Source - RNS
RNS Number : 7419G
National Bank of Canada
31 May 2017
 

NS Number : 7419G

National Bank of Canada

May 31, 2017

 

Regulatory Announcement (Part 2)

 

Q2 2017 Results

National Bank of Canada (the "Bank") announces publication of its Second Quarter 2017 Report to Shareholders. The Second Quarter Results have been uploaded to the National Storage Mechanism and will shortly be available at www.morningstar.co.uk/uk/nsm and is available on the Bank's website at https://www.nbc.ca/en/about-us/investors/investor-relations/quarterly-results.html

To view the full PDF of this Second Quarter 2017 Report to Shareholders, please click on the following link:

http://www.rns-pdf.londonstockexchange.com/rns/7396G_-2017-5-31.pdf

INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(unaudited)

 

 

Consolidated Balance Sheets

41

Consolidated Statements of Income

42

Consolidated Statements of Comprehensive Income

43

Consolidated Statements of Changes in Equity

44

Consolidated Statements of Cash Flows

45

Notes to the Interim Condensed Consolidated Financial Statements

46

 

 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEETS

 

(unaudited) (millions of Canadian dollars)

 

 

 

 

 

 

As at April 30, 2017

 

As at October 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Cash and deposits with financial institutions

 

 

 

 

 

9,770

 

8,183

 

 

 

 

 

 

 

 

 

 

 

Securities (Notes 4 and 5)

 

 

 

 

 

 

 

 

 

At fair value through profit or loss

 

 

 

 

 

46,996

 

45,964

 

Available-for-sale

 

 

 

 

 

10,662

 

14,608

 

Held-to-maturity

 

 

 

 

 

7,435

 

3,969

 

 

 

 

 

 

 

 

65,093

 

64,541

 

 

 

 

 

 

 

 

 

 

 

 

Securities purchased under reverse repurchase agreements

 

 

 

 

 

 

 

 

 

 

and securities borrowed

 

 

 

 

 

17,481

 

13,948

 

 

 

 

 

 

 

 

 

 

 

 

Loans (Note 6)

 

 

 

 

 

 

 

 

 

Residential mortgage

 

 

 

 

 

49,672

 

48,868

 

Personal and credit card

 

 

 

 

 

35,442

 

33,964

 

Business and government

 

 

 

 

 

39,481

 

37,686

 

 

 

 

 

 

 

 

124,595

 

120,518

 

Customers' liability under acceptances

 

 

 

5,932

 

6,441

 

Allowances for credit losses

 

 

 

 

 

(762)

 

(781)

 

 

 

 

 

 

 

 

129,765

 

126,178

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

 

 

 

 

8,746

 

10,416

 

Purchased receivables

 

 

 

 

 

1,723

 

1,858

 

Investments in associates and joint ventures

 

 

 

652

 

645

 

Premises and equipment

 

 

 

 

 

943

 

1,338

 

Goodwill

 

 

 

 

 

1,418

 

1,412

 

Intangible assets

 

 

 

 

 

1,174

 

1,140

 

Other assets (Note 8)

 

 

 

 

 

2,255

 

2,547

 

 

 

 

 

 

 

 

16,911

 

19,356

 

 

 

 

 

 

 

 

239,020

 

232,206

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

Deposits (Notes 4 and 9)

 

 

 

 

 

151,160

 

142,066

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Acceptances

 

 

 

 

 

5,932

 

6,441

 

Obligations related to securities sold short

 

 

 

 

 

12,177

 

14,207

 

Obligations related to securities sold under repurchase agreements

 

 

 

 

 

 

 

 

 

 

and securities loaned

 

 

 

 

 

25,118

 

22,636

 

Derivative financial instruments

 

 

 

 

 

6,657

 

7,725

 

Liabilities related to transferred receivables (Notes 4 and 7)

 

 

 

 

 

20,156

 

20,131

 

Other liabilities (Note 10)

 

 

 

 

 

5,127

 

5,886

 

 

 

 

 

 

 

 

75,167

 

77,026

 

 

 

 

 

 

 

 

 

 

 

 

Subordinated debt (Note 12)

 

 

 

 

 

10

 

1,012

 

 

 

 

 

 

 

 

 

 

 

 

Equity 

 

 

 

 

 

 

 

 

 

Equity attributable to the Bank's shareholders (Notes 13 and 17)

 

 

 

 

 

 

 

 

 

Preferred shares

 

 

 

 

 

1,650

 

1,650

 

Common shares

 

 

 

 

 

2,793

 

2,645

 

Contributed surplus

 

 

 

 

 

57

 

73

 

Retained earnings

 

 

 

 

 

7,164

 

6,706

 

Accumulated other comprehensive income

 

 

 

 

 

221

 

218

 

 

 

 

 

 

 

 

11,885

 

11,292

 

Non-controlling interests (Note 14)

 

 

 

 

 

798

 

810

 

 

 

 

 

 

 

 

12,683

 

12,102

 

 

 

 

 

 

 

 

239,020

 

232,206

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

 

CONSOLIDATED STATEMENTS OF INCOME

 

(unaudited) (millions of Canadian dollars)

 

 

 

 Quarter ended April 30

 

Six months ended April 30

 

 

 

2017

 

2016

 

2017

 

 2016

 

Interest income 

 

 

 

 

 

 

 

 

 

Loans

 

1,064

 

922

 

2,125

 

1,845

 

Securities at fair value through profit or loss

 

155

 

154

 

316

 

319

 

Available-for-sale securities

 

63

 

84

 

133

 

167

 

Held-to-maturity securities

 

27

 

3

 

46

 

3

 

Deposits with financial institutions 

 

26

 

18

 

44

 

32

 

 

 

1,335

 

1,181

 

2,664

 

2,366

 

Interest expense

 

 

 

 

 

 

 

 

 

Deposits

 

431

 

345

 

831

 

682

 

Liabilities related to transferred receivables 

 

100

 

102

 

197

 

204

 

Subordinated debt

 

7

 

8

 

15

 

16

 

Other

 

35

 

11

 

61

 

33

 

 

 

573

 

466

 

1,104

 

935

 

Net interest income

 

762

 

715

 

1,560

 

1,431

 

 

 

 

 

 

 

 

 

 

 

Non-interest income

 

 

 

 

 

 

 

 

 

Underwriting and advisory fees

 

90

 

94

 

178

 

169

 

Securities brokerage commissions

 

57

 

61

 

115

 

120

 

Mutual fund revenues

 

101

 

87

 

202

 

172

 

Trust service revenues

 

126

 

109

 

249

 

223

 

Credit fees

 

84

 

85

 

167

 

169

 

Card revenues

 

29

 

28

 

62

 

57

 

Deposit and payment service charges

 

64

 

61

 

132

 

123

 

Trading revenues (losses) (Note 16)

 

76

 

8

 

170

 

55

 

Gains (losses) on available-for-sale securities, net 

 

49

 

29

 

75

 

40

 

Insurance revenues, net

 

30

 

28

 

61

 

54

 

Foreign exchange revenues, other than trading

 

23

 

19

 

41

 

43

 

Share in the net income of associates and joint ventures 

 

9

 

11

 

17

 

7

 

Other

 

97

 

90

 

201

 

51

 

 

 

835

 

710

 

1,670

 

1,283

 

Total revenues

 

1,597

 

1,425

 

3,230

 

2,714

 

Provisions for credit losses (Note 6)

 

56

 

317

 

116

 

380

 

 

 

1,541

 

1,108

 

3,114

 

2,334

 

Non-interest expenses

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

574

 

506

 

1,162

 

1,049

 

Occupancy

 

60

 

58

 

119

 

114

 

Technology

 

139

 

133

 

276

 

268

 

Communications

 

15

 

18

 

31

 

35

 

Professional fees

 

60

 

66

 

126

 

127

 

Other

 

93

 

95

 

196

 

186

 

 

 

941

 

876

 

1,910

 

1,779

 

Income before income taxes 

 

600

 

232

 

1,204

 

555

 

Income taxes (Note 19)

 

116

 

22

 

223

 

84

 

Net income

 

484

 

210

 

981

 

471

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to

 

 

 

 

 

 

 

 

 

Preferred shareholders

 

20

 

16

 

39

 

27

 

Common shareholders

 

442

 

177

 

901

 

405

 

Bank shareholders

 

462

 

193

 

940

 

432

 

Non-controlling interests

 

22

 

17

 

41

 

39

 

 

 

484

 

210

 

981

 

471

 

 

 

 

 

 

 

 

 

 

 

Earnings per share (dollars) (Note 20)

 

 

 

 

 

 

 

 

 

   Basic

 

1.30

 

0.52

 

2.65

 

1.20

 

   Diluted

 

1.28

 

0.52

 

2.62

 

1.19

 

Dividends per common share (dollars)

 

0.56

 

0.54

 

1.12

 

1.08

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(unaudited) (millions of Canadian dollars)

 

 

 

 

 

 

 

 Quarter ended April 30

 

Six months ended April 30

 

 

 

2017

 

 2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

484

 

210

 

981

 

471

 

Other comprehensive income, net of income taxes

 

