Q3 2023 Financial Statements (Part 2)

National Bank of Canada

30 August 2023

National Bank of Canada

August 30^th, 2023

Regulatory Announcement (Part 2)

Q3 2023 Results

National Bank of Canada (the "Bank") announces publication of its Third Quarter 2023 Report to Shareholders. The Third Quarter Results have 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 at https://www.nbc.ca/en/about-us/investors/investor-relations/quarterly-results.html

To view the full PDF of this Third Quarter 2023 Report to Shareholders, please click on the following link:

http://www.rns-pdf.londonstockexchange.com/rns/8399K_1-2023-8-30.pdf

Report to Shareholders Third Quarter 2023

Interim Condensed Consolidated

Financial Statements

(unaudited)

	Consolidated Balance Sheets	56
	Consolidated Statements of Income	57
	Consolidated Statements of Comprehensive Income	58
	Consolidated Statements of Changes in Equity	60
	Consolidated Statements of Cash Flows	61
	Notes to the Interim Condensed Consolidated Financial Statements	62

Consolidated Balance Sheets

(unaudited) (millions of Canadian dollars)

		As at July 31, 2023	As at October 31, 2022

Assets
Cash and deposits with financial institutions		39,808	31,870

Securities (Notes 3, 4 and 5)
At fair value through profit or loss		106,569	87,375
At fair value through other comprehensive income		9,117	8,828
At amortized cost		12,019	13,516
		127,705	109,719

Securities purchased under reverse repurchase agreements
	and securities borrowed	12,368	26,486

Loans (Note 6)
Residential mortgage		84,776	80,129
Personal		45,793	45,323
Credit card		2,491	2,389
Business and government		80,784	73,317
		213,844	201,158
Customers' liability under acceptances		6,709	6,541
Allowances for credit losses		(1,120)	(955)
		219,433	206,744

Other
Derivative financial instruments		14,362	18,547
Investments in associates and joint ventures (Notes 5 and 17)		45	140
Premises and equipment		1,553	1,397
Goodwill		1,514	1,519
Intangible assets		1,330	1,360
Other assets (Note 7)		7,897	5,958
		26,701	28,921
		426,015	403,740

Liabilities and equity
Deposits (Notes 4 and 8)		282,323	266,394

Other
Acceptances		6,709	6,541
Obligations related to securities sold short		22,825	21,817
Obligations related to securities sold under repurchase agreements
	and securities loaned	38,433	33,473
Derivative financial instruments		18,768	19,632
Liabilities related to transferred receivables (Note 4)		26,130	26,277
Other liabilities (Note 9)		7,055	6,361
		119,920	114,101

Subordinated debt (Note 10)		748	1,499

Equity
Equity attributable to the Bank's shareholders and holders of other equity instruments (Notes 11 and 13)
Preferred shares and other equity instruments		3,150	3,150
Common shares		3,294	3,196
Contributed surplus		56	56
Retained earnings		16,285	15,140
Accumulated other comprehensive income		237	202
		23,022	21,744
Non-controlling interests		2	2
		23,024	21,746
		426,015	403,740
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 July 31		Nine months ended July 31
		2023	2022⁽¹⁾	2023	2022⁽¹⁾

Interest income
Loans		3,266	1,845	9,195	4,736
Securities at fair value through profit or loss		398	470	1,181	1,155
Securities at fair value through other comprehensive income		79	47	206	109
Securities at amortized cost		127	58	358	156
Deposits with financial institutions		455	125	1,235	188
		4,325	2,545	12,175	6,344

Interest expense
Deposits		2,597	870	7,058	1,705
Liabilities related to transferred receivables		166	119	465	325
Subordinated debt		11	5	36	13
Other		681	132	1,765	237
		3,455	1,126	9,324	2,280
Net interest income⁽²⁾		870	1,419	2,851	4,064

Non-interest income
Underwriting and advisory fees		77	68	277	230
Securities brokerage commissions		38	46	132	162
Mutual fund revenues		148	143	432	446
Investment management and trust service fees		254	244	743	753
Credit fees		147	121	417	365
Card revenues		56	48	153	139
Deposit and payment service charges		77	76	223	220
Trading revenues (losses)		632	71	1,813	314
Gains (losses) on non-trading securities, net		8	9	49	116
Insurance revenues, net		37	48	120	132
Foreign exchange revenues, other than trading		36	46	130	154
Share in the net income of associates and joint ventures		2	4	9	24
Other (Note 17)		133	70	227	199
		1,645	994	4,725	3,254
Total revenues		2,515	2,413	7,576	7,318

Non-interest expenses
Compensation and employee benefits		851	828	2,559	2,453
Occupancy		85	77	251	229
Technology		248	225	755	688
Communications		14	14	43	44
Professional fees		63	61	188	181
Other (Note 17)		156	100	398	289
		1,417	1,305	4,194	3,884
Income before provisions for credit losses and income taxes		1,098	1,108	3,382	3,434
Provisions for credit losses (Note 6)		111	57	282	58
Income before income taxes		987	1,051	3,100	3,376
Income taxes (Note 15)		148	225	533	731
Net income		839	826	2,567	2,645

Net income attributable to
Preferred shareholders and holders of other equity instruments		36	26	106	77
Common shareholders		804	800	2,463	2,569
Bank shareholders and holders of other equity instruments		840	826	2,569	2,646
Non-controlling interests		(1)	−	(2)	(1)
		839	826	2,567	2,645

Earnings per share (dollars) (Note 16)
	Basic	2.38	2.38	7.30	7.61
	Diluted	2.36	2.35	7.23	7.53
Dividends per common share (dollars) (Note 11)		1.02	0.92	2.96	2.66
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

(1) For the quarter and nine-month period ended July 31, 2022, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements. For additional information, see Note 1.

(2) Net interest income includes dividend income. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.

Consolidated Statements of Comprehensive Income

(unaudited) (millions of Canadian dollars)

					Quarter ended July 31			Nine months ended July 31
						2023	2022⁽¹⁾	2023	2022⁽¹⁾
Net income						839	826	2,567	2,645

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			(177)	(15)	(208)	149
			Impact of hedging net foreign currency translation gains (losses)			53	10	59	(41)
						(124)	(5)	(149)	108
		Net change in debt securities at fair value through other comprehensive income
			Net unrealized gains (losses) on debt securities at fair value through other comprehensive income			(7)	(56)	(35)	(176)
			Net (gains) losses on debt securities at fair value through other comprehensive
				income reclassified to net income		8	37	60	81
			Change in allowances for credit losses on debt securities at fair value through
				other comprehensive income reclassified to net income		1	−	1	−
						2	(19)	26	(95)
		Net change in cash flow hedges
			Net gains (losses) on derivative financial instruments designated as cash flow hedges			145	(9)	125	25
			Net (gains) losses on designated derivative financial instruments reclassified to net income			7	7	32	23
						152	(2)	157	48
		Share in the other comprehensive income of associates and joint ventures				−	(1)	1	(2)

	Items that will not be subsequently reclassified to net income
		Remeasurements of pension plans and other post-employment benefit plans				(40)	(41)	(96)	131
		Net gains (losses) on equity securities designated at fair value through other comprehensive income				(1)	(9)	5	(26)
		Net fair value change attributable to the credit risk on financial liabilities
			designated at fair value through profit or loss			(77)	266	(235)	591
						(118)	216	(326)	696
Total other comprehensive income, net of income taxes						(88)	189	(291)	755
Comprehensive income						751	1,015	2,276	3,400
Comprehensive income attributable to
	Bank shareholders and holders of other equity instruments					752	1,015	2,278	3,401
	Non-controlling interests					(1)	−	(2)	(1)
						751	1,015	2,276	3,400
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

Consolidated Statements of Comprehensive Income (cont.)

(unaudited) (millions of Canadian dollars)

Income Taxes - Other Comprehensive Income

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

				Quarter ended July 31			Nine months ended July 31
					2023	2022	2023	2022
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			5	1	7	(4)
		Impact of hedging net foreign currency translation gains (losses)			13	(4)	13	(9)
					18	(3)	20	(13)
	Net change in debt securities at fair value through other comprehensive income
		Net unrealized gains (losses) on debt securities at fair value through other comprehensive income			(3)	(20)	(14)	(63)
		Net (gains) losses on debt securities at fair value through other comprehensive income
			reclassified to net income		3	13	23	29
		Change in allowances for credit losses on debt securities at fair value through
			other comprehensive income reclassified to net income		−	−	−	−
					−	(7)	9	(34)
	Net change in cash flow hedges
		Net gains (losses) on derivative financial instruments designated as cash flow hedges			56	(3)	48	9
		Net (gains) losses on designated derivative financial instruments reclassified to net income			3	3	13	8
					59	−	61	17
	Share in the other comprehensive income of associates and joint ventures				−	−	−	(1)
Items that will not be subsequently reclassified to net income
	Remeasurements of pension plans and other post-employment benefit plans				(15)	(15)	(27)	47
	Net gains (losses) on equity securities designated at fair value through other comprehensive income				−	(3)	2	(9)
	Net fair value change attributable to the credit risk on financial liabilities
		designated at fair value through profit or loss			(30)	96	(91)	212
					(45)	78	(116)	250
					32	68	(26)	219
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)

		Nine months ended July 31
			2023	2022⁽¹⁾

Preferred shares and other equity instruments at beginning and at end (Note 11)			3,150	2,650

Common shares at beginning (Note 11)			3,196	3,160
Issuances of common shares pursuant to the Stock Option Plan			86	54
Repurchases of common shares for cancellation			−	(24)
Impact of shares purchased or sold for trading			12	(1)
Common shares at end			3,294	3,189

Contributed surplus at beginning			56	47
Stock option expense (Note 13)			14	12
Stock options exercised			(9)	(6)
Other			(5)	2
Contributed surplus at end			56	55

Retained earnings at beginning			15,140	12,854
Net income attributable to the Bank's shareholders and holders of other equity instruments			2,569	2,646
Dividends on preferred shares and distributions on other equity instruments (Note 11)			(122)	(85)
Dividends on common shares (Note 11)			(999)	(897)
Premium paid on common shares repurchased for cancellation (Note 11)			−	(221)
Remeasurements of pension plans and other post-employment benefit plans			(96)	131
Net gains (losses) on equity securities designated at fair value through other comprehensive income			5	(26)
Net fair value change attributable to the credit risk on financial liabilities
	designated at fair value through profit or loss		(235)	591
Impact of a financial liability resulting from put options written to non-controlling interests			6	(7)
Other			17	8
Retained earnings at end			16,285	14,994

Accumulated other comprehensive income at beginning			202	(32)
Net foreign currency translation adjustments			(149)	108
Net change in unrealized gains (losses) on debt securities at fair value through other comprehensive income			26	(95)
Net change in gains (losses) on cash flow hedges			157	48
Share in the other comprehensive income of associates and joint ventures			1	(2)
Accumulated other comprehensive income at end			237	27
			−
Equity attributable to the Bank's shareholders and holders of other equity instruments			23,022	20,915

Non-controlling interests at beginning			2	3
Net income attributable to non-controlling interests			(2)	(1)
Other			2	−
Non-controlling interests at end			2	2

Equity			23,024	20,917

Accumulated Other Comprehensive Income

	As at July 31, 2023	As at July 31, 2022
Accumulated other comprehensive income
Net foreign currency translation adjustments	55	(21)
Net unrealized gains (losses) on debt securities at fair value through other comprehensive income	(8)	(24)
Net gains (losses) on instruments designated as cash flow hedges	188	71
Share in the other comprehensive income of associates and joint ventures	2	1
	237	27
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

(1) For the nine-month period ended July 31, 2022, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements. For additional information, see Note 1.

Consolidated Statements of Cash Flows

(unaudited) (millions of Canadian dollars)

		Nine months ended July 31
		2023	2022⁽¹⁾
Cash flows from operating activities
Net income		2,567	2,645
Adjustments for
	Provisions for credit losses	282	58
	Amortization of premises and equipment, including right-of-use assets	158	151
	Amortization of intangible assets	234	212
	Deferred taxes	(75)	96
	Losses (gains) on sales of non-trading securities, net	(49)	(116)
	Share in the net income of associates and joint ventures	(9)	(24)
	Stock option expense	14	12
	Gain on the fair value remeasurement of an equity interest	(91)	−
Change in operating assets and liabilities
	Securities at fair value through profit or loss	(19,194)	1,160
	Securities purchased under reverse repurchase agreements and securities borrowed	14,118	(9,307)
	Loans and acceptances, net of securitization	(12,950)	(18,862)
	Deposits	15,929	16,252
	Obligations related to securities sold short	1,008	3,065
	Obligations related to securities sold under repurchase agreements and securities loaned	4,960	12,845
	Derivative financial instruments, net	3,321	(795)
	Securitization - Credit cards	(29)	(37)
	Interest and dividends receivable and interest payable	280	(50)
	Current tax assets and liabilities	(295)	(321)
	Other items	(787)	(1,551)
		9,392	5,433
Cash flows from financing activities
Issuances of common shares (including the impact of shares purchased for trading)		89	47
Repurchases of common shares for cancellation		−	(245)
Issuance of subordinated debt		−	748
Redemption of subordinated debt		(750)	−
Repayments of lease liabilities		(76)	(73)
Dividends paid on shares and distributions on other equity instruments		(1,117)	(982)
		(1,854)	(505)
Cash flows from investing activities
Net change in investments in associates and joint ventures		−	202
Purchases of non-trading securities		(6,360)	(8,479)
Maturities of non-trading securities		3,548	1,594
Sales of non-trading securities		3,896	5,643
Net change in premises and equipment, excluding right-of-use assets		(270)	(227)
Net change in intangible assets		(204)	(273)
		610	(1,540)
Impact of currency rate movements on cash and cash equivalents		(210)	701
Increase (decrease) in cash and cash equivalents		7,938	4,089
Cash and cash equivalents at beginning		31,870	33,879
Cash and cash equivalents at end⁽²⁾		39,808	37,968
Supplementary information about cash flows from operating activities
Interest paid		8,643	2,059
Interest and dividends received		11,773	6,073
Income taxes paid		573	911
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

(2) This item is the equivalent of Consolidated Balance Sheet item Cash and deposits with financial institutions. It includes an amount of $8.2 billion as at July 31, 2023 ($7.7 billion as at October 31, 2022) for which there are restrictions and of which $5.5 billion ($5.3 billion as at October 31, 2022) represent the balances that the Bank must maintain with central banks, other regulatory agencies, and certain counterparties.

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited) (millions of Canadian dollars)


Note 1	Basis of Presentation	62	Note 10	Subordinated Debt	83
Note 2	Accounting Policy Changes	62	Note 11	Share Capital and Other Equity Instruments	83
Note 3	Fair Value of Financial Instruments	63	Note 12	Capital Disclosure	85
Note 4	Financial Instruments Designated at Fair Value Through		Note 13	Share-Based Payments	86
	Profit or Loss	68	Note 14	Employee Benefits - Pension Plans and Other
Note 5	Securities	69		Post-Employment Benefit Plans	87
Note 6	Loans and Allowances for Credit Losses	70	Note 15	Income Taxes	88
Note 7	Other Assets	82	Note 16	Earnings Per Share	89
Note 8	Deposits	82	Note 17	Segment Disclosures	90
Note 9	Other Liabilities	83

Note 1 - Basis of Presentation

On August 29, 2023, the Board of Directors authorized the publication of the Bank's unaudited interim condensed consolidated financial statements (the consolidated financial statements) for the quarter and nine-month period ended July 31, 2023.

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 were prepared in accordance with IAS 34 - Interim Financial Reporting and using the same accounting policies as those described in Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022. 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, 2022. Future accounting policy changes that have not yet come into effect are described in Note 2 to the audited annual consolidated financial statements for the year ended October 31, 2022.

Certain comparative amounts have been adjusted to reflect an accounting policy change related to cloud computing arrangements, as described in Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.

Judgment, Estimates and Assumptions

In preparing consolidated financial statements in accordance with IFRS, management must exercise judgment and make estimates and assumptions that affect the reporting date carrying amounts of assets and liabilities, net income, and related information. Some of the Bank's accounting policies, such as measurement of expected credit losses (ECLs), require particularly complex judgments and estimates. See Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022 for a summary of the most significant estimation processes used to prepare the consolidated financial statements in accordance with IFRS and for the valuation techniques used to determine the carrying values and fair values of assets and liabilities.

The geopolitical landscape, rising inflation, higher interest rates, and the Russia-Ukraine war continue to create uncertainty. As a result, establishing reliable estimates and applying judgment continue to be substantially complex. The uncertainty regarding certain key inputs used in measuring ECLs is described in Note 6 to these unaudited interim condensed consolidated financial statements.

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

Note 2 - Accounting Policy Changes

Amendments to IAS 12 - Income Taxes

On May 23, 2023, the IASB issued International Tax Reform - Pillar Two Model Rules, which amends IAS 12 - Income Taxes. These amendments apply to income taxes arising from tax law enacted or substantively enacted to implement the OECD Pillar Two model rules. The amendments also introduce a temporary exception to the accounting of deferred tax assets and liabilities arising from the implementation of these rules as well as related disclosures. These amendments apply immediately upon issuance and retrospectively in accordance with IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors. Additional disclosures of current tax expense (recovery) and other information related to income tax exposures will be provided for annual periods beginning on or after November 1, 2023. These amendments have no current impact on the Bank's consolidated results.

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 July 31, 2023
			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	Debt securities classified as at fair value through other comprehensive income	Equity securities designated at fair value through other comprehensive income	Financial instruments at amortized cost, net	Financial instruments at amortized cost, net	Total carrying value	Total fair value

Financial assets
	Cash and deposits with financial
		institutions	−	−	−	−	39,808	39,808	39,808	39,808

	Securities		105,749	820	8,545	572	12,019	11,581	127,705	127,267

	Securities purchased under reverse
		repurchase agreements
		and securities borrowed	−	39	−	−	12,329	12,329	12,368	12,368

	Loans and acceptances, net of allowances		12,862	−	−	−	206,571	204,188	219,433	217,050

	Other
	Derivative financial instruments		14,362	−	−	−	−	−	14,362	14,362
	Other assets		73	−	−	−	4,469	4,469	4,542	4,542

Financial liabilities
	Deposits⁽¹⁾		−	18,788			263,535	262,942	282,323	281,730

	Other
	Acceptances		−	−			6,709	6,709	6,709	6,709
	Obligations related to securities sold short		22,825	−			−	−	22,825	22,825

	Obligations related to securities sold under
		repurchase agreements and
		securities loaned	−	−			38,433	38,433	38,433	38,433
	Derivative financial instruments		18,768	−			−	−	18,768	18,768
	Liabilities related to transferred receivables		−	10,072			16,058	15,335	26,130	25,407
	Other liabilities		−	−			3,315	3,312	3,315	3,312

	Subordinated debt		−	−			748	737	748	737

(1) Includes embedded derivative financial instruments.

Note 3 - Fair Value of Financial Instruments (cont.)

								As at October 31, 2022
			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	Debt securities classified as at fair value through other comprehensive income	Equity securities designated at fair value through other comprehensive income	Financial instruments at amortized cost, net	Financial instruments at amortized cost, net	Total carrying value	Total fair value

Financial assets
	Cash and deposits with financial
		institutions	−	−	−	−	31,870	31,870	31,870	31,870

	Securities		86,338	1,037	8,272	556	13,516	13,007	109,719	109,210

	Securities purchased under reverse
		repurchase agreements
		and securities borrowed	−	−	−	−	26,486	26,486	26,486	26,486

	Loans and acceptances, net of allowances		10,516	−	−	−	196,228	190,955	206,744	201,471

	Other
	Derivative financial instruments		18,547	−	−	−	−	−	18,547	18,547
	Other assets		87	−	−	−	3,221	3,221	3,308	3,308

Financial liabilities
	Deposits⁽¹⁾		−	15,355			251,039	249,937	266,394	265,292

	Other
	Acceptances		−	−			6,541	6,541	6,541	6,541
	Obligations related to securities sold short		21,817	−			−	−	21,817	21,817

	Obligations related to securities sold under
		repurchase agreements and
		securities loaned	−	−			33,473	33,473	33,473	33,473
	Derivative financial instruments		19,632	−			−	−	19,632	19,632
	Liabilities related to transferred receivables		−	11,352			14,925	14,137	26,277	25,489
	Other liabilities		−	−			2,632	2,627	2,632	2,627

	Subordinated debt		−	−			1,499	1,478	1,499	1,478

(1) Includes 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. The Bank's valuations were based on its assessment of the conditions prevailing as at July 31, 2023 and may change in the future. Furthermore, there may be measurement uncertainty resulting from the choice of valuation model used.

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, 2022. The valuation techniques used to determine the fair value of financial assets and financial 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 measurement 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 in an active market 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, 2022.

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 July 31, 2023, $2 million in securities classified as at fair value through profit or loss and $3 million in obligations related to securities sold short were transferred from Level 2 to Level 1 as a result of changing market conditions ($4 million in securities classified as at fair value through profit or loss during the quarter ended July 31, 2022). Also, during the quarter ended July 31, 2023, $6 million in securities classified as at fair value through profit or loss were transferred from Level 1 to Level 2 as a result of changing market conditions ($16 million in securities classified as at fair value through profit or loss during the quarter ended July 31, 2022). During the nine-month periods ended July 31, 2023 and 2022, financial instruments were transferred to (or from) Level 3 due to changes in the availability of observable market inputs as a result of 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 July 31, 2023
					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	6,177	11,241	−	17,418
				Canadian provincial and municipal governments	−	8,817	−	8,817
				U.S. Treasury, other U.S. agencies and other foreign governments	3,058	2,179	−	5,237
			Other debt securities		−	4,254	81	4,335
			Equity securities		69,803	543	416	70,762
					79,038	27,034	497	106,569
		At fair value through other comprehensive income
			Securities issued or guaranteed by
				Canadian government	78	3,830	−	3,908
				Canadian provincial and municipal governments	−	2,238	−	2,238
				U.S. Treasury, other U.S. agencies and other foreign governments	765	251	−	1,016
			Other debt securities		−	1,383	−	1,383
			Equity securities		−	247	325	572
					843	7,949	325	9,117
	Securities purchased under reverse repurchase agreements and
		securities borrowed			−	39	−	39

	Loans				−	12,650	212	12,862

	Other
		Derivative financial instruments			241	14,106	15	14,362
		Other assets - Other items			−	−	73	73
					80,122	61,778	1,122	143,022

Financial liabilities
	Deposits⁽¹⁾				−	18,852	−	18,852

	Other
		Obligations related to securities sold short			17,161	5,664	−	22,825
		Derivative financial instruments			453	18,291	24	18,768
		Liabilities related to transferred receivables			−	10,072	−	10,072
					17,614	52,879	24	70,517

(1) The amounts include the fair value of embedded derivative financial instruments in deposits.

Note 3 - Fair Value of Financial Instruments (cont.)

						As at October 31, 2022
					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	4,736	8,186	−	12,922
				Canadian provincial and municipal governments	−	9,260	−	9,260
				U.S. Treasury, other U.S. agencies and other foreign governments	10,639	4,445	−	15,084
			Other debt securities		−	3,324	60	3,384
			Equity securities		45,805	504	416	46,725
					61,180	25,719	476	87,375
		At fair value through other comprehensive income
			Securities issued or guaranteed by
				Canadian government	21	3,191	−	3,212
				Canadian provincial and municipal governments	−	1,970	−	1,970
				U.S. Treasury, other U.S. agencies and other foreign governments	1,687	191	−	1,878
			Other debt securities		−	1,212	−	1,212
			Equity securities		−	236	320	556
					1,708	6,800	320	8,828

	Loans				−	10,272	244	10,516

	Other
		Derivative financial instruments			342	18,204	1	18,547
		Other assets - Other items			−	−	87	87
					63,230	60,995	1,128	125,353

Financial liabilities
	Deposits⁽¹⁾				−	15,424	8	15,432

	Other
		Obligations related to securities sold short			15,213	6,604	−	21,817
		Derivative financial instruments			625	18,989	18	19,632
		Liabilities related to transferred receivables			−	11,352	−	11,352
					15,838	52,369	26	68,233

(1) The amounts include the fair value of embedded derivative financial instruments in deposits.

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 year ended October 31, 2022. For the quarter and nine-month period ended July 31, 2023, 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 for the fair value measurements of Level 3 financial instruments, substituting unobservable inputs with one or more reasonably possible alternative assumptions. For additional information on how a change in an unobservable input might affect the fair value measurements of Level 3 financial instruments, see Note 3 to the audited annual consolidated financial statements for the year ended October 31, 2022. For the nine-month period ended July 31, 2023, 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 on 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 Level 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.

Nine months ended July 31, 2023

Securities

at fair value

through profit

or loss

Securities

at fair value

through other

comprehensive

income

Loans and

other assets

Derivative

financial

instruments⁽¹⁾

Deposits⁽²⁾

Fair value as at October 31, 2022

476

320

331

(17)

(8)

Total realized and unrealized gains (losses) included in Net income ⁽³⁾

(14)

−

(1)

−

Total realized and unrealized gains (losses) included in

Other comprehensive income

−

Purchases

−

Sales

(19)

−

Issuances

−

Settlements and other

−

(63)

−

Financial instruments transferred into Level 3

−

Financial instruments transferred out of Level 3

−

Fair value as at July 31, 2023

497

325

285

(9)

−

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

to financial assets and financial liabilities held as at July 31, 2023⁽⁴⁾

−

(1)

−

Nine months ended July 31, 2022

Securities

at fair value

through profit

or loss

Securities

at fair value

through other

comprehensive

income

Loans and

other assets

Derivative

financial

instruments⁽¹⁾

Deposits⁽²⁾

Fair value as at October 31, 2021

471

306

297

−

Total realized and unrealized gains (losses) included in Net income ⁽⁵⁾

−

(27)

(1)

Total realized and unrealized gains (losses) included in

Other comprehensive income

−

(1)

−

Purchases

−

Sales

(62)

−

Issuances

−

(3)

Settlements and other

−

(14)

−

Financial instruments transferred into Level 3

−

(3)

Financial instruments transferred out of Level 3

(12)

−

Fair value as at July 31, 2022

445

312

343

(4)

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

to financial assets and financial liabilities held as at July 31, 2022⁽⁶⁾

(12)

−

(27)

(1)

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

(2) The amounts include the fair value of embedded derivative financial instruments in deposits.

(3) Total gains (losses) included in Non-interest income was a loss of $15 million.

(4) Total unrealized gains (losses) included in Non-interest income was an unrealized gain of $21 million.

(5) Total gains (losses) included in Non-interest income was a loss of $21 million.

(6) Total unrealized gains (losses) included in Non-interest income was an unrealized loss of $38 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 the criteria presented in Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022. Consistent with its risk management strategy and in accordance with the fair value option, which permits the designation if it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring financial assets and financial liabilities or recognizing the gains and losses thereon on different bases, the Bank designated certain securities, certain securities purchased under reverse repurchase agreements, and certain liabilities related to transferred receivables at fair value through profit or loss. 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 at fair value through profit or loss.

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, an observed discount rate for similar securities that reflects the Bank's credit spread and, then, 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 July 31, 2023		Unrealized gains (losses) for the quarter ended July 31, 2023		Unrealized gains (losses) for the nine months ended July 31, 2023		Unrealized gains (losses) since the initial recognition of the instrument
Financial assets designated at fair value through profit or loss
		Securities		820		(16)		(6)		(13)
		Securities purchased under reverse repurchase agreements		39		−		−		−
				859		(16)		(6)		(13)
Financial liabilities designated at fair value through profit or loss
		Deposits⁽¹⁾⁽²⁾		18,788		(108)		(1,123)		1,959
		Liabilities related to transferred receivables		10,072		166		66		566
^.				28,860		58		(1,057)		2,525


			Carrying value as at July 31, 2022		Unrealized gains (losses) for the quarter ended July 31, 2022		Unrealized gains (losses) for the nine months ended July 31, 2022		Unrealized gains (losses) since the initial recognition of the instrument
Financial assets designated at fair value through profit or loss
	Securities		1,071		10		(18)		−
Financial liabilities designated at fair value through profit or loss
	Deposits⁽¹⁾⁽²⁾		14,803		322		2,063		2,130
	Liabilities related to transferred receivables		10,495		9		330		355
			25,298		331		2,393		2,485

(1) For the quarter ended July 31, 2023, 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 $107 million ($362 million gain for the quarter ended July 31, 2022). For the nine-month period ended July 31, 2023, this change resulted in a loss of $326 million ($803 million gain for the nine-month period ended July 31, 2022).

(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

Credit Quality

As at July 31, 2023 and as at October 31, 2022, securities at fair value through other comprehensive income and securities at amortized cost were mainly classified in Stage 1, with their credit quality falling mostly in the "Excellent" category according to the Bank's internal risk-rating categories. For additional information on the reconciliation of allowances for credit losses, see Note 6 to these consolidated financial statements.

Unrealized Gross Gains (Losses) on Securities at Fair Value Through Other Comprehensive Income

		As at July 31, 2023
		Amortized cost	Gross unrealized gains	Gross unrealized losses	Carrying value⁽¹⁾

Securities issued or guaranteed by
	Canadian government	4,107	1	(200)	3,908
	Canadian provincial and municipal governments	2,384	2	(148)	2,238
	U.S. Treasury, other U.S. agencies and other foreign governments	1,077	−	(61)	1,016
Other debt securities		1,492	−	(109)	1,383
Equity securities		578	16	(22)	572
		9,638	19	(540)	9,117

		As at October 31, 2022
		Amortized cost	Gross unrealized gains	Gross unrealized losses	Carrying value⁽¹⁾

Securities issued or guaranteed by
	Canadian government	3,386	1	(175)	3,212
	Canadian provincial and municipal governments	2,129	1	(160)	1,970
	U.S. Treasury, other U.S. agencies and other foreign governments	2,022	−	(144)	1,878
Other debt securities		1,355	−	(143)	1,212
Equity securities		570	21	(35)	556
		9,462	23	(657)	8,828

(1) The allowances for credit losses on securities at fair value through other comprehensive income (excluding the equity securities), representing $3 million as at July 31, 2023 ($2 million as at October 31, 2022), are reported in Other comprehensive income. For additional information, see Note 6 to these consolidated financial statements.

Equity Securities Designated at Fair Value Through Other Comprehensive Income

The Bank designated certain equity securities, the main business objective of which is to generate dividend income, at fair value through other comprehensive income without subsequent reclassification of gains and losses to net income. During the nine-month period ended July 31, 2023, a dividend income amount of $26 million was recognized for these investments ($10 million for the nine-month period ended July 31, 2022), including amounts of $1 million for investments that were sold during the nine-month period ended July 31, 2023 ($3 million for investments that were sold during the nine-month period ended July 31, 2022).

			Nine months ended July 31, 2023			Nine months ended July 31, 2022
			Equity securities of private companies	Equity securities of public companies	Total	Equity securities of private companies	Equity securities of public companies	Total

Fair value at beginning			320	236	556	306	311	617
	Change in fair value		5	2	7	(1)	(34)	(35)
	Designated at fair value through
		other comprehensive income⁽¹⁾	−	255	255	7	106	113
	Sales⁽²⁾		−	(246)	(246)	−	(149)	(149)
Fair value at end			325	247	572	312	234	546

(1) On May 2, 2023, the Bank concluded that it had lost significant influence over TMX Group Limited (TMX) and therefore, as of this date, ceased using the equity method to account for this investment. The Bank designated its investment in TMX as a financial asset measured at fair value through other comprehensive income in an amount of $191 million.

(2) The Bank disposed of private and public company equity securities for economic reasons.

Note 5 - Securities (cont.)

Securities at Amortized Cost

		As at July 31, 2023	As at October 31, 2022

Securities issued or guaranteed by
	Canadian government	5,956	5,737
	Canadian provincial and municipal governments	1,926	1,826
	U.S. Treasury, other U.S. agencies and other foreign governments	495	150
Other debt securities		3,650	5,810
Gross carrying value		12,027	13,523
Allowances for credit losses		8	7
Carrying value		12,019	13,516

Gains (Losses) on Disposals of Securities at Amortized Cost

During the nine-month periods ended July 31, 2023 and 2022, the Bank disposed of certain debt securities measured at amortized cost. The carrying value of these securities upon disposal was $821 million for the nine-month period ended July 31, 2023 ($337 million for the nine-month period ended July 31, 2022), and the Bank recognized negligible gains for the nine-month period ended July 31, 2023 ($4 million for the nine-month period ended July 31, 2022) in Non-interest income - Gains (losses) on non-trading securities, net in the Consolidated Statement of Income.

Note 6 - Loans and Allowances for Credit Losses

Determining and Measuring Expected Credit Losses (ECL)

Determining Expected Credit Losses

Expected credit losses are determined using a three-stage impairment approach that is based on the change in the credit quality of financial assets since initial recognition.

Non-Impaired Loans

Stage 1

Financial assets that have experienced no significant increase in credit risk between initial recognition and the reporting date, and for which 12-month expected credit losses are recorded at the reporting date, are classified in Stage 1.

Stage 2

Financial assets that have experienced a significant increase in credit risk between initial recognition and the reporting date, and for which lifetime expected credit losses are recorded at the reporting date, are classified in Stage 2.

Impaired Loans

Stage 3

Financial assets for which there is objective evidence of impairment, for which one or more events have had a detrimental impact on the estimated future cash flows of these financial assets at the reporting date, and for which lifetime expected credit losses are recorded, are classified in Stage 3.

POCI

Financial assets that are credit-impaired when purchased or originated (POCI) are classified in the POCI category.

For additional information, see Notes 1 and 7 to the audited annual consolidated financial statements for the year ended October 31, 2022.

Credit Quality of Loans

The following tables present the gross carrying amounts of loans as at July 31, 2023 and as at October 31, 2022, according to credit quality and ECL impairment stage of each loan category at amortized cost, and according to credit quality for loans at fair value through profit or loss. For additional information on credit quality according to the Internal Ratings-Based (IRB) categories, see the Internal Default Risk Ratings table on page 78 in the Credit Risk section of the 2022 Annual Report.

					As at July 31, 2023
		Non-impaired loans		Impaired loans		Loans at fair value through profit or loss⁽¹⁾	Total
		Stage 1	Stage 2	Stage 3	POCI	Loans at fair value through profit or loss⁽¹⁾	Total
Residential mortgage
	Excellent	29,714	−	−	−	−	29,714
	Good	17,013	110	−	−	−	17,123
	Satisfactory	11,484	3,952	−	−	−	15,436
	Special mention	441	751	−	−	−	1,192
	Substandard	62	224	−	−	−	286
	Default	−	−	54	−	−	54
IRB Approach		58,714	5,037	54	−	−	63,805
Standardized Approach		8,730	181	243	307	11,510	20,971
Gross carrying amount		67,444	5,218	297	307	11,510	84,776
Allowances for credit losses⁽²⁾		63	86	74	(79)	−	144
Carrying amount		67,381	5,132	223	386	11,510	84,632

Personal
	Excellent	21,680	37	−	−	−	21,717
	Good	8,449	612	−	−	−	9,061
	Satisfactory	6,362	1,674	−	−	−	8,036
	Special mention	1,818	808	−	−	−	2,626
	Substandard	34	213	−	−	−	247
	Default	−	−	152	−	−	152
IRB Approach		38,343	3,344	152	−	−	41,839
Standardized Approach		3,604	69	56	225	−	3,954
Gross carrying amount		41,947	3,413	208	225	−	45,793
Allowances for credit losses⁽²⁾		88	104	85	(8)	−	269
Carrying amount		41,859	3,309	123	233	−	45,524

Credit card
	Excellent	621	−	−	−	−	621
	Good	376	−	−	−	−	376
	Satisfactory	731	65	−	−	−	796
	Special mention	283	195	−	−	−	478
	Substandard	37	79	−	−	−	116
	Default	−	−	−	−	−	−
IRB Approach		2,048	339	−	−	−	2,387
Standardized Approach		104	−	−	−	−	104
Gross carrying amount		2,152	339	−	−	−	2,491
Allowances for credit losses⁽²⁾		31	102	−	−	−	133
Carrying amount		2,121	237	−	−	−	2,358

Business and government⁽³⁾
	Excellent	8,477	−	−	−	1,128	9,605
	Good	27,059	3	−	−	53	27,115
	Satisfactory	31,069	7,440	−	−	139	38,648
	Special mention	150	1,704	−	−	−	1,854
	Substandard	11	291	326	−	−	628
	Default	−	−	51	−	−	51
IRB Approach		66,766	9,438	377	−	1,320	77,901
Standardized Approach		9,478	52	30	−	32	9,592
Gross carrying amount		76,244	9,490	407	−	1,352	87,493
Allowances for credit losses⁽²⁾		174	184	216	−	−	574
Carrying amount		76,070	9,306	191	−	1,352	86,919
Total loans and acceptances
Gross carrying amount		187,787	18,460	912	532	12,862	220,553
Allowances for credit losses⁽²⁾		356	476	375	(87)	−	1,120
Carrying amount		187,431	17,984	537	619	12,862	219,433

(1) Not subject to expected credit losses.

(2) The allowances for credit losses do not include the amounts related to undrawn commitments reported in the Other liabilities item of the Consolidated Balance Sheet.

(3) Includes customers' liability under acceptances.

Note 6 - Loans and Allowances for Credit Losses (cont.)

					As at October 31, 2022
		Non-impaired loans		Impaired loans		Loans at fair value through profit or loss⁽¹⁾	Total
		Stage 1	Stage 2	Stage 3	POCI	Loans at fair value through profit or loss⁽¹⁾	Total
Residential mortgage
	Excellent	30,465	−	−	−	−	30,465
	Good	16,351	12	−	−	−	16,363
	Satisfactory	10,765	3,269	−	−	−	14,034
	Special mention	609	394	−	−	−	1,003
	Substandard	76	140	−	−	−	216
	Default	−	−	49	−	−	49
AIRB Approach		58,266	3,815	49	−	−	62,130
Standardized Approach		7,266	179	211	384	9,959	17,999
Gross carrying amount		65,532	3,994	260	384	9,959	80,129
Allowances for credit losses⁽²⁾		53	80	61	(76)	−	118
Carrying amount		65,479	3,914	199	460	9,959	80,011

Personal
	Excellent	22,190	22	−	−	−	22,212
	Good	8,792	479	−	−	−	9,271
	Satisfactory	6,928	1,394	−	−	−	8,322
	Special mention	358	775	−	−	−	1,133
	Substandard	26	203	−	−	−	229
	Default	−	−	130	−	−	130
AIRB Approach		38,294	2,873	130	−	−	41,297
Standardized Approach		3,837	78	36	75	−	4,026
Gross carrying amount		42,131	2,951	166	75	−	45,323
Allowances for credit losses⁽²⁾		67	113	75	(16)	−	239
Carrying amount		42,064	2,838	91	91	−	45,084

Credit card
	Excellent	600	−	−	−	−	600
	Good	359	−	−	−	−	359
	Satisfactory	689	51	−	−	−	740
	Special mention	287	178	−	−	−	465
	Substandard	37	71	−	−	−	108
	Default	−	−	−	−	−	−
AIRB Approach		1,972	300	−	−	−	2,272
Standardized Approach		117	−	−	−	−	117
Gross carrying amount		2,089	300	−	−	−	2,389
Allowances for credit losses⁽²⁾		31	95	−	−	−	126
Carrying amount		2,058	205	−	−	−	2,263

Business and government⁽³⁾
	Excellent	6,140	2	−	−	147	6,289
	Good	27,607	112	−	−	53	27,772
	Satisfactory	26,567	8,803	−	−	145	35,515
	Special mention	75	1,172	−	−	−	1,247
	Substandard	41	272	−	−	−	313
	Default	−	−	367	−	−	367
AIRB Approach		60,430	10,361	367	−	345	71,503
Standardized Approach		8,096	28	19	−	212	8,355
Gross carrying amount		68,526	10,389	386	−	557	79,858
Allowances for credit losses⁽²⁾		115	160	197	−	−	472
Carrying amount		68,411	10,229	189	−	557	79,386
Total loans and acceptances
Gross carrying amount		178,278	17,634	812	459	10,516	207,699
Allowances for credit losses⁽²⁾		266	448	333	(92)	−	955
Carrying amount		178,012	17,186	479	551	10,516	206,744

(1) Not subject to expected credit losses.

(2) The allowances for credit losses do not include the amounts related to undrawn commitments reported in the Other liabilities item of the Consolidated Balance Sheet.

(3) Includes customers' liability under acceptances.

The following table presents the credit risk exposures of off-balance-sheet commitments as at July 31, 2023 and as at October 31, 2022 according to credit quality and ECL impairment stage.

			As at July 31, 2023					As at October 31, 2022
		Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
Off-balance-sheet commitments⁽¹⁾
Retail
	Excellent	15,996	25	−	16,021	15,292	13	−	15,305
	Good	3,571	220	−	3,791	3,316	165	−	3,481
	Satisfactory	1,239	210	−	1,449	1,170	180	−	1,350
	Special mention	210	80	−	290	193	68	−	261
	Substandard	16	18	−	34	15	15	−	30
	Default	−	−	1	1	−	−	1	1
Non-retail
	Excellent	14,523	−	−	14,523	13,136	−	−	13,136
	Good	19,840	−	−	19,840	18,723	24	−	18,747
	Satisfactory	12,271	3,670	−	15,941	7,894	3,488	−	11,382
	Special mention	15	219	−	234	12	246	−	258
	Substandard	5	28	−	33	4	24	−	28
	Default	−	−	10	10	−	−	18	18
IRB Approach		67,686	4,470	11	72,167	59,755	4,223	19	63,997
Standardized Approach		17,688	−	−	17,688	15,432	−	−	15,432
Total exposure		85,374	4,470	11	89,855	75,187	4,223	19	79,429
Allowances for credit losses		100	57	−	157	99	63	−	162
Total exposure, net
	of allowances	85,274	4,413	11	89,698	75,088	4,160	19	79,267

(1) Represent letters of guarantee and documentary letters of credit, undrawn commitments, and backstop liquidity and credit enhancement facilities.

Loans Past Due But Not Impaired⁽¹⁾

		As at July 31, 2023						As at October 31, 2022
		Residential mortgage	Personal	Credit card	Business and government⁽²⁾	Residential mortgage	Personal	Credit card	Business and government⁽²⁾

Past due but not impaired
	31 to 60 days	117	103	23	38	106	105	23	23
	61 to 90 days	56	40	12	12	38	30	11	9
	Over 90 days⁽³⁾	−	−	27	−	−	−	22	−
		173	143	62	50	144	135	56	32

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

(2) Includes customers' liability under acceptances.

(3) All loans more than 90 days past due, except for credit card receivables, are considered impaired (Stage 3).

Impaired Loans

			As at July 31, 2023		As at October 31, 2022
		Gross	Allowances for credit losses	Net	Gross	Allowances for credit losses	Net

Loans - Stage 3
	Residential mortgage	297	74	223	260	61	199
	Personal	208	85	123	166	75	91
	Credit card⁽¹⁾	−	−	−	−	−	−
	Business and government⁽²⁾	407	216	191	386	197	189
		912	375	537	812	333	479
Loans - POCI		532	(87)	619	459	(92)	551
		1,444	288	1,156	1,271	241	1,030

(1) Credit card receivables are considered impaired, at the latest, when payment is 180 days past due, and they are written off at that time.

(2) Includes customers' liability under acceptances.

Note 6 - Loans and Allowances for Credit Losses (cont.)

Allowances for Credit Losses

The following tables present a reconciliation of the allowances for credit losses by Consolidated Balance Sheet item and by type of off-balance-sheet commitment.

						Quarter ended July 31, 2023
		Allowances for credit losses as at April 30, 2023	Provisions for credit losses	Write-offs⁽¹⁾	Disposals	Recoveries and other	Allowances for credit losses as at July 31, 2023

Balance sheet
Cash and deposits with financial institutions⁽²⁾⁽³⁾		7	2	−	−	−	9
Securities⁽³⁾
	At fair value through other comprehensive income⁽⁴⁾	2	1	−	−	−	3
	At amortized cost⁽²⁾	8	−	−	−	−	8
Securities purchased under reverse repurchase
	agreements and securities borrowed⁽²⁾⁽³⁾	−	−	−	−	−	−
Loans⁽⁵⁾
	Residential mortgage	141	4	−	−	(1)	144
	Personal	262	32	(29)	−	4	269
	Credit card	134	17	(22)	−	4	133
	Business and government	495	34	(4)	−	(1)	524
	Customers' liability under acceptances	38	12	−	−	−	50
		1,070	99	(55)	−	6	1,120
Other assets⁽²⁾⁽³⁾		−	−	−	−	−	−

Off-balance-sheet commitments⁽⁶⁾
Letters of guarantee and documentary letters of credit		11	2	−	−	−	13
Undrawn commitments		131	6	−	−	−	137
Backstop liquidity and credit enhancement facilities		6	1	−	−	−	7
		148	9	−	−	−	157
		1,235	111	(55)	−	6	1,297

						Quarter ended July 31, 2022
		Allowances for credit losses as at April 30, 2022	Provisions for credit losses	Write-offs⁽¹⁾	Disposals	Recoