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National Bank of Canada announced on December 4, 2024, the publication of its 2024 Annual Report, including the Management's Discussion and Analysis (MD&A). The 2024 MD&A, covering the financial condition and operating results for the year ended October 31, 2024, has been uploaded to the National Storage Mechanism.
| Date | 4 Dec 2024 |
| Time | 15:17:13 |
| Category | Results |
| ID | 8421O |
Regulatory Announcement
RNS Number: 8421O
National Bank of Canada
December 4, 2024
2024 Management's Discussion and Analysis (Part 1)
National Bank of Canada (the "Bank") announces publication of its 2024 Annual Report, including the Management's Discussion and Analysis thereon (the "2024 MD&A"). The 2024 MD&A has been uploaded to the National Storage Mechanism and will shortly be available at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and is available on the Bank's website as part of the 2024 Annual Report at: https://www.nbc.ca/about-us/investors.html.
To view the full PDF of the 2024 MD&A, the 2024 Annual Report and the 2024 Annual CEO and CFO Certifications please click on the following link:
http://www.rns-pdf.londonstockexchange.com/rns/8421O_1-2024-12-4.pdf
http://www.rns-pdf.londonstockexchange.com/rns/8421O_2-2024-12-4.pdf
http://www.rns-pdf.londonstockexchange.com/rns/8421O_3-2024-12-4.pdf
Management's Discussion
and Analysis
December 3, 2024
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 audited annual Consolidated Financial Statements for the year ended October 31, 2024 (the Consolidated Financial Statements) and prepared in accordance with International Financial Reporting Standards (IFRS® Accounting Standards) as issued by the International Accounting Standards Board (IASB), unless otherwise indicated. IFRS Accounting Standards represent Canadian generally accepted accounting principles (GAAP). This MD&A should be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended October 31, 2024. 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.ca and SEDAR+'s website at sedarplus.ca. The information found in the various documents and reports published by the Bank or the information available on the Bank's website and mentioned herein is not and should not be considered incorporated by reference into the 2024 Annual Report, the Management's Discussion and Analysis, or the Consolidated Financial Statements, unless expressly stated otherwise.
|
Financial Reporting Method |
14 |
|
Quarterly Financial Information |
48 |
|
Financial Disclosure |
20 |
|
Analysis of the Consolidated Balance Sheet |
49 |
|
Overview |
21 |
|
Securitization and Off-Balance-Sheet Arrangements |
53 |
|
Financial Analysis |
25 |
|
Capital Management |
55 |
|
Business Segment Analysis |
28 |
|
Risk Management |
65 |
|
Personal and Commercial |
29 |
|
Material Accounting Policies and Accounting Estimates |
113 |
|
Wealth Management |
33 |
|
Accounting Policy Changes |
118 |
|
Financial Markets |
37 |
|
Future Accounting Policy Changes |
119 |
|
U.S. Specialty Finance and International (USSF&I) |
42 |
|
Additional Financial Information |
120 |
|
Other |
47 |
|
Glossary |
130 |
|
|
|
|
|
|
Caution Regarding Forward-Looking Statements
Certain statements in this document are forward-looking statements. These statements are made in accordance with applicable securities legislation in Canada and the United States. The forward-looking statements in this document may include, but are not limited to, statements in the messages from management, as well as other statements about the economy, market changes, the Bank's objectives, outlook, and priorities for fiscal 2025 and beyond, the strategies or actions that the Bank will take to achieve them, expectations for the Bank's financial condition and operations, the regulatory environment in which it operates, its environmental, social, and governance targets and commitments, the anticipated acquisition of Canadian Western Bank (CWB) and the impacts and benefits of this transaction, and certain risks to which the Bank is exposed. The Bank may also make forward-looking statements in other documents and regulatory filings, as well as orally. These forward-looking statements are typically identified by verbs or words such as "outlook", "believe", "foresee", "forecast", "anticipate", "estimate", "project", "expect", "intend" and "plan", the use of future or conditional forms, notably verbs such as "will", "may", "should", "could" or "would", as well as similar terms and expressions.
These forward-looking statements are intended to assist the security holders of the Bank in understanding the Bank's financial position and results of operations as at the dates indicated and for the periods then ended, as well as the Bank's vision, strategic objectives, and performance targets, and may not be appropriate for other purposes. These forward-looking statements are based on current expectations, estimates, assumptions and intentions that the Bank deems reasonable as at the date thereof and are subject to inherent uncertainty and risks, many of which are beyond the Bank's control. There is a strong possibility that the Bank's express or implied predictions, forecasts, projections, expectations, or conclusions will not prove to be accurate, that its assumptions will not be confirmed, and that its vision, strategic objectives, and performance targets will not be achieved. The Bank cautions investors that these forward-looking statements are not guarantees of future performance and that actual events or results may differ materially from these statements due to a number of factors. Therefore, the Bank recommends that readers not place undue reliance on these forward-looking statements, as a number of factors could cause actual results to differ materially from the expectations, estimates, or intentions expressed in these forward-looking statements. Investors and others who rely on the Bank's forward-looking statements should carefully consider the factors listed below as well as other uncertainties and potential events 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.
Assumptions about the performance of the Canadian and U.S. economies in 2025 and how that performance will affect the Bank's business are among the factors considered in setting the Bank's strategic priorities and objectives, including allowances for credit losses. These assumptions appear in the Economic Review and Outlook section and, for each business segment, in the Economic and Market Review sections, and may be updated in the quarterly reports to shareholders filed thereafter.
The forward-looking statements made in this document are based on a number of assumptions and their future outcome is subject to a variety of risk factors, many of which are beyond the Bank's control and the impacts of which are difficult to predict. These risk factors include, among others, risks and uncertainties related to the expected regulatory processes and outcomes in connection with the proposed acquisition of CWB (the proposed transaction), such as the possibility that the proposed transaction may fail to materialize or may not materialize within the time periods anticipated, the failure to obtain the required approvals in a timely manner or at all, the Bank's ability to successfully integrate CWB upon completion of the proposed transaction, the potential failure to realize the anticipated synergies and benefits from the proposed transaction, and potential undisclosed costs or liability associated with the proposed transaction; the general economic environment and business and financial market conditions in Canada, the United States, and the other countries where the Bank operates; exchange rate and interest rate fluctuations; inflation; global supply chain disruptions; higher funding costs and greater market volatility; changes to fiscal, monetary, and other public policies; regulatory oversight and changes to regulations that affect the Bank's business; geopolitical and sociopolitical uncertainty; climate change, including physical risks and risks related to the transition to a low-carbon economy; the Bank's ability to meet stakeholder expectations on environmental and social issues, the need for active and continued stakeholder engagement; the availability of comprehensive and high-quality information from customers and other third parties, including greenhouse gas emissions; the ability of the Bank to develop indicators to effectively monitor our progress; the development and deployment of new technologies and sustainable products; the ability of the Bank to identify climate-related opportunities as well as to assess and manage climate-related risks; significant changes in consumer behaviour; the housing situation, real estate market, and household indebtedness in Canada; the Bank's ability to achieve its key short-term priorities and long-term strategies; the timely development and launch of new products and services; the ability of the Bank to recruit and retain key personnel; technological innovation, including open banking and the use of artificial intelligence; heightened competition from established companies and from competitors offering non-traditional services; model risk; changes in the performance and creditworthiness of the Bank's clients and counterparties; the Bank's exposure to significant regulatory issues or litigation; changes made to the accounting policies used by the Bank to report its financial position, including the uncertainty related to assumptions and significant accounting estimates; changes to tax legislation in the countries where the Bank operates; changes to capital and liquidity guidelines as well as to the instructions related to the presentation and interpretation thereof; changes to the credit ratings assigned to the Bank by financial and extra-financial rating agencies; potential disruptions to key suppliers of goods and services to the Bank; third-party risk, including failure by third parties to fulfil their obligations to the Bank; the potential impacts of disruptions to the Bank's information technology systems due to cyberattacks and theft or disclosure of data, including personal information and identity theft; the risk of fraudulent activity; and possible impacts of major events on the economy, market conditions, or the Bank's outlook, including international conflicts, natural disasters, public health crises, and the measures taken in response to these events; and the ability of the Bank to anticipate and successfully manage risks arising from all of the foregoing factors.
The foregoing list of risk factors is not exhaustive, and the forward-looking statements made in this document are also subject to credit risk, market risk, liquidity and funding risk, operational risk, regulatory compliance risk, reputation risk, strategic risk, and social and environmental risk as well as certain emerging risks or risks deemed significant. Additional information about these factors is provided in the Risk Management section of the 2024 Annual Report and may be updated in the quarterly reports to shareholders filed thereafter.
Financial Reporting Method
The Bank's Consolidated Financial Statements are prepared in accordance with IFRS Accounting Standards, as issued by the IASB. The financial statements also comply 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 Consolidated Financial Statements are to be prepared in accordance with IFRS Accounting Standards, which represent Canadian GAAP. None of the OSFI accounting requirements are exceptions to IFRS Accounting Standards.
The presentation of segment disclosures is consistent with the presentation adopted by the Bank for the fiscal year beginning November 1, 2023. This presentation reflects the retrospective application of accounting policy changes arising from the adoption of IFRS 17 - Insurance Contracts (IFRS 17). For additional information, see Note 2 to the Consolidated Financial Statements. The figures for fiscal 2023 have been adjusted to reflect these accounting policy changes.
Non-GAAP and Other Financial Measures
The Bank uses a number of financial measures when assessing its results and measuring overall performance. Some of these financial measures are not calculated in accordance with GAAP. Regulation 52-112 Respecting Non-GAAP and Other Financial Measures Disclosure (Regulation 52-112) prescribes disclosure requirements that apply to the following measures used by the Bank:
· non-GAAP financial measures;
· non-GAAP ratios;
· supplementary financial measures;
· capital management measures.
Non-GAAP Financial Measures
The Bank uses non-GAAP financial measures that do not have standardized meanings under GAAP and that therefore may not be comparable to similar measures used by other companies. Presenting non-GAAP financial measures helps readers to better understand how management analyzes results, shows the impacts of specified items on the results of the reported periods, and allows readers to better assess results without the specified items if they consider such items not to be reflective of the underlying performance of the Bank's operations. In addition, the Bank uses the taxable equivalent basis to calculate net interest income, non-interest income, and income taxes. This calculation method consists in grossing up certain revenues taxed at lower rates (notably dividends) by the income tax to a level that would make it comparable to revenues from taxable sources in Canada. An equivalent amount is added to income taxes. This adjustment is necessary in order to perform a uniform comparison of the return on different assets irrespective of their tax treatment. However, in light of the enacted legislation with respect to Canadian dividends, the Bank did not recognize an income tax deduction nor did it use the taxable equivalent basis method to adjust revenues related to affected dividends received after January 1, 2024 (for additional information, see the Income Taxes section).
The key non-GAAP financial measures used by the Bank to analyze its results are described below, and a quantitative reconciliation of these measures is presented in the tables in the Reconciliation of Non-GAAP Financial Measures section on pages 18 to 20 and in the Consolidated Results table on page 25. It should be noted that, for the year ended October 31, 2024, after the agreement to acquire Canadian Western Bank (CWB) was concluded, several acquisition-related items have been excluded from results since, in the opinion of management, they are not reflective of the underlying performance of the Bank's operations, in particular, the amortization of the subscription receipt issuance costs of $14 million ($10 million net of income taxes); a gain of $174 million ($125 million net of income taxes) resulting from the remeasurement at fair value of the CWB common shares already held by the Bank; the impact of managing fair value changes, which is a loss of $3 million ($2 million net of income taxes); and acquisition and integration charges of $18 million ($13 million net of income taxes). For the year ended October 31, 2023, the following items were excluded from results: a $91 million gain ($67 million net of income taxes) related to the fair value remeasurement of an equity interest; impairment losses of $86 million ($62 million net of income taxes) on intangible assets and premises and equipment; litigation expenses of $35 million ($26 million net of income taxes); a $25 million expense ($18 million net of income taxes) related to the retroactive impact of changes to the Excise Tax Act; provisions for contracts of $15 million ($11 million net of income taxes); and a $24 million income tax expense related to the Canadian government's 2022 tax measures.
Adjusted Net Interest Income
This item represents net interest income on a taxable equivalent basis and excluding specified items, if any. A taxable equivalent is added to net interest income so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that net interest income can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Non-Interest Income
This item represents non-interest income on a taxable equivalent basis and excluding specified items, if any. A taxable equivalent is added to non-interest income so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that non‑interest income can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Total Revenues
This item represents total revenues on a taxable equivalent basis and excluding specified items, if any. It consists of adjusted net interest income and adjusted non-interest income. A taxable equivalent is added to total revenues so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that total revenues can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Non-Interest Expenses
This item represents non-interest expenses excluding specified items, if any. Specified items, if any, are excluded so that non-interest expenses can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Income Before Provisions for Credit Losses and Income Taxes
This item represents income before provisions for credit losses and income taxes on a taxable equivalent basis and excluding specified items, if any. It also represents the difference between adjusted total revenues and adjusted non-interest expenses. A taxable equivalent is added to income before provisions for credit losses and income taxes so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that income before provisions for credit losses and income taxes can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Income Taxes
This item represents income taxes on a taxable equivalent basis and excluding income taxes on specified items, if any.
Adjusted Net Income
This item represents net income excluding specified items, if any. Specified items, if any, are excluded so that net income can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Net income Attributable to Common Shareholders
This item represents net income attributable to common shareholders excluding specified items, if any. Specified items, if any, are excluded so that net income attributable to common shareholders can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Basic Earnings Per Share
This item represents basic earnings per share excluding specified items, if any. Specified items, if any, are excluded so that basic earnings per share can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Diluted Earnings Per Share
This item represents diluted earnings per share excluding specified items, if any. Specified items, if any, are excluded so that diluted earnings per share can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
The Bank also uses the below-described measures to assess its results, and a quantitative reconciliation of these non-GAAP financial measures is presented in Table 5 on page 124, and on page 7 of the document entitled Supplementary Financial Information - Fourth Quarter 2024 available on the Bank's website at nbc.ca.
Adjusted Non-Trading Net Interest Income
This item represents non-trading net interest income on a taxable equivalent basis. It includes revenues related to financial assets and financial liabilities associated with non-trading activities, net of interest expenses and interest income related to the financing of these financial assets and liabilities, and is used to calculate adjusted non-trading net interest margin. A taxable equivalent is added to non-trading net interest income so that the performance of the various assets can be compared irrespective of their tax treatment.
Net Interest Income Related to Trading Activities on a Taxable Equivalent Basis
This item represents net interest income related to trading activities plus a taxable equivalent. It comprises dividends related to financial assets and liabilities associated with trading activities, and certain interest income related to the financing of these financial assets and liabilities, net of interest expenses. A taxable equivalent is added to net interest income related to trading activities so that the performance of the various assets can be compared irrespective of their tax treatment.
Non-Interest Income Related to Trading Activities on a Taxable Equivalent Basis
This item represents non-interest income related to trading activities plus a taxable equivalent. It consists of realized and unrealized gains and losses as well as interest income on securities measured at fair value through profit or loss, income from held-for-trading derivative financial instruments, changes in the fair value of loans at fair value through profit or loss, changes in the fair value of financial instruments designated at fair value through profit or loss, realized and unrealized gains and losses as well as interest expense on obligations related to securities sold short, certain commission income as well as other trading activity revenues, and any applicable transaction costs. A taxable equivalent amount is added to the non-interest income related to trading activities such that the returns of different assets can be compared irrespective of their tax treatment.
Trading Activity Revenues on a Taxable Equivalent Basis
This item represents trading activity revenues plus a taxable equivalent. These revenues comprise dividends related to financial assets and liabilities associated with trading activities; certain interest income related to the financing of these financial assets and liabilities, net of interest expenses; realized and unrealized gains and losses as well as interest income on securities measured at fair value through profit or loss; income from held-for-trading derivative financial instruments; changes in the fair value of loans at fair value through profit or loss; changes in the fair value of financial instruments designated at fair value through profit or loss; realized and unrealized gains and losses as well as interest expense on obligations related to securities sold short; certain commission income as well as other trading activity revenues, and any applicable transaction costs. A taxable equivalent is added to trading activity revenues so that the performance of the various assets can be compared irrespective of their tax treatment.
Non-GAAP Ratios
The Bank uses non-GAAP ratios that do not have standardized meanings under GAAP and that may therefore not be comparable to similar measures used by other companies. A non-GAAP ratio is a ratio in which at least one component is a non-GAAP financial measure. The Bank uses non-GAAP ratios to present aspects of its financial performance or financial position.
The key non-GAAP ratios used by the Bank are described below.
Adjusted Return on Common Shareholders' Equity (ROE)
This item represents ROE excluding specified items, if any. It is adjusted net income attributable to common shareholders expressed as a percentage of average equity attributable to common shareholders. It is a general measure of the Bank's efficiency in using equity. Specified items, if any, are excluded so that ROE can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Dividend Payout Ratio
This item represents the dividend payout ratio excluding specified items, if any. It is dividends on common shares (per share amount) expressed as a percentage of adjusted basic earnings per share. This ratio is a measure of the proportion of earnings that is paid out to shareholders in the form of dividends. Specified items, if any, are excluded so that the dividend payout ratio can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Operating Leverage
This item represents operating leverage on a taxable equivalent basis and excluding specified items, if any. It is the difference between the growth rate of adjusted total revenues and the growth rate of adjusted non-interest expenses, and it measures the sensitivity of the Bank's results to changes in its revenues. Adjusted operating leverage is presented on a taxable equivalent basis so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that the operating leverage can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Efficiency Ratio
This item represents the efficiency ratio on a taxable equivalent basis and excluding specified items, if any. The ratio represents adjusted non-interest expenses expressed as a percentage of adjusted total revenues. It measures the efficiency of the Bank's operations. The adjusted efficiency ratio is presented on a taxable equivalent basis so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that the efficiency ratio can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Net Interest Margin, Non-Trading
This item represents the non-trading net interest margin on a taxable equivalent basis. It is calculated by dividing adjusted non-trading net interest income by average non-trading interest-bearing assets. This ratio is a measure of the profitability of non-trading activities. The adjusted non-trading net interest margin includes adjusted non-trading net interest income, which includes a taxable equivalent amount so that the performance of the various assets can be compared irrespective of their tax treatment.
Supplementary Financial Measures
A supplementary financial measure is a financial measure that: (a) is not reported in the Bank's Consolidated Financial Statements, and (b) is, or is intended to be, reported periodically to represent historical or expected financial performance, financial position, or cash flows. The composition of these supplementary financial measures is presented in table footnotes or in the Glossary section on pages 130 to 133 of this MD&A.
Capital Management Measures
The financial reporting framework used to prepare the financial statements requires disclosure that helps readers assess the Bank's capital management objectives, policies, and processes, as set out in IFRS Accounting Standards in IAS 1 - Presentation of Financial Statements. The Bank has its own methods for managing capital and liquidity, and IFRS Accounting Standards do not prescribe any particular calculation method. These measures are calculated using various guidelines and advisories issued by OSFI, which are based on the standards, recommendations, and best practices of the Basel Committee on Banking Supervision (BCBS), as presented in the following table.
|
OSFI guideline or advisory |
Measure |
|
Capital Adequacy Requirements |
Common Equity Tier 1 (CET1) capital ratio Tier 1 capital ratio Total capital ratio CET1 capital Tier 1 capital Tier 2 capital Total capital Risk-weighted assets Maximum credit risk exposure under the Basel asset classes |
|
Leverage Requirements |
Leverage ratio Total exposure |
|
Total Loss Absorbing Capacity (TLAC) |
Key indicators - TLAC requirements Available TLAC TLAC ratio TLAC leverage ratio |
|
Liquidity Adequacy Requirements |
Liquid asset portfolio Encumbered assets and unencumbered assets Liquidity coverage ratio (LCR) High-quality liquid assets (HQLA) Cash inflows/outflows and net cash outflows Net stable funding ratio (NSFR) Available stable funding items Required stable funding items |
|
Global Systemically Important Banks (G-SIBs) - Public Disclosure Requirements |
G-SIB indicators |
Reconciliation of Non-GAAP Financial Measures
Presentation of Results - Adjusted
|
Year ended October 31 |
|
|
|
|
|
|
|
|
|||||||
|
(millions of Canadian dollars) |
|
|
|
|
|
|
|
|
|
|
2024 |
|
2023(1) |
|
|
|
|
|
Personal and Commercial |
|
Wealth Management |
|
Financial Markets |
|
USSF&I |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Total |
|
|||||
|
Operating results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
3,587 |
|
833 |
|
(2,449) |
|
1,303 |
|
(335) |
|
2,939 |
|
3,586 |
|
|
|
Non-interest income |
1,086 |
|
1,953 |
|
5,479 |
|
112 |
|
(169) |
|
8,461 |
|
6,472 |
|
|
|
Total revenues |
4,673 |
|
2,786 |
|
3,030 |
|
1,415 |
|
(504) |
|
11,400 |
|
10,058 |
|
|
|
Non-interest expenses |
2,486 |
|
1,633 |
|
1,246 |
|
439 |
|
250 |
|
6,054 |
|
5,753 |
|
|
|
Income before provisions for credit losses and income taxes |
2,187 |
|
1,153 |
|
1,784 |
|
976 |
|
(754) |
|
5,346 |
|
4,305 |
|
|
|
Provisions for credit losses |
335 |
|
(1) |
|
54 |
|
182 |
|
(1) |
|
569 |
|
397 |
|
|
|
Income before income taxes (recovery) |
1,852 |
|
1,154 |
|
1,730 |
|
794 |
|
(753) |
|
4,777 |
|
3,908 |
|
|
|
Income taxes (recovery) |
509 |
|
317 |
|
476 |
|
166 |
|
(507) |
|
961 |
|
619 |
|
|
|
Net income |
1,343 |
|
837 |
|
1,254 |
|
628 |
|
(246) |
|
3,816 |
|
3,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that have an impact on results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent(2) |
− |
|
− |
|
− |
|
− |
|
(79) |
|
(79) |
|
(332) |
|
|
|
Amortization of the subscription receipt issuance costs(3) |
− |
|
− |
|
− |
|
− |
|
(14) |
|
(14) |
|
− |
|
|
Impact on net interest income |
− |
|
− |
|
− |
|
− |
|
(93) |
|
(93) |
|
(332) |
|
|
|
Non-interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent(2) |
− |
|
− |
|
− |
|
− |
|
(306) |
|
(306) |
|
(247) |
|
|
|
Gain on the fair value remeasurement of equity interests(4)(5) |
− |
|
− |
|
− |
|
− |
|
174 |
|
174 |
|
91 |
|
|
|
Management of the fair value changes related to the CWB acquisition(6) |
− |
|
− |
|
− |
|
− |
|
(3) |
|
(3) |
|
− |
|
|
Impact on non-interest income |
− |
|
− |
|
− |
|
− |
|
(135) |
|
(135) |
|
(156) |
|
|
|
Non-interest expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CWB acquisition and integration charges(7) |
− |
|
− |
|
− |
|
− |
|
18 |
|
18 |
|
− |
|
|
|
Impairment losses on intangible assets and premises and equipment(8) |
− |
|
− |
|
− |
|
− |
|
− |
|
− |
|
86 |
|
|
|
Litigation expenses(9) |
− |
|
− |
|
− |
|
− |
|
− |
|
− |
|
35 |
|
|
|
Expense related to changes to the Excise Tax Act(10) |
− |
|
− |
|
− |
|
− |
|
− |
|
− |
|
25 |
|
|
|
Provisions for contracts(11) |
− |
|
− |
|
− |
|
− |
|
− |
|
− |
|
15 |
|
|
Impact on non-interest expenses |
− |
|
− |
|
− |
|
− |
|
18 |
|
18 |
|
161 |
|
|
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent(2) |
− |
|
− |
|
− |
|
− |
|
(385) |
|
(385) |
|
(579) |
|
|
|
Income taxes on the amortization of the subscription receipt issuance costs(3) |
− |
|
− |
|
− |
|
− |
|
(4) |
|
(4) |
|
− |
|
|
|
Income taxes on the gain on the fair value remeasurement of equity interests(4)(5) |
− |
|
− |
|
− |
|
− |
|
49 |
|
49 |
|
24 |
|
|
|
Income taxes on management of the fair value changes related to the CWB acquisition(6) |
− |
|
− |
|
− |
|
− |
|
(1) |
|
(1) |
|
− |
|
|
|
Income taxes on the CWB acquisition and integration charges(7) |
− |
|
− |
|
− |
|
− |
|
(5) |
|
(5) |
|
− |
|
|
|
Income taxes on the impairment losses on intangible assets and premises and equipment(8) |
− |
|
− |
|
− |
|
− |
|
− |
|
− |
|
(24) |
|
|
|
Income taxes on the litigation expenses(9) |
− |
|
− |
|
− |
|
− |
|
− |
|
− |
|
(9) |
|
|
|
Income taxes on the expense related to changes to the Excise Tax Act(10) |
− |
|
− |
|
− |
|
− |
|
− |
|
− |
|
(7) |
|
|
|
Income taxes on the provisions for contracts(11) |
− |
|
− |
|
− |
|
− |
|
− |
|
− |
|
(4) |
|
|
|
Income taxes related to the Canadian government's 2022 tax measures(12) |
− |
|
− |
|
− |
|
− |
|
− |
|
− |
|
24 |
|
|
Impact on income taxes |
− |
|
− |
|
− |
|
− |
|
(346) |
|
(346) |
|
(575) |
|
|
|
Impact on net income |
− |
|
− |
|
− |
|
− |
|
100 |
|
100 |
|
(74) |
|
|
|
Operating results - Adjusted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income - Adjusted |
3,587 |
|
833 |
|
(2,449) |
|
1,303 |
|
(242) |
|
3,032 |
|
3,918 |
|
|
|
Non-interest income - Adjusted |
1,086 |
|
1,953 |
|
5,479 |
|
112 |
|
(34) |
|
8,596 |
|
6,628 |
|
|
|
Total revenues - Adjusted |
4,673 |
|
2,786 |
|
3,030 |
|
1,415 |
|
(276) |
|
11,628 |
|
10,546 |
|
|
|
Non-interest expenses - Adjusted |
2,486 |
|
1,633 |
|
1,246 |
|
439 |
|
232 |
|
6,036 |
|
5,592 |
|
|
|
Income before provisions for credit losses and income taxes - Adjusted |
2,187 |
|
1,153 |
|
1,784 |
|
976 |
|
(508) |
|
5,592 |
|
4,954 |
|
|
|
Provisions for credit losses |
335 |
|
(1) |
|
54 |
|
182 |
|
(1) |
|
569 |
|
397 |
|
|
|
Income before income taxes (recovery) - Adjusted |
1,852 |
|
1,154 |
|
1,730 |
|
794 |
|
(507) |
|
5,023 |
|
4,557 |
|
|
|
Income taxes (recovery) - Adjusted |
509 |
|
317 |
|
476 |
|
166 |
|
(161) |
|
1,307 |
|
1,194 |
|
|
|
Net income - Adjusted |
1,343 |
|
837 |
|
1,254 |
|
628 |
|
(346) |
|
3,716 |
|
3,363 |
|
|
(1) Certain amounts have been adjusted to reflect accounting policy changes arising from the adoption of IFRS 17. For additional information, see Note 2 to the Consolidated Financial Statements.