 

 

 

 

 

 

 

 

 

Items that may be subsequently reclassified to net income

 

 

 

 

 

 

 

 

 

 

 

Net foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized foreign currency translation gains (losses) on investments in foreign operations

 

94

 

(140)

 

37

 

(30)

 

 

 

 

Net foreign currency translation (gains) losses on investments in foreign operations

 

 

 

 

 

 

 

 

 

 

 

 

 reclassified to net income

 

 

 

 

(12)

 

 

 

 

Impact of hedging net foreign currency translation gains (losses)

 

(36)

 

108

 

(12)

 

17

 

 

 

 

Impact of hedging net foreign currency translation (gains) losses reclassified to net income

 

 

 

 

5

 

 

 

 

 

 

 

58

 

(32)

 

25

 

(20)

 

 

 

Net change in available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) on available-for-sale securities

 

65

 

82

 

86

 

16

 

 

 

 

Net (gains) losses on available-for-sale securities reclassified to net income

 

(35)

 

(30)

 

(64)

 

(34)

 

 

 

 

 

 

 

30

 

52

 

22

 

(18)

 

 

 

Net change in cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

Net gains (losses) on derivative financial instruments designated as cash flow hedges

 

(29)

 

40

 

(29)

 

44

 

 

 

 

Net (gains) losses on designated derivative financial instruments reclassified to net income

 

(7)

 

(4)

 

(13)

 

(7)

 

 

 

 

 

 

 

(36)

 

36

 

(42)

 

37

 

 

 

Share in the other comprehensive income of associates and joint ventures

 

 

(3)

 

 

1

 

 

Items that will not be subsequently reclassified to net income

 

 

 

 

 

 

 

 

 

 

 

Remeasurements of pension plans and other post-employment benefit plans

 

(80)

 

15

 

39

 

(137)

 

 

 

Net fair value change attributable to the credit risk on financial liabilities designated at

 

 

 

 

 

 

 

 

 

 

 

 

fair value through profit or loss

 

(41)

 

(40)

 

(56)

 

(40)

 

 

 

 

 

 

 

(121)

 

(25)

 

(17)

 

(177)

 

Total other comprehensive income, net of income taxes

 

(69)

 

28

 

(12)

 

(177)

 

Comprehensive income

 

415

 

238

 

969

 

294

 

Comprehensive income attributable to

 

 

 

 

 

 

 

 

 

 

Bank shareholders

 

389

 

222

 

926

 

255

 

 

Non-controlling interests

 

26

 

16

 

43

 

39

 

 

 

 

415

 

238

 

969

 

294

 

 

income taxes - other comprehensive income

 

The following table presents the income tax expense or recovery for each component of other comprehensive income.

 

 

 

 

 

 Quarter ended April 30

 

Six months ended April 30

 

 

 

2017

 

2016

 

2017

 

 2016

 

Net foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

Net unrealized foreign currency translation gains (losses) on investments in foreign operations

 

(4)

 

 

1

 

 

Net foreign currency translation (gains) losses on investments in foreign operations

 

 

 

 

 

 

 

 

 

 

 

reclassified to net income

 

 

 

 

(2)

 

 

Impact of hedging net foreign currency translation gains (losses)

 

(7)

 

22

 

(2)

 

(1)

 

 

Impact of hedging net foreign currency translation (gains) losses reclassified to net income

 

 

 

 

2

 

 

 

 

 

(7)

 

18

 

(2)

 

 

Net change in available-for-sale securities

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) on available-for-sale securities

 

24

 

30

 

30

 

6

 

 

Net (gains) losses on available-for-sale securities reclassified to net income

 

(13)

 

(11)

 

(23)

 

(12)

 

 

 

 

 

11

 

19

 

7

 

(6)

 

Net change in cash flow hedges

 

 

 

 

 

 

 

 

 

 

Net gains (losses) on derivative financial instruments designated as cash flow hedges

 

(11)

 

14

 

(11)

 

16

 

 

Net (gains) losses on designated derivative financial instruments reclassified to net income

 

(2)

 

(2)

 

(4)

 

(3)

 

 

 

 

 

(13)

 

12

 

(15)

 

13

 

Remeasurements of pension plans and other post-employment benefit plans

 

(29)

 

6

 

14

 

(50)

 

Net fair value change attributable to the credit risk on financial liabilities designated at

 

 

 

 

 

 

 

 

 

 

fair value through profit or loss

 

(14)

 

(14)

 

(20)

 

(14)

 

 

 

 

 

(52)

 

41

 

(16)

 

(57)

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

(unaudited) (millions of Canadian dollars)

 

 

 

 

Six months ended April 30

 

 

 

2017

 

2016

 

 

 

 

 

 

 

 

Preferred shares at beginning (Note 13)

 

1,650

 

1,023

 

Issuance of Series 34 preferred shares

 

 

400

 

Redemption of Series 20 preferred shares for cancellation

 

 

(173)

 

Preferred shares at end

 

1,650

 

1,250

 

 

 

 

 

 

 

 

Common shares at beginning (Note 13)

 

2,645

 

2,614

 

Issuances of common shares

 

 

 

 

 

 

Stock Option Plan

 

149

 

21

 

Impact of shares purchased or sold for trading

 

3

 

(15)

 

Other

 

(4)

 

 

Common shares at end

 

2,793

 

2,620

 

 

 

 

 

 

 

 

Contributed surplus at beginning

 

73

 

67

 

Stock option expense (Note 17)

 

6

 

6

 

Stock options exercised

 

(22)

 

(3)

 

Other

 

 

(1)

 

Contributed surplus at end

 

57

 

69

 

 

 

 

 

 

 

 

Retained earnings at beginning

 

6,706

 

6,705

 

Net income attributable to the Bank's shareholders

 

940

 

432

 

Dividends (Note 13)

 

 

 

 

 

 

Preferred shares

 

(39)

 

(24)

 

 

Common shares

 

(382)

 

(364)

 

Premium paid on preferred shares redeemed for cancellation

 

 

(3)

 

Share issuance expenses

 

 

(6)

 

Remeasurements of pension plans and other post-employment benefit plans

 

39

 

(137)

 

Net fair value change attributable to the credit risk on financial liabilities designated at fair value through profit or loss

(56)

 

(40)

 

Impact of a financial liability resulting from put options written to non-controlling interests

 

(31)

 

(33)

 

Other

 

(13)

 

 

Retained earnings at end

 

7,164

 

6,530

 

 

 

 

 

 

 

 

Accumulated other comprehensive income at beginning

 

218

 

145

 

Net foreign currency translation adjustments

 

25

 

(20)

 

Net change in unrealized gains (losses) on available-for-sale securities

 

22

 

(18)

 

Net change in gains (losses) on cash flow hedges

 

(44)

 

37

 

Share in the other comprehensive income of associates and joint ventures

 

 

1

 

Accumulated other comprehensive income at end

 

221

 

145

 

 

 

 

 

 

 

 

Equity attributable to the Bank's shareholders

 

11,885

 

10,614

 

 

 

 

 

 

 

 

Non-controlling interests at beginning (Note 14)

 

810

 

801

 

Net income attributable to non-controlling interests

 

41

 

39

 

Other comprehensive income attributable to non-controlling interests

 

2

 

 

Distributions to non-controlling interests

 

(55)

 

(44)

 

Non-controlling interests at end

 

798

 

796

 

 

 

 

 

 

 

 

Equity

 

12,683

 

11,410

 

 

accumulated other comprehensive income

 

 

 

As at April 30, 2017

 

As at April 30, 2016

 

 

 

 

 

 

 

 

Accumulated other comprehensive income

 

 

 

 

 

Net foreign currency translation adjustments

 

51

 

(16)

 

Net unrealized gains (losses) on available-for-sale securities

 

73

 

(6)

 

Net gains (losses) on instruments designated as cash flow hedges

 

91

 

161

 

Share in the other comprehensive income of associates and joint ventures

 

6

 

6

 

 

 

221

 

145

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

 

 

 

 

             

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited) (millions of Canadian dollars)

 

 

 

 

Six months ended April 30

 

 

 

2017

 

2016

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

981

 

471

 

Adjustments for

 

 

 

 

 

 

Provisions for credit losses

 

116

 

380

 

 

Amortization of premises and equipment and intangible assets

 

192

 

212

 

 

Write-off of an equity interest in an associate

 

 

164

 

 

Gain on disposal of an equity interest in a joint venture

 

(12)

 

 

 

Deferred taxes

 

2

 

(55)

 

 

Losses (gains) on sales of available-for-sale securities, net

 

(75)

 

(44)

 

 

Impairment losses on available-for-sale securities

 

 

4

 

 

Share in the net income of associates and joint ventures

 

(17)

 

(7)

 

 

Stock option expense

 

6

 

6

 

Change in operating assets and liabilities

 

 

 

 

 

 

Securities at fair value through profit or loss

 

(1,032)

 

(274)

 

 

Securities purchased under reverse repurchase agreements and securities borrowed

 

(3,533)

 

3,942

 

 

Loans, net of securitization

 

(4,176)

 

(6,689)

 

 

Deposits

 

9,094

 

1,779

 

 

Obligations related to securities sold short

 

(2,030)

 

(2,494)

 

 

Obligations related to securities sold under repurchase agreements and securities loaned

 

2,482

 

4,516

 

 

Derivative financial instruments, net

 

602

 

264

 

 

Purchased receivables

 

135

 

104

 

 

Interest and dividends receivable and interest payable

 

(107)

 

(47)

 

 

Current tax assets and liabilities

 

(126)

 

75

 

 

Other items

 

(673)

 

48

 

 

 

 

1,829

 

2,355

 

Cash flows from financing activities

 

 

 

 

 

Issuance of preferred shares

 

 

400

 

Redemption of preferred shares for cancellation

 

 

(176)

 

Issuance of common shares, net of the impact of shares purchased for trading

 

126

 

3

 

Redemption of subordinated debt

 

(1,000)

 

(500)

 

Share issuance expenses

 

 

(6)

 

Dividends paid

 

(418)

 

(384)

 

Distributions to non-controlling interests

 

(55)

 

(44)

 

 

 

 

(1,347)

 

(707)

 

Cash flows from investing activities

 

 

 

 

 

Net change in investments in associates and joint ventures

 

13

 

 

Purchases of available-for-sale securities

 

(2,181)

 

(3,259)

 

Maturities of available-for-sale securities

 

466

 

412

 

Sales of available-for-sale securities

 

5,599

 

2,773

 

Purchases of held-to-maturity securities

 

(3,456)

 

(1,709)

 

Net change in tangible assets leased under operating leases

 

332

 

163

 

Net change in premises and equipment

 

(41)

 

(70)

 

Net change in intangible assets

 

(115)

 

(124)

 

 

 

 

617

 

(1,814)

 

Impact of currency rate movements on cash and cash equivalents

 

488

 

51

 

Increase (decrease) in cash and cash equivalents

 

1,587

 

(115)

 

Cash and cash equivalents at beginning

 

8,183

 

7,567

 

Cash and cash equivalents at end(1)

 

9,770

 

7,452

 

Supplementary information about cash flows from operating activities

 

 

 

 

 

Interest paid

 

1,184

 

977

 

Interest and dividends received

 

2,638

 

2,357

 

Income taxes paid

 

364

 

135

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

 

 

 

 

 

(1)       This item is the equivalent of Consolidated Balance Sheet item Cash and deposits with financial institutions. It includes an amount of $1.9 billion as at April 30, 2017 ($1.9 billion as at October 31, 2016) for which there are restrictions. In addition, a negligible amount was held in escrow as at April 30, 2017 ($3 million as at October 31, 2016).

 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(unaudited) (millions of Canadian dollars)

 

 

 

 

 

 

 

 

 

 

 

Note 1

Basis of Presentation

46

 

Note 13

Share Capital

59

 

 

Note 2

Future Accounting Policy Changes

46

 

Note 14

Non-Controlling Interests

60

 

 

Note 3

Fair Value of Financial Instruments

47

 

Note 15

Capital Disclosure

60

 

 

Note 4

Financial Instruments Designated at Fair Value Through Profit or Loss

52

 

Note 16

Trading Activity Revenues

61

 

 

Note 5

Securities

53

 

Note 17

Share-Based Payments

61

 

 

Note 6

Loans

54

 

Note 18

Employee Benefits - Pension Plans and Other Post-Employment Benefits

62

 

 

Note 7

Financial Assets Transferred But Not Derecognized

57

 

Note 19

Income Taxes

62

 

 

Note 8

Other Assets

57

 

Note 20

Earnings Per Share

63

 

 

Note 9

Deposits

58

 

Note 21

Contingent Liabilities

63

 

 

Note 10

Other Liabilities

58

 

Note 22

Structured Entities

64

 

 

Note 11

Restructuring

58

 

Note 23

Segment Disclosures

66

 

 

Note 12

Subordinated Debt

59

 

Note 24

Event After the Consolidated Balance Sheet Date

67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE 1 - Basis of Presentation

 

On May 30, 2017, the Board of Directors authorized the publication of the Bank's unaudited interim condensed consolidated financial statements (the consolidated financial statements) for the quarter ended April 30, 2017.

 

The Bank's consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (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. IFRS represent Canadian generally accepted accounting principles (GAAP). None of the OSFI accounting requirements are exceptions to IFRS.

 

These consolidated financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting using the same accounting policies described in Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2016. Since these interim consolidated financial statements do not include all of the annual financial statement disclosures required under IFRS, they should be read in conjunction with the audited annual consolidated financial statements and accompanying notes for the year ended October 31, 2016.

 

On November 1, 2016, the Bank reclassified certain Personal and Commercial segment revenues in the Consolidated Statement of Income to better reflect the nature of the revenues reported. As a result, for the quarter ended April 30, 2016, an amount of $6 million reported in Non-interest income - Credit fees was reclassified to Interest income - Loans ($16 million for the six-month period ended April 30, 2016).

 

Also on November 1, 2016, the Bank changed the presentation of certain items on the Consolidated Balance Sheet, and certain amounts were revised from those previously reported. The Due from clients, dealers and brokers item as at October 31, 2016 is now presented in Other assets on the Consolidated Balance Sheet. All deposits have been grouped into a single Deposits item. To better reflect the nature of certain liabilities on the Consolidated Balance Sheet, an amount of $2.2 billion reported in the Due to clients, dealers and brokers item was reclassified to the Deposits item as at October 31, 2016. The Due to clients, dealers and brokers item is now presented in Other liabilities on the Consolidated Balance Sheet.

 

Unless otherwise indicated, all amounts are presented in Canadian dollars, which is the Bank's functional and presentation currency.

 

 

NOTE 2 - FUTURE ACCOUNTING POLICy changes

 

The Bank closely monitors both new accounting standards and amendments to existing accounting standards issued by the IASB. The Bank is currently assessing how adoption of new and amended IASB accounting standards will impact the consolidated financial statements. There have been no significant updates to the future accounting policy changes disclosed in Note 2 to the audited annual consolidated financial statements for the year ended October 31, 2016, except as described below.

 

IFRS 17 - Insurance Contracts

In May 2017, the IASB issued IFRS 17 - Insurance Contracts, a new standard that replaces IFRS 4, the current insurance contract accounting standard. IFRS 17 introduces a new accounting framework that will improve comparability and quality of financial information. IFRS 17 is effective for annual periods beginning on or after January 1, 2021, which will be November 1, 2021 for the Bank.

 

NOTE 3 - Fair Value of Financial Instruments

 

Fair Value and Carrying Value of Financial Instruments by Category

 

Financial assets and financial liabilities are recognized on the Consolidated Balance Sheet at fair value or at amortized cost in accordance with the categories set out in the accounting framework for financial instruments.

 

 

 

 

 

 

 

 

 

 

 

 

As at April 30, 2017

 

 

 

 

 

 

Carrying value and fair value

 

Carrying value

 

 

Fair value

 

Total

carrying

value

 

Total

fair

value

 

 

 

 

 

 

Financial instruments classified

as at fair value through profit or loss

 

Financial instruments

designated

at fair value

through profit

or loss

 

Available-

for-sale

 

Financial

instruments at

amortized cost

 

 

Financial

instruments at

amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and deposits with financial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

institutions

 

 

 

 

9,770

 

 

9,770

 

9,770

 

9,770

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities

 

46,237

 

759

 

10,662

 

7,435

 

 

7,653

 

65,093

 

65,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities purchased under reverse

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

repurchase agreements and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities borrowed

 

 

54

 

 

17,427

 

 

17,427

 

17,481

 

17,481

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and acceptances

 

6,113

 

115

 

 

123,537

 

 

124,816

 

129,765

 

131,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

8,746

 

 

 

 

 

 

8,746

 

8,746

 

 

Purchased receivables

 

 

 

 

1,723

 

 

1,723

 

1,723

 

1,723

 

 

Other assets

 

 

 

 

936

 

 

936

 

936

 

936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

5,162

 

 

 

145,998

(1)

 

146,709

 

151,160

 

151,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acceptances

 

 

 

 

 

5,932

 

 

5,932

 

5,932

 

5,932

 

 

Obligations related to securities sold short

 

12,177

 

 

 

 

 

 

 

12,177

 

12,177

 

 

Obligations related to securities sold under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

repurchase agreements and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities loaned

 

 

 

 

 

25,118

 

 

25,118

 

25,118

 

25,118

 

 

Derivative financial instruments

 

6,657

 

 

 

 

 

 

 

6,657

 

6,657

 

 

Liabilities related to transferred receivables

 

 

6,097

 

 

 

14,059

 

 

14,127

 

20,156

 

20,224

 

 

Other liabilities

 

37

 

 

 

 

2,759

 

 

2,775

 

2,796

 

2,812

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subordinated debt

 

 

 

 

 

10

 

 

10

 

10

 

10

 

 

(1)       Including embedded derivative financial instruments.

 

 

 

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS (cont.)

 

 

 

 

 

 

 

 

 

 

 

 

As at October 31, 2016

 

 

 

 

 

 

Carrying value and fair value

 

Carrying value

 

 

Fair value

 

Total

carrying

value

 

Total

fair

value

 

 

 

 

 

 

Financial instruments classified

as at fair value through profit or loss

 

Financial instruments

designated

at fair value

through profit

or loss

 

Available-

for-sale

 

Financial

instruments at

amortized cost

 

 

Financial

instruments at

amortized cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and deposits with financial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

institutions

 

 

 

 

8,183

 

 

8,183

 

8,183

 

8,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities

 

44,499

 

1,465

 

14,608

 

3,969

 

 

3,993

 

64,541

 

64,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities purchased under reverse

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

repurchase agreements and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities borrowed

 

 

158

 

 

13,790

 

 

13,790

 

13,948

 

13,948

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and acceptances

 

6,290

 

164

 

 

119,724

 

 

120,641

 

126,178

 

127,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

10,416

 

 

 

 

 

 

10,416

 

10,416

 

 

Purchased receivables

 

 

 

 

1,858

 

 

1,858

 

1,858

 

1,858

 

 

Other assets(1)

 

 

 

 

1,317

 

 

1,317

 

1,317

 

1,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits(2)

 

 

4,655

 

 

 

137,411

(3)

 

138,267

 

142,066

 

142,922

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acceptances

 

 

 

 

 

6,441

 

 

6,441

 

6,441

 

6,441

 

 

Obligations related to securities sold short

 

14,207

 

 

 

 

 

 

 

14,207

 

14,207

 

 

Obligations related to securities sold under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

repurchase agreements and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities loaned

 

 

 

 

 

22,636

 

 

22,636

 

22,636

 

22,636

 

 

Derivative financial instruments

 

7,725

 

 

 

 

 

 

 

7,725

 

7,725

 

 

Liabilities related to transferred receivables

 

 

6,206

 

 

 

13,925

 

 

13,974

 

20,131

 

20,180

 

 

Other liabilities(2)

 

43

 

 

 

 

3,158

 

 

3,173

 

3,201

 

3,216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subordinated debt

 

 

 

 

 

1,012

 

 

1,013

 

1,012

 

1,013

 

 

(1)       The Due from clients, dealers and brokers amount of $843 million presented separately on the Consolidated Balance Sheet as at October 31, 2016 is now reported in Other assets.

(2)       An amount of $2,699 million reported in Due to clients, dealers and brokers on the Consolidated Balance Sheet as at October 31, 2016 is now reported in Deposits ($2,159 million) and in Other liabilities ($540 million).

(3)       Including embedded derivative financial instruments.

 

Establishing Fair Value

 

The fair value of a financial instrument is the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction in the principal market at the measurement date under current market conditions (i.e., an exit price).

 

Unadjusted quoted prices in active markets provide the best evidence of fair value. When there is no quoted price in an active market, the Bank applies other valuation techniques that maximize the use of relevant observable inputs and that minimize the use of unobservable inputs. Such valuation techniques include the following: using information available from recent market transactions, referring to the current fair value of a comparable financial instrument, applying discounted cash flow analysis, applying option pricing models, or relying on any other valuation technique that is commonly used by market participants and has proven to yield reliable estimates. Judgment is required when applying many of the valuation techniques.

 

Fair value is established in accordance with a rigorous control framework. The Bank has policies and procedures that govern the process for determining fair value. The Bank's valuation governance structure has remained largely unchanged from that described in Note 3 to the audited annual consolidated financial statements for the year ended October 31, 2016. The valuation techniques used to determine the fair value of financial assets and liabilities are also described in this note, and no significant changes have been made to the valuation techniques.

 

Financial Instruments Recorded at Fair Value on the Consolidated Balance Sheet

 

Hierarchy of Fair Value Measurements

IFRS establishes a fair value hierarchy that classifies the inputs used in financial instrument fair value measurement techniques according to three levels. This fair value hierarchy requires observable market inputs to be used whenever such inputs exist. According to the hierarchy, the highest level of inputs are unadjusted quoted prices in active markets for identical instruments and the lowest level of inputs are unobservable inputs. If inputs from different levels of the hierarchy are used, the financial instrument is classified in the same level as the lowest level input that is significant to the fair value measurement. For additional information, see Note 3 to the audited annual consolidated financial statements for the year ended October 31, 2016.

 

Transfers of financial instruments between Levels 1 and 2 and transfers to (or from) Level 3 are deemed to have taken place at the beginning of the quarter in which the transfer occurred. Significant transfers can occur between the fair value hierarchy levels due to new information on inputs used to determine fair value and the observable nature of those inputs.

 

During the quarter ended April 30, 2017, $132 million in securities classified as at fair value through profit or loss and $11 million in obligations related to securities sold short were transferred from Level 2 to Level 1 resulting from changing market conditions. In addition, during the quarter ended April 30, 2017, $67 million in securities classified as at fair value through profit or loss and $9 million in obligations related to securities sold short were transferred from Level 1 to Level 2 (no significant transfers between Levels 1 and 2 for the quarter ended January 31, 2017). During the six-month periods ended April 30, 2017 and 2016, financial instruments were transferred to (or from) Level 3 due to changes in the availability of observable market inputs resulting from changing market conditions.

 

The following tables show financial instruments recorded at fair value on the Consolidated Balance Sheet according to the fair value hierarchy.

 

 

 

 

 

 

 

 

 

As at April 30, 2017

 

 

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total financial

assets/liabilities

at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

Securities

 

 

 

 

 

 

 

 

 

 

 

 At fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

Securities issued or guaranteed by

 

 

 

 

 

 

 

 

 

 

 

 

 

Canadian government

 

3,005

 

5,949

 

 

8,954

 

 

 

 

 

Canadian provincial and municipal governments

 

 

8,959

 

 

8,959

 

 

 

 

 

U.S. Treasury, other U.S. agencies and other foreign governments

 

3,278

 

139

 

 

3,417

 

 

 

 

Other debt securities

 

 

2,443

 

 

2,443

 

 

 

 

Equity securities

 

22,729

 

482

 

12

 

23,223

 

 

 

 

 

 

 

29,012

 

17,972

 

12

 

46,996

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

Securities issued or guaranteed by

 

 

 

 

 

 

 

 

 

 

 

 

 

Canadian government

 

118

 

4,926

 

 

5,044

 

 

 

 

 

Canadian provincial and municipal governments

 

 

3,687

 

 

3,687

 

 

 

 

 

U.S. Treasury, other U.S. agencies and other foreign governments

 

550

 

69

 

 

619

 

 

 

 

Other debt securities

 

 

665

 

1

 

666

 

 

 

 

Equity securities

 

155

 

191

 

300

 

646

 

 

 

 

 

 

 

823

 

9,538

 

301

 

10,662

 

 

Securities purchased under reverse repurchase agreements and

 

 

 

 

 

 

 

 

 

 

 

securities borrowed

 

 

54

 

 

54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and acceptances

 

 

6,228

 

 

6,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

61

 

8,607

 

78

 

8,746

 

 

 

 

 

 

29,896

 

42,399

 

391

 

72,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

5,376

 

8

 

5,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Obligations related to securities sold short

 

6,719

 

5,458

 

 

12,177

 

 

 

Derivative financial instruments

 

126

 

6,481

 

50

 

6,657

 

 

 

Liabilities related to transferred receivables

 

 

6,097

 

 

6,097

 

 

 

Other liabilities

 

 

37

 

 

37

 

 

 

 

 

 

6,845

 

23,449

 

58

 

30,352

 

 

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS (cont.)

 

 

 

 

 

 

 

 

 

 

As at October 31, 2016

 

 

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total financial

assets/liabilities

at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

Securities

 

 

 

 

 

 

 

 

 

 

 

At fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

Securities issued or guaranteed by

 

 

 

 

 

 

 

 

 

 

 

 

 

Canadian government

 

2,284

 

4,904

 

 

7,188

 

 

 

 

 

Canadian provincial and municipal governments

 

 

10,547

 

 

10,547

 

 

 

 

 

U.S. Treasury, other U.S. agencies and other foreign governments

 

3,968

 

206

 

 

4,174

 

 

 

 

Other debt securities

 

 

2,934

 

 

2,934

 

 

 

 

Equity securities

 

20,410

 

693

 

18

 

21,121

 

 

 

 

 

 

 

26,662

 

19,284

 

18

 

45,964

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

Securities issued or guaranteed by

 

 

 

 

 

 

 

 

 

 

 

 

 

Canadian government

 

241

 

6,040

 

 

6,281

 

 

 

 

 

Canadian provincial and municipal governments

 

 

4,996

 

 

4,996

 

 

 

 

 

U.S. Treasury, other U.S. agencies and other foreign governments

 

1,614

 

95

 

 

1,709

 

 

 

 

Other debt securities

 

 

948

 

30

 

978

 

 

 

 

Equity securities

 

201

 

168

 

275

 

644

 

 

 

 

 

 

 

2,056

 

12,247

 

305

 

14,608

 

 

Securities purchased under reverse repurchase agreements and

 

 

 

 

 

 

 

 

 

 

 

securities borrowed

 

 

158

 

 

158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and acceptances

 

 

6,454

 

 

6,454

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

87

 

10,196

 

133

 

10,416

 

 

 

 

 

 

28,805

 

48,339

 

456

 

77,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

4,788

 

7

 

4,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Obligations related to securities sold short

 

8,732

 

5,475

 

 

14,207

 

 

 

Derivative financial instruments

 

117

 

7,490

 

118

 

7,725

 

 

 

Liabilities related to transferred receivables

 

 

6,206

 

 

6,206

 

 

 

Other liabilities

 

 

43

 

 

43

 

 

 

 

 

 

8,849

 

24,002

 

125

 

32,976

 

 

Financial Instruments Classified in Level 3

 

The Bank classifies financial instruments in Level 3 when the valuation technique is based on at least one significant input that is not observable in the markets. The Bank maximizes the use of observable inputs to determine the fair value of financial instruments.

 

For a description of the valuation techniques and significant unobservable inputs used in determining the fair value of financial instruments classified in Level 3, see Note 3 to the audited annual consolidated financial statements for the fiscal year ended October 31, 2016. For the quarter and six months ended April 30, 2017, no significant change was made to the valuation techniques and significant unobservable inputs used in determining fair value.

 

Sensitivity Analysis of Financial Instruments Classified in Level 3

The Bank performs sensitivity analyses on the fair value measurements of financial instruments classified in Level 3, substituting unobservable inputs with one or more reasonably possible alternative assumptions. For additional information on how a change in unobservable input might affect the fair value measurements of Level 3 financial instruments, see Note 3 of the audited annual consolidated financial statements for the year ended October 31, 2016. For the six months ended April 30, 2017, there were no significant changes in the sensitivity analyses of Level 3 financial instruments.

 

 Change in the Fair Value of Financial Instruments Classified in Level 3

 

The Bank may hedge the fair value of financial instruments classified in the various levels through offsetting hedge positions. Gains and losses for financial instruments classified in Level 3 presented in the following tables do not reflect the inverse gains and losses on financial instruments used for economic hedging purposes that may have been classified in Level 1 or 2 by the Bank. In addition, the Bank may hedge the fair value of financial instruments classified in Level 3 using other financial instruments classified in Level 3. The effect of these hedges is not included in the net amount presented in the following tables. The gains and losses presented hereafter may comprise changes in fair value based on observable and unobservable inputs.

 

 

 

 

 

 

 

Six months ended April 30, 2017

 

 

 

 

Securities

at fair value

through profit

or loss

 

Available-

for-sale

securities

 

Derivative

financial

instruments(1)

 

Deposits

 

Fair value as at October 31, 2016

 

18

 

305

 

15

 

(7)

 

Total realized and unrealized gains (losses) included in Net income (2)

 

 

13

 

1

 

 

Total realized and unrealized gains (losses) included in 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

(4)

 

 

 

Purchases

 

1

 

29

 

 

 

Sales

 

(9)

 

(38)

 

 

 

Issuances

 

 

 

 

(7)

 

Settlements and other

 

 

(4)

 

9

 

1

 

Financial instruments transferred into Level 3

 

2

 

 

 

(1)

 

Financial instruments transferred out of Level 3

 

 

 

3

 

6

 

Fair value as at April 30, 2017

 

12

 

301

 

28

 

(8)

 

Change in unrealized gains and losses included in Net income with respect

 

 

 

 

 

 

 

 

 

 

to financial assets and financial liabilities held as at April 30, 2017(3)

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended April 30, 2016

 

 

 

 

Securities

at fair value

through profit

or loss

 

Available-

for-sale

securities

 

Derivative

financial

instruments(1)

 

Deposits

 

Fair value as at October 31, 2015

 

21

 

261

 

(38)

 

(20)

 

Total realized and unrealized gains (losses) included in Net income (4)

 

(1)

 

8

 

(30)

 

8

 

Total realized and unrealized gains (losses) included in

 

 

 

 

 

 

 

 

 

 

 Other comprehensive income

 

 

10

 

 

 

Purchases

 

 

40

 

 

 

Sales

 

(8)

 

(6)

 

 

 

Issuances

 

 

 

 

(7)

 

Settlements and other

 

 

(8)

 

9

 

3

 

Financial instruments transferred into Level 3

 

 

1

 

68

 

(31)

 

Financial instruments transferred out of Level 3

 

 

 

(5)

 

18

 

Fair value as at April 30, 2016

 

12

 

306

 

4

 

(29)

 

Change in unrealized gains and losses included in Net income with respect

 

 

 

 

 

 

 

 

 

 

to financial assets and financial liabilities held as at April 30, 2016(5)

 

(1)

 

 

(30)

 

8

 

 

(1)       The derivative financial instruments include assets and liabilities presented on a net basis.

(2)       Total net gains included in Non-interest income was $14 million.

(3)       Total unrealized gains included in Non-interest income was $1 million.

(4)       Total net losses included in Non-interest income was $15 million.

(5)       Total unrealized losses included in Non-interest income was $23 million.

 

NOTE 4 - FINANCIAL INSTRUMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

 

The Bank chose to designate certain financial instruments at fair value through profit or loss according to criteria presented in Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2016. Consistent with its risk management strategy and as permitted by the fair value option, when the designation eliminates or significantly reduces the measurement or recognition mismatch resulting from measuring financial assets and liabilities on different bases, the Bank designated at fair value through profit or loss certain securities, certain securities purchased under reverse repurchase agreements, and certain liabilities related to transferred receivables. The fair value of liabilities related to transferred receivables does not include credit risk, as the holders of these liabilities are not exposed to the Bank's credit risk.

 

The Bank also designated certain deposits that include embedded derivative financial instruments and certain loans at fair value through profit or loss. There is no exposure to credit risk on the loans to the extent that they are fully collateralized.

 

To determine a change in fair value arising from a change in the credit risk of deposits designated at fair value through profit or loss, the Bank calculates, at the beginning of the period, the present value of the instrument's contractual cash flows using the following rates: first, using an observed discount rate for similar securities that reflects the Bank's credit spread and, then, using a rate that excludes the Bank's credit spread. The difference obtained between the two values is then compared to the difference obtained using the same rates at the end of the period.

 

Information about the financial assets and financial liabilities designated at fair value through profit or loss is provided in the following tables.

 

 

 

Carrying

value as at

April 30, 2017

 

Change in total fair

value (including the

change in the fair

value attributable to

credit risk) for the

quarter ended

April 30, 2017

 

Change in total fair

value (including the

change in the fair

value attributable to

credit risk) for the

six months ended

April 30, 2017

 

Change in

fair value

since the initial

recognition of

the instrument

 

Financial assets designated at fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

Securities

 

759

 

4

 

 

22

 

 

Securities purchased under reverse repurchase agreements

 

54

 

 

 

 

 

Loans

 

115

 

9

 

(4)

 

(29)

 

 

 

928

 

13

 

(4)

 

(7)

 

Financial liabilities designated at fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

Deposits(1)(2)

 

5,162

 

(139)

 

(118)

 

(73)

 

 

Liabilities related to transferred receivables

 

6,097

 

(1)

 

56

 

(151)

 

 

 

11,259

 

(140)

 

(62)

 

(224)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying

value as at

April 30, 2016

 

Change in total fair

value (including the

change in the fair

value attributable to

credit risk) for the

quarter ended

April 30, 2016

 

Change in total fair

value (including the

change in the fair

value attributable to

credit risk) for the

six months ended

April 30, 2016

 

Change in

fair value

since the initial

recognition of

the instrument

 

Financial assets designated at fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

Securities

 

2,219

 

(7)

 

1

 

345

 

 

Securities purchased under reverse repurchase agreements

 

751

 

 

 

 

 

Loans

 

104

 

(22)

 

(23)

 

(42)

 

 

 

3,074

 

(29)

 

(22)

 

303

 

Financial liabilities designated at fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

Deposits(1)(2)

 

3,317

 

(182)

 

(46)

 

(15)

 

 

Liabilities related to transferred receivables

 

5,989

 

53

 

31

 

(217)

 

 

 

9,306

 

(129)

 

(15)

 

(232)

 

 

(1)       For the quarter ended April 30, 2017, the change in the fair value of deposits designated at fair value through profit or loss attributable to credit risk, and recorded in Other comprehensive income, resulted in a loss of $55 million ($54 million loss for the quarter ended April 30, 2016). For the six months ended April 30, 2017, this change resulted in a loss of $76 million (net loss of $39 million, which included a $54 million loss recorded in Other comprehensive income and a $15 million gain recorded in Net income, for the six months ended April 30, 2016).

(2)       The amount at maturity that the Bank will be contractually required to pay to the holders of these deposits varies and will differ from the reporting date fair value.

 

NOTE 5 - SECURITIES

 

Gross Gains (Losses) on Available-for-Sale Securities

 

 

 

As at April 30, 2017

 

 

 

 

Amortized

cost

 

Gross

unrealized

gains

 

Gross

unrealized

losses

 

Carrying

value

 

 

 

 

 

 

 

 

 

 

 

 

Securities issued or guaranteed by

 

 

 

 

 

 

 

 

 

 

Canadian government

 

4,994

 

52

 

(2)

 

5,044

 

 

Canadian provincial and municipal governments

 

3,536

 

173

 

(22)

 

3,687

 

 

U.S. Treasury, other U.S. agencies and other foreign governments

 

635

 

 

(16)

 

619

 

Other debt securities

 

656

 

11

 

(1)

 

666

 

Equity securities

 

566

 

101

 

(21)

 

646

 

 

 

10,387

 

337

 

(62)

 

10,662

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at October 31, 2016

 

 

 

 

Amortized

cost

 

Gross

unrealized

gains

 

Gross

unrealized

losses

 

Carrying

value

 

 

 

 

 

 

 

 

 

 

 

 

Securities issued or guaranteed by

 

 

 

 

 

 

 

 

 

 

Canadian government

 

6,201

 

83

 

(3)

 

6,281

 

 

Canadian provincial and municipal governments

 

4,704

 

312

 

(20)

 

4,996

 

 

U.S. Treasury, other U.S. agencies and other foreign governments

 

1,702

 

11

 

(4)

 

1,709

 

Other debt securities

 

951

 

29

 

(2)

 

978

 

Equity securities

 

588

 

94

 

(38)

 

644

 

 

 

14,146

 

529

 

(67)

 

14,608

 

 

Impairment Losses Recognized

At the end of each financial reporting period, the Bank determines whether there is objective evidence of impairment for each available-for-sale security. During the quarter ended April 30, 2017, no impairment loss ($1 million for the quarter ended April 30, 2016) was recognized in Gains (losses) on available-for-sale securities, net in the Consolidated Statement of Income. There were no impairment losses for the six months ended April 30, 2017 ($4 million for the six months ended April 30, 2016). In addition, during the six-month periods ended April 30, 2017 and 2016, no amounts were reversed in the Consolidated Statement of Income to recognize subsequent increases in the fair value of previously impaired debt securities.

 

Gross Unrealized Losses

As at April 30, 2017 and as at October 31, 2016, the Bank concluded that the gross unrealized losses on available-for-sale securities were mainly due to market price fluctuations and to changes in foreign exchange rates and that there was no objective evidence of impairment requiring an impairment charge to be recognized in the Consolidated Statement of Income.

 

Master Asset Vehicles (MAV)

 

As at April 30, 2017, the carrying value of the restructured notes of the MAV conduits and of the other restructured notes held by the Bank was nil ($619 million as at October 31, 2016). The change in the carrying value of the restructured notes of the MAV conduits during the six months ended April 30, 2017 was mainly attributable to capital repayments.

 

During the six months ended April 30, 2017, revenues amounting to $4 million were recorded to reflect capital repayments ($14 million during the six months ended April 30, 2016). These amounts were recorded in Trading revenues in the Consolidated Statement of Income.

 

Held-to-Maturity Securities

 

At the end of each financial reporting period, the Bank determines whether there is objective evidence of impairment for each held-to-maturity security. As at April 30, 2017 and 2016, there was no objective evidence of impairment on held-to-maturity securities.

 

NOTE 6 - LOANS

 

Credit Quality

 

 

 

 

 

As at April 30, 2017

 

 

 

 

 

Residential mortgage

 

Personal and credit card

 

Business and government(1)(2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Neither past due(3) nor impaired

 

49,417

 

35,076

 

45,056

 

129,549

 

Past due(3) but not impaired

 

182

 

287

 

87

 

556

 

Impaired

 

73

 

79

 

270

 

422

 

Gross loans

 

49,672

 

35,442

 

45,413

 

130,527

 

Less: Allowances on impaired loans

 

 

 

 

 

 

 

 

 

 

Individual allowances

 

14

 

20

 

154

 

188

 

 

Collective allowances

 

 

18

 

3

 

21

 

Allowances on impaired loans

 

14

 

38

 

157

 

209

 

 

 

 

 

49,658

 

35,404

 

45,256

 

130,318

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

Sectoral allowance on non-impaired loans - Oil and gas(4)

 

 

 

 

 

 

 

147

 

 

Collective allowance on non-impaired loans(5)

 

 

 

 

 

 

 

406

 

 

 

 

 

 

 

 

 

553

 

Loans and acceptances, net of allowances

 

 

 

 

 

 

 

129,765

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at October 31, 2016

 

 

 

Residential mortgage

 

Personal and credit card

 

Business and government(1)(2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

Neither past due(3) nor impaired

48,552

 

33,591

 

43,673

 

125,816

 

Past due(3) but not impaired

245

 

294

 

112

 

651

 

Impaired

71

 

79

 

342

 

492

 

Gross loans

48,868

 

33,964

 

44,127

 

126,959

 

Less: Allowances on impaired loans

 

 

 

 

 

 

 

 

 

Individual allowances

13

 

20

 

156

 

189

 

 

Collective allowances

 

19

 

3

 

22

 

Allowances on impaired loans

13

 

39

 

159

 

211

 

 

 

48,855

 

33,925

 

43,968

 

126,748

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

Sectoral allowance on non-impaired loans - Oil and gas(4)

 

 

 

 

 

 

204

 

 

Collective allowance on non-impaired loans(5)

 

 

 

 

 

 

366

 

 

 

 

 

 

 

 

 

570

 

Loans and acceptances, net of allowances

 

 

 

 

 

 

126,178

 

 

(1)        Business credit portfolios are closely monitored and a monthly watchlist of problem commitments is produced. The watchlist is analyzed by the loan portfolio managers concerned, who must then submit a report to Credit Risk Management. 

(2)        Including customers' liability under acceptances.

(3)        A loan is past due when the counterparty has not made a payment by the contractual due date.

(4)        The sectoral allowance on non-impaired loans was established collectively for the portfolio of loans to producers and service companies in the oil and gas sector.

(5)        The collective allowance for credit risk on non-impaired loans was established taking into account the Bank's overall credit portfolio, except for loans covered by the sectoral allowance.

 

Loans Past Due But Not Impaired(1)

 

 

 

 

As at April 30, 2017

 

 

 

As at October 31, 2016

 

 

 

 

Residential

mortgage

 

Personal and

credit card

 

Business and

government

 

Residential

mortgage

 

Personal and

credit card

 

Business and

government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Past due but not impaired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 to 60 days

 

80

 

106

 

40

 

115

 

112

 

51

 

 

61 to 90 days

 

29

 

38

 

11

 

48

 

36

 

9

 

 

Over 90 days

 

73

 

143

 

36

 

82

 

146

 

52

 

 

 

182

 

287

 

87

 

245

 

294

 

112

 

 

(1)       Loans less than 31 days past due are not presented as they are not considered past due from an administrative standpoint.

 

Impaired Loans

 

 

As at April 30, 2017

 

 

 

Gross

 

Individual

allowances

 

Collective allowances

 

Net

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

Residential mortgage

73

 

14

 

 

59

 

 

Personal and credit card

79

 

20

 

18

 

41

 

 

Business and government

270

 

154

 

3

 

113

 

 

422

 

188

 

21

 

213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at October 31, 2016

 

 

 

Gross

 

Individual

allowances

 

Collective allowances

 

Net

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

Residential mortgage

71

 

13

 

 

58

 

 

Personal and credit card

79

 

20

 

19

 

40

 

 

Business and government(1)

342

 

156

 

3

 

183

 

 

492

 

189

 

22

 

281

 

 

(1)       Includes customers' liability under acceptances.

 

NOTE 6 - LOANS (cont.)

 

Allowances for Credit Losses

 

 

 

 

 

 

 

 

Six months ended April 30, 2017

 

 

 

 

Balance at beginning

 

Provisions for credit losses

 

Write-offs

 

Write-offs on credit cards

 

Recoveries

and other(1)

 

Transfers(2)

 

Balance at end

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowances on impaired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual allowances

13

 

6

 

(6)

 

 

1

 

 

14

 

 

 

Collective allowances

 

 

 

 

 

 

 

 

Personal and credit card

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual allowances

20

 

74

 

(34)

 

(42)

 

2

 

 

20

 

 

 

Collective allowances

19

 

14

 

(19)

 

 

4

 

 

18

 

 

Business and government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual allowances

156

 

21

 

(41)

 

 

1

 

17

 

154

 

 

 

Collective allowances

3

 

1

 

(1)

 

 

 

 

3

 

 

Individual allowances

189

 

101

 

(81)

 

(42)

 

4

 

17

 

188

 

 

Collective allowances

22

 

15

 

(20)

 

 

4

 

 

21

 

 

 

 

211

 

116

 

(101)

 

(42)

 

8

 

17

 

209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sectoral allowance on non-impaired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

loans - Oil and gas(3)

204

 

(40)

 

 

 

 

(17)

 

147

 

Collective allowance on non-impaired loans(4)

366

 

40

 

 

 

 

 

406

 

 

570

 

 

 

 

 

(17)

 

553

 

 

781

 

116

 

(101)

 

(42)

 

8

 

 

762

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended April 30, 2016

 

 

 

 

 

 

Balance at beginning

 

Provisions for credit losses

 

Write-offs

 

Write-offs on credit cards

 

Recoveries

and other(1)

 

Transfers(2)

 

Balance

at end

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowances on impaired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual allowances

 

10

 

6

 

(6)

 

 

 

 

10

 

 

 

 

Collective allowances

 

 

 

 

 

 

 

 

 

 

Personal and credit card

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual allowances

 

18

 

62

 

(20)

 

(42)

 

1

 

 

19

 

 

 

 

Collective allowances

 

22

 

15

 

(21)

 

 

4

 

 

20

 

 

 

Business and government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual allowances

 

151

 

45

 

(23)

 

 

(4)

 

 

169

 

 

 

 

Collective allowances

 

2

 

2

 

(1)

 

 

 

 

3

 

 

 

Individual allowances

 

179

 

113

 

(49)

 

(42)

 

(3)

 

 

198

 

 

 

Collective allowances

 

24

 

17

 

(22)

 

 

4

 

 

23

 

 

 

 

 

 

203

 

130

 

(71)

 

(42)

 

1

 

 

221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sectoral allowance on non-impaired

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

loans - Oil and gas(3)

 

 

250

 

 

 

 

 

250

 

 

Collective allowance on non-impaired loans(4)

 

366

 

 

 

 

 

 

366

 

 

 

 

366

 

250

 

 

 

 

 

616

 

 

 

 

569

 

380

 

(71)

 

(42)

 

1

 

 

837

 

 

 

(1)       Includes foreign exchange movements.

(2)       When a loan covered by the Sectoral allowance on non-impaired loans - Oil and gas becomes impaired, the sectoral allowance related to that loan is transferred to the individual allowances on impaired loans.

(3)       The sectoral allowance on non-impaired loans was established collectively for the portfolio of loans to producers and service companies in the oil and gas sector.

(4)       The collective allowance for credit risk on non-impaired loans was established taking into account the Bank's overall credit portfolio, except for loans covered by the sectoral allowance.

 

NOTE 7 - FINANCIAL ASSETS TRANSFERRED BUT NOT DERECOGNIZED

 

In the normal course of its business, the Bank enters into transactions in which it transfers financial assets such as securities or loans directly to third parties, in particular structured entities. According to the terms of some of those transactions, the Bank retains substantially all of the risks and rewards related to those financial assets. The risks include credit risk, interest rate risk, foreign exchange risk, prepayment risk and other price risks, whereas the rewards include income streams associated with the financial assets. As such, those financial assets are not derecognized and the transactions are treated as collateralized or secured borrowings.

 

The following table provides additional information about the nature of the transferred financial assets that do not qualify for derecognition and the associated liabilities.

 

 

 

As at April 30, 2017

 

As at October 31, 2016

 

 

 

 

 

 

 

 

 

Carrying value of financial assets transferred but not derecognized

 

 

 

 

 

 

Securities(1)

 

43,614

 

39,989

 

 

Residential mortgages

 

19,277

 

19,093

 

 

 

62,891

 

59,082

 

 

 

 

 

 

 

 

 

Carrying value of associated liabilities(2)

 

36,056

 

34,992

 

 

 

 

 

 

 

 

 

Fair value of financial assets transferred but not derecognized

 

 

 

 

 

 

Securities(1)

 

43,614

 

39,989

 

 

Residential mortgages

 

19,561

 

19,403

 

 

 

63,175

 

59,392

 

 

 

 

 

 

 

 

 

Fair value of associated liabilities(2)

 

36,123

 

35,041

 

 

(1)       The amount related to the securities loaned is the maximum amount of Bank securities that can be lent. For the obligations related to securities sold under repurchase agreements, the amount includes the Bank's own financial assets as well as those of third parties.

(2)       Associated liabilities include obligations related to securities sold under repurchase agreements before the offsetting impact of $1,006 million as at April 30, 2017 ($3,521 million as at October 31, 2016) and liabilities related to transferred receivables. Liabilities related to securities loaned are not included, as the Bank can lend its own financial assets and those of third parties. The carrying value and fair value of liabilities related to securities loaned were $10,224 million as at April 30, 2017 ($11,296 million as at October 31, 2016).

 

The following table specifies the nature of the transactions related to financial assets transferred but not derecognized.

 

 

 

As at April 30, 2017

 

As at October 31, 2016

 

 

 

 

 

 

 

 

 

Carrying value of financial assets transferred but not derecognized

 

 

 

 

 

 

Securities backed by insured residential mortgage loans and other securities sold

 

 

 

 

 

 

 

to Canada Housing Trust

 

19,973

 

20,030

 

 

Securities sold under repurchase agreements

 

16,370

 

14,615

 

 

Securities loaned

 

26,548

 

24,437

 

 

 

62,891

 

59,082

 

 

 

NOTE 8 - OTHER ASSETS 

 

 

 

As at April 30, 2017

 

As at October 31, 2016

 

 

 

 

 

 

 

Receivables, prepaid expenses and other items

 

785

 

668

 

Interest and dividends receivable

 

500

 

474

 

Due from clients, dealers and brokers(1)

 

436

 

843

 

Defined benefit asset

 

59

 

48

 

Deferred tax assets

 

385

 

402

 

Current tax assets

 

58

 

80

 

Reinsurance assets

 

32

 

32

 

 

 

2,255

 

2,547

 

 

(1)       The Due from clients, dealers and brokers amount of $843 million presented separately on the Consolidated Balance Sheet as at October 31, 2016 is now reported in Other assets.

 

NOTE 9 - DEPOSITS

 

 

 

 

 

 

 

As at April 30, 2017

 

As at October 31, 2016 (1)

 

 

 

On demand

or after notice(2)

 

Fixed term(3)

 

Total

 

Total

 

 

 

 

 

 

 

 

 

 

 

Personal

 

29,050

 

24,556

 

53,606

 

52,521

 

Business and government

 

42,787

 

49,660

 

92,447

 

83,905

 

Deposit-taking institutions

 

2,487

 

2,620

 

5,107

 

5,640

 

 

 

74,324

 

76,836

 

151,160

 

142,066

 

 

(1)       Certain amounts have been revised from those previously reported, particularly an amount of $2,159 million classified in Due to clients, dealers and brokers  on the Consolidated Balance Sheet as at October 31, 2016 that is now reported in Deposits.

(2)       Demand deposits are deposits for which the Bank does not have the right to require notice of withdrawal and consist essentially of deposits in chequing accounts. Notice deposits are deposits for which the Bank may legally require notice of withdrawal and consist mainly of deposits in savings accounts.

(3)       Fixed-term deposits are deposits that can be withdrawn by the holder on a specified date and include term deposits, guaranteed investment certificates, savings accounts and plans, covered bonds and similar instruments. 

 

The Deposits - Business and government item includes, among other items, covered bonds, the balance of which was $6.9 billion as at April 30, 2017 ($6.7 billion as at October 31, 2016).

 

During the six months ended April 30, 2017, the Bank issued covered bonds in an amount of 70 million pounds sterling (no issuance during the six months ended April 30, 2016). See Note 22 for additional information on covered bonds.

 

 

NOTE 10 - OTHER LIABILITIES

 

 

 

As at April 30, 2017

 

As at October 31, 2016

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

1,288

 

1,510

 

Subsidiaries' debts to third parties

 

1,115

 

1,447

 

Interest and dividends payable

 

754

 

832

 

Due to clients, dealers and brokers(1)

 

656

 

540

 

Defined benefit liability

 

304

 

314

 

Deferred tax liabilities

 

36

 

57

 

Current tax liabilities

 

67

 

215

 

Insurance liabilities

 

62

 

71

 

Other items(2)(3)

 

845

 

900

 

 

 

5,127

 

5,886

 

 

(1)       An amount of $540 million reported in the Due to clients, dealers and brokers item on the Consolidated Balance Sheet as at October 31, 2016 is now reported in Other liabilities.

(2)       As at April 30, 2017, other items included an $86 million restructuring provision ($152 million as at October 31, 2016). See Note 11 for additional information.

(3)       As at April 30, 2017, other items included a $21 million litigation provision ($18 million as at October 31, 2016).

 

 

NOTE 11 - RESTRUCTURING

 

During fiscal years 2016 and 2015, the Board approved certain restructuring initiatives to accelerate its transformation plan, satisfy the changing needs of its clients and enhance operational efficiency. This transformation will allow the Bank to maintain the pace of its client-centric shift, pursue the transition to digital banking, maintain a compelling workplace and focus on operational excellence.

 

The table below presents the changes in the restructuring provision on the Consolidated Balance Sheet.

 

 

 

 

Severance pay

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

As at October 31, 2015

 

51

 

16

 

67

 

Restructuring charge

 

129

 

2

 

131

 

Payments during the year

 

(34)

 

(12)

 

(46)

 

 

146

 

6

 

152

 

Payments during the period

 

(65)

 

(1)

 

(66)

 

As at April 30, 2017

 

81

 

5

 

86

 

 

NOTE 12 - SUBORDINATED DEBT

 

On April 11, 2017, the Bank redeemed $1.0 billion of medium-term notes maturing on April 11, 2022 at a price equal to their nominal value plus accrued interest.

 

 

NOTE 13 - SHARE CAPITAL

 

Shares Outstanding

 

 

 

 

 

As at April 30, 2017

 

As at October 31, 2016

 

 

 

 

 

Number

of shares

 

Shares

$

 

Number

of shares

 

Shares

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Preferred Shares

 

 

 

 

 

 

 

 

 

 

 

Series 28

 

8,000,000

 

200

 

8,000,000

 

200

 

 

 

Series 30

 

14,000,000

 

350

 

14,000,000

 

350

 

 

 

Series 32

 

12,000,000

 

300

 

12,000,000

 

300

 

 

 

Series 34

 

16,000,000

 

400

 

16,000,000

 

400

 

 

 

Series 36

 

16,000,000

 

400

 

16,000,000

 

400

 

 

 

 

 

66,000,000

 

1,650

 

66,000,000

 

1,650

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares at beginning of the fiscal year

 

338,053,054

 

2,645

 

337,236,322

 

2,614

 

Issued pursuant to the Stock Option Plan

 

3,526,995

 

149

 

1,122,756

 

43

 

Impact of shares purchased or sold for trading(1)

 

51,917

 

3

 

(306,024)

 

(12)

 

Other

 

(108,341)

 

(4)

 

 

 

Common shares at end of the period

 

341,523,625

 

2,793

 

338,053,054

 

2,645

 

 

(1)       As at April 30, 2017, 89,780 shares were sold short for trading, representing a total amount of $5 million (37,863 shares representing $2 million as at October 31, 2016).

 

Dividends Declared

 

 

 

 

 

 

 

 

 

Six months ended April 30

 

 

 

2017

 

2016

 

 

 

 

 

Dividends

$

 

Dividends

per share

 

Dividends

$

 

Dividends

per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Preferred Shares

 

 

 

 

 

 

 

 

 

 

 

Series 28

 

4

 

0.4750

 

4

 

0.4750

 

 

 

Series 30

 

7

 

0.5125

 

7

 

0.5125

 

 

 

Series 32

 

6

 

0.4875

 

6

 

0.4876

 

 

 

Series 34

 

11

 

0.7000

 

7

 

0.4373

 

 

 

Series 36

 

11

 

0.6750

 

 

 

 

 

 

 

39

 

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

382

 

1.1200

 

364

 

1.0800

 

 

 

 

 

421

 

 

 

388

 

 

 

 

Common Shares Held in Escrow

As part of the acquisition of Wellington West Holdings Inc. in 2011, the Bank had issued common shares held in escrow. In December 2016, 799,563 of these shares were released to shareholders. In addition, 108,341 shares were cancelled, mainly upon the settlement of certain indemnifications guaranteed by those shares. As at April 30, 2017, the number of common shares held in escrow was 28,881 (936,785 as at October 31, 2016). The Bank expects that the remaining shares in escrow will be settled by the end of calendar year 2017.

 

NOTE 14 - Non-Controlling Interests 

 

 

 

As at April 30, 2017

 

As at October 31, 2016

 

 

 

 

 

 

 

 

Trust units issued by NBC Asset Trust (NBC CapS II)

 

 

 

 

 

 

Series 1(1)

 

410

 

410

 

 

Series 2(2)

 

359

 

359

 

Other

 

29

 

41

 

 

 

798

 

810

 

 

(1)       Includes $10 million in accrued interest ($10 million as at October 31, 2016).

(2)       Includes $9 million in accrued interest ($9 million as at October 31, 2016).

 

 

NOTE 15 - CAPITAL DISCLOSURE

 

OSFI is requiring Canadian banks to meet the 2019 minimum "all-in" requirements, regardless of the transition period set out by the Basel Committee on Banking Supervision (BCBS). Consequently, the Bank has to maintain, on an "all-in" basis, a Common Equity Tier 1 (CET1) capital ratio of at least 8.0%, a Tier 1 capital ratio of at least 9.5%, and a Total capital ratio of at least 11.5%. All of these ratios are to include a capital conservation buffer of 2.5% and a 1% surcharge applicable to Domestic Systemically Important Banks.

 

Since January 1, 2015, OSFI has been requiring Canadian banks to meet a Basel III leverage ratio of at least 3.0%. 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 exposures and securities financing transaction exposures) and off-balance-sheet items. The assets deducted from Tier 1 capital are also deducted from total exposure.

 

During the quarter and six months ended April 30, 2017, the Bank was in compliance with all of OSFI's regulatory capital requirements.

 

Regulatory Capital and Ratios Under Basel III(1)

 

 

 

As at April 30, 2017

 

 

As at October 31, 2016

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

 

 

 

 

 

 

CET1

 

7,470

 

 

6,865

 

 

 

Tier 1

 

9,871

 

 

9,265

 

 

 

Total

 

10,087

 

 

10,506

 

 

 

 

 

 

 

 

 

 

 

Risk-weighted assets

 

 

 

 

 

 

 

 

CET1 capital

 

69,383

 

 

68,205

 

 

 

Tier 1 capital

 

69,533

 

 

68,430

 

 

 

Total capital

 

69,653

 

 

68,623

 

 

 

 

 

 

 

 

 

 

 

Total exposure

 

262,382

 

 

253,097

 

 

 

 

 

 

 

 

 

 

 

Capital ratios

 

 

 

 

 

 

 

 

CET1

 

10.8

%

 

10.1

%

 

 

Tier 1

 

14.2

%

 

13.5

%

 

 

Total

 

14.5

%

 

15.3

%

 

Leverage ratio

 

3.8

%

 

3.7

%

 

 

(1)       Figures are presented on an "all-in" basis.

 

NOTE 16 - TRADING ACTIVITY REVENUES

 

Trading activity revenues consist of the net interest income from trading activities and trading revenues recognized in Non-interest income in the Consolidated Statement of Income.

 

Net interest income comprises dividends related to financial assets and liabilities associated with trading activities, net of interest expenses and interest income related to the financing of these financial assets and liabilities.

 

Non-interest income 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, and the change in fair value of financial instruments designated at fair value through profit or loss.

 

 

 

Quarter ended April 30

 

Six months ended April 30

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

109

 

133

 

234

 

258

 

Non-interest income 

 

76

 

8

 

170

 

55

 

 

 

185

 

141

 

404

 

313

 

 

 

NOTE 17 - Share-Based Payments

 

Stock Option Plan

During the quarters ended April 30, 2017 and 2016, the Bank did not award any stock options. During the six months ended April 30, 2017, the Bank awarded 1,804,016 stock options (2,140,420 stock options during the six-month period ended April 30, 2016) with an average fair value of $5.75 per option ($3.70 in 2016).

 

As at April 30, 2017, there were 15,384,103 stock options outstanding (17,302,322 stock options as at October 31, 2016).

 

The average fair value of the options awarded was estimated on the award date using the Black-Scholes model as well as the following assumptions.

 

 

 

Six months ended April 30

 

 

 

2017

 

2016

 

 

 

 

 

 

 

Risk-free interest rate

 

1.59%

 

1.43%

 

Expected life of options

 

7 years

 

7 years

 

Expected volatility

 

20.53%

 

21.12%

 

Expected dividend yield

 

4.41%

 

5.33%

 

 

Compensation expense is presented in the following table.

 

 

 

Quarter ended April 30

 

Six months ended April 30

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

Compensation expense recorded for stock options

 

3

 

3

 

6

 

6

 

 

NOTE 18 - Employee Benefits - PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

 

The Bank offers defined benefit pension plans and other post-employment benefit plans to eligible employees. The cost associated with these plans, including the remeasurements recognized in Other comprehensive income, is presented in the following table.

 

Cost for Pension Plans and Other Post-Employment Benefit Plans

 

 

 

 

 

 

 

Quarter ended April 30

 

 

 

Pension plans

 

Other post-employment benefit plans

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

Current service cost

 

29

 

19

 

1

 

1

 

Interest expense (income), net

 

1

 

(2)

 

2

 

2

 

Administrative expenses

 

1

 

1

 

 

 

 

 

Expense recognized in Net income

 

31

 

18

 

3

 

3

 

Remeasurements(1)

 

 

 

 

 

 

 

 

 

 

Actuarial (gains) losses on defined benefit obligation

 

282

 

56

 

13

 

2

 

 

Return on plan assets(2)

 

(186)

 

(79)

 

 

 

 

 

Remeasurements recognized in Other comprehensive income

 

96

 

(23)

 

13

 

2

 

 

 

127

 

(5)

 

16

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended April 30

 

 

 

 

 

 

Pension plans

 

Other post-employment benefit plans

 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

Current service cost

 

57

 

38

 

2

 

2

 

Interest expense (income), net

 

3

 

(4)

 

4

 

4

 

Administrative expenses

 

2

 

2

 

 

 

 

 

Expense recognized in Net income

 

62

 

36

 

6

 

6

 

Remeasurements(1)

 

 

 

 

 

 

 

 

 

 

Actuarial (gains) losses on defined benefit obligation

 

35

 

188