funding by currency, geography and maturity. The funding management priority is to achieve an optimal balance between the deposit liabilities of the Bank's retail networks, commercial and corporate deposits, secured funding and unsecured funding. This brings optimal stability to its funding and reduces vulnerability to unpredictable events. 
Funding and liquidity levels remained sound and robust over the period and the Bank does not anticipate any event, commitment or demand that will have a significant impact on its liquidity risk position. 
The Bank's balance sheet is well diversified and aligned with its funding strategy. The core banking activities are funded entirely through personal and commercial deposits and through securitization programs. Wholesale funding is invested in cash and securities. The table below presents the remaining contractual maturities of the Bank's wholesale funding. The information has been presented in accordance with the categories recommended by the EDTF for comparison purposes with other banks. 
(millions of Canadian dollars) 













As at July31, 2014(1)



1 month or less

Over 1
month to
3 months

Over 3 
months to
6 months

Over 6
months to
12 months

Subtotal
1 year 
or less

Over 1
year to
2 years

Over 2
years

Total 


















Deposits from banks(2)

3,809

1,086


25

4,920

35

64

5,019

Certificates of deposit and commercial paper(3)

1,667

300

1,314

3,834

7,115

3,604

981

11,700

Asset-backed commercial paper 









Senior unsecured medium-term notes(4)

100

1,085

1,318

2,469

4,972

2,579

4,200

11,751

Senior unsecured structured notes 


71

126

31

228


670

898

Covered bonds and asset-backed securities 

















Mortgage securitization 

15

275

339

771

1,400

2,137

12,839

16,376


Covered bonds 







5,091

5,091


Securitization of credit card receivables 




880

880

400


1,280

Subordinated liabilities(5)



354


354

518

1,013

1,885

Other 










5,591

2,817

3,451

8,010

19,869

9,273

24,858

54,000

Of which: 
















Secured funding 

15

275

339

1,651

2,280

2,537

17,930

22,747

Unsecured funding 

5,576

2,542

3,112

6,359

17,589

6,736

6,928

31,253

As at July31, 2014

5,591

2,817

3,451

8,010

19,869

9,273

24,858

54,000

As at October31, 2013 

3,863

3,368

2,257

2,808

12,296

11,641

21,570

45,507 

(1) Bankers' acceptances are not included in this table.
(2) Deposits from banks correspond to all institutional term deposits made by financial institutions such as banks, broker-dealers, pension funds, trusts and other institutions.
(3) Includes bearer deposit notes.
(4) Certificates of deposit denominated in euros are included in senior unsecured medium-term notes.
(5) Subordinated debt is presented in this table but the Bank does not consider it as part of its wholesale funding.
As part of a comprehensive liquidity management framework, the Bank regularly reviews its contracts that stipulate that additional collateral could be required in the event of a downgrade of the Bank's credit rating. The Bank's liquidity position management already incorporates additional collateral requirements in the event of a one-notch to three-notch downgrade. The table below presents the additional collateral requirements in the event of a one-, two- or three-notch credit rating downgrade.
(millions of Canadian dollars) 



As at July31, 2014



One-notch
downgrade

Two-notch
downgrade

Three-notch
downgrade









Derivatives(1)

10

41

150

(1) Contractual requirements related to agreements known as Credit Support Annexes. 


Residual Contractual Maturities of Balance Sheet Items and Off-Balance-Sheet Commitments
The following tables present balance sheet items and off-balance-sheet commitments by residual contractual maturity as at July31,2014 with comparative figures as at October31, 2013. The information gathered from this maturity analysis is a component of liquidity and funding management. However, this maturity profile does not represent how the Bank manages its interest rate risk nor its liquidity risk and funding needs. The Bank considers factors other than contractual maturity in the assessment of liquid assets or in determining expected future cash flows. 
In the normal course of business, the Bank enters into various off-balance-sheet commitments. The credit instruments used to meet the funding needs of its clients represent the maximum amount of additional credit the Bank could be obligated to extend if the commitments were fully drawn. 
The Bank also has minimum future commitments under leases for premises as well as for other contracts, mainly contracts for outsourced IT services. Most of the lease commitments are related to operating leases. 
(millions of Canadian dollars) 