(2) In light of the enacted legislation with respect to Canadian dividends, the Bank did not recognize an income tax deduction or use the taxable equivalent basis method to adjust revenues related to affected dividends received after January 1, 2024 (for additional information, see the Income Taxes section).
(3) During the year ended October 31, 2024, the Bank recorded an amount of $14 million ($10 million net of income taxes) to reflect the amortization of the issuance costs of the subscription receipts issued as part of the agreement to acquire CWB (for additional information, see Notes 14 and 16 to the Consolidated Financial Statements).
(4) During the year ended October 31, 2024, the Bank recorded a gain of $174 million ($125 million net of income taxes) upon the remeasurement at fair value of the interest already held in CWB.
(5) During the year ended October 31, 2023, the Bank had concluded that it had lost significant influence over TMX Group Limited (TMX) and therefore ceased using the equity method to account for this investment. The Bank had designated its investment in TMX as a financial asset measured at fair value through other comprehensive income in an amount of $191 million. Upon the fair value measurement, a gain of $91 million ($67 million net of income taxes) had been recorded in the Other heading of segment results.
(6) During the year ended October 31, 2024, the Bank recorded a mark-to-market loss of $3 million ($2 million net of income taxes) on interest rate swaps used to manage the fair value changes of CWB's assets and liabilities that result in volatility of goodwill and capital on closing of the transaction. For additional information, see the CWB Transaction section.
(7) During the year ended October 31, 2024, the Bank recorded acquisition and integration charges of $18 million ($13 million net of income taxes) related to the CWB transaction.
(8) During the year ended October 31, 2023, the Bank had recorded $75 million in intangible asset impairment losses ($54 million net of income taxes) on technology development for which the Bank had decided to cease its use or development (broken down into the business segments as follows: Personal and Commercial ($59 million, $42 million net of income taxes), Wealth Management ($8 million, $6 million net of income taxes), Financial Markets ($7 million, $5 million net of income taxes), and the Other heading of segment results ($1 million)). There was also $11 million impairment losses recorded in premises and equipment ($8 million net of income taxes) related to right-of-use assets in the Other heading of segment results.
(9) During the year ended October 31, 2023, the Bank had recorded $35 million in litigation expenses ($26 million net of income taxes) in the Wealth Management segment to resolve litigations and other disputes arising from ongoing or potential claims against the Bank.
(10) During the year ended October 31, 2023, the Bank had recorded a $25 million expense ($18 million net of income taxes) in the Other heading of segment results related to the retroactive impact of changes to the Excise Tax Act, indicating that payment card clearing services rendered by a payment card network operator are subject to the goods and services tax (GST) and the harmonized sales tax (HST).
(11) During the year ended October 31, 2023, the Bank had recorded $15 million in charges ($11 million net of income taxes) for contract termination penalties and for provisions for onerous contracts (broken down in the business segments as follows: Personal and Commercial ($9 million, $7 million net of income taxes) and the Other heading of segment results ($6 million, $4 million net of income taxes)).
(12) During the year ended October 31, 2023, the Bank had recorded a $32 million tax expense with respect to the Canada Recovery Dividend, i.e., a one-time, 15% tax on the fiscal 2021 and 2020 average taxable income above $1 billion, as well as an $8 million tax recovery related to the 1.5% increase in the statutory tax rate, which included the impact related to current and deferred taxes for fiscal 2022. For additional information on these tax measures, see the Income Taxes section.
Presentation of Basic and Diluted Earnings per Share - Adjusted
|
Year ended October 31 |
|
|
|
||||||
|
(Canadian dollars) |
|
|
2024 |
|
|
2023(1) |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
10.78 |
|
$ |
9.33 |
|
||
|
Amortization of the subscription receipt issuance costs(2) |
|
|
0.03 |
|
|
− |
|
||
|
Gain on the fair value remeasurement of equity interests(3)(4) |
|
|
(0.36) |
|
|
(0.20) |
|
||
|
Management of the fair value changes related to the CWB acquisition(5) |
|
|
− |
|
|
− |
|
||
|
CWB acquisition and integration charges(6) |
|
|
0.04 |
|
|
− |
|
||
|
Impairment losses on intangible assets and premises and equipment(7) |
|
|
− |
|
|
0.19 |
|
||
|
Litigation expenses(8) |
|
|
− |
|
|
0.08 |
|
||
|
Expense related to changes to the Excise Tax Act(9) |
|
|
− |
|
|
0.05 |
|
||
|
Provisions for contracts(10) |
|
|
− |
|
|
0.03 |
|
||
|
Income taxes related to the Canadian government's 2022 tax measures(11) |
|
|
− |
|
|
0.07 |
|
||
|
Basic earnings per share - Adjusted |
|
$ |
10.49 |
|
$ |
9.55 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
10.68 |
|
$ |
9.24 |
|
||
|
Amortization of the subscription receipt issuance costs(2) |
|
|
0.03 |
|
|
− |
|
||
|
Gain on the fair value remeasurement of equity interests(3)(4) |
|
|
(0.36) |
|
|
(0.20) |
|
||
|
Management of the fair value changes related to the CWB acquisition(5) |
|
|
− |
|
|
− |
|
||
|
CWB acquisition and integration charges(6) |
|
|
0.04 |
|
|
− |
|
||
|
Impairment losses on intangible assets and premises and equipment(7) |
|
|
− |
|
|
0.19 |
|
||
|
Litigation expenses(8) |
|
|
− |
|
|
0.08 |
|
||
|
Expense related to changes to the Excise Tax Act(9) |
|
|
− |
|
|
0.05 |
|
||
|
Provisions for contracts(10) |
|
|
− |
|
|
0.03 |
|
||
|
Income taxes related to the Canadian government's 2022 tax measures(11) |
|
|
− |
|
|
0.07 |
|
||
|
Diluted earnings per share - Adjusted |
|
$ |
10.39 |
|
$ |
9.46 |
|
||
(1) Certain amounts have been adjusted to reflect accounting policy changes arising from the adoption of IFRS 17. For additional information, see Note 2 to the Consolidated Financial Statements.
(2) During the year ended October 31, 2024, the Bank recorded an amount of $14 million ($10 million net of income taxes) to reflect the amortization of the issuance costs of the subscription receipts issued as part of the agreement to acquire CWB (for additional information, see Notes 14 and 16 to the Consolidated Financial Statements).
(3) During the year ended October 31, 2024, the Bank recorded a gain of $174 million ($125 million net of income taxes) upon the remeasurement at fair value of the interest already held in CWB.
(4) During the year ended October 31, 2023, the Bank had concluded that it had lost significant influence over TMX Group Limited (TMX) and therefore ceased using the equity method to account for this investment. The Bank had designated its investment in TMX as a financial asset measured at fair value through other comprehensive income in an amount of $191 million. Upon the fair value measurement, a gain of $91 million ($67 million net of income taxes) had been recorded.
(5) During the year ended October 31, 2024, the Bank recorded a mark-to-market loss of $3 million ($2 million net of income taxes) on interest rate swaps used to manage the fair value changes of CWB's assets and liabilities that result in volatility of goodwill and capital on closing of the transaction. For additional information, see the CWB Transaction section.
(6) During the year ended October 31, 2024, the Bank recorded acquisition and integration charges of $18 million ($13 million net of income taxes) related to the CWB transaction.
(7) During the year ended October 31, 2023, the Bank had recorded $75 million in intangible asset impairment losses ($54 million net of income taxes) on technology development for which the Bank had decided to cease its use or development, and it had recorded $11 million in premises and equipment impairment losses ($8 million net of income taxes) related to right-of-use assets.
(8) During the year ended October 31, 2023, the Bank had recorded $35 million in litigation expenses ($26 million net of income taxes) to resolve litigations and other disputes arising from ongoing or potential claims against the Bank.
(9) During the year ended October 31, 2023, the Bank had recorded a $25 million expense ($18 million net of income taxes) related to the retroactive impact of changes to the Excise Tax Act, indicating that payment card clearing services rendered by a payment card network operator are subject to the goods and services tax (GST) and the harmonized sales tax (HST).
(10) During the year ended October 31, 2023, the Bank had recorded $15 million in charges ($11 million net of income taxes) for contract termination penalties and for provisions for onerous contracts.
(11) During the year ended October 31, 2023, the Bank had recorded a $32 million tax expense with respect to the Canada Recovery Dividend, i.e., a one-time, 15% tax on the fiscal 2021 and 2020 average taxable income above $1 billion, as well as an $8 million tax recovery related to the 1.5% increase in the statutory tax rate, which included the impact related to current and deferred taxes for fiscal 2022. For additional information on these tax measures, see the Income Taxes section.
Financial Disclosure
Disclosure Controls and Procedures
The Bank's financial information is prepared with the support of a set of disclosure controls and procedures (DC&P) that are implemented by the President and Chief Executive Officer (CEO) and by the Chief Financial Officer and Executive Vice-President, Finance (CFO). During the year ended October 31, 2024, in accordance with National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (National Instrument 52-109) released by the CSA, the design and operation of these controls and procedures were evaluated to determine their effectiveness.
As at October 31, 2024, the CEO and the CFO confirmed the effectiveness of the DC&P. These controls are designed to provide reasonable assurance that the information disclosed in annual and interim filings and in other reports filed or submitted under securities legislation is recorded, processed, summarized, and reported within the time periods specified by that legislation. These controls and procedures are also designed to ensure that such information is accumulated and communicated to the Bank's management, including its signing officers, as appropriate, to allow for timely decisions regarding disclosure.
This Annual Report was reviewed by the Bank's Disclosure Committee, Audit Committee, and the Board of Directors (the Board), which approved it prior to publication.
Internal Control Over Financial Reporting
The internal control over financial reporting (ICFR) is designed to provide reasonable assurance that the financial information presented is reliable and that the Consolidated Financial Statements were prepared in accordance with GAAP, which are based on IFRS Accounting Standards, unless indicated otherwise as explained on pages 14 to 20 of this MD&A. Due to inherent limitations of internal controls, the ICFR may not prevent or detect all misstatements in a timely manner.
The CEO and the CFO oversaw the evaluation work performed on the design and operation of the Bank's ICFR in accordance with National Instrument 52‑109. The ICFR was evaluated in accordance with the control framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO - 2013) for financial controls and in accordance with the control framework of the Control Objectives for Information and Related Technologies (COBIT) for information technology general controls.
Based on the evaluation results, the CEO and CFO concluded, as at October 31, 2024, that there are no material weaknesses, that the ICFR is effective and provides reasonable assurance that the financial reporting is reliable, and that the Bank's Consolidated Financial Statements were prepared in accordance with GAAP.
Changes to Internal Control Over Financial Reporting
The CEO and CFO also undertook work that enabled them to conclude that, during the year ended October 31, 2024, no changes were made to the ICFR that have materially affected, or are reasonably likely to materially affect, the design or operation of the ICFR.
Disclosure Committee
The Bank's Disclosure Committee assists the CEO and CFO by ensuring the design, implementation, and operation of the DC&P and ICFR. In so doing, the committee ensures that the Bank is meeting its disclosure obligations under current regulations and that the CEO and CFO are producing the requisite certifications.
Overview
Highlights
|
As at October 31 or for the year ended October 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars, except per share amounts) |
|
|
2024 |
|
|
|
2023(1) |
|
|
% change |
|
|
|
Operating results |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
11,400 |
|
|
|
10,058 |
|
|
13 |
|
|
|
Income before provisions for credit losses and income taxes |
|
|
5,346 |
|
|
|
4,305 |
|
|
24 |
|
|
|
Net income |
|
|
3,816 |
|
|
|
3,289 |
|
|
16 |
|
|
|
Net income attributable to the Bank's shareholders and holders of other equity instruments |
|
|
3,817 |
|
|
|
3,291 |
|
|
16 |
|
|
|
Return on common shareholders' equity(2) |
|
|
17.2 |
% |
|
|
16.3 |
% |
|
|
|
|
|
Dividend payout ratio(2) |
|
|
40.1 |
% |
|
|
42.7 |
% |
|
|
|
|
|
Operating leverage(2) |
|
|
8.1 |
% |
|
|
(5.8) |
% |
|
|
|
|
|
Efficiency ratio(2) |
|
|
53.1 |
% |
|
|
57.2 |
% |
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
10.78 |
|
|
$ |
9.33 |
|
|
16 |
|
|
|
Diluted |
|
$ |
10.68 |
|
|
$ |
9.24 |
|
|
16 |
|
|
Operating results - Adjusted(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues - Adjusted(3) |
|
|
11,628 |
|
|
|
10,546 |
|
|
10 |
|
|
|
Income before provisions for credit losses and income taxes - Adjusted(3) |
|
|
5,592 |
|
|
|
4,954 |
|
|
13 |
|
|
|
Net income - Adjusted(3) |
|
|
3,716 |
|
|
|
3,363 |
|
|
10 |
|
|
|
Return on common shareholders' equity - Adjusted(4) |
|
|
16.7 |
% |
|
|
16.6 |
% |
|
|
|
|
|
Dividend payout ratio - Adjusted(4) |
|
|
41.2 |
% |
|
|
41.7 |
% |
|
|
|
|
|
Operating leverage - Adjusted(4) |
|
|
2.4 |
% |
|
|
(0.7) |
% |
|
|
|
|
|
Efficiency ratio - Adjusted(4) |
|
|
51.9 |
% |
|
|
53.0 |
% |
|
|
|
|
|
Diluted earnings per share - Adjusted(3) |
|
$ |
10.39 |
|
|
$ |
9.46 |
|
|
10 |
|
|
|
Common share information |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared |
|
$ |
4.32 |
|
|
$ |
3.98 |
|
|
9 |
|
|
|
Book value(2) |
|
$ |
65.74 |
|
|
$ |
60.40 |
|
|
|
|
|
|
Share price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
134.23 |
|
|
$ |
103.58 |
|
|
|
|
|
|
Low |
|
$ |
86.50 |
|
|
$ |
84.97 |
|
|
|
|
|
|
Close |
|
$ |
132.80 |
|
|
$ |
86.22 |
|
|
|
|
|
Number of common shares (thousands) |
|
|
340,744 |
|
|
|
338,285 |
|
|
|
|
|
|
Market capitalization |
|
|
45,251 |
|
|
|
29,167 |
|
|
|
|
|
|
Balance sheet and off-balance-sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
462,226 |
|
|
|
423,477 |
|
|
9 |
|
|
|
Loans and acceptances, net of allowances |
|
|
243,032 |
|
|
|
225,443 |
|
|
8 |
|
|
|
Deposits |
|
|
333,545 |
|
|
|
288,173 |
|
|
16 |
|
|
|
Equity attributable to common shareholders |
|
|
22,400 |
|
|
|
20,432 |
|
|
10 |
|
|
|
Assets under administration(2) |
|
|
766,082 |
|
|
|
652,631 |
|
|
17 |
|
|
|
Assets under management(2) |
|
|
155,900 |
|
|
|
120,858 |
|
|
29 |
|
|
|
Regulatory ratios under Basel III(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier 1 (CET1) |
|
|
13.7 |
% |
|
|
13.5 |
% |
|
|
|
|
|
Tier 1 |
|
|
15.9 |
% |
|
|
16.0 |
% |
|
|
|
|
|
Total |
|
|
17.0 |
% |
|
|
16.8 |
% |
|
|
|
|
Leverage ratio |
|
|
4.4 |
% |
|
|
4.4 |
% |
|
|
|
|
|
TLAC ratio(5) |
|
|
31.2 |
% |
|
|
29.2 |
% |
|
|
|
|
|
TLAC leverage ratio(5) |
|
|
8.6 |
% |
|
|
8.0 |
% |
|
|
|
|
|
Liquidity coverage ratio (LCR)(5) |
|
|
150 |
% |
|
|
155 |
% |
|
|
|
|
|
Net stable funding ratio (NSFR)(5) |
|
|
122 |
% |
|
|
118 |
% |
|
|
|
|
|
Other information |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees - Worldwide (full-time equivalent) |
|
|
29,196 |
|
|
|
28,916 |
|
|
1 |
|
|
|
Number of branches in Canada |
|
|
368 |
|
|
|
368 |
|
|
- |
|
|
|
Number of banking machines in Canada |
|
|
940 |
|
|
|
944 |
|
|
- |
|
|
(1) Certain amounts have been adjusted to reflect accounting policy changes arising from the adoption of IFRS 17. For additional information, see Note 2 to the Consolidated Financial Statements.
(2) See the Glossary section on pages 130 to 133 for details on the composition of these measures.
(3) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP financial measures.
(4) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP ratios.
(5) See the Financial Reporting Method section on pages 14 to 20 for additional information on capital management measures.
About National Bank
The Bank carries out its activities in four business segments: Personal and Commercial, Wealth Management, Financial Markets as well as U.S. Specialty Finance and International (USSF&I), which comprises the activities of the Credigy Ltd. (Credigy) and Advanced Bank of Asia Limited (ABA Bank) subsidiaries. Other operating activities, certain specified items, Treasury activities, and the operations of the Flinks Technology Inc. (Flinks) subsidiary are grouped in the Other heading of segment results. Each reportable segment is distinguished by services offered, type of clientele, and marketing strategy. For additional information, see the Business Segment Analysis section of this MD&A.
Objectives and 2024 Results
When setting its objectives, the Bank aims for a realistic challenge in the prevailing business environment by considering such factors as changes in banking industry financial results as well as the Bank's business development plan. When the Bank sets its medium-term objectives, it does not take into consideration specified items, if any, which are not reflective of the underlying financial performance of the Bank's operations. Management therefore excludes specified items when assessing the Bank's performance against its objectives.
For fiscal 2024, the Bank recorded $3,816 million in net income compared to $3,289 million in fiscal 2023, and its diluted earnings per share stood at $10.68 compared to $9.24 in fiscal 2023. The Bank's return on common shareholders' equity (ROE) was 17.2% in fiscal 2024 versus 16.3% in 2023. As for its adjusted diluted earnings per share, it stood at $10.39 in fiscal 2024, up 10% from $9.46 in 2023. Furthermore, adjusted ROE was 16.7% in 2024 compared to 16.6% in 2023.
The following table compares the Bank's medium-term objectives with its fiscal 2024 results.
|
|
Medium-Term Objectives |
|
2024 Results |
|
Growth in diluted earnings per share - Adjusted(1) |
5 - 10% |
|
10% |
|
ROE - Adjusted(2) |
15 - 20% |
|
16.7% |
|
Dividend payout ratio - Adjusted(2) |
40 - 50% |
|
41.2% |
|
Capital ratios(3) |
Strong |
CET1 capital ratio(3) |
13.7% |
|
Liquidity ratios(3) |
Strong |
LCR(3) |
150% |
The Bank's financial results met all of its medium-term objectives. Adjusted diluted earnings per share for fiscal 2024 increased 10% year over year, which is at the upper end of the target, due to strong performance by all the business segments. For fiscal 2024, adjusted ROE was in the lower range of the target. The adjusted dividend payout ratio fell within the target distribution range, notably as a result of higher dividends paid during the fiscal year. The CET1 capital ratio and the LCR, at 13.7% and 150%, respectively, also met the objectives.
The Bank also examines its performance using the efficiency ratio and operating leverage. For fiscal 2024, the efficiency ratio was 53.1% compared to 57.2% in fiscal 2023, an improvement attributable to revenue growth in all business segments and to the adverse effect of the specified items reported in Non-interest expenses in 2023. As for the adjusted efficiency ratio, it stood at 51.9% in fiscal 2024 compared to 53.0% in fiscal 2023, demonstrating disciplined expense management by all the Bank's business segments. Also for fiscal 2024, operating leverage and adjusted operating leverage were positive at 8.1% and 2.4%, respectively, due to strong performance by all the business segments.
|
Net Income Year ended October 31 (millions of Canadian dollars) |
|
Diluted Earnings Per Share Year ended October 31 (Canadian dollars) |
|
Efficiency Ratio(4) Year ended October 31 (%) |
|
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|
|
|
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|||||||||||||||
|
2023 |
2024 |
|
2023 |
2024 |
|
2020 |
2021 |
2022 |
2023 |
2024 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|||||||||||||||
(1) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP financial measures.
(2) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP ratios.
(3) See the Financial Reporting Method section on pages 14 to 20 for additional information on capital management measures.
(4) See the Glossary section on pages 130 to 133 for details on the composition of these measures.
Dividends
For fiscal 2024, the Bank declared $1,468 million in dividends to common shareholders (2023: $1,344 million), representing 40.1% of net income attributable to common shareholders (2023: 42.7%) and representing 41.2% of adjusted net income attributable to common shareholders (2023: 41.7%).
Solid Capital Levels(1)
As at October 31, 2024, the Bank's CET1, Tier 1, and Total capital ratios were, respectively, 13.7%, 15.9% and 17.0%, compared to ratios of, respectively, 13.5%, 16.0% and 16.8% as at October 31, 2023. The CET1 capital ratio increased since October 31, 2023, essentially due to the contribution from net income net of dividends and to common share issuances under the Stock Option Plan. These factors were partly offset by the organic growth in RWA and by the impact of implementing OSFI's revised market risk framework. The Tier 1 capital ratio was more negatively affected by the RWA growth and is down compared to October 31, 2023. The increase of the Total capital ratio is explained by the $500 million issuance of medium-term notes during the fiscal 2024.
As at October 31, 2024, the leverage ratio was 4.4%, stable compared to October 31, 2023, as growth in total exposure was offset by growth in Tier 1 capital.
High-Quality Loan Portfolio
Loans, net of allowances for credit losses, accounted for 53% of the Bank's total assets and amounted to $243.0 billion as at October 31, 2024. For fiscal 2024, the Bank recorded $569 million in provisions for credit losses compared to $397 million in fiscal 2023. The increase was mainly due to provisions for credit losses on impaired loans excluding POCI loans(2), which amounted to $480 million in fiscal 2024, an increase of $235 million coming from Personal Banking (including credit card receivables) in a context of normalization of credit performance, from Commercial Banking as well as from the Financial Markets segment and the USSF&I segment. For fiscal 2024, the provisions for credit losses on impaired loans excluding POCI loans(2) represented 0.20% of average loans and acceptances, compared to 0.11% in fiscal 2023. Provisions for credit losses on non-impaired loans decreased by $84 million, mainly due to the more favourable impact of updated macroeconomic scenarios in 2024 and greater credit risk deterioration in fiscal 2023. This decrease was partly offset by the effects of the recalibration of certain risk parameters and by growth in the loan portfolios. Furthermore, provisions for credit losses on POCI loans increased by $21 million, due to favourable remeasurements of certain Credigy portfolios in fiscal 2023, mitigated by higher recoveries of credit losses in fiscal 2024 following repayments of Commercial Banking POCI loans. Gross impaired loans totalled $2,043 million as at October 31, 2024 compared to $1,584 million as at October 31, 2023 and represented 0.84% of total loans.
Risk Profile
|
As at October 31 or for the year ended October 31 |
|
|
|
|
|
|
|
|
(millions of Canadian dollars) |
|
2024 |
|
|
2023 |
|
|
|
Provisions for credit losses |
|
569 |
|
|
397 |
|
|
|
Provisions for credit losses as a % of average loans and acceptances(2) |
|
0.24 |
% |
|
0.18 |
% |
|
|
Provisions for credit losses on impaired loans excluding POCI loans as a % of average loans and acceptances(2) |
|
0.20 |
% |
|
0.11 |
% |
|
|
Net write-offs excluding POCI loans as a % of average loans and acceptances(2) |
|
0.16 |
% |
|
0.07 |
% |
|
|
Gross impaired loans as a % of total loans and acceptances(2) |
|
0.84 |
% |
|
0.70 |
% |
|
|
Gross impaired loans |
|
2,043 |
|
|
1,584 |
|
|
|
Net impaired loans |
|
1,629 |
|
|
1,276 |
|
|
|
Annual Dividend Per Common Share Year ended October 31 (Canadian dollars) |
|
Evolution of Regulatory Ratios Under Basel III(1) As at October 31
|
|
Gross Impaired Loans As at October 31 (millions of Canadian dollars) |
|
|
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|
|
|
|
|
|
||||||||||||
|
2020 |
2021 |
2022 |
2023 |
2024 |
2023 |
2024 |
2020 |
2021 |
2022 |
2023 |
2024
|
|
|
|||
|
|
|
|
|
and acceptances (bps)(2)
|
|
|
||||||||||
(1) See the Financial Reporting Method section on pages 14 to 20 for additional information on capital management measures.
(2) See the Glossary section on pages 130 to 133 for details on the composition of these measures.
Economic Review and Outlook
Global Economy
Inflation continues to decline globally, allowing central banks to consider cutting interest rates. But despite the cuts announced to date, real rates remain restrictive in many regions, limiting the potential for a rapid economic recovery. This dynamic is particularly challenging in China, where weak foreign demand, reflected in low producer prices, is putting pressure on the economy. Added to this is a fragile domestic situation for the Chinese economy despite the authorities' recovery efforts, particularly a struggling real estate market, which contributes to disappointing growth prospects for the country. In Europe, the International Monetary Fund (IMF) expects fiscal consolidation by 2025 after years of government profligacy. While some are skeptical about the chances of this happening, concerns about potential disruptions in the bond market could push governments towards greater fiscal discipline. Such discipline could weigh on European growth in the coming quarters. These challenges are compounded globally by the uncertainty created by the new U.S. administration, particularly the potential for tariffs. In our scenario, this translates into a rather lackluster global growth in 2024 (3.2%)(1) and 2025 (2.9%)(1).
The U.S. economy continues to stand out, showing strength that continues to confound skeptics. GDP grew 2.8% on an annualized basis in the third quarter. This strong performance coincides with a government that has put pressure on the spending accelerator, contradicting the IMF's April forecast of a significant improvement in the U.S. government structural deficit in 2024. In addition to governmental spending, consumer spending also remained strong, growing at an annualized rate of 3.7%, the strongest in six quarters. But some consumers seem to be running out of steam, as evidenced by the very low savings rate and the growing number of people in default. We believe that consumption will depend on developments in the labour market in the coming months. On this front, the news is mixed. The unemployment rate has been rising in recent months but remains low on a historical basis. Workers perceive that it is increasingly difficult to find a job in a context where a growing number of businesses are saying that their sales level is their main issue. On the face of it, the Republican sweep in the presidential elections suggests that they have a free hand to implement the new president-elect's promises. However, investors remain vigilant about the potential fiscal largesse of the next president, and this has been reflected in interest rates, which have been rising again, leading to deteriorating financing conditions. Many question the ability of the U.S. Federal Reserve to lower interest rates, especially since progress on inflation could be hampered by tariffs and action against illegal workers. Overall, while the government may continue to support growth, high interest rates will remain a headwind for the economy. Moreover, trade tensions could lead to deteriorating financial conditions. We therefore expect the economy to slow from 2.8%(1) in 2024 to 1.9%(1) in 2025.
Canadian Economy
In Canada, inflation has remained within the central bank's target range (1% to 3%) since the beginning of the year, falling even below 2% in September. This demonstrates the effectiveness of the central bank's restrictive interest rate policy. However, this containment of inflation had a cost on growth, as preliminary data in the third quarter showed that the economy continues to grow below its potential, a trend observed since 2022. At the same time, the labour market is showing no signs of stabilization, as evidenced by the continued decline in the employment rate, including that of the 25-54 age group. We do not expect a recovery in the near term. Indeed, job offers in the private sector are declining rapidly, and hiring intentions remain largely insufficient in the face of remarkable population growth. Business creation also remains weak, reflecting a business environment degraded by an overly restrictive monetary policy. As a result, the Bank of Canada should celebrate its victory over inflation and continue to lower its policy rate at a steady pace in order to bring its monetary policy to neutral as soon as possible, which should lead to slightly stronger growth in the second half of the year. The federal government's announced cap on immigration could reduce economic growth slightly in 2025, but on the other hand limit the increase in the unemployment rate as many newcomers are currently on the sidelines in an unfavourable hiring climate. In the meantime, we expect economic growth of only 1.0%(1) in 2024 and 1.3%(1) in 2025, which would translate into an unemployment rate close to 7%(1) in 2025.
Quebec Economy
GDP growth in Quebec was encouraging in July, with a 0.3% increase. However, this rebound followed a stagnation in the previous two months. Growth for 2024 overall is still expected to be sluggish given the restrictive monetary policy. However, Quebec seems to be doing well on a relative basis. In October, the province's unemployment rate was the lowest in Canada. GDP per capita is also more resilient in the province than in the country as a whole in the current cycle, i.e. since 2019. This outperformance is driven by strong economic fundamentals. First, the province's economy is one of the most diversified jurisdictions in North America, making it less vulnerable to economic cycle fluctuations and potentially escalating trade tensions. In addition, the level of household debt in Quebec is lower than the Canadian average and the province has the largest proportion of dual-income households in the country. Moreover, the resale market was reinvigorated during the year in the wake of interest rate cuts, in contrast to the trend, and probably helped by housing affordability, which is less problematic than elsewhere. The much higher savings rate than the national average provides a cushion that can ease the shock to consumption should the economic backdrop further deteriorate. We expect slow growth in 2024 and 2025 (1.2%(1) and 1.0%(1) respectively). Considering that the province's population growth is lower than the Canadian average, this would be sufficient to allow Quebec to maintain an unemployment rate that is comfortably below the national average for these two years, namely 5.3%(1) in 2024 and 6.1%(1) in 2025 (versus 6.3%(1) and 7.1%(1), respectively, for Canada).
(1) Real GDP growth forecasts, National Bank Financial's Economics and Strategy group
Financial Analysis
Consolidated Results
|
Year ended October 31 |
|
|
|
||||||
|
(millions of Canadian dollars) |
|
2024 |
|
|
2023(1) |
|
|
% change |
|
|
Operating results |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
2,939 |
|
|
3,586 |
|
|
(18) |
|
|
Non-interest income |
|
8,461 |
|
|
6,472 |
|
|
31 |
|
|
Total revenues |
|
11,400 |
|
|
10,058 |
|
|
13 |
|
|
Non-interest expenses |
|
6,054 |
|
|
5,753 |
|
|
5 |
|
|
Income before provisions for credit losses and income taxes |
|
5,346 |
|
|
4,305 |
|
|
24 |
|
|
Provisions for credit losses |
|
569 |
|
|
397 |
|
|
43 |
|
|
Income before income taxes |
|
4,777 |
|
|
3,908 |
|
|
22 |
|
|
Income taxes |
|
961 |
|
|
619 |
|
|
55 |
|
|
Net income |
|
3,816 |
|
|
3,289 |
|
|
16 |
|
|
Diluted earnings per share (dollars) |
|
10.68 |
|
|
9.24 |
|
|
16 |
|
|
Taxable equivalent basis(2) |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
79 |
|
|
332 |
|
|
|
|
|
Non-interest income |
|
306 |
|
|
247 |
|
|
|
|
|
Income taxes |
|
385 |
|
|
579 |
|
|
|
|
|
Impact of taxable equivalent basis on net income |
|
− |
|
|
− |
|
|
|
|
|
Specified items(2) |
|
|
|
|
|
|
|
|
|
|
Amortization of the subscription receipt issuance costs |
|
(14) |
|
|
− |
|
|
|
|
|
Gain on the fair value remeasurement of equity interests |
|
174 |
|
|
91 |
|
|
|
|
|
Management of the fair value changes related to the CWB acquisition |
|
(3) |
|
|
− |
|
|
|
|
|
CWB acquisition and integration charges |
|
(18) |
|
|
− |
|
|
|
|
|
Impairment losses on intangible assets and premises and equipment |
|
− |
|
|
(86) |
|
|
|
|
|
Litigation expenses |
|
− |
|
|
(35) |
|
|
|
|
|
Expense related to changes to the Excise Tax Act |
|
− |
|
|
(25) |
|
|
|
|
|
Provisions for contracts |
|
− |
|
|
(15) |
|
|
|
|
|
Specified items before income taxes |
|
139 |
|
|
(70) |
|
|
|
|
|
Income taxes related to the Canadian government's 2022 tax measures |
|
− |
|
|
24 |
|
|
|
|
|
Income taxes on specified items |
|
39 |
|
|
(20) |
|
|
|
|
|
Specified items after income taxes |
|
100 |
|
|
(74) |
|
|
|
|
|
Operating results - Adjusted(2) |
|
|
|
|
|
|
|
|
|
|
Net interest income - Adjusted |
|
3,032 |
|
|
3,918 |
|
|
(23) |
|
|
Non-interest income - Adjusted |
|
8,596 |
|
|
6,628 |
|
|
30 |
|
|
Total revenues - Adjusted |
|
11,628 |
|
|
10,546 |
|
|
10 |
|
|
Non-interest expenses - Adjusted |
|
6,036 |
|
|
5,592 |
|
|
8 |
|
|
Income before provisions for credit losses and income taxes - Adjusted |
|
5,592 |
|
|
4,954 |
|
|
13 |
|
|
Provisions for credit losses |
|
569 |
|
|
397 |
|
|
43 |
|
|
Income before income taxes - Adjusted |
|
5,023 |
|
|
4,557 |
|
|
10 |
|
|
Income taxes - Adjusted |
|
1,307 |
|
|
1,194 |
|
|
9 |
|
|
Net income - Adjusted |
|
3,716 |
|
|
3,363 |
|
|
10 |
|
|
Diluted earnings per share - Adjusted (dollars) |
|
10.39 |
|
|
9.46 |
|
|
10 |
|
|
Average assets(3) |
|
457,262 |
|
|
430,646 |
|
|
6 |
|
|
Average loans and acceptances(3) |
|
234,180 |
|
|
215,976 |
|
|
8 |
|
|
Average deposits(3) |
|
315,605 |
|
|
284,570 |
|
|
11 |
|
|
Operating leverage(4) |
|
8.1 |
% |
|
(5.8) |
% |
|
|
|
|
Operating leverage - Adjusted(5) |
|
2.4 |
% |
|
(0.7) |
% |
|
|
|
|
Efficiency ratio(4) |
|
53.1 |
% |
|
57.2 |
% |
|
|
|
|
Efficiency ratio - Adjusted(5) |
|
51.9 |
% |
|
53.0 |
% |
|
|
|
(1) Certain amounts have been adjusted to reflect accounting policy changes arising from the adoption of IFRS 17. For additional information, see Note 2 to these Consolidated Financial Statements.
(2) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP financial measures.
(3) Represents an average of the daily balances for the period.
(4) See the Glossary section on pages 130 to 133 for details on the composition of these measures.
(5) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP ratios.
Analysis of Consolidated Results
Financial Results
The Bank's net income for fiscal 2024 was $3,816 million, up 16% from $3,289 million in fiscal 2023. This increase is explained by revenue growth in all business segments, mitigated by higher non-interest expenses, provisions for credit losses and income taxes. Income before provisions for credit losses and income taxes was up 24% compared to fiscal 2023.
Adjusted net income for the year ended October 31, 2024 was $3,716 million, up 10% from $3,363 million in fiscal 2023, mainly attributable to the good performance of all business segments. Specified items (1) had a favourable impact of $100 million on net income in fiscal 2024, while they had an unfavourable impact of $74 million on net income in fiscal 2023. Adjusted income before provisions for credit losses and income taxes rose 13% compared to fiscal 2023.
Total Revenues
Total revenues for fiscal 2024 amounted to $11,400 million compared to $10,058 million in fiscal 2023, an increase of $1,342 million or 13% that was driven by revenue growth in all of the Bank's business segments. For additional information on total revenues, see Table 2 on page 122. Adjusted total revenues in 2024 were $11,628 million, up $1,082 million or 10% from $10,546 million for the prior year.
Net Interest Income
For fiscal 2024, net interest income was $2,939 million, down 18% from $3,586 million (Table 3, page 122). Net interest income in fiscal 2024 included $14 million representing the amortization of the issuance costs for the subscription receipts issued in connection with the agreement to acquire CWB. Adjusted net interest income totalled $3,032 million in fiscal 2024, down 23% from $3,918 million in fiscal 2023, partly due to the discontinuation of the use of the taxable equivalent method to adjust Canadian dividend income received after January 1, 2024 (for additional information, see the Income Tax section).
In the Personal and Commercial segment, net interest income increased $266 million or 8% to $3,587 million in fiscal 2024. The increase was primarily driven by the growth in personal and commercial loans and deposits of 6% and 5%, respectively, compared to fiscal 2023. The growth in loans came mainly from mortgage lending and business and government lending. In addition, the transition from bankers' acceptances to loans referencing the Canadian Overnight Repo Rate Average (CORRA) contributed to the increase in net interest income in the Personal and Commercial segment. In the Wealth Management segment, net interest income grew 7% to $833 million, as a result of higher loan and deposit volumes.
In the Financial Markets segment, net interest income on a taxable equivalent basis was down considerably from fiscal 2023, mainly due to trading activities and should be examined together with the other items of trading activity revenues. In the USSF&I segment, net interest income rose by $171 million or 15%, as a result of the business growth at the ABA Bank subsidiary, in particular the sustained increase in assets, the increase in net interest income of the Credigy subsidiary stemming from higher loan volumes as well as dividend income recorded in fiscal 2024 related to an investment in a financial group.
Non-Interest Income
For fiscal 2024, non-interest income was $8,461 million, up 31% from $6,472 million for the prior year. For additional information on non-interest income, see Table 4 on page 123. Adjusted non-interest income was $8,596 million in fiscal 2024, up 30% from fiscal 2023.
Underwriting and advisory fees were up 11% compared to 2023, notably due to greater capital markets activity partly offset by lower merger and acquisition revenues in the Financial Markets segment. Securities brokerage commissions were up 11%, primarily due to increased client activity in the Wealth Management segment. Mutual fund revenues and investment management and trust services fees totalled $1,779 million, up $196 million, as a result of the growth in assets under administration and assets under management caused by the rise in stock markets during fiscal 2024 as well as positive net inflows for the various solutions.
Credit fee revenues were up $12 million, while revenues from acceptances and letters of credit and guarantee were down by $126 million compared to fiscal 2023. This decrease is explained by the revenues from bankers' acceptances in Commercial Banking and in the Wealth Management and Financial Markets segments in connection with the transition of bankers' acceptances to CORRA loans. Card revenues grew 5% in fiscal 2024 due to a sharp increase in purchasing volumes. In addition, revenues from deposit and payment service charges decreased by 2%.
(1) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP financial measures.
Non-interest income related to trading activity on a taxable equivalent basis totalled $4,633 million, up from $2,943 million in 2023 (Table 5, page 124). Including the portion recognized in net interest income, trading activity revenues on a taxable equivalent basis amounted to $1,627 million in 2024, an increase of $179 million compared to fiscal 2023. This increase was mainly attributable to equities revenues and interest rate and credit revenues in the Financial Markets segment. In addition, trading activity revenues on a taxable equivalent basis from the other segments decreased year over year.
Net gains on non-trading securities were up $248 million compared to fiscal 2023, mainly as a result of Treasury activities and a gain of $174 million recorded on the fair value remeasurement of the Bank's interest in CWB. In addition, insurance revenues and foreign exchange revenues grew by $14 million and $42 million, respectively, compared to fiscal 2023. The share of net income of associates and joint ventures decreased by $3 million compared to the prior year. Lastly, other revenues amounted to $180 million in fiscal 2024, down $81 million compared to 2023. This decrease was primarily due to a gain of $91 million in fiscal 2023 on the fair value remeasurement of the Bank's interest in TMX, partly offset by the higher favourable impact of the fair value remeasurement of certain Credigy portfolios in fiscal 2024.
Non-Interest Expenses
Non-interest expenses totalled $6,054 million in fiscal 2024, up $301 million or 5% from the prior year (Table 6, page 124). Non-interest expenses in fiscal 2024 included charges of $18 million related to the acquisition and integration of CWB, while the following specified items had been recorded in fiscal 2023: impairment losses on premises and equipment and intangible assets of $86 million, litigation expenses of $35 million, a $25 million expense related to changes to the Excise Tax Act and provisions for contracts of $15 million. Adjusted non-interest expenses stood at $6,036 million in fiscal 2024, up $444 million or 8% from $5,592 million in fiscal 2023.
For fiscal 2024, compensation and employee benefits totalled $3,725 million, an increase of 9% compared to the prior year, mainly due to salary growth as well as variable compensation related to revenue growth. Occupancy expenses, including depreciation expense on premises and equipment, increased, partly due to expenses related to the Bank's new head office building and the expansion of the banking network at the ABA Bank subsidiary. The decrease in technology expenses, including depreciation expense, was attributable to impairment losses on intangible assets recorded in 2023, despite significant investments made to support the Bank's technological evolution and business development plan made during fiscal 2024. Communications expenses remained relatively stable compared to prior year, while professional fees rose, mainly due to the Bank's technological evolution, the increase in external management fees in the Wealth Management segment, and charges of $18 million related to the acquisition and integration of CWB recorded in fiscal 2024. In addition, advertising and business development expenses were up and the decrease in other expenses compared to fiscal 2023 is partly explained by litigation expenses, an expense related to changes to the Excise Tax Act and provisions for contracts recorded in fiscal 2023.
Provisions for Credit Losses
For fiscal 2024, provisions for credit losses totalled $569 million compared to $397 million in fiscal 2023 (Table 7, page 125). The increase was mainly due to provisions for credit losses on impaired loans excluding POCI loans (1) of $480 million in fiscal 2024, up $235 million. This increase comes from Personal Banking (including credit card receivables), in an environment characterized by a normalization of credit performance, and Commercial Banking, for $77 million and $58 million, respectively, Financial Markets for $31 million and USSF&I for $68 million. Provisions for credit losses on non-impaired loans decreased by $84 million, mainly due to the more favourable impact of the updated macroeconomic scenarios in 2024 and a more significant deterioration in credit risk in fiscal 2023. These declines were offset by the effects of the recalibration of certain risk parameters and the growth in loan portfolios. In addition, provisions for credit losses on POCI loans increased by $21 million, due to the favourable remeasurement of certain Credigy portfolios in fiscal 2023, partly offset by higher credit loss recoveries in fiscal 2024 following repayments of POCI loans in Commercial Banking. For fiscal 2024, provisions for credit losses on impaired loans excluding POCI loans(1) represented 0.20% of average loans and acceptances, compared to 0.11% in the prior year.
Income Taxes
Detailed information about the Bank's income taxes is provided in Note 26 to the Consolidated Financial Statements. For fiscal 2024, income taxes stood at $961 million, representing an effective income tax rate of 20%, compared to income taxes of $619 million and an effective income tax rate of 16% in fiscal 2023. The change in effective income tax rate stems mainly from a lower level and proportion of tax-exempt income in fiscal 2024 reflecting the denial of the deduction in respect of dividends covered by Bill C-59 since January 1, 2024, partly offset by the impact of the Canadian government's 2022 tax measures recorded in the first quarter of 2023, namely the Canada Recovery Dividend and the additional 1.5% tax on banks and life insurers.
(1) See the Glossary section on pages 130 to 133 for details on the composition of these measures.
Business Segment Analysis
The Bank carries out its activities in four business segments, which are defined below. For presentation purposes, other activities are grouped in the Other heading of segment results. Each reportable segment is distinguished by services offered, type of clientele, and marketing strategy.
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National Bank of Canada |
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Business Segments |
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Personal and Commercial |
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Wealth Management |
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Financial Markets |
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U.S. Specialty Finance and |
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Core |
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› Banking services › Credit services › Financing › Investment solutions › Insurance |
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› Full-service brokerage › Private banking › Direct brokerage › Investment solutions and transactional products › Administrative and trade execution services › Trust and estate services
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› Equities, interest rate and credit products, commodities and foreign exchange › Corporate banking › Investment banking
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› U.S. Specialty Finance - Credigy › International - ABA Bank (Cambodia) - Minority interests in emerging markets |
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Other: Treasury activities, liquidity management, Bank funding, asset/liability management, Flinks Technology Inc. subsidiary activities (a fintech specialized in financial data aggregation and distribution), and corporate units.
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Total Revenues by Business Segment(1) Year ended October 31, 2024
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Income Before Provisions for Credit Losses and Income Taxes by Business Segment(1) Year ended October 31, 2024
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Net Income by Business Segment(1) Year ended October 31, 2024 |
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(1) Excluding the Other heading.
Personal and Commercial
The Personal and Commercial segment meets the financial needs of close to 2.8 million individuals and over 148,000 businesses across Canada. These clients entrust the Bank to manage, invest, and safeguard their assets and to finance their projects. Clients turn to the Bank's experienced advisors who take the time to understand their specific needs and help them reach their financial goals. Thanks to the Bank's convenient self-banking channels, 368 branches, and 940 banking machines across Canada, clients can do their daily banking whenever and wherever they wish.
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Total Revenues by Category Year ended October 31, 2024 |
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Total Revenues by Geographic Distribution Year ended October 31, 2024 |
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Other provinces (2023: 23%)
|
Personal Banking
Personal Banking provides a complete range of financing and investment
products and services to help clients reach their financial goals throughout every stage in their lives. It offers everyday transaction solutions, mortgage loans and home equity lines of credit, consumer loans, payment solutions, savings and investment solutions as well as a range of insurance products.
Commercial Banking
Commercial Banking serves the financial needs of small- and medium-sized enterprises (SMEs) and large corporations, helping them to achieve growth. It offers a full line of financial products and services, including credit, deposit, and investment solutions as well as international trade, foreign exchange transaction, payroll, cash management, insurance, electronic transaction, and complementary services. With deep roots in the entrepreneur community for over 160 years, Commercial Banking has the leading franchise in core Quebec market.
Economic and Market Review
In Canada, inflation has stayed within the central bank's target range (1% to 3%) since the start of the year and even fell below 2% in September. This underscores the effectiveness of the restrictive interest rate applied by the central bank. However, this control over inflation has taken its toll on growth, with the economy continuing to grow at a pace that falls short of its potential, a trend that began in 2022. At the same time, the labour market deteriorated over this period, and any signs of stabilization are yet to appear, as corporate hiring intentions remain below their historical average. Business investment continues to be held back by high interest rates, much like business creation. As a result, the Bank of Canada is expected to take advantage of the progress made on inflation and continue steadily lowering its key interest rate in order to neutralize monetary policy as soon as possible. The start of the monetary easing cycle seemed to have had minimal impact on the housing market in recent months, due in part to lingering affordability challenges, but the data on existing home sales in October reveal a notable upturn in activity that could continue through to 2025, provided that the deterioration in the labour market remains limited. Following years of record population growth, the federal government's new immigration policy may reduce economic growth slightly in 2025 but also limit any increase in the unemployment rate, as many new arrivals currently find themselves on the sidelines in an unfavourable hiring climate. Companies are faced with a glaring productivity problem and can no longer rely on immigration to support their growth, so they will need to innovate more and make significant investments in operations. Fortunately, they can count on an improved interest rate environment.
The economic environment in 2024 and the outlook for 2025 are discussed in more detail in the Economic Review and Outlook section on page 24.
Objectives and Strategic Priorities
The Personal and Commercial segment is targeting growth by becoming a more simple, efficient bank focused on constantly improving the client experience.
|
|
2024 Achievements and Highlights |
2025 Priorities |
|
Accelerate net client acquisition |
› Grew in terms of total client acquisition: · Enhanced our targeted coverage in growth markets and high-growth segments, including outside Quebec; · Improved the enrolment experience for our newcomer clients, including a new guaranteed investment certificate (GIC) product; · Deployed distinctive banking offers to our diverse clienteles of professional women and women entrepreneurs; · Increased familiarity with and consideration for the brand; · Continuously improved our digital enrolment journeys. › Improved accessibility by developing our technological capabilities: · New appointment-booking experience free of any geographical constraints; · Enhanced remote authentication. › Expanded our sales and sales support teams in Western Canada for our key Commercial Banking sectors. › Achieved greater synergies and business opportunities for our joint PB1859 and Commercial Banking clients. › Accelerated our green loan certifications to the Real Estate portfolio. |
› Enhance our differentiation and brand awareness to accentuate our impact in and outside Quebec. › Optimize our physical distribution network across the Bank to maximize our impact/visibility/awareness within our markets and amplify synergies. › Continue recruiting talented employees in targeted markets outside Quebec to drive our strategies and encourage client acquisition. › Train our consulting workforce and support our clients in the transition to energy efficiency through green financing and responsible investing. › Accelerate the transformation of our credit card ecosystem. |
|
Improve client engagement |
› Strengthened our advisory services by focusing on professionalizing our training plans and the continuing professional development of our advisors. › Finalized the deployment of our New Experience across all our branches, supporting our experts and promoting digital engagement for our clients. › Migrated most of our Commercial Banking clients to the new digital experience with modernized features. › Continued to modernize our cash management solutions for our Large Corporations. › Increased the number of clients reached on our mobile platforms by developing personalized advice banners and relevant offers. › Added several real-time transactional features to online banking, mainly for our investment and banking solutions. › Provided ongoing support to clients in fraud prevention and cybersecurity through our advice and content.
|
› Strengthen development of our advisory force to continue proactively supporting our investing clients. › Accelerate growth in commercial deposits through our cash management consultants. › Continue to roll out a new learning platform and experience to drive development and internal mobility of our employees. › Enhance the client and advisory experience on our digital channels and digitize new features. › Enhance the client experience in mortgage renewals. › Continue migrating business clients toward digital banking and continue to add self-service features to our transactional sites. › Continue our efforts to stimulate financial inclusion, particularly among vulnerable client groups. |
|
|
2024 Achievements and Highlights |
2025 Priorities |
|
Leverage our simplification, and enhance operational efficiency |
› Simplified and modernized our banking offers and services. › Continued to simplify and automate our financing processes to reduce lead times for clients. › Improved accessibility at our Client Contact Centres by deploying modernized capabilities. › Developed our Commercial Banking distribution model outside Quebec in order to tailor service delivery to the potential market and to client needs. |
› Implement a major upgrade of the technological environment of all our Client Contact Centres. › Modernize our business capabilities by enhancing our technological ecosystems, in particular in business financing, cash management, fraud management, and payment systems. › Focus on leveraging hyperautomation to improve our tools and processes in order to grow and generate efficiencies. › Simplify how we carry out transactions and transform our assisted service offering. |
Segment Results - Personal and Commercial
|
Year ended October 31 |
|
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars) |
|
2024 |
|
|
2023(1) |
|
|
% change |
|
|
Net interest income |
|
3,587 |
|
|
3,321 |
|
|
8 |
|
|
Non-interest income |
|
1,086 |
|
|
1,083 |
|
|
− |
|
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Total revenues |
|
4,673 |
|
|
4,404 |
|
|
6 |
|
|
Non-interest expenses |
|
2,486 |
|
|
2,462 |
|
|
1 |
|
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Income before provisions for credit losses and income taxes |
|
2,187 |
|
|
1,942 |
|
|
13 |
|
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Provisions for credit losses |
|
335 |
|
|
238 |
|
|
41 |
|
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Income before income taxes |
|
1,852 |
|
|
1,704 |
|
|
9 |
|
|
Income taxes |
|
509 |
|
|
468 |
|
|
9 |
|
|
Net income |
|
1,343 |
|
|
1,236 |
|
|
9 |
|
|
Less: Specified items after income taxes(2) |
|
− |
|
|
(49) |
|
|
|
|
|
Net income - Adjusted(2) |
|
1,343 |
|
|
1,285 |
|
|
5 |
|
|
Net interest margin(3) |
|
2.33 |
% |
|
2.35 |
% |
|
|
|
|
Average interest-bearing assets(3) |
|
153,980 |
|
|
141,458 |
|
|
9 |
|
|
Average assets(4) |
|
158,917 |
|
|
148,511 |
|
|
7 |
|
|
Average loans and acceptances(4) |
|
157,286 |
|
|
147,716 |
|
|
6 |
|
|
Net impaired loans(3) |
|
505 |
|
|
285 |
|
|
77 |
|
|
Net impaired loans as a % of total loans and acceptances(3) |
|
0.3 |
% |
|
0.2 |
% |
|
|
|
|
Average deposits(4) |
|
90,382 |
|
|
85,955 |
|
|
5 |
|
|
Efficiency ratio(3) |
|
53.2 |
% |
|
55.9 |
% |
|
|
|
|
Efficiency ratio - Adjusted(5) |
|
53.2 |
% |
|
54.4 |
% |
|
|
|
(1) For the year ended October 31, 2023, certain amounts have been adjusted to reflect accounting policy changes arising from the adoption of IFRS 17. For additional information, see Note 2 to the Consolidated Financial Statements.
(2) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP financial measures. During fiscal 2023, the segment had recorded, in the Non-interest expenses item, $59 million in intangible asset impairment losses ($42 million net of income taxes) on technology development as well as charges of $9 million ($7 million net of income taxes) for contract termination penalties.
(3) See the Glossary section on pages 130 to 133 for details on the composition of these measures.
(4) Represents an average of the daily balances for the period.
(5) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP ratios.
Financial Results
In the Personal and Commercial segment, net income totalled $1,343 million in fiscal 2024, a 9% increase from $1,236 million in fiscal 2023 that was attributable to the $269 million or 6% growth in total revenues, partly offset by higher provisions for credit losses. Furthermore, adjusted net income was up 5% compared to $1,285 million in fiscal 2023, which excluded the specified items recorded in fiscal 2023. Income before provisions for credit losses and income taxes amounted to $2,187 million in fiscal 2024, up 13% from fiscal 2023. The increase in total revenues was essentially attributable to a $266 million increase in net interest income that was mainly driven by growth in personal and commercial loans and deposits, which more than offset the impact of the decrease of the net interest margin to 2.33% compared to 2.35% in 2023.
For fiscal 2024, the Personal and Commercial segment's non-interest expenses stood at $2,486 million, a 1% increase compared to the prior year that was mainly due to higher compensation and employee benefits resulting from salary increases and greater investments made as part of the segment's technological evolution. These increases were offset by specified items totalling $68 million recorded in fiscal 2023. The efficiency ratio of 53.2% improved by 2.7 percentage points compared to October 31, 2023. Excluding the 2023 specified items, the segment's adjusted non-interest expenses were up 4% compared to $2,394 million in 2023, and the adjusted efficiency ratio improved by 1.2 percentage points compared to 54.4% in 2023.
The Personal and Commercial segment recorded provisions for credit losses of $335 million in 2024, which is $97 million more than the $238 million recorded in 2023. This increase was due to higher provisions for credit losses on impaired loans in Personal Banking (including credit card receivables), reflecting a normalization of credit performance, as well as on impaired loans in Commercial Banking. In addition, provisions for credit losses on non-impaired loans were down compared to fiscal 2023 and higher credit loss recoveries were recorded in fiscal 2024 as a result of repayments of POCI loans in Commercial Banking.
Personal Banking
Personal Banking's total revenues amounted to $2,587 million in 2024, a 7% increase from $2,427 million in 2023. The rise in net interest income was driven by a 3% growth in loan volumes, a 4% growth in deposit volumes, as well as higher deposit and loan margins. The $69 million increase in non-interest income was primarily attributable to insurance revenues, higher credit card revenues due to a sharp increase in purchasing volumes and internal commission revenues related to the distribution of Wealth Management products. Non-interest expenses decreased by $12 million in 2024. Higher compensation and employee benefits resulting from salary increases and greater investments made as part of the segment's technological evolution of the segment were partly offset by specified items recorded in fiscal 2023.
Commercial Banking
Commercial Banking's total revenues amounted to $2,086 million in 2024, rising 6% from $1,977 million in 2023. The increase in net interest income was essentially driven by 13% growth in loans and 7% growth in deposits, as well as the transition from bankers' acceptances to CORRA loans, partly offset by a lower loan margin. Non-interest income was down $66 million compared to fiscal 2023, mainly due to lower bankers' acceptance revenues resulting from the transition from bankers' acceptances to CORRA loans. Non-interest expenses were up $36 million, mainly as a result to higher compensation and employee benefits due to salary increases as well as investments made as part of the segment's technological evolution, partly offset by the impact of the specified items recorded in fiscal 2023.
|
|
Average Loans and Acceptances Year ended October 31 (millions of Canadian dollars)
|
|
|
Average Deposits Year ended October 31 (millions of Canadian Dollars)
|
|
|
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2023 |
2024
|
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2023 |
2024 |
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Wealth Management
As a leader in Quebec and firmly established across Canada, the Wealth Management segment serves all market segments by emphasizing advisory-based service and close client relationships. It delivers a full range of wealth management products and solutions through an omnichannel distribution network and a differentiated business model. Wealth Management also provides services to independent advisors and institutional clients.
|
Total Revenues by Category Year ended October 31, 2024 |
|
|
|
Total Revenues by Geographic Distribution Year ended October 31, 2024 |
|
|
|
|||
|
Fee-based services (2023: 57%)
|
Other provinces (2023: 37%)
|
Full-Service Brokerage
With the largest network of wealth management advisors in Quebec and 100 points of service across Canada, National Bank Financial Wealth Management (NBFWM) is serving nearly 240,000 clients. The team of advisors provides portfolio management services, financial and succession planning services and insurance services, while mobilizing a wide range of expertise available within the Bank to meet the specific needs of clients.
Private Banking
Private Banking 1859 (PB1859) offers highly personalized wealth management services and advice across Canada, helping affluent clients benefit from comprehensive management of their personal and family fortunes. A true industry leader across Canada with a broad offering of financial solutions and strategies that include wealth protection, growth and transition.
Direct Brokerage
National Bank Direct Brokerage (NBDB) offers a multitude of financial products and investment tools to self-directed investing across Canada through its digital platform. NBDB allows clients who wish to take over the management of their investments online or through telephone agents to support self-directed investors on more complex transactions.
Investment Solutions and Transactional Products
National Bank Investments Inc. (NBI) manufactures and offers investment funds, exchange-traded funds (ETFs), investment solutions, and services to consumers and institutional investors through the Bank's internal and external networks. NBI is Canada's largest investment fund manager to entrust the management of its investments exclusively to external portfolio managers. Wealth Management also offers a wide range of investment products in collaboration with various internal sectors such as guaranteed investment certificates (GICs), mutual funds, notes, structured products and monetization vehicles.
Administrative and Trade Execution Services
National Bank Independent Network (NBIN) is a Canadian leader in providing administrative services such as trade execution, custodial services, and brokerage solutions to many independent financial services firms across Canada, in particular to introducing brokers, portfolio managers, and investment fund managers.
Trust and Estate Services
Through National Bank Trust Inc. (NBT), Wealth Management provides retail and institutional clients with turnkey services and solutions. Its team of experts offers a full range of high value-added services designed to consolidate, protect, and transfer its customers' wealth and give them peace of mind. NBT also provides integrated trustee and depository services as well as securities custody services.
Economic and Market Review
South of the border, the U.S. economy continues to surprise on account of its strength, supported by substantial fiscal spending and by household consumption that has remained robust to date. Progress has been made on inflation over the past year, but this normalization has stalled in recent months, suggesting a slower pace of monetary easing than initially anticipated. It is therefore still too early to celebrate a soft landing of the U.S. economy. Even so, the S&P 500 reached record levels following Donald Trump's election to the White House, which also took the S&P/TSX to new heights. In Canada, inflation recently fell below the central bank's target, attesting to the effectiveness of monetary policy. However, restrictive interest rates have severely limited growth in the Canadian economy, and the labour market has suffered as a result. Against this backdrop, the Bank of Canada is expected to continue its cycle of monetary easing in the months ahead in order to breathe new life into the Canadian economy. Lower interest rates, combined with marginal growth in house prices, have slightly improved affordability in recent quarters. However, the Canadian real estate market remains largely out of reach to first-time buyers. Consumer confidence has improved in recent months due to a lower inflation rate and interest rate cuts, but it nevertheless remains below the historical average.
The economic environment in 2024 and the outlook for 2025 are discussed in more detail in the Economic Review and Outlook section on page 24.
Objectives and Strategic Priorities
One of the organization's main priorities in its three-year plan is to stimulate accelerated growth in savings and investment. This ambition is part of a changing economic environment, shaped by major industry trends. On the one hand, the need for differentiation is becoming crucial in a sector where consolidation is increasingly taking place. On the other hand, adapting to demographic changes and specific financial behaviors is an unavoidable challenge. In addition, evolving governance and regulatory tightening impose new requirements. Finally, emerging technologies, which could change ways of working, offer the organization strategic opportunities to position itself at the forefront of the industry.
|
|
2024 Achievements and Highlights |
2025 Priorities |
|
|
Continue to develop our distribution model by positioning advisors for success |
› Continued our recruitment program for wealth advisors designed to attract experienced teams and talent. This strategic approach addresses the multi-generational needs of our clients while creating a collaborative and dynamic environment between teams. › Develop internal tools to improve the end-to-end advisor experience and support advisors in their service offerings to their clients. |
› Maintain strong growth momentum through our successful recruitment program. › Continue the generational transition of wealth management advisors, while providing enhanced support to existing advisors in developing their teams. › Continue to pay special attention to increasing our representation of women and minorities across our teams. |
|
|
Move to an integrated digital platform to facilitate independent firms activities |
› Launched a simplified, fully integrated digital platform designed to specifically meet the needs of our customers as well as the requirements of independent institutions. The launch of this platform is proceeding progressively, in close collaboration with our customers, to ensure a smooth transition adapted to their needs. |
› Continue our business development by leveraging our new digital platform as a key growth driver. › Continuously simplify and improve this new platform, by closely aligning it with the evolving needs of our customers. |
|
|
|
2024 Achievements and Highlights |
2025 Priorities |
|
Leveraging our open architecture and functionalities to offer partnership opportunities and turnkey solutions for fund creation and management |
› Business development for these turnkey solutions showing encouraging potential, with favourable returns from potential partners. › Enhanced our offering of responsible and non-traditional investment products, supported by the expertise of our teams specializing in these areas. › Implementation of a solution for the management and processing of ETFs. |
› Continue to expand our offering through strategic partnerships and turnkey solutions for investment product creation. › Continue to develop new investment solutions adapted to our clients' evolving needs, particularly in the areas of responsible investing, ETFs and private placements. › Prioritize information technology. investments required to serve independent fund companies. |
|
Leverage our organizational synergies to maximize the potential of our internal and external distribution channels |
› Strong net dynamic sales of savings and investments in our Retail Network. › Record results in terms of referrals to our internal partners meeting the needs and expectations of our clients. › Improved advisory interactions by focusing on training, deploying new planning tools and optimizing our service delivery model. › Strong momentum working with Financial Markets to create new investment products. |
› Capture the full potential of partnership opportunities with NBIN and various industry players. › Introduce new solutions in our distribution channels in partnership with Financial Markets. › Enhance customer experience across our digital channels for account opening and investment transactions. |
Segment Results - Wealth Management
|
Year ended October 31 |
|
|
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars) |
|
2024 |
|
|
2023 |
|
|
% change |
|
|
|
Net interest income |
|
833 |
|
|
778 |
|
|
7 |
|
|
|
Fee-based revenues |
|
1,603 |
|
|
1,432 |
|
|
12 |
|
|
|
Transaction and other revenues |
|
350 |
|
|
311 |
|
|
13 |
|
|
|
Total revenues |
|
2,786 |
|
|
2,521 |
|
|
11 |
|
|
|
Non-interest expenses |
|
1,633 |
|
|
1,534 |
|
|
6 |
|
|
|
Income before provisions for credit losses and income taxes |
|
1,153 |
|
|
987 |
|
|
17 |
|
|
|
Provisions for credit losses |
|
(1) |
|
|
2 |
|
|
|
|
|
|
Income before income taxes |
|
1,154 |
|
|
985 |
|
|
17 |
|
|
|
Income taxes |
|
317 |
|
|
271 |
|
|
17 |
|
|
|
Net income |
|
837 |
|
|
714 |
|
|
17 |
|
|
|
Less: Specified items after income taxes(1) |
|
- |
|
|
(32) |
|
|
|
|
|
|
Net income - Adjusted(1) |
|
837 |
|
|
746 |
|
|
12 |
|
|
|
Average assets(2) |
|
9,249 |
|
|
8,560 |
|
|
8 |
|
|
|
Average loans and acceptances(2) |
|
8,204 |
|
|
7,582 |
|
|
8 |
|
|
|
Net impaired loans(3) |
|
11 |
|
|
8 |
|
|
38 |
|
|
|
Average deposits(2) |
|
42,361 |
|
|
40,216 |
|
|
5 |
|
|
|
Efficiency ratio(3) |
|
58.6 |
% |
|
60.8 |
% |
|
|
|
|
|
Efficiency ratio - Adjusted(4) |
|
58.6 |
% |
|
59.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under administration(3) |
|
766,082 |
|
|
652,631 |
|
|
17 |
|
|
|
Assets under management(3) |
|
|
|
|
|
|
|
|
|
|
|
|
Individual |
|
95,297 |
|
|
72,245 |
|
|
32 |
|
|
|
Mutual funds |
|
60,603 |
|
|
48,613 |
|
|
25 |
|
|
|
|
155,900 |
|
|
120,858 |
|
|
29 |
|
|
(1) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP financial measures. During fiscal 2023, the segment had recorded, in the Non-interest expenses item, $8 million in intangible asset impairment losses ($6 million net of income taxes) on technology development as well as $35 million in litigation expenses ($26 million net of income taxes) to resolve litigations and other disputes on various ongoing or potential claims against the Bank.
(2) Represents an average of the daily balances for the period.
(3) See the Glossary section on pages 130 to 133 for details on the composition of these measures.
(4) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP ratios.
|
Financial Results
In the Wealth Management segment, net income totalled $837 million in fiscal 2024 compared to $714 million for 2023, an 17% increase that was attributable to growth in the segment's total revenues, partly offset by higher non-interest expenses. Excluding the specified items recorded in fiscal 2023, adjusted net income increased 12% from $746 million in 2023. The segment's total revenues amounted to $2,786 million in fiscal 2024, up 11% from $2,521 million in fiscal 2023. Net interest income increased by $55 million or 7%, mainly due to higher loan and deposit volumes. Fee-based revenues rose 12% compared to fiscal 2023 as a result of the growth in assets under administration and management caused by the rise in stock markets as well as positive net inflows for the various solutions. In addition, transaction and other revenues were up 13% compared to fiscal 2023 due to increased client activity in fiscal 2024.
The segment's non-interest expenses stood at $1,633 million in fiscal 2024 compared to $1,534 million in fiscal 2023, a 6% increase that was due to higher variable compensation and external management fees in line with revenue growth, as well as greater technology investments related to the segment's initiatives. These increases were partly offset by the impact of the specified items of $43 million recorded in fiscal 2023. At 58.6% in fiscal 2024, the efficiency ratio improved from 60.8% in fiscal 2023. Adjusted non-interest expenses were $1,633 million, up 10% from $1,491 million in fiscal 2023. The adjusted efficiency ratio stood at 58.6%, an improvement of 0.5 percentage point compared to 59.1% in fiscal 2023.
Wealth Management recorded recoveries of credit losses of $1 million in fiscal 2024, while it had recorded provisions for credit losses of $2 million in fiscal 2023. |
and Assets Under Management Year ended October 31 (millions of Canadian dollars)
|
||||||
Financial Markets
The Financial Markets segment offers a complete suite of products and services to corporations, institutional clients, and public-sector entities. Whether providing comprehensive advisory services and research or capital markets products and services, the segment focuses on relationships with clients and their growth. Over 900 specialists serve clients through its offices in North America, Europe, the UK, and Asia.
|
Total Revenues by Category Year ended October 31, 2024 |
|
|
|
Total Revenues by Geographic Distribution Year ended October 31, 2024 |
|
|
|
|||
|
|
|
|
Global Markets
Financial Markets is a Canadian leader in risk management solutions, structured products, and market-making in ETFs by volume. The segment offers solutions in the areas of fixed-income securities, currencies, equities, and commodities in order to mitigate the financial and business risks of clients. It also provides new product development expertise to asset managers and fund companies and supports their success by providing liquidity, research, and counterparty services. Financial Markets also provides tailored investment products across all asset classes to institutional and retail distribution channels.
Corporate and Investment Banking
Financial Markets provides corporate banking, advisory, and capital markets services. It offers loan origination and syndication to large corporations for project financing, merger and acquisition transactions, and corporate financing solutions. The segment is also an investment banking leader in Quebec and across Canada. Its comprehensive services include strategic advisory for financing and merger and acquisition initiatives as well as for debt and equity
underwriting. It is the Canadian leader in government debt and corporate high‑yield debt underwriting. Dominant in Quebec, the segment is the leader in debt underwriting for provincial and municipal governments across Canada while growing its national position in infrastructure and project financing. Financial Markets is active in securitization financing, mainly mortgages insured by the Government of Canada and mortgage-backed securities.
Economic and Market Review
The U.S. economy has continued to perform well in 2024, but many other economies -notably those of Europe and China- have been adversely affected by restrictive global interest rates. The good news is that many central banks were able to begin easing monetary policy as inflation rates fell. With prices now growing at a pace below 2%, the Bank of Canada is expected to celebrate victory in its battle against inflation and continue steadily lowering its policy rate to neutralize monetary policy as soon as possible. However, significant signs of economic weakness are already apparent, with preliminary third-quarter data showing that the Canadian economy continues to grow at a pace below its potential, a trend noted since 2022. At the same time, the labour market shows no signs of stabilizing, as evidenced by the continuing decline in the employment rate and the number of private sector job postings. Falling interest rates may spur renewed strength in the Canadian economy in 2025, but these gains will be partly offset by the massive drop in immigration. As for the geopolitical context, much uncertainty remains, with armed conflicts continuing in the Middle East and Ukraine as well as the rise to power of Donald Trump.
The policies of the future U.S. administration, such as the possible imposition of new tariffs, could have adverse effects on some of the country's trading partners. Given the geopolitical situation and monetary policies that remain restrictive in many countries, there is a risk of increased volatility in 2025.
The economic environment in 2024 and the outlook for 2025 are discussed in more detail in the Economic Review and Outlook section on page 24.
Objectives and Strategic Priorities
|
|
2024 Achievements and Highlights |
2025 Priorities |
|
Maintain our leadership in established businesses and leverage our strengths onto other businesses
|
› Ranked number one in Canadian government debt underwriting for a tenth consecutive year. › As a leader in the high yield market domestically, spearheaded Chemtrade Logistics Inc.'s inaugural $250 million 5-year senior unsecured note offering by acting as lead left bookrunner. The offering was upsized due to strong demand and provided Chemtrade Logistics Inc. with a new and alternative borrowing platform to complement their historical convertible debenture issuances. › Financial advisor to Enbridge Inc. on the $3.1 billion sale of its interest in Alliance Pipeline and Aux Sable to Pembina Pipeline Corporation. Alliance Pipeline is the sole rich gas pipeline for Canadian producers spanning from northeastern British Columbia to Channahon, Illinois. Aux Sable is one of the largest Liquefied Natural Gas (LNG) complexes in North America located at the terminus of Alliance Pipeline. The assets provide access to world-class, long-life resources from the Western Canadian Sedimentary Basin to premium markets in the U.S. and beyond. › First time joint lead on a $2 billion Government of Canada reopening of the 3.50% green bonds due March 1, 2034. › First time joint bookrunner on a new US$4 billion International Development Association 4.375% sustainable bond due June 11, 2029. › Won Best Technology at the 2024 Structured Products Intelligence Awards. › Received seven awards at the 2024 Canadian ETF Express awards, including two new wins in the following categories: · Best Capital Markets Team in Canada · Best Retail ETF Broker in Canada
|
› Maintain our leadership through quality and innovation. |
|
|
2024 Achievements and Highlights |
2025 Priorities |
|
Carry on international expansion supported by an innovative offering
|
› Continued U.S. coverage enhancement in key sectors and distribution of select products. › Enhanced our product offering in continental Europe › Financial advisor to the special committee of Filo Corp. on its $4.5 billion sale to BHP and Lundin Mining Corporation (Lundin Mining). Concurrent with the transaction, BHP and Lundin Mining will form a Canadian 50%/50% joint venture into which Filo del Sol, a world-class copper-gold-silver asset owned by Filo Corp., and the Josemaria copper-gold project, owned by Lundin Mining, will be contributed, allowing for their joint development in the prolific Vicuña district. Also provided a fairness opinion to the special committee, ensuring the transaction terms reflected a fair market value for Filo Corp.'s shareholders. › Acted as administrative agent, joint bookrunner and co-lead arranger on TMX Group Limited's (TMX) new US$1 billion bank financing package in support of its acquisition of VettaFi Holdings LLC (VettaFi). The bank financing package consisted of a US$600 million 12-month term loan, a US$200 million 18-month term loan and a US$200 million term loan of which US$963 million was drawn at closing. In addition, acted as joint bookrunner on a successful $1.1 billion senior unsecured bond take-out financing for TMX with net proceeds primarily used to repay a portion of outstanding indebtedness incurred in connection with the acquisition of VettaFi.
|
› Assist our clients in their growth ambitions and funding needs. |
|
Ensure continued growth by recruiting, coaching, and retaining a diversified workforce
|
› Continued to advance our Inclusion, Diversity and Equity strategy through an expanded scholarship program and various training programs. › Coached and retained our talent at all levels through mentorship, executive development programs and workshops.
|
› Implement innovative practices for employee recruitment, coaching, and retention while fostering inclusion. |
|
Further strengthen information technology to enhance and accelerate our execution
|
› Invested in technology and talent to deploy technology enhancements. › Used the latest advances in deep learning to automate and scale our platform.
|
› Continue to create differentiated technology across all Financial Markets' business lines.
|
|
Strengthen our ability to deliver integrated advice and solutions to clients |
› Exclusive financial advisor to nesto in its acquisition of CMLS Group to establish the largest technology-enabled lender in Canada, enhancing both residential and commercial mortgage services. Also acted as co-lead arranger and joint bookrunner on the bank financing related to the acquisition while NAventures participated in the equity financing. › Acted as an initial coordinating lead arranger, joint bookrunner and co-green loan structuring agent, pre-hedge and hedge provider, and Letter of Credit provider, by providing an underwriting of US$775 million on the US$8.8 billion financing of a 3.5 GW wind project and 553 miles in transmission lines known as SunZia. SunZia is being developed by a leading power developer, Pattern Energy Group LP, which is a portfolio company of Canadian Pension Plan Investment Board, and is amongst the largest clean energy infrastructure project in U.S. history. It is expected to offset more than 7.5 million metric tons of CO2 on the electric grid annually, equal to nearly 0.5% of greenhouse gas emissions from the U.S. electric power sector.
|
› Deepen our relationships with corporations, institutional clients, and public-sector entities and help support their growth. › Integrate environmental, social and governance (ESG) considerations in relevant Financial Markets activities. |
|
|
2024 Achievements and Highlights |
2025 Priorities |
|
Strengthen our ability to deliver integrated advice and solutions to clients (cont.)
|
› Exclusive financial advisor, joint bookrunner, administrative agent, and hedge provider for a $248.1 million construction term loan to support SkyLink Guideway Partners (Dragados Canada, Inc and Ledcor Investments Inc.) on the 3.9-year public private partnership to design, build, and finance the Surrey Langley SkyTrain Project: Guideway Contract in Surrey, British Columbia. This is one of three contracts to deliver the $6 billion Surrey-Langley SkyTrain extension project. › Prominent role in the inaugural South Bow Corporation $1.45 billion (joint bookrunner on the Canadian dollar tranches) and US$4.75 billion debt offering related to the spin off of South Bow Corporation from TC Energy Corporation, creating two independent, investment-grade companies. › Through collaborative efforts within Corporate and Investment Banking and Risk Management Solutions groups, acted as joint-bookrunner on $500 million, US$1.5 billion and €1.35 billion of senior unsecured notes for Alimentation Couche-Tard Inc. following their acquisition of certain European assets of TotalEnergies. Proceeds were used to repay the credit facilities that had been put in place following the acquisition (total transaction size of €3.1 billion). › Sponsored the annual Bloomberg Canadian Finance Conference for the twelfth year in a row.
|
|
Segment Results - Financial Markets
|
Year ended October 31 |
|
|
|
|
|
|
|
|
|
|
|
(taxable equivalent basis)(1) |
|
|
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars) |
|
2024 |
|
|
2023 |
|
|
% change |
|
|
|
Global markets |
|
|
|
|
|
|
|
|
|
|
|
|
Equities |
|
1,018 |
|
|
904 |
|
|
13 |
|
|
|
Interest rate and credit |
|
573 |
|
|
417 |
|
|
37 |
|
|
|
Commodities and foreign exchange |
|
198 |
|
|
173 |
|
|
14 |
|
|
|
|
1,789 |
|
|
1,494 |
|
|
20 |
|
|
|
Corporate and investment banking |
|
1,241 |
|
|
1,162 |
|
|
7 |
|
|
|
Total revenues(1) |
|
3,030 |
|
|
2,656 |
|
|
14 |
|
|
|
Non-interest expenses |
|
1,246 |
|
|
1,161 |
|
|
7 |
|
|
|
Income before provisions for credit losses and income taxes |
|
1,784 |
|
|
1,495 |
|
|
19 |
|
|
|
Provisions for credit losses |
|
54 |
|
|
39 |
|
|
38 |
|
|
|
Income before income taxes |
|
1,730 |
|
|
1,456 |
|
|
19 |
|
|
|
Income taxes(1) |
|
476 |
|
|
401 |
|
|
19 |
|
|
|
Net income |
|
1,254 |
|
|
1,055 |
|
|
19 |
|
|
|
Less: Specified items after income taxes(2) |
|
− |
|
|
(5) |
|
|
|
|
|
|
Net income - Adjusted(2) |
|
1,254 |
|
|
1,060 |
|
|
18 |
|
|
|
Average assets(3) |
|
195,881 |
|
|
180,837 |
|
|
8 |
|
|
|
Average loans and acceptances(3) (Corporate Banking only) |
|
31,887 |
|
|
29,027 |
|
|
10 |
|
|
|
Net impaired loans(4) |
|
78 |
|
|
30 |
|
|
|
|
|
|
Net impaired loans as a % of total loans and acceptances(4) |
|
0.2 |
% |
|
0.1 |
% |
|
|
|
|
|
Average deposits(3) |
|
65,930 |
|
|
57,459 |
|
|
15 |
|
|
|
Efficiency ratio(4) |
|
41.1 |
% |
|
43.7 |
% |
|
|
|
|
|
Efficiency ratio - Adjusted(5) |
|
41.1 |
% |
|
43.4 |
% |
|
|
|
|
(1) The Total revenues and Income taxes items of the Financial Markets segment are presented on a taxable equivalent basis. Taxable equivalent basis is a calculation method that consists in grossing up certain revenues taxed at lower rates by the income tax to a level that would make it comparable to revenues from taxable sources in Canada. For the year ended October 31, 2024, Total revenues were grossed up by $376 million ($571 million in 2023), and an equivalent amount was recognized in Income taxes. The effect of these adjustments is reversed under the Other heading of segment results. In light of the enacted legislation with respect to Canadian dividends, the Bank did not recognize an income tax deduction or use the taxable equivalent basis method to adjust revenues related to affected dividends received after January 1, 2024 (for additional information, see the Income Taxes section).
(2) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP financial measures. During fiscal 2023, the segment had recorded, in the Non-interest expenses item, $7 million in intangible asset impairment losses ($5 million net of income taxes) on technology development.
(3) Represents an average of the daily balances for the period.
(4) See the Glossary section on pages 130 to 133 for details on the composition of these measures.
(5) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP ratios.
|
Financial Results
In the Financial Markets segment, net income totalled $1,254 million in fiscal 2024, up 19% compared to 2023. Total revenues on a taxable equivalent basis amounted to $3,030 million in 2024, an increase of $374 million or 14% compared to fiscal 2023. Global market revenues were up 20%, driven by increases in all revenue types, including a 13% increase in equities revenues, a 37% increase in interest rate and credit revenues, and a 14% increase in commodities and foreign exchange revenues. In addition, corporate and investment banking revenues were up 7% compared to fiscal 2023 as a result of growth in banking service revenues and revenues from capital markets activity, partly offset by lower revenues from merger and acquisition activity.
For the year ended October 31, 2024, non-interest expenses rose 7% compared to the prior year. This increase was due to higher compensation and employee benefits, notably variable compensation resulting from revenue growth, as well as higher technology expenses and other expenses related to the segment's business growth. The efficiency ratio of 41.1% in fiscal 2024 improved from 43.7% in fiscal 2023.
Financial Markets recorded provisions for credit losses of $54 million during fiscal 2024 compared to $39 million in 2023. This growth was mainly due to a $31 million increase in provisions for credit losses on impaired loans, partly offset by a $16 million decrease in provisions for credit losses on non-impaired loans, mainly due to the favourable impact of updated macroeconomic scenarios.
|
Total Revenues by Category Year ended October 31 (millions of Canadian dollars)
|
|||||||||||
U.S. Specialty Finance and International
The Bank complements its Canadian growth with a targeted, disciplined international strategy that aims for superior returns. The Bank is currently focused on specialty finance in the U.S. through its Credigy subsidiary and on personal and commercial banking in Cambodia through its ABA Bank subsidiary. The Bank also holds minority positions in financial groups operating in French-speaking Africa and Africa-Asia. The Bank currently has a moratorium on any new significant investments in emerging markets. During fiscal 2024, the U.S. Specialty Finance and International (USSF&I) segment generated 12% of the Bank's consolidated total revenue and 17% of its net income.
|
|
|
Breakdown of Total Revenues Year ended October 31, 2024
|
|
|
|
U.S. Specialty Finance - Credigy
|
||||||||||||||||||||||||||
Founded in 2001 and based in Atlanta, Georgia, Credigy is a specialty finance company primarily active in financing and acquiring a diverse range of performing assets. Its portfolio is mostly comprised of diversified secured consumer receivables in the U.S. market. Through its best-in-class modelling expertise, flexibility, and client-centric approach, Credigy is a partner of choice for financial services institutions.
Economic and Market Review
The U.S. economy continues to stand out for its resilience, posting vigorous growth despite uncertainties. GDP grew at an annualized rate of 2.8% in the third quarter, driven in particular by a marked acceleration in public spending. This dynamism contradicted the IMF's April projections, which forecasted an improvement in the structural deficit of U.S. public finances in 2024. At the same time, household consumption rose by a considerable 3.7% annualized rate to its highest level in a year and a half. However, this strength masks growing areas of weakness, such as a historically low savings rate and an
increase in payment defaults. These signals suggest that household spending trends in the months ahead will be closely tied to labour market conditions. On this front the picture is more nuanced, as the unemployment rate has risen slightly in recent months, even though it remains low in historical terms. However, a growing number of workers are reporting that it is becoming increasingly difficult to find a job in an environment where companies, faced with falling sales, are making this their main concern. The Republican sweep of the presidential elections suggests that extravagant government spending may continue. However, its impact on the economy may be offset by higher than previously estimated interest rates due to the inflation that could be generated by budgetary support.
The economic environment in 2024 and the outlook for 2025 are discussed in more detail in the Economic Review and Outlook section on page 24.
Objectives and Strategic Priorities - Credigy
Credigy aims to provide customized solutions for the acquisition or financing of consumer assets in pursuit of the best risk-adjusted returns and a pre-tax return on assets (ROA) of at least 2.5%.
|
|
2024 Achievements and Highlights |
2025 Priorities |
|
|
Sustain deal flow by being a partner of choice for institutions facing complex challenges and strategic changes |
› Achieved double-digit balance sheet growth through a disciplined investment approach. › Invested by establishing new relationships and leveraging existing partners. › Maintained average assets of approximately $11.3 billion.
|
› Leverage relationships with current and prospective partners. › Remain prepared to seize opportunities in rapidly evolving markets.
|
|
|
Maintain a diversified mix of performing assets |
› Continued asset class diversification that is focused on high-quality consumer, mortgage, and insurance assets. › Leveraged flexibility to invest in a balanced mix of financing and direct acquisitions.
|
› Favour asset diversification and a prudent investment profile. › Maintain a stable risk-reward balance while optimizing for capital efficiency.
|
|
|
Achieve best risk-adjusted returns |
› Actively monitored the economy for opportunities. › Refined and calibrated credit models to target the best risk-return investments. |
› Actively monitor macroeconomic conditions to implement risk mitigation strategies. › Deliver asset growth through a balanced mix of financing and direct acquisitions.
|
|
International - ABA Bank
Established in 1996, ABA Bank provides financial services to individuals and businesses in Cambodia. It is now the largest by assets and the fastest growing commercial bank in Cambodia. ABA Bank offers a full spectrum of financial services to micro, small and medium enterprises (MSMEs) as well as to individuals through 99 branches, 46 self-banking units, 1,599 automated teller machines (ATMs) and other self-service machines, and advanced online banking and mobile banking platforms. It has been selected as the Best Bank in Cambodia by financial magazines The Banker, Global Finance (tenth consecutive year), Euromoney (eleventh consecutive year) and Asiamoney among others.
Economic and Market Review
The Cambodian economy is slowly recovering from the economic slowdown in China and weaker global external demand, in particular from the U.S. and Europe. Tourism is picking up, but generated revenues are still well below 2019 levels. After being impacted by global macroeconomic conditions in 2023, exports are showing good signs with strong growth in both garments, footwear and textiles, and agriculture while benefiting from recent free-trade agreements(1) and from the diversification of the manufacturing sector.
The economy grew by 5.1% in 2023 and is expected to grow between 5.5% and 6.0% in 2024. In 2025, the growth rate is anticipated to be between 5% and 6%. Cambodia will continue to benefit from increased regional economic integration among ASEAN Member States. The Cambodian market is underbanked; there is a high adoption and use of mobile applications and social media in the country, and over 65% of the population of 17 million is under 35 years of age.
(1) Comprehensive Trade Partnership between the Association of Southeast Asian Nations (ASEAN), Australia, New Zealand, Brunei Darussalam, China and Japan; agreement between Cambodia and China; agreement between Cambodia and South Korea.
Objectives and Strategic Priorities - ABA Bank
ABA Bank is pursuing an omnichannel banking strategy with the goal of becoming the lending partner of choice to MSMEs while increasing market penetration in deposits and transactional services for retail and business clients.
|
|
2024 Achievements and Highlights |
2025 Priorities |
|
Grow market share in MSME lending |
› Achieved 17% growth in loan volumes. › Maintained its leading market position while continuing to grow the business. › Continued to adapt the MSME lending strategy to support the growing needs of customers as their businesses become more mature. › Opened twelve new branches, bringing the total to 99 throughout the country.
|
› Open 5 branches and 5 self-banking units in 2025 to extend its reach in Cambodia, continue modernizing its branch network, and gain direct access to a larger pool of MSME customers and retail deposits. › Focus on MSME clients in industries that have been less affected by the current economic slowdown. › Continue to adapt the lending strategy in line with the growing needs of MSME customers as their businesses become more mature.
|
|
Maintain credit quality |
› Maintained a well-diversified portfolio (98% of loans are secured with an average loan-to-value between 40 and 50). › At 5.5% of the loan portfolio as at October 31, 2024, non-performing loans remain below market average. › Closely monitored clients that are impacted by the current economic slowdown. › Standard & Poor's maintained ABA Bank's long-term credit rating at B+ with a "Stable" outlook, as the rapid loan and deposit growth continues, and asset quality deterioration remains manageable.
|
› Maintain strong governance, disciplined risk management, and sound business processes. › Ensure good credit quality across the loan portfolio to keep non-performing loan levels below market averages. › Continue to focus on secured lending. › Pro-actively work with clients to minimize growth of non-performing loans and facilitate settlements while ensuring proper enablers are in place (tools, staff, training).
|
|
Sustain growth in deposits and transactional services |
› Grew deposit volume by 21% from 2023. › Continued to enhance self-banking capabilities, including the market-leading full-scale mobile banking application in Cambodia. › Self-banking transactions made up 99% of total transactions. › Further expanded ABA 24/7, a network of standalone self-banking locations that provide customers with round-the-clock access to their accounts and that now has 46 locations throughout the country.
|
› Further develop the transactional banking model to accelerate the migration of cash transactions, payments, and money transfers to self-service and digital banking channels. › Adapt the product offering to support the growth of ABA Bank's clients and their evolving needs. › Increase the deposit base by providing convenience to retail customers through an advanced digital and self-banking infrastructure and by expanding the network of self-service locations.
|
Segment Results - USSF&I
|
Year ended October 31 |
|
|
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars) |
|
2024 |
|
|
2023 |
|
|
% change |
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Credigy |
|
544 |
|
|
483 |
|
|
13 |
|
|
|
ABA Bank |
|
860 |
|
|
726 |
|
|
18 |
|
|
|
International |
|
11 |
|
|
− |
|
|
|
|
|
|
|
|
1,415 |
|
|
1,209 |
|
|
17 |
|
|
Non-interest expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Credigy |
|
144 |
|
|
140 |
|
|
3 |
|
|
|
ABA Bank |
|
293 |
|
|
260 |
|
|
13 |
|
|
|
International |
|
2 |
|
|
2 |
|
|
|
|
|
|
|
|
439 |
|
|
402 |
|
|
9 |
|
|
Income before provisions for credit losses and income taxes |
|
976 |
|
|
807 |
|
|
21 |
|
|
|
Provisions for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
Credigy |
|
113 |
|
|
81 |
|
|
40 |
|
|
|
ABA Bank |
|
68 |
|
|
32 |
|
|
|
|
|
|
International |
|
1 |
|
|
− |
|
|
|
|
|
|
|
|
182 |
|
|
113 |
|
|
61 |
|
|
Income before income taxes |
|
794 |
|
|
694 |
|
|
14 |
|
|
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Credigy |
|
60 |
|
|
55 |
|
|
9 |
|
|
|
ABA Bank |
|
105 |
|
|
91 |
|
|
15 |
|
|
|
International |
|
1 |
|
|
− |
|
|
|
|
|
|
|
|
166 |
|
|
146 |
|
|
14 |
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
Credigy |
|
227 |
|
|
207 |
|
|
10 |
|
|
|
ABA Bank |
|
394 |
|
|
343 |
|
|
15 |
|
|
|
International |
|
7 |
|
|
(2) |
|
|
|
|
|
|
|
|
628 |
|
|
548 |
|
|
15 |
|
|
Average assets(1) |
|
27,669 |
|
|
23,007 |
|
|
20 |
|
|
|
Average loans and receivables(1) |
|
21,733 |
|
|
18,789 |
|
|
16 |
|
|
|
Purchased or originated credit-impaired (POCI) loans |
|
365 |
|
|
511 |
|
|
(29) |
|
|
|
Net impaired loans excluding POCI loans(2) |
|
550 |
|
|
283 |
|
|
94 |
|
|
|
Average deposits(1) |
|
12,987 |
|
|
10,692 |
|
|
21 |
|
|
|
Efficiency ratio(2) |
|
31.0 |
% |
|
33.3 |
% |
|
|
|
|
(1) Represents an average of the daily balances for the period.
(2) See the Glossary section on pages 130 to 133 for details on the composition of these measures.
Financial Results
In the USSF&I segment, net income totalled $628 million in fiscal 2024 compared to $548 million in fiscal 2023, an increase of 15% stemming from growth in total revenues partly offset by higher non-interest expenses and higher provisions for credit losses. The segment's total revenues amounted to $1,415 million, up 17% from $1,209 million in 2023, owing to revenue growth at Credigy and ABA Bank totalling $61 million and $134 million, respectively, as well as dividend revenues recognized in 2024 related to an investment in a financial group.
Non-interest expense totalled $439 million for fiscal 2024, compared to $402 million for fiscal 2023. The 9% increase resulted primarily from higher non-interest expenses at ABA Bank driven by business growth.
The segment's provisions for credit losses were up $69 million from fiscal 2023.
Credigy
For fiscal 2024, Credigy reported net income of $227 million, up 10% from fiscal 2023 due to growth in total revenues, partially offset by higher provisions for credit losses. The subsidiary posted income before provisions for credit losses and income taxes totalling $400 million in fiscal 2024, up 17% from fiscal 2023. Total revenues amounted to $544 million in fiscal 2024, up 13% from $483 million in fiscal 2023. This increase was driven by growth in loan volumes and non-interest income arising primarily from a fair value remeasurement of certain portfolios and a realized gain in fiscal 2024 from the disposal of a loan portfolio, partly offset by income recognized as a result a credit facility prepaid in fiscal 2023. Non-interest expenses for the year ended October 31, 2024 were up $4 million, compared to fiscal 2023, owing primarily to compensation and employee benefits. The subsidiary reported a year-over-year increase in provisions for credit losses totalling $32 million, owing to higher provisions for credit losses on impaired loans due to normal maturation of loan portfolios and provisions for credit losses on POCI loans, partly offset by lower provisions for credit losses on non-impaired loans.
ABA Bank
For fiscal 2024, ABA Bank recorded net income totalling $394 million, up $51 million or 15% from fiscal 2023 owing to higher total revenues, partially offset by higher non-interest expenses and provisions for credit losses. The subsidiary posted income before provisions for credit losses and income taxes amounting to $567 million in fiscal 2024, up 22% from fiscal 2023. The 18% increase in the subsidiary's total revenues year over year stemmed from business expansion at the subsidiary, driven mainly by sustained asset growth. Non-interest expenses stood at $293 million, up 13% from a year earlier, due to higher compensation and employee benefits and to higher occupancy and technology costs driven by business growth and opening of new branches. The subsidiary reported provisions for credit losses totalling $68 million in fiscal 2024, up $36 million from fiscal 2023, owing to higher provisions for credit losses on impaired loans, partly offset by lower provisions for credit losses on non-impaired loans.
|
Average Loans and Receivables - Credigy Year ended October 31 (millions of Canadian dollars)
|
|
Average Loans and Average Deposits - ABA Bank and International Year ended October 31 (millions of Canadian dollars) |
|
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2023 |
2024
|
|
|
2023 2024 |
|
|
|||||
|
|
|
|
|
|
||||||||
|
|
|
|
|
|||||||||
Other
The Other heading reports on Treasury operations; liquidity management; Bank funding; asset and liability management; the activities of the Flinks subsidiary, a fintech company specialized in financial data aggregation and distribution; certain specified items; and the unallocated portion of corporate units. Corporate units include Technology and Operations, Risk Management, Employee Experience, and Finance. These units provide advice and guidance throughout the Bank and to its business segments in addition to expertise and support in their respective fields.
Segment Results - Other
|
Year ended October 31 |
|
|
|
|
|
|
(millions of Canadian dollars) |
|
2024 |
|
2023 |
|
|
Net interest income(1) |
|
(335) |
|
(591) |
|
|
Non-interest income(1) |
|
(169) |
|
(141) |
|
|
Total revenues |
|
(504) |
|
(732) |
|
|
Non-interest expenses |
|
250 |
|
194 |
|
|
Income (loss) before provisions for credit losses and income taxes |
|
(754) |
|
(926) |
|
|
Provisions for credit losses |
|
(1) |
|
5 |
|
|
Income (loss) before income taxes |
|
(753) |
|
(931) |
|
|
Income taxes (recovery)(1) |
|
(507) |
|
(667) |
|
|
Net loss |
|
(246) |
|
(264) |
|
|
Non-controlling interests |
|
(1) |
|
(2) |
|
|
Net loss attributable to the Bank's shareholders and holders of other equity instruments |
|
(245) |
|
(262) |
|
|
Less: Specified items after income taxes(2) |
|
100 |
|
12 |
|
|
Net loss − Adjusted(2) |
|
(346) |
|
(276) |
|
|
Average assets(3) |
|
65,546 |
|
69,731 |
|
(1) For the year ended October 31, 2024, Net interest income was reduced by $79 million ($332 million in 2023), Non-interest income was reduced by $306 million ($247 million in 2023), and an equivalent amount was recorded in Income taxes (recovery). These adjustments include a reversal of the taxable equivalent of the Financial Markets segment and the Other heading. Taxable equivalent basis is a calculation method that consists of grossing up certain revenues taxed at lower rates by the income tax to a level that would make it comparable to revenues from taxable sources in Canada. In light of the enacted legislation with respect to Canadian dividends, the Bank did not recognize an income tax deduction, nor did it use the taxable equivalent basis method to adjust revenues related to affected dividends received after January 1, 2024 (for additional information, see the Income Taxes section).
(2) See the Financial Reporting Method section on pages 14 to 20 for additional information on non-GAAP financial measures. During the year ended October 31, 2024, after the agreement to acquire CWB was concluded, the Bank recorded several acquisition-related items, in particular the amortization of the subscription receipt issuance costs of $14 million ($10 million net of income taxes); a gain of $174 million ($125 million net of income taxes) resulting from the remeasurement at fair value of the CWB common shares already held by the Bank; the impact of managing fair value changes, representing a loss of $3 million ($2 million net of income taxes); and $18 million in acquisition and integration charges ($13 million net of income taxes). During fiscal year 2023, the Bank had recorded a $91 million gain ($67 million net of income taxes) upon the fair value measurement of an equity interest, a $25 million expense ($18 million net of income taxes) related to the retroactive impact of changes to the Excise Tax Act, $12 million in impairment losses ($9 million net of income taxes) on premises and equipment and intangible assets, $6 million in charges ($4 million net of income taxes) for penalties on onerous contracts, and a $24 million tax expense related to the Canadian government's 2022 tax measures.
(3) Represents an average of the daily balances for the period.
Financial Results
For the Other heading of segment results, there was a net loss of $246 million in fiscal 2024 compared to a net loss of $264 million in fiscal 2023. The change in net loss resulted from a higher contribution from Treasury activities owing to a rise in investment gains in 2024, including the gain resulting from the remeasurement at fair value of the CWB common shares held by the Bank ($125 million net of income taxes). Those positive items were offset by higher non-interest expenses compared to fiscal 2023 driven by increased compensation and employee benefits related to the Bank's revenue growth, as well as CWB acquisition and integration charges. The fiscal 2024 specified items related to the CWB acquisition agreement had a $100 million favourable impact on the net loss compared to a $12 million favourable impact from the fiscal 2023 specified items. The adjusted net loss stood at $346 million for fiscal 2024 compared to $276 million for fiscal 2023.
Quarterly Financial Information
Several trends and factors have an impact on the Bank's quarterly net income, revenues, non-interest expenses and provisions for credit losses. The following table presents a summary of results for the past eight quarters.
Quarterly Results Summary(1)
|
(millions of Canadian dollars) |
|
2024 |
|
|
|
|
|
|
|
|
|
|
2023(2) |
|
|||||||||||
|
|
|
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Statement of income data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Net interest income |
|
784 |
|
|
769 |
|
|
635 |
|
|
751 |
|
735 |
|
|
870 |
|
|
882 |
|
|
1,099 |
|
||
|
Non-interest income |
|
2,160 |
|
|
2,227 |
|
|
2,115 |
|
|
1,959 |
|
1,825 |
|
|
1,620 |
|
|
1,564 |
|
|
1,463 |
|
||
|
Total revenues |
|
2,944 |
|
|
2,996 |
|
|
2,750 |
|
|
2,710 |
|
2,560 |
|
|
2,490 |
|
|
2,446 |
|
|
2,562 |
|
||
|
Non-interest expenses |
|
1,592 |
|
|
1,541 |
|
|
1,472 |
|
|
1,449 |
|
1,597 |
|
|
1,404 |
|
|
1,362 |
|
|
1,390 |
|
||
|
Income before provisions for credit losses and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
income taxes |
|
1,352 |
|
|
1,455 |
|
|
1,278 |
|
|
1,261 |
|
963 |
|
|
1,086 |
|
|
1,084 |
|
|
1,172 |
|
|
|
Provisions for credit losses |
|
162 |
|
|
149 |
|
|
138 |
|
|
120 |
|
115 |
|
|
111 |
|
|
85 |
|
|
86 |
|
||
|
Income taxes |
|
235 |
|
|
273 |
|
|
234 |
|
|
219 |
|
97 |
|
|
145 |
|
|
167 |
|
|
210 |
|
||
|
Net income |
|
955 |
|
|
1,033 |
|
|
906 |
|
|
922 |
|
751 |
|
|
830 |
|
|
832 |
|
|
876 |
|
||
(1) For additional information about the 2024 fourth-quarter results, visit the Bank's website at nbc.ca or the SEDAR+ website at sedarplus.ca to consult the Bank's Press Release for the Fourth Quarter of 2024, published on December 4, 2024. Also, a summary of results for the past 12 quarters is provided in Table 1 on pages 120 and 121 of this MD&A.
(2) For the 2023 comparative figures, certain amounts have been adjusted to reflect accounting policy changes arising from the adoption of IFRS 17. For additional information, see Note 2 to the Consolidated Financial Statements.
The analysis of the past eight quarters reflects the sustained performance of all the business segments and helps readers identify the items that have favourably or unfavourably affected results. Net income for all quarters of 2024 was higher than in the corresponding periods of 2023. The increase in net income was fuelled by strong performance in all business segments owing to growth in total revenues, partly offset by higher non-interest expenses (excluding the fourth quarter) and higher provisions for credit losses.
Net interest income in every quarter of 2024, except the fourth quarter, was down from the corresponding quarters of 2023. These decreases stemmed primarily from trading activity revenues in the Financial Markets segment. In all other business segments, net interest income was up in all quarters of 2024 compared to the corresponding quarters of 2023 (except for the first quarter in the Wealth Management segment, when a change in the composition of deposits had an unfavourable impact). These increases were driven by loan and deposit growth in the Personal and Commercial segment, the impact of rate increases and deposit volume growth in the Wealth Management segment, loan portfolio growth at Credigy, sustained asset growth at ABA Bank, and dividend income in the first and second quarters of 2024 related to an investment in a financial group.
For all quarters of 2024, non-interest income was up from the corresponding quarters of 2023, driven primarily by trading activity revenues in the Financial Markets segment, boosting non-interest income in every quarter of 2024. These increases were also fuelled by growth in insurance and credit card revenues. The Wealth Management segment reported sharp increases in non-interest income for all quarters of 2024, resulting primarily from higher fee-based revenues related to stock market gains compared to the corresponding quarters of 2023, and from positive net inflows into the various solutions. Non-interest income in the USSF&I segment were up in all quarters of 2024 compared to corresponding periods of 2023, except for the fourth quarter, owing to revenue growth at ABA Bank driven by business expansion and to higher revenues at Credigy. Non-interest income for the third and fourth quarters of 2024 included gains on non-trading securities upon remeasurement at fair value of the CWB shares held by the Bank, whereas in the third quarter of 2023, a gain was recorded in other income to reflect a fair value remeasurement of the Bank's equity interest in TMX. In addition, transitioning from bankers' acceptances to loans indexed at CORRA adversely affected non-interest income in the quarters of 2024.
Except for the fourth quarter, non-interest expense was up in every quarter of 2024 from the corresponding periods a year earlier. These increases were driven by compensation and employee benefits, particularly higher salaries, and variable compensation tied to the Bank's revenue growth. Compared to the corresponding periods of 2023, occupancy and technology expenses were up in every quarter of 2024 except for the fourth quarter, owing to the recognition of $86 million in impairment losses on premises and equipment and intangible assets in the same period of 2023. The increases recorded in the other quarters stemmed from expenses related to the Bank's new head office and banking network expansion at ABA Bank, and from the Bank's significant investments in technological enhancement. In addition, professional fees were up in all quarters of fiscal 2024, owing primarily to higher external management fees in the Wealth Management segment and CWB acquisition and integration charges recorded in the third and fourth quarters of 2024. In the third quarter of 2023, other expenses included a $25 million expense related to the retroactive impact of changes to the Excise Tax Act, and in the fourth quarter of 2023, the Bank recognized $35 million in litigation expenses and $15 million in provisions for contracts.
Provisions for credit losses were up in every quarter of 2024 from the corresponding periods of 2023. These increases stemmed from rises in provisions for credit losses on impaired loans excluding POCI loans(1) at Personal Banking (including credit card receivables) amid a normalization of credit performance and at Commercial Banking, as well as in the Financial Markets and USSF&I segments. Provisions for credit losses on non-impaired loans were down for all quarters owing to the more favourable impact of updated macroeconomic scenarios and a greater deterioration in credit risk during 2023 quarters, offset by the effects of the recalibration of certain risk parameters and by loan portfolio growth. In addition, provisions for credit losses on POCI loans in the third and fourth quarters were up from the corresponding quarters of 2023 as a result of remeasurements of certain portfolios at Credigy, while provisions for the first and second quarters of 2024 were down following repayments of Commercial Banking POCI loans.
The year-over-year change in the quarterly effective tax rate in fiscal 2024 and 2023 resulted primarily from a lower level and proportion of tax-exempt dividend income, which reflects the denial of the deduction in respect of dividends contemplated by Bill C-59 since January 1, 2024, partly offset by the impact of the Canadian government's 2022 tax measures recorded in the first quarter of 2023, namely, the Canada Recovery Dividend and the additional 1.5% tax on banks and life insurers.
(1) See the Glossary section on pages 130 to 133 for details on the composition of these measures.
Analysis of the Consolidated Balance Sheet
Consolidated Balance Sheet Summary
|
As at October 31 |
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars) |
|
2024 |
|
2023(1) |
|
% change |
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Cash and deposits with financial institutions |
|
31,549 |
|
35,234 |
|
(10) |
|
|
|
Securities |
|
145,165 |
|
121,818 |
|
19 |
|
|
|
Securities purchased under reverse repurchase agreements and securities borrowed |
|
16,265 |
|
11,260 |
|
44 |
|
|
|
Loans and acceptances, net of allowances |
|
243,032 |
|
225,443 |
|
8 |
|
|
|
Other |
|
26,215 |
|
29,722 |
|
(12) |
|
|
|
|
|
|
462,226 |
|
423,477 |
|
9 |
|
|
Liabilities and equity |
|
|
|
|
|
|
|
|
|
Deposits |
|
333,545 |
|
288,173 |
|
16 |
|
|
|
Other |
|
101,873 |
|
110,972 |
|
(8) |
|
|
|
Subordinated debt |
|
1,258 |
|
748 |
|
68 |
|
|
|
Equity attributable to the Bank's shareholders and holders of other equity instruments |
|
25,550 |
|
23,582 |
|
8 |
|
|
|
Non-controlling interests |
|
− |
|
2 |
|
(100) |
|
|
|
|
|
|
462,226 |
|
423,477 |
|
9 |
|
(1) Certain amounts have been adjusted to reflect accounting policy changes arising from the adoption of IFRS 17. For additional information, see Note 2 to these audited Consolidated Financial Statements.
As at October 31, 2024, the Bank had total assets of $462.2 billion, up $38.7 billion or 9% from $423.5 billion since the end of the previous fiscal year.
Cash and deposits with financial institutions
Cash and deposits with financial institutions as at October 31, 2024 stood at $31.5 billion, down $3.7 billion compared with the Consolidated Balance Sheet as at October 31, 2023, owing primarily to a decline in deposits with regulated financial institutions, notably the U.S. Federal Reserve, partly offset by growth in deposits with the Bank of Canada. The Bank's liquidity and funding risk management practices are described on pages 95 to 104 of this MD&A.
Securities
Securities have risen $23.4 billion since October 31, 2023, owing to a $15.9 billion or 16% increase in securities at fair value through profit or loss driven mainly by equity securities, partly offset by declines in securities issued or guaranteed by the Canadian government and securities issued or guaranteed by the U.S. Treasury, other U.S. agencies and other foreign governments. Securities other than those measured at fair value through profit or loss were up $7.5 billion. Securities purchased under reverse repurchase agreements and securities borrowed have increased $5.0 billion since October 31, 2023, driven primarily by Financial Markets segment and Treasury activities. The Bank's market risk management policies are described on pages 88 to 94 of this MD&A.
Loans and Acceptances
As at October 31, 2024, loans and acceptances, net of allowances for credit losses, accounted for 53% of total assets and totalled $243.0 billion, up $17.6 billion or 8% since October 31, 2023.
Residential mortgage loans outstanding amounted to $95.0 billion as at October 31, 2024, up $8.2 billion or 9% since October 31, 2023. This growth was mainly driven by sustained demand for mortgage credit in the Personal and Commercial segment and by the business activity at Financial Markets and at ABA Bank and Credigy. Personal loans totalled $46.9 billion at the end of fiscal 2024, up $0.5 billion from $46.4 billion as at October 31, 2023. This increase was fuelled mainly by Personal Banking business growth. Credit card receivables amounted to $2.8 billion, up $0.2 billion since October 31, 2023.
As at October 31, 2024, business and government loans and acceptances totalled $99.7 billion, up $8.9 billion or 10% since October 31, 2023. The increase stemmed primarily from business growth in Commercial Banking and the Wealth Management and Financial Markets segments, as well as at ABA Bank and Credigy.
Among other information, Table 9 (page 127) shows gross loans by borrower category as at October 31, 2024. Residential mortgages (including home equity lines of credit) have posted strong growth since 2020 and amounted to $104.7 billion as at October 31, 2024; they accounted for 43% of total loans. The growth in residential mortgages was driven by sustained demand for mortgage credit in the Personal and Commercial segment and by the business activity at Financial Markets, ABA Bank, and Credigy. As at October 31, 2024, personal loans (including credit card receivables) totalled $22.1 billion, up $1.4 billion since October 31, 2023. The key increases in business loans were recorded in the mining, manufacturing, financial services, real estate and real estate construction, and other services categories. As at October 31, 2024, certain sectors were down year over year, particularly professional services and education and health care. Since October 31, 2023, POCI loans declined given the maturities of certain portfolios as well as loan repayments in fiscal 2024.
Impaired Loans
Impaired loans include all loans classified in Stage 3 of the expected credit loss model and POCI loans.
As at October 31, 2024, gross impaired loans stood at $2,043 million compared to $1,584 million as at October 31, 2023 (Table 10, page 128). Net impaired loans totalled $1,629 million as at October 31, 2024 compared to $1,276 million as at October 31, 2023. Net impaired loans excluding POCI loans rose $538 million to $1,144 million from $606 million as at October 31, 2023. The increase resulted primarily from rises in net impaired loans in the loan portfolios of Personal Banking and Commercial Banking, Financial Markets, Credigy (excluding POCI loans) and ABA Bank. Net POCI loans fell to $485 million as at October 31, 2024 from $670 million as at October 31, 2023, owing to maturities of certain loan portfolios and repayments.
A detailed description of the Bank's credit risk management practices is provided on pages 78 to 87 of this MD&A as well as in Note 8 to the Consolidated Financial Statements.
Other Assets
As at October 31, 2024, other assets totalled $26.2 billion, down $3.5 billion from $29.7 billion as at October 31, 2023, resulting mainly from a $5.2 billion decline in derivative financial instruments related to Financial Markets business activities. The decrease was partly offset by a $1.4 billion increase in other assets, particularly amounts due from clients, dealers and brokers as well as receivables, prepaid expenses and other items.
Deposits
As at October 31, 2024, deposits stood at $333.5 billion, up $45.3 billion or 16% since the previous fiscal year end. Accounting for 29% of all deposits, personal deposits amounted to $95.2 billion, as shown in Table 12 (page 129), up $7.3 billion since October 31, 2023. The increase was driven by business growth at Personal Banking, Financial Markets segments, and at ABA Bank.
As shown in Table 12, business and government deposits totalled $232.7 billion, up $35.4 billion from $197.3 billion as at October 31, 2023. This increase stemmed from Financial Markets and Treasury funding activities, including $5.8 billion in deposits subject to bank recapitalization (bail-in) conversion regulations, as well as business activities in the Commercial Banking and Wealth Management segments and at ABA Bank, and $1.0 billion related to the investment agreements for subscription receipts issued as part of the agreement to acquire CWB. Deposits from deposit-taking institutions totalled $5.6 billion, up $2.6 billion since the previous fiscal year-end.
Other Liabilities
As at October 31, 2024, other liabilities stood at $101.9 billion, down $9.1 billion since October 31, 2023, resulting primarily from a $6.6 billion decrease in acceptances, owing to the transition from bankers' acceptances to loans indexed at CORRA, a $4.1 billion decrease in derivative financial instruments, and a $2.8 billion decrease in obligations related to securities sold short. The decreases were offset by a $3.4 billion increase in liabilities related to transferred receivables and a $1.3 billion increase in other liabilities, particularly accounts payable and accrued expenses as well as interest and dividends payable.
Subordinated Debt and Other Contractual Obligations
Subordinated debt has risen since October 31, 2023 as a result of the February 5, 2024 issuance of $500 million in medium-term notes. The contractual obligations are detailed in Note 31 to the Consolidated Financial Statements.
Equity
As at October 31, 2024, equity attributable to the Bank's shareholders and holders of other equity instruments totalled $25.6 billion, up $2.0 billion from $23.6 billion as at October 31, 2023. The increase stemmed from net income net of dividends and the common share issuances under the Stock Option Plan. The increases were partially offset by the net fair value change attributable to credit risk on financial liabilities designated at fair value through profit or loss and by the net change in gains (losses) on cash flow hedges.
The Consolidated Statements of Changes in Equity on page 144 of this Annual Report present the items that make up equity. In addition, an analysis of the Bank's regulatory capital is presented in the Capital Management section of this MD&A.
CWB Transaction
On June 11, 2024, the Bank entered into an agreement to acquire all of the issued and outstanding common shares of Canadian Western Bank (CWB) by way of a share exchange valuing CWB at approximately $5.0 billion. Each CWB common share, other than those held by the Bank, will be exchanged for 0.450 of a common share of National Bank. CWB is a diversified financial services institution based in Edmonton, Alberta. This transaction will enable the Bank to accelerate its growth across Canada. The business combination brings together two complementary Canadian banks with growing businesses, thereby enhancing customer service by offering a full range of products and services nationwide, with a regionally focused service model.
The transaction is subject to the satisfaction of customary closing conditions, including regulatory approvals, and is expected to close in 2025. The results of the acquired business will be consolidated from the date of closing.
Between the announcement and closing of the transaction, the Bank is exposed to changes in the fair value of CWB's assets and liabilities due to changes in market interest rates. Increases in interest rates will impact the fair value of net assets on closing of the transaction, increasing the amount of goodwill and reducing capital ratios. To manage the volatility of goodwill and capital on closing of the transaction, the Bank entered into interest rate swaps to economically hedge its exposure. Mark-to-market changes have been recognized in Non-interest income - Trading revenues (losses) in the Consolidated Statement of Income.
Related Party Transactions
In the normal course of business, the Bank provides various banking services and enters into contractual agreements and other transactions with associates, joint ventures, directors, key officers and other related parties. These agreements and transactions are entered into under conditions similar to those offered to non-related third parties.
In accordance with the Bank Act (Canada), the aggregate of loans granted to key officers of the Bank, excluding mortgage loans granted on their principal residence, cannot exceed twice the officer's annual salary.
Loans to eligible key officers are granted under the same conditions as those granted to any other employee of the Bank. The main conditions are as follows:
· the employee must meet the same credit requirements as a client;
· mortgage loans are offered at the preferential employee rate;
· home equity lines of credit bear interest at Canadian prime less 0.5%, but never lower than Canadian prime divided by two;
· personal loans bear interest at a risk-based regular client rate;
· credit card advances bear interest at a prescribed fixed rate in accordance with Bank policy;
· personal lines of credit bear interest at Canadian prime less 0.5%, but never lower than Canadian prime divided by two.
The Bank also offers a deferred stock unit plan to directors who are not Bank employees. For additional information, see Note 24 to the Consolidated Financial Statements. Additional information about related parties is presented in Notes 10, 29 and 30 to the Consolidated Financial Statements.
Income Taxes
Notice of Assessment
In April 2024, the Bank was reassessed by the Canada Revenue Agency (CRA) for additional income tax and interest of approximately $110 million (including estimated provincial tax and interest) in respect of certain Canadian dividends received by the Bank during the 2019 taxation year.
In prior fiscal years, the Bank had been reassessed for additional income tax and interest of approximately $965 million (including provincial tax and interest) in respect of certain Canadian dividends received by the Bank during the 2012-2018 taxation years.
In the reassessments, the CRA alleges that the dividends were received as part of a "dividend rental arrangement".
In October 2023, the Bank filed a notice of appeal with the Tax Court of Canada, and the matter is now in litigation. The CRA may issue reassessments to the Bank for taxation years subsequent to 2019 in regard to certain activities similar to those that were the subject of the above-mentioned reassessments. The Bank remains confident that its tax position was appropriate and intends to vigorously defend its position. As a result, no amount has been recognized in the Consolidated Financial Statements as at October 31, 2024.
Canadian Government's 2022 Tax Measures
On November 4, 2022, the Government of Canada introduced Bill C-32 - An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022 and certain provisions of the budget tabled in Parliament on April 7, 2022 to implement tax measures applicable to certain entities of banking and life insurer groups, as presented in its April 7, 2022 budget. These tax measures included the Canada Recovery Dividend (CRD), which is a one-time, 15% tax on the fiscal 2021 and 2020 average taxable income above $1 billion, as well as a 1.5% increase in the statutory tax rate. On December 15, 2022, Bill C-32 received royal assent. Given that these tax measures had been enacted as at January 31, 2023, a $32 million tax expense for the CRD and an $8 million tax recovery for the tax rate increase, including the impact related to current and deferred taxes for fiscal 2022, were recognized in the Consolidated Financial Statements during the year ended October 31, 2023.
Other Tax Measures
On November 30, 2023, the Government of Canada introduced Bill C-59 - An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023 to implement tax measures applicable to the Bank. The measures include the denial of the deduction in respect of dividends received after 2023 on shares that are mark-to-market property for tax purposes (except for dividends received on "taxable preferred shares" as defined in the Income Tax Act), as well as the application of a 2% tax on the net value of equity repurchases occurring as of January 1, 2024. On June 20, 2024, Bill C-59 received royal assent and these tax measures were enacted at the reporting date. The Consolidated Financial Statements reflect the denial of the deduction in respect of the dividends covered by Bill C-59 since January 1, 2024.
On May 2, 2024, the Government of Canada introduced Bill C-69 - An Act to implement certain provisions of the budget tabled in Parliament on April 16, 2024. The bill includes the Pillar 2 rules (global minimum tax) published by the Organisation for Economic Co-operation and Development (OECD) that will apply to fiscal years beginning on or after December 31, 2023 (November 1, 2024 for the Bank). On June 20, 2024, Bill C-69 received royal assent. To date, the Pillar 2 rules have been included in a bill or enacted in certain jurisdictions where the Bank operates. The Pillar 2 rules do not apply to this fiscal year. The Bank is still assessing its income tax exposure arising from these rules but estimates that the impact on its effective income tax rate would be an increase of approximately 1% to 2%. During the years ended October 31, 2024 and 2023, the Bank applied the exception to the recognition and disclosure of information of deferred tax assets and liabilities arising from the Pillar 2 rules in the jurisdictions where they have been included in a bill or enacted.
Securitization and Off-Balance-Sheet Arrangements
In the normal course of business, the Bank is party to various financial arrangements that, under IFRS Accounting Standards, are not required to be recorded on the Consolidated Balance Sheet or are recorded under amounts other than their notional or contractual values. These arrangements include, among others, transactions with structured entities, derivative financial instruments, the issuance of guarantees, credit instruments, and financial assets received as collateral.
Structured Entities
The Bank uses structured entities, among other means, to diversify its funding sources and to offer services to clients, in particular to help them securitize their financial assets or provide them with investment opportunities. Under IFRS Accounting Standards, a structured entity must be consolidated if the Bank controls the entity. Note 1 to the Consolidated Financial Statements describes the accounting policy and criteria used for consolidating structured entities. Additional information on consolidated and non-consolidated structured entities is provided in Note 29 to the Consolidated Financial Statements.
Securitization of the Bank's Financial Assets
Mortgage Loans
The Bank participates in two Canada Mortgage and Housing Corporation (CMHC) securitization programs: the Mortgage-Backed Securities (MBS) Program under the National Housing Act (Canada) (NHA) and the Canada Mortgage Bond (CMB) Program. Under the first program, the Bank issues NHA securities backed by insured residential mortgage loans and, under the second, the Bank sells NHA securities to Canada Housing Trust (CHT), which finances the purchase through the issuance of mortgage bonds insured by CMHC. Moreover, these mortgage bonds feature an interest rate swap agreement under which a CMHC-certified counterparty pays CHT the interest due to investors and receives the interest on the NHA securities. As at October 31, 2024, the outstanding amount of NHA securities issued by the Bank and sold to CHT was $24.0 billion. The mortgage loans sold consist of fixed- or variable-rate residential loans that are insured against potential losses by a loan insurer. In accordance with the NHA-MBS Program, the Bank advances the funds required to cover late payments and, if necessary, obtains reimbursement from the insurer that insured the loan. The NHA-MBS and CMB programs do not use liquidity guarantee arrangements. The Bank uses these securitization programs mainly to diversify its funding sources. In accordance with IFRS Accounting Standards, because the Bank retains substantially all of the risks and rewards of ownership of the mortgage loans transferred to CHT, the derecognition criteria are not met. Therefore, the insured mortgage loans securitized under the CMB Program continue to be recognized in Loans in the Bank's Consolidated Balance Sheet, and the liabilities for the considerations received from the transfer are recognized in Liabilities related to transferred receivables in the Consolidated Balance Sheet. For additional information, see Note 9 to the Consolidated Financial Statements.
Credit Card Receivables
In April 2015, the Bank set up Canadian Credit Card Trust II (CCCT II) to continue its program of securitizing credit card receivables on a revolving basis. The Bank uses this entity for capital management and funding purposes. The Bank acts as the servicer of the receivables sold and maintains the client relationship. Furthermore, it administers the securitization program and ensures that all related procedures are stringently followed and that investors are paid according to the provisions of the program.
As at October 31, 2024, the credit card receivables portfolio held by CCCT II represented an amount outstanding of $2.4 billion. CCCT II issued notes to investors, $0.1 billion of which is held by third parties and $0.8 billion is held by the Bank. CCCT II also issued a bank certificate held by the Bank that stood at $2.4 billion as at October 31, 2024. New receivables are periodically sold to the structure on a revolving basis to replace the receivables reimbursed by clients.
Every series of notes is rated by the Fitch and DBRS Morningstar (DBRS) rating agencies. From this portfolio of sold receivables, the Bank retains the excess spread, i.e., the residual net interest income after all the expenses related to this structure have been paid, and thus provides first-loss protection. Furthermore, second-loss protection for issued series is provided by notes subordinated to the senior notes, representing 5.8% of the total amount of the series issued. The Bank controls CCCT II and thus consolidates it.
Securitization of Third-Party Financial Assets
The Bank administers multi-seller conduits that purchase financial assets from clients and finance those purchases by issuing commercial paper backed by the acquired assets. Clients use these multi-seller conduits to diversify their funding sources and reduce borrowing costs while continuing to service the financial assets and providing some amount of first-loss protection. Notes issued by the conduits and held by third parties provide additional credit loss protection. The Bank acts as a financial agent and provides administrative and transaction structuring services to these conduits. The Bank provides backstop liquidity and credit enhancement facilities under the commercial paper program. These facilities are presented and described in Notes 28 and 29 to the Consolidated Financial Statements. The Bank has entered into derivative financial instrument contracts with these conduits, the fair value of which is presented on the Bank's Consolidated Balance Sheet. The Bank is not required to consolidate these conduits, as it does not control them.
Derivative Financial Instruments
The Bank uses various types of derivative financial instruments to meet its clients' needs, generate trading activity revenues, and manage its exposure to interest rate, foreign exchange, and credit risk as well as other market risks. All derivative financial instruments are accounted for at fair value in the Consolidated Balance Sheet. Transactions in derivative financial instruments are expressed as notional amounts. These amounts are not presented as assets or liabilities in the Consolidated Balance Sheet. They represent the face amount of the contract to which a rate or price is applied to determine the amount of cash flows to be exchanged. Notes 1 and 18 to the Consolidated Financial Statements provide additional information on the types of derivative financial instruments used by the Bank and their accounting basis.
Guarantees
In the normal course of business, the Bank enters into various guarantee contracts. The principal types of guarantees are letters of guarantee, backstop liquidity and credit enhancement facilities, certain securities lending activities, and certain indemnification agreements. Note 28 to the Consolidated Financial Statements provides detailed information on these guarantees.
Credit Instruments
In the normal course of business, the Bank enters into various off-balance-sheet credit commitments. The credit instruments used to meet the financing needs of its clients represent the maximum amount of additional credit that the Bank could be required to extend if the commitments were fully drawn. Note 28 to the Consolidated Financial Statements provides detailed information on these off-balance-sheet credit instruments and other items.
Financial Assets Received as Collateral
In the normal course of business, the Bank receives financial assets as collateral as a result of transactions involving securities purchased under reverse repurchase agreements, securities borrowing and lending agreements, and derivative financial instrument transactions. For additional information on financial assets received as collateral, see Note 28 to the Consolidated Financial Statements.
Capital Management
Capital management has a dual role of ensuring a competitive return to the Bank's shareholders while maintaining a solid capital foundation that covers the risks inherent to the Bank's business activities, supports its business segments, and protects its clients.
Capital Management Framework
The Bank's capital management policy defines the guiding principles as well as the roles and responsibilities of its internal capital adequacy assessment process. This process aims to determine the capital level that the Bank must maintain to pursue its business activities and accommodate unexpected losses arising from extremely adverse economic and operational conditions. The Bank has implemented a rigorous internal capital adequacy assessment process that comprises the following procedures:
· conducting an overall risk assessment;
· measuring significant risks and the capital requirements related to the Bank's financial budget for the next fiscal year and current and prospective risk profiles;
· integrating stress tests across the organization and executing sensitivity analyses to determine the capital buffer above minimum regulatory levels (for additional information on enterprise-wide stress testing, see the Risk Management section of this MD&A);
· aggregating capital and monitoring the reasonableness of internal capital compared with regulatory capital;
· comparing projected internal capital against regulatory capital levels, internal operating targets, and competing banks;
· attesting to the adequacy of the Bank's capital levels.
Assessing capital adequacy is an integral part of capital planning and strategy. The Bank sets internal operating targets that include a discretionary cushion in excess of the minimum regulatory requirements, which provides a solid financial structure and sufficient capital to meet management's business needs in accordance with its risk appetite, along with competitive returns to shareholders, under both normal market conditions and a range of severe but plausible stress testing scenarios. The internal capital adequacy assessment process is a key tool in establishing the Bank's capital strategy and is subject to quarterly reviews and periodic amendments.
Risk-adjusted return on capital and shareholder value added (SVA), which are obtained from an assessment of required capital, are calculated periodically for each of the Bank's business segments. The results are then used to guide management in allocating capital among the various business segments.
Structure and Governance
Along with its partners from Risk Management, the Global Funding and Treasury Group, and Finance, the Capital Management team is responsible for maintaining integrated control methods and processes so that an overall assessment of capital adequacy may be performed.
The Board oversees the structure and development of the Bank's capital management policy and ensures that the Bank maintains sufficient capital in accordance with regulatory requirements and in consideration of market conditions. The Board delegates certain responsibilities to the Risk Management Committee (RMC), which in turn recommends capital management policies and oversees application thereof. The Board, on the recommendation of the RMC, assumes the following responsibilities:
· reviewing and approving the capital management policy;
· reviewing and approving the Bank's risk appetite, including the main capital and risk targets and the corresponding limits;
· reviewing and approving the capital plan and strategy on an annual basis, including the Bank's internal capital adequacy assessment process;
· reviewing and approving the implementation of significant measures respecting capital, including contingency measures;
· reviewing significant capital disclosures, including Basel capital adequacy ratios;
· ensuring the appropriateness of the regulatory capital adequacy assessment.
The Senior Leadership Team is responsible for defining the Bank's strategy and plays a key role in guiding capital-related measures and decisions. The Enterprise Wide Risk Management Committee oversees capital management, which consists of reviewing the capital plan and strategy and implementing significant capital-related measures, including contingency measures, and making recommendations about these measures.
Basel Accord and Regulatory Environment
Basel Accord
The Basel Accord proposes a range of approaches of varying complexity, the choice of which determines the sensitivity of capital to risks. A less complex approach, such as the Standardized Approach, uses regulatory weightings, while a more complex approach uses the Bank's internal estimates of risk components to establish risk-weighted assets (RWA) and calculate regulatory capital.
As required under Basel, risk-weighted assets are calculated for each credit risk, market risk, and operational risk. Some of OSFI's revision to its capital, leverage, liquidity, and disclosure rules, made as part of the Basel III reforms, took effect during the second quarter of 2023, notably the implementation of the revised Standardized Approach and IRB Approach to credit risk, the revision of the operational framework of the leverage ratio framework, and the introduction of a more risk-sensitive capital floor. The Bank uses the Internal Ratings-Based (IRB) Approaches for credit risk to determine minimum regulatory capital requirements for most of its portfolios. The Bank must use the Foundation Internal Ratings-Based (FIRB) Approach for certain specific exposure types such as large corporates and financial institutions. For all other exposure types treated under an IRB Approach, the Bank uses the Advanced Internal Ratings-Based (AIRB) Approach. Under the FIRB Approach, the Bank can use its own estimate of probability of default (PD) but must also rely on OSFI estimates for loss given default (LGD) and exposure at default (EAD) risk parameters. Under the AIRB Approach, the Bank can use its own estimates for all risk parameters: PD, LGD, EAD. Under both IRB Approaches, the risk parameters are subject to specific input floors. The credit risk of certain portfolios considered to be less significant is weighted according to the revised Standardized Approach, which uses prescribed regulatory weightings. Exposure to banking book equity securities is also weighted according to the revised Standardized Approach.
With respect to the risk related to securitization operations, the capital treatment depends on the type of underlying exposures and on the information available about the exposures. The Bank must use the Securitization: Internal Ratings-Based Approach (SEC-IRBA) if it is able to apply an approved internal ratings-based model and has sufficient information to calculate the capital requirements for all underlying exposures in the securitization pool. Under this approach, RWA is derived from a combination of supervisory inputs and inputs specific to the securitization exposure, such as the implicit capital charge related to the underlying exposures, the credit enhancement level, the effective maturity, the number of exposures, and the weighted average LGD.
If the Bank cannot use the SEC-IRBA, it must use the Securitization: External Ratings-Based Approach (SEC-ERBA) for the securitization exposures that are externally rated. This approach assigns risk weights to exposures using external ratings. The Bank uses the ratings assigned by Moody's, Standard & Poor's (S&P), Fitch, Kroll Bond Rating Agency, or DBRS or a combination of these ratings. The Bank uses the Securitization: Internal Assessment Approach (SEC-IAA) for unrated securitization exposures relating to the asset-backed commercial paper conduits it sponsors. The SEC-IAA rating methodologies used are mainly based on criteria published by the above-mentioned credit rating agencies and consider risk factors that the Bank deems relevant to assessing the credit quality of the exposures. The Bank's SEC-IAA includes an assessment of the extent by which the credit enhancement available for loss protection provides coverage of expected losses. The levels of stressed coverage the Bank requires for each internal risk rating are consistent with the requirements published by the rating agencies for equivalent external ratings by asset class. If the Bank cannot apply the SEC-ERBA or the SEC-IAA, it must use the supervisory formula under the Securitization Standardized Approach (SEC-SA). Under this approach, RWA is derived from inputs specific to the securitization exposure, such as the implicit capital charge related to the underlying exposures calculated under the standardized credit risk approach as well as credit enhancement and delinquency levels.
If none of the above approaches can be used, the securitization exposure must be assigned a risk weight of 1,250%. The Bank can apply a reduced capital charge for securitization exposures that meet the criteria of the Simple, Transparent and Comparable (STC) framework.
For operational risk, the Bank applies the revised Standardized Approach, which incorporates the Bank's internal operational risk loss experience in the RWA calculation.
In the first quarter of 2024, the Bank implemented OSFI's finalized guidance of the revised market risk framework, consistent with the BCBS's Fundamental Review of the Trading Book (FRTB) as well as the revised credit valuation adjustment (CVA) risk framework. For both market risk and CVA, the Bank uses the sensitivities-based Standardized Approach (SA) for computing RWA. The implementation of these revised frameworks on November 1, 2023 had a negative impact of 38 bps on the Bank's CET1 capital ratio.
The Bank must also meet the requirements of the capital output floor that will ensure that its total calculated RWA is not below 72.5% of the total RWA as calculated under the Basel III Standardized Approaches. Initially, OSFI was allowing a phase-in of the floor factor over three years, starting at 65.0% in the second quarter of 2023 and rising 2.5% per year to reach 72.5% in fiscal 2026. On July 5, 2024, OSFI announced a one-year delay to the increase in the capital output floor. Therefore, the revised floor factor will reach 72.5% in fiscal 2027. For fiscal 2024, the floor factor is set at 67.5%; it will remain at this level until the end of fiscal 2025 and then increase until 2027. If the capital requirement is less than the capital output floor requirement after applying the floor factor, the difference is added to total RWA.
Capital ratios are calculated by dividing capital by RWA. Credit, market, and operational risks are factored into the RWA calculation for regulatory purposes. Basel rules apply at the consolidated level of the Bank. The assets of non-consolidated entities for regulatory purposes are therefore excluded from the RWA calculation.
The definition adopted by BCBS distinguishes between three types of capital. Common Equity Tier 1 (CET1) capital consists of common shareholders' equity less goodwill, intangible assets, and other CET1 capital deductions. Additional Tier 1 (AT1) capital consists of eligible non-cumulative preferred shares, limited recourse capital notes (LRCN), and other AT1 capital adjustments. The sum of CET1 and AT1 capital forms what is known as Tier 1 capital. Tier 2 capital consists of eligible subordinated debts and certain allowances for credit losses. Total regulatory capital is the sum of Tier 1 and Tier 2 capital.
OSFI is responsible for applying the Basel Accord in Canada. As required under the Basel Accord, OSFI requires that recognized regulatory capital instruments other than common equity must have a non-viability contingent capital (NVCC) clause to ensure that investors bear losses before taxpayers should the government determine that it is in the public interest to rescue a non-viable financial institution. As at October 31, 2024, all of the Bank's regulatory capital instruments, other than common shares, have an NVCC clause. Furthermore, in the regulations of the Canada Deposit Insurance Corporation (CDIC) Act and the Bank Act (Canada), the Government of Canada has provided detailed information on conversion, issuance, and compensation regimes for bail-in instruments issued by Domestic Systemically Important Banks (D-SIBs) (collectively the Bail-In Regulations). Pursuant to the CDIC Act, in circumstances where OSFI has determined that the Bank has ceased, or is about to cease, to be viable, the Governor in Council may, upon a Minister of Finance recommendation indicating that he or she believes that it is in the public interest to do so, grant an order directing CDIC to convert all or a portion of certain shares and liabilities of the Bank into common shares (a "Bail-In Conversion").
The Bail-In Regulations governing the conversion and issuance of bail-in instruments came into force on September 23, 2018, and those governing compensation for holders of converted instruments came into force on March 27, 2018. Any shares and liabilities issued before the effective date of the Bail-In Regulations are not subject to a Bail-In Conversion, unless, in the case of a liability, the terms of said liability are, on or after that day, amended to increase its principal amount or to extend its term to maturity, and the liability, as amended, meets the requirements to be subject to a Bail-In Conversion.
The Bail-In Regulations prescribe the types of shares and liabilities that are subject to a Bail-In Conversion. In general, any senior debt securities with an initial or amended term-to-maturity greater than 400 days that are unsecured or partially secured and have been assigned a Committee on Uniform Securities Identification Procedures (CUSIP), an International Securities Identification Number (ISIN), or similar identification number are subject to a Bail-In Conversion. However, certain other debt obligations of the Bank, such as structured notes (as defined in the Bail-In Regulations), covered bonds, deposits, and certain derivative financial instruments, are not subject to a Bail-In Conversion.
The Bank and all other major Canadian banks must maintain the following minimum capital ratios established by OSFI: a CET1 capital ratio of at least 11.5%, a Tier 1 capital ratio of at least 13.0%, and a Total capital ratio of at least 15.0%. All of these ratios are to include a capital conservation buffer of 2.5% established by the BCBS and OSFI, a 1.0% surcharge applicable solely to D-SIBs, and a 3.5% domestic stability buffer (DSB) established by OSFI. The DSB, which can vary from 0% to 4.0% of RWA, consists exclusively of CET1 capital. A D-SIB that fails to meet this buffer requirement is not subject to automatic constraints to reduce capital distributions but must provide a remediation plan to OSFI. Additionally, OSFI requires D-SIBs to meet a Basel III leverage ratio of at least 3.5%, which includes a Tier 1 capital buffer of 0.5% applicable only to D-SIBs. The leverage ratio is a measure independent of risk that is calculated by dividing the amount of Tier 1 capital by total exposure. Total exposure is defined as the sum of on-balance-sheet assets (including derivative financial instrument exposures and securities financing transaction exposures) and off balance-sheet items. The assets deducted from Tier 1 capital are also deducted from total exposure.
OSFI's Total Loss Absorbing Capacity (TLAC) Guideline, which applies to all D-SIBs under the federal government's Bail-In Regulations, is intended to ensure that a D-SIB has sufficient loss-absorbing capacity to support its internal recapitalization in the unlikely event it becomes non-viable. Available TLAC includes total capital as well as certain senior unsecured debts that satisfy all of the eligibility criteria of OSFI's TLAC guideline. OSFI requires D-SIBs to maintain a risk-based TLAC ratio of at least 25.0% (including the DSB) of RWA and a TLAC leverage ratio of at least 7.25%. The TLAC ratio is calculated by dividing available TLAC by RWA, and the TLAC leverage ratio is calculated by dividing available TLAC by total exposure. As at October 31, 2024, outstanding liabilities of $23.5 billion ($17.7 billion as at October 31, 2023) were subject to conversion under the Bail-In Regulations.
On September 12, 2023, OSFI released the final Parental Stand-Alone (Solo) TLAC Framework for Domestic Systemically Important Banks Guideline. This guideline focuses on the loss-absorbing capacity of Canadian parent banks rather than its consolidated operations, allowing OSFI to assess the stand-alone financial strength of the parent bank and its ability to act as a source of financial strength for its subsidiaries and branches. The framework complements OSFI's existing TLAC guideline for D-SIBs on a group consolidated basis, providing an additional layer of protection to safeguard the rights and interests of depositors, policyholders, and creditors. D-SIBs have had to adhere to this guideline as of first-quarter 2024, and the Bank is compliant therewith.
Requirements - Regulatory Capital(1), Leverage(1), and TLAC(2) Ratios
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Requirements as at October 31, 2024 |
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Ratios as at October 31, 2024 |
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Minimum |
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Capital conservation buffer |
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Minimum set by BCBS |
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D-SIB surcharge |
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Minimum set by OSFI |
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Domestic stability buffer(3) |
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Minimum set by OSFI, including the domestic stability buffer |
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Capital ratios |
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CET1 |
4.5 |
% |
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2.5 |
% |
|
7.0 |
% |
|
1.0 |
% |
|
8.0 |
% |
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3.5 |
% |
|
11.5 |
% |
|
13.7 |
% |
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|
|
Tier 1 |
6.0 |
% |
|
2.5 |
% |
|
8.5 |
% |
|
1.0 |
% |
|
9.5 |
% |
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3.5 |
% |
|
13.0 |
% |
|
15.9 |
% |
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|
Total |
8.0 |
% |
|
2.5 |
% |
|
10.5 |
% |
|
1.0 |
% |
|
11.5 |
% |
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3.5 |
% |
|
15.0 |
% |
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17.0 |
% |
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|
Leverage ratio |
3.0 |
% |
|
n.a. |
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3.0 |
% |
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0.5 |
% |
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3.5 |
% |
|
n.a. |
|
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3.5 |
% |
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4.4 |
% |
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|
TLAC ratio |
21.5 |
% |
|
n.a. |
|
|
21.5 |
% |
|
n.a. |
|
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21.5 |
% |
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3.5 |
% |
|
25.0 |
% |
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31.2 |
% |
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|
|
TLAC leverage ratio |
6.75 |
% |
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n.a. |
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6.75 |
% |
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0.5 |
% |
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7.25 |
% |
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n.a. |
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7.25 |
% |
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8.6 |
% |
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n.a. Not applicable
(1) The capital ratios and the leverage ratio are calculated in accordance with the Basel III rules, as set out in OSFI's Capital Adequacy Requirements Guideline and Leverage Requirements Guideline.
(2) The TLAC ratio and the TLAC leverage ratio are calculated in accordance with OSFI's Total Loss Absorbing Capacity Guideline.
(3) On June 18, 2024, OSFI confirmed that the domestic stability buffer was being maintained at 3.5%.
The Bank ensures that its capital levels are always above the minimum capital requirements set by OSFI, including the DSB. By maintaining a strong capital structure, the Bank can cover the risks inherent to its business activities, support its business segments, and protect its clients.
Other disclosure requirements pursuant to Pillar 3 of the Basel Accord and a set of recommendations defined by the EDTF are presented in the Supplementary Regulatory Capital and Pillar 3 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 also available on the Bank's website.
Regulatory Context
The Bank closely monitors regulatory developments and participates actively in various consultative processes. During the first quarter of 2024, the Bank implemented the revised market risk and CVA frameworks. Since November 1, 2023, there have been no other new regulatory developments to be considered, except for the one-year postponement of the increase to the capital output floor, as previously mentioned.
Capital Management in 2024
Management Activities
On December 12, 2023, the Bank began a normal course issuer bid to repurchase for cancellation up to 7,000,000 common shares (representing approximately 2.1% of its then outstanding common shares) over the 12-month period ending no later than December 11, 2024. During the year ended October 31, 2024, the Bank did not repurchase any common shares.
On February 5, 2024, the Bank issued medium-term notes for a total amount of $500 million bearing interest at 5.279% and maturing on February 15, 2034. Given that the medium-term notes satisfy the NVCC requirements, they qualify for the purposes of calculating regulatory capital under the Basel III rules.
As at October 31, 2024, the Bank had 340,743,876 issued and outstanding common shares compared to 338,284,629 a year earlier. It also had 66,000,000 issued and outstanding preferred shares (excluding Series 44, Series 45 and Series 46 preferred shares issued by the Bank in conjunction with the LRCN, for additional information, see Note 20 to the Consolidated Financial Statements) and 1,500,000 LRCN, unchanged from October 31, 2023. For additional information on capital instruments, see Notes 16, 17 and 20 to the Consolidated Financial Statements.
Dividends
The Bank's strategy for common share dividends is to aim for a dividend payout ratio between 40% and 50% of net income attributable to common shareholders, taking into account such factors as financial position, cash needs, regulatory requirements, and any other factor deemed relevant by the Board.
For fiscal 2024, the Bank declared $1,468 million in dividends to common shareholders, representing 40.1% of net income attributable to common shareholders (2023: 42.7%) and representing 41.2% of adjusted net income attributable to common shareholders (2023: 41.7%). The declared dividends are within the target payout range as a result of the dividend increase during the fiscal year. Given the economic conditions during fiscal 2024, the Bank has taken a prudent approach to managing regulatory capital and remains confident in its ability to increase earnings going forward.
Shares, Other Equity Instruments, and Stock Options
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As at October 31, 2024 |
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Number of shares or LRCN |
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$ million |
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First preferred shares |
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Series 30 |
|
14,000,000 |
|
350 |
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|
Series 32 |
|
12,000,000 |
|
300 |
|
|
|
Series 38 |
|
16,000,000 |
|
400 |
|
|
|
Series 40 |
|
12,000,000 |
|
300 |
|
|
|
Series 42 |
|
12,000,000 |
|
300 |
|
|
|
|
|
66,000,000 |
|
1,650 |
|
|
Other equity instruments |
|
|
|
|
|
|
|
|
LRCN - Series 1 |
|
500,000 |
|
500 |
|
|
|
LRCN - Series 2 |
|
500,000 |
|
500 |
|
|
|
LRCN - Series 3 |
|
500,000 |
|
500 |
|
|
|
|
|
1,500,000 |
|
1,500 |
|
|
|
|
|
67,500,000 |
|
3,150 |
|
|
Common shares |
|
340,743,876 |
|
3,463 |
|
|
|
Stock options |
|
10,443,059 |
|
|
|
|
As at November 29, 2024, there were 340,560,156 common shares and 10,438,408 stock options outstanding. NVCC provisions require the conversion of capital instruments into a variable number of common shares should OSFI deem a bank to be non-viable or should the government publicly announce that a bank has accepted or agreed to accept a capital injection. If an NVCC trigger event were to occur, all of the Bank's preferred shares, LRCNs, and medium-term notes maturing on August 16, 2032, and February 15, 2034, which are NVCC capital instruments, would be converted into common shares of the Bank according to an automatic conversion formula at a conversion price corresponding to the greater of the following amounts: (i) a $5.00 contractual floor price; or (ii) the market price of the Bank's common shares on the date of the trigger event (10-day weighted average price). Based on a $5.00 floor price and including an estimate for accrued dividends and interest, these NVCC capital instruments would be converted into a maximum of 1,021 million Bank common shares, which would have a 75.0% dilutive effect based on the number of Bank common shares outstanding as at October 31, 2024.
Regulatory Capital Ratios, Leverage Ratio, and TLAC Ratios
As at October 31, 2024, the Bank's CET1, Tier 1, and Total capital ratios were, respectively, 13.7%, 15.9% and 17.0%, compared to ratios of, respectively, 13.5%, 16.0% and 16.8% as at October 31, 2023. The CET1 capital ratio increased since October 31, 2023, essentially due to the contribution from net income net of dividends and to common share issuances under the Stock Option Plan. These factors were partly offset by the organic growth in RWA and by the impact of implementing OSFI's revised market risk framework. The Tier 1 capital ratio was more negatively affected by the RWA growth and is down compared to October 31, 2023. The increase of the Total capital ratio is explained by the $500 million issuance of medium-term notes during fiscal 2024.
As at October 31, 2024, the leverage ratio was 4.4%, stable compared to October 31, 2023, as growth in total exposure was offset by growth in Tier 1 capital.
As at October 31, 2024, the Bank's TLAC ratio and TLAC leverage ratio were, respectively, 31.2% and 8.6%, compared with 29.2% and 8.0%, respectively, as at October 31, 2023. The increases in both the TLAC and TLAC leverage ratios are primarily explained by the net issuance of instruments that met the TLAC eligibility criteria during the fiscal year.
During the year ended October 31, 2024, the Bank was in compliance with all of OSFI's regulatory capital, leverage, and TLAC requirements.
Regulatory Capital(1), Leverage Ratio(1), and TLAC(2)
|
As at October 31 |
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars) |
|
2024 |
|
|
2023 |
|
|
|
|
Capital |
|
|
|
|
|
|
|
|
|
|
CET1 |
|
19,321 |
|
|
16,920 |
|
|
|
|
Tier 1 |
|
22,470 |
|
|
20,068 |
|
|
|
|
Total |
|
24,001 |
|
|
21,056 |
|
|
|
Risk-weighted assets |
|
140,975 |
|
|
125,592 |
|
|
|
|
Total exposure |
|
511,160 |
|
|
456,478 |
|
|
|
|
Capital ratios |
|
|
|
|
|
|
|
|
|
|
CET1 |
|
13.7 |
% |
|
13.5 |
% |
|
|
|
Tier 1 |
|
15.9 |
% |
|
16.0 |
% |
|
|
|
Total |
|
17.0 |
% |
|
16.8 |
% |
|
|
Leverage ratio |
|
4.4 |
% |
|
4.4 |
% |
|
|
|
Available TLAC |
|
44,040 |
|
|
36,732 |
|
|
|
|
TLAC ratio |
|
31.2 |
% |
|
29.2 |
% |
|
|
|
TLAC leverage ratio |
|
8.6 |
% |
|
8.0 |
% |
|
|
(1) Capital, risk-weighted assets, total exposure, the capital ratios, and the leverage ratio are calculated in accordance with the Basel III rules, as set out in OSFI's Capital Adequacy Requirements Guideline and Leverage Requirements Guideline.
(2) Available TLAC, the TLAC ratio, and the TLAC leverage ratio are calculated in accordance with OSFI's Total Loss Absorbing Capacity Guideline.
Movement in Regulatory Capital(1)
|
Year ended October 31 |
|
|
|
|
||
|
(millions of Canadian dollars) |
2024 |
|
2023 |
|
||
|
Common Equity Tier 1 (CET1) capital |
|
|
|
|
||
|
Balance at beginning |
16,920 |
|
14,818 |
|
||
|
|
Issuance of common shares (including Stock Option Plan) |
130 |
|
85 |
|
|
|
|
Impact of shares purchased or sold for trading |
23 |
|
3 |
|
|
|
|
Repurchase of common shares |
− |
|
− |
|
|
|
|
Other contributed surplus |
33 |
|
22 |
|
|
|
|
Dividends on preferred and common shares and distributions on other equity instruments |
(1,643) |
|
(1,507) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Bank's shareholders and holders of other equity instruments |
3,817 |
|
3,337 |
|
|
|
|
Removal of own credit spread net of income taxes |
400 |
|
232 |
|
|
|
|
Impact of adopting IFRS 17(2) |
(94) |
|
− |
|
|
|
|
Other |
(191) |
|
(226) |
|
|
|
|
|
|
|
|
|
|
|
|
Movements in accumulated other comprehensive income |
|
|
|
|
|
|
|
|
Translation adjustments |
13 |
|
103 |
|
|
|
|
Debt securities at fair value through other comprehensive income |
9 |
|
(1) |
|
|
|
|
Other |
− |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Change in goodwill and intangible assets (net of related tax liability) |
38 |
|
37 |
|
|
|
|
Other, including regulatory adjustments |
|
|
|
|
|
|
|
|
Change in defined benefit pension plan asset (net of related tax liability) |
(92) |
|
101 |
|
|
|
|
Change in amount exceeding 15% threshold |
|
|
|
|
|
|
|
Deferred tax assets |
− |
|
− |
|
|
|
|
Significant investment in common shares of financial institutions |
− |
|
− |
|
|
|
|
Deferred tax assets, unless they result from temporary differences (net of related tax liability) |
(15) |
|
(25) |
|
|
|
|
Other deductions of regulatory adjustments to CET1 implemented by OSFI |
(1) |
|
(60) |
|
|
|
|
Change in other regulatory adjustments |
(26) |
|
− |
|
|
Balance at end |
19,321 |
|
16,920 |
|
||
|
Additional Tier 1 capital |
|
|
|
|
||
|
Balance at beginning |
3,148 |
|
3,143 |
|
||
|
|
New Tier 1 eligible capital issuances |
− |
|
− |
|
|
|
|
Redeemed capital |
− |
|
− |
|
|
|
|
Other, including regulatory adjustments |
1 |
|
5 |
|
|
|
Balance at end |
3,149 |
|
3,148 |
|
||
|
|
|
|
|
|
|
|
|
Total Tier 1 capital |
22,470 |
|
20,068 |
|
||
|
Tier 2 capital |
|
|
|
|
||
|
Balance at beginning |
988 |
|
1,766 |
|
||
|
|
New Tier 2 eligible capital issuances |
500 |
|
− |
|
|
|
|
Redeemed capital |
− |
|
(750) |
|
|
|
|
Tier 2 instruments issued by subsidiaries and held by third parties |
− |
|
− |
|
|
|
|
Change in certain allowances for credit losses |
4 |
|
(54) |
|
|
|
|
Other, including regulatory adjustments |
39 |
|
26 |
|
|
|
Balance at end |
1,531 |
|
988 |
|
||
|
Total regulatory capital |
24,001 |
|
21,056 |
|
||
(1) See the Financial Reporting Method section on pages 14 to 20 for additional information on capital management measures.
(2) Fiscal 2023 figures have not been adjusted to reflect accounting policy changes arising from the adoption of IFRS17. For additional information, see Note 2 to the Consolidated Financial Statements.
RWA by Key Risk Drivers
Risk-weighted assets (RWA) amounted to $141.0 billion as at October 31, 2024 compared to $125.6 billion as at October 31, 2023, a $15.4 billion increase resulting mainly from organic growth in RWA, a deterioration in the credit quality of the loan portfolio, and methodology changes related mainly to the implementation of the revised market risk framework. These factors were partly offset by the positive impact from the implementation of the Basel III reforms related to the credit risk framework. Changes in the Bank's RWA by risk type are presented in the following table.
Risk-Weighted Assets Movement by Key Drivers(1)
|
Quarter ended |
|
|
|
|
|
|||||||
|
(millions of Canadian dollars) |
October 31, 2024 |
July 31, 2024 |
|
April 30, 2024 |
|
January 31, 2024 |
|
October 31, 2023 |
|
|||
|
|
|
|
Total |
|
Total |
|
Total |
|
Total |
|
Total |
|
|
Credit risk - Risk-weighted assets at beginning |
116,684 |
|
112,663 |
|
108,838 |
|
107,145 |
|
102,087 |
|
||
|
|
Book size |
1,067 |
|
3,484 |
|
2,484 |
|
5,020 |
|
2,288 |
|
|
|
|
Book quality |
(70) |
|
649 |
|
508 |
|
435 |
|
1,045 |
|
|
|
|
Model updates |
439 |
|
(244) |
|
− |
|
(31) |
|
(107) |
|
|
|
|
Methodology and policy |
− |
|
− |
|
− |
|
(2,629) |
|
− |
|
|
|
|
Acquisitions and disposals |
− |
|
− |
|
− |
|
− |
|
− |
|
|
|
|
Foreign exchange movements |
330 |
|
132 |
|
833 |
|
(1,102) |
|
1,832 |
|
|
|
Credit risk - Risk-weighted assets at end |
118,450 |
|
116,684 |
|
112,663 |
|
108,838 |
|
107,145 |
|
||
|
Market risk - Risk-weighted assets at beginning |
8,066 |
|
9,641 |
|
10,148 |
|
5,662 |
|
5,985 |
|
||
|
|
Movement in risk levels(2) |
(64) |
|
(1,575) |
|
(507) |
|
(352) |
|
(323) |
|
|
|
|
Model updates |
− |
|
− |
|
− |
|
− |
|
− |
|
|
|
|
Methodology and policy |
− |
|
− |
|
− |
|
4,838 |
|
− |
|
|
|
|
Acquisitions and disposals |
− |
|
− |
|
− |
|
− |
|
− |
|
|
|
Market risk - Risk-weighted assets at end |
8,002 |
|
8,066 |
|
9,641 |
|
10,148 |
|
5,662 |
|
||
|
Operational risk - Risk-weighted assets at beginning |
14,168 |
|
13,811 |
|
13,384 |
|
12,785 |
|
12,490 |
|
||
|
|
Movement in risk levels |
355 |
|
357 |
|
427 |
|
599 |
|
295 |
|
|
|
|
Methodology and policy |
− |
|
− |
|
− |
|
− |
|
− |
|
|
|
|
Acquisitions and disposals |
− |
|
− |
|
− |
|
− |
|
− |
|
|
|
Operational risk - Risk-weighted assets at end |
14,523 |
|
14,168 |
|
13,811 |
|
13,384 |
|
12,785 |
|
||
|
Risk-weighted assets at end |
140,975 |
|
138,918 |
|
136,115 |
|
132,370 |
|
125,592 |
|
||
(1) See the Financial Reporting Method section on pages 14 to 20 for additional information on capital management measures.
(2) Also includes foreign exchange rate movements that are not considered material.
The table above provides the RWA movements by the key drivers underlying the different risk categories.
The Book size item reflects organic changes in book size and composition (including new loans and maturing loans). RWA movements attributable to book size include increases or decreases in exposures, measured by exposure at default, assuming a stable risk profile.
The Book quality item is the Bank's best estimate of changes in book quality related to experience such as underlying customer behaviour or demographics, including changes resulting from model recalibrations or realignments and also including risk mitigation factors.
The Model updates item is used to reflect implementations of new models, changes in model scope, and any other change applied to address model malfunctions.
The Methodology and policy item presents the impact of changes in calculation methods resulting from changes in regulatory policies or from new regulations. During the first quarter of 2024, the Bank refined the credit risk RWA calculation related to derivatives and certain non-retail exposures, and it also implemented OSFI's revised market risk and CVA risk frameworks.
Allocation of Economic Capital and Regulatory RWA
Economic capital is an internal measure that the Bank uses to determine the capital it needs to remain solvent and to pursue its business operations. Economic capital takes into consideration the credit, market, operational, business, and other risks to which the Bank is exposed as well as the risk diversification effect among them and among the business segments. Economic capital thus helps the Bank to determine the capital required to protect itself against such risks and ensure its long-term viability. The by-segment allocation of economic capital and regulatory RWA was carried out on a stand-alone basis before attribution of goodwill and intangible assets. The method used to assess economic capital is reviewed regularly in order to accurately quantify these risks.
The Risk Management section of this MD&A provides comprehensive information about the main types of risk. The "Other risks" presented below include risks such as business risk and structural interest rate risk in addition to the benefit of diversification among types of risk.
Allocation of Risks by Business Segment
As at October 31, 2024
(millions of Canadian dollars)
 |
|
Business segments |
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Major activities |
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Economic capital by type of risk |
|
Credit Market Operational Other risks |
4,290 - 395 436 |
|
Credit Market Operational Other risks |
138 - 181 609 |
|
Credit Market Operational Other risks |
3,251 228 518 924 |
|
Credit Market Operational Other risks |
1,491 - 39 125 |
|
Credit Market Operational Other risks |
272 183 29 (734) |
|
Total |
5,121 |
Total |
928 |
Total |
4,921 |
Total |
1,655 |
Total |
(250) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Risk-weighted assets(1) |
|
Credit Market Operational |
53,907 - 4,942 |
|
Credit Market Operational |
2,229 - 2,264 |
|
Credit Market Operational |
33,482 7,514 6,475 |
|
Credit Market Operational |
18,918 - 482 |
|
Credit Market Operational |
9,914 488 360 |
|
Total |
58,849 |
Total |
4,493 |
Total |
47,471 |
Total |
19,400 |
Total |
10,762 |
||||||
(1) See the Financial Reporting Method section on pages 14 to 20 for additional information on capital management measures.