As at July31, 2014





1 month or less

Over 1
month to
3 months 

Over 3 
months to 
6 months

Over 6 
months to 
9 months

Over 9 
months to 
12 months

Over 1
year to 
2 years

Over 2 
years to
5 years

Over 5 years

No
specified
maturity

Total























ASSETS 












































Cash and deposits 





















with financial institutions
4,304

212







1,396

5,912

























Securities 





















At fair value through 






















profit or loss 
209

502

1,102

606

2,239

5,167

7,839

7,283

20,685

45,632


Available-for-sale 
79

87

167


270

368

3,850

3,904

408

9,133





288

589

1,269

606

2,509

5,535

11,689

11,187

21,093

54,765

























Securities purchased under 





















reverse repurchase 





















agreements and





















securities borrowed
9,478

3,936

4,506

195

251

222

1,014


2,417

22,019

























Loans and acceptances (1)





















Residential mortgage 
1,013

1,126

1,726

1,710

2,902

9,042

20,328

556

260

38,663


Personal and credit card 
241

329

530

597

788

2,317

5,686

1,566

17,268

29,322


Business and government 
5,771

1,831

1,584

1,229

1,134

1,648

3,596

1,000

9,630

27,423


Customers' liability under 






















acceptances 
7,327

1,195

62







8,584


Allowances for credit losses 
















(593)

(593)





14,352

4,481

3,902

3,536

4,824

13,007

29,610

3,122

26,565

103,399

























Other 





















Derivative financial instruments 
261

320

382

193

138

800

1,164

2,828


6,086


Due from clients, dealers 






















and brokers(1)
















935

935


Investments in associates and 






















joint ventures 
















677

677


Premises and equipment 
















381

381


Goodwill 
















1,271

1,271


Intangible assets 
















1,039

1,039


Other assets 
129

43

197

59

302

40

45

154

1,369

2,338





390

363

579

252

440

840

1,209

2,982

5,672

12,727





28,812

9,581

10,256

4,589

8,024

19,604

43,522

17,291

57,143

198,822

(1) Amounts collectible on demand are considered to have no specified maturity.


(millions of Canadian dollars) 














As at July31, 2014





1 month or less

Over 1 month to 3 months

Over 3 months to 6 months

Over 6 months to 9 months

Over 9 months to 12 months

Over 1 year to 2 years

Over 2 years to 5 years

Over 5 years

No
specified
maturity

Total























LIABILITIES AND EQUITY 












































Deposits(1)(2)





















Personal 
685

1,021

1,470

1,908

1,175

4,755

8,733

437

24,473

44,657


Business and government
585

115

118

120

115

580

318

283

31,985

34,219


Deposit-taking institutions
365

482







762

1,609


Unsecured senior debt
5,576

2,542

2,758

1,087

5,272

6,218

5,167

748


29,368


Covered bonds






3,641

1,450


5,091





7,211

4,160

4,346

3,115

6,562

11,553

17,859

2,918

57,220

114,944

























Other 





















Acceptances 
7,327

1,195

62







8,584


Obligations related 






















to securities sold short(3)
132

43

122

37

205

1,012

4,954

5,918

3,826

16,249


Obligations related to 






















securities sold under 






















repurchase agreements and 






















securities loaned 
10,961

1,417

5,204

1,496





1,266

20,344


Derivative financial 






















instruments 
214

254

395

200

181

715

1,178

1,233


4,370


Due to clients, dealers 






















and brokers(1)
















1,732

1,732


Liabilities related to transferred 






















receivables(4)
15

275

339

405

366

2,137

8,166

4,673


16,376


Securitization - Credit card(5)



330

550

400




1,280


Other liabilities - Other items(1)(5)
192

2

207


656

6

54

53

1,915

3,085





18,841

3,186

6,329

2,468

1,958

4,270

14,352

11,877

8,739

72,020

Subordinated debt


354



518

1,006

7


1,885

























Equity 
















9,973

9,973





26,052

7,346

11,029

5,583

8,520

16,341

33,217

14,802

75,932

198,822

























OFF-BALANCE-SHEET COMMITMENTS 













































Letters of guarantee and 






















documentary letters of credit 
11

152

695

86

290

1,135

835

200


3,404


Credit card receivables(6)
















6,472

6,472


Backstop liquidity and credit 






















enhancement facilities(7)



2,958

1,116

30

835



4,939


Commitments to extend credit(8)
662

1,177

770

1,237

1,719

7,187

7,466

545

19,002

39,765


Lease commitments and 






















other contracts 
59

116

168

164

116

423

654

518


2,218


Other guarantee 








29

29

(1) Amounts payable upon demand or notice are considered to have no specified maturity. 
(2) The Deposits item is presented in greater detail than it is on the Consolidated Balance Sheet.
(3) Amounts have been disclosed according to the remaining contractual maturity of the underlying security.
(4) These amounts mainly include liabilities related to the securitization of mortgage loans.
(5) The Other liabilities item is presented in greater detail than it is on the Consolidated Balance Sheet. 
(6) These amounts are unconditionally revocable at the Bank's discretion at any time.
(7) In the event of payment on one of the backstop liquidity facilities, the Bank will receive as collateral government bonds in an amount up to $1.8billion.
(8) These amounts include $17.0billion that is unconditionally revocable at the Bank's discretion at any time.


(millions of Canadian dollars) 














As at October31, 2013(1)





1 month or less

Over 1 month to 3 months

Over 3 months to 6 months

Over 6 months to 9 months

Over 9 months to 12 months

Over 1 year to 2 years

Over 2 years to 5 years

Over 5 years

No specified maturity

Total 






















ASSETS 










































Cash and deposits 




















with financial institutions
1,177

203







2,216

3,596 
























Securities 




















At fair value through 





















profit or loss 
286

1,151

770

10

2,234

4,233

7,335

10,374

17,607

44,000 


Available-for-sale 
365

36

64

103

60

607

4,917

3,193

399

9,744 





651

1,187

834

113

2,294

4,840

12,252

13,567

18,006

53,744 
























Securities purchased under 




















reverse repurchase 




















agreements and




















securities borrowed
7,142

5,039

3,814

1,330

347




3,777

21,449 
























Loans and acceptances(2)




















Residential mortgage 
871

968

1,289

2,271

1,732

7,503

20,976

698

265

36,573 


Personal and credit card 
254

322

500

624

513

1,652

5,619

1,447

17,058

27,989 


Business and government 
4,050

1,492

1,063

1,421

908

1,463

3,427

901

9,675

24,400 


Customers' liability under 





















acceptances 
8,104

843

7







8,954 


Allowances for credit losses 
















(578)

(578) 





13,279

3,625

2,859

4,316

3,153

10,618

30,022

3,046

26,420

97,338 
























Other 




















Derivative financial instruments 
321

338

156

148

151

705

1,580

2,505


5,904 


Due from clients, dealers 





















and brokers(2)
















1,101

1,101 


Investments in associates and 





















joint ventures 
















684

684 


Premises and equipment 
















404

404 


Goodwill 
















1,064

1,064 


Intangible assets 
















898

898 


Other assets 
144

63

219

115

113

64

124

76

1,119

2,037 





465

401

375

263

264

769

1,704

2,581

5,270

12,092 





22,714

10,455

7,882

6,022

6,058

16,227

43,978

19,194

55,689

188,219 

(1) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2 to the unaudited interim condensed consolidated financial statements.
(2) Amounts collectible on demand are considered to have no specified maturity.


(millions of Canadian dollars) 














As at October31, 2013(1)





1 month or less

Over 1 month to 3 months

Over 3 months to 6 months

Over 6 months to 9 months

Over 9 months to 12 months

Over 1 year to 2 years

Over 2 years to 5 years

Over 5 years

No specified maturity

Total 






















LIABILITIES AND EQUITY 










































Deposits(2)(3)




















Personal 
801

970

1,808

2,043

1,479

4,457

8,272

355

22,467

42,652 


Business and government 
840

189

247

143

153

308

450

305

29,274

31,909 


Deposit-taking institutions 
141

314







617

1,072 


Unsecured senior debt 
3,349

1,835

1,895

617

1,506

8,891

4,725

518


23,336 


Covered bonds 

1,043





2,099



3,142 





5,131

4,351

3,950

2,803

3,138

13,656

15,546

1,178

52,358

102,111 
























Other 




















Acceptances 
8,104

843

7







8,954 


Obligations related 





















to securities sold short(4)
258

210

413


818

1,183

4,199

8,260

3,568

18,909 


Obligations related to 





















securities sold under 





















repurchase agreements and 





















securities loaned 
8,968

3,349

5,366

773





1,290

19,746 


Derivative financial 





















instruments 
245

580

345

140

160

590

1,380

1,418


4,858 


Due to clients, dealers 





















and brokers(2)
















2,442

2,442 


Liabilities related to transferred 





















receivables(5)
14

490

362

402

283

1,108

7,274

5,390


15,323 


Securitization - Credit card(6)





1,280




1,280 


Other liabilities - Other items(2)(6)
156

63

155

1

588

97

120

173

1,864

3,217 





17,745

5,535

6,648

1,316

1,849

4,258

12,973

15,241

9,164

74,729 
























Subordinated debt
500





362

1,531

33


2,426 
























Equity 
















8,953

8,953 





23,376

9,886

10,598

4,119

4,987

18,276

30,050

16,452

70,475

188,219 
























OFF-BALANCE-SHEET COMMITMENTS 











































Letters of guarantee and 





















documentary letters of credit 
8

404

43

254

265

1,150

1,054

65


3,243 


Credit card receivables(7)
















6,332

6,332 


Backstop liquidity and credit 





















enhancement facilities(8)

15

2,050

15


2,098


886


5,064 


Commitments to extend credit(9)
813

507

1,175

1,740

1,613

7,423

6,507

294

18,172

38,244 


Lease commitments and 





















other contracts 
62

120

174

169

163

453

696

550


2,387 


Other guarantee 








29

29 

(1) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2 to the unaudited interim condensed consolidated financial statements.
(2) Amounts payable upon demand or notice are considered to have no specified maturity. 
(3) The Deposits item is presented in greater detail than it is on the Consolidated Balance Sheet.
(4) Amounts have been disclosed according to the remaining contractual maturity of the underlying security.
(5) These amounts mainly include liabilities related to the securitization of mortgage loans.
(6) The Other liabilities item is presented in greater detail than it is on the Consolidated Balance Sheet. 
(7) These amounts are unconditionally revocable at the Bank's discretion at any time.
(8) In the event of payment on one of the backstop liquidity facilities, the Bank will receive as collateral government bonds in an amount up to $1.8billion.
(9) These amounts include $15.9billion that is unconditionally revocable at the Bank's discretion at any time.

ADDITIONAL FINANCIAL INFORMATION  
Quarterly Information
(millions of Canadian dollars,




















except per share amounts)





2014







2013(1)

2012(1)

2013(1)

2012(1)





Q3

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Total 

Total 























Total revenues

1,460

1,276

1,364

1,251

1,285

1,383

1,232

1,347

5,151 

5,301 





















Net income

441

362

405

320

402

417

373

342

1,512 

1,597 























Earnings per share(2) ($)




















Basic

1.26

1.02

1.16

0.91

1.16

1.21

1.06

0.98

4.34 

4.63 


Diluted

1.24

1.01

1.15

0.90

1.16

1.20

1.05

0.97

4.31 

4.58 

Dividends per common share(2)($)

0.48

0.46

0.46

0.44

0.44

0.41

0.41

0.40

1.70 

1.54 























Return on common




















shareholders' equity (%)

20.1

17.4

19.8

15.8

21.0

23.4

20.7

19.5

20.1 

24.1 























Total assets

198,822

194,289

195,300

188,219

187,195

184,775

183,788

177,903



Impaired loans, net

184

191

194

183

172

146

165

179

























Per common share(2)($)




















Book value

25.18

24.41

23.68

22.97

22.60

21.57

20.76

20.02




Share price





















High

49.15

45.73

46.86

45.24

39.68

39.76

40.02

38.76





Low

45.19

41.60

41.72

38.86

36.33

36.18

37.53

36.95



(1) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2 to the unaudited interim condensed consolidated financial statements.
(2) Reflecting the stock dividend paid on February 13, 2014. See Note 13 to the unaudited interim condensed consolidated financial statements.

This information is provided by RNS
The company news service from the London Stock Exchange
  END
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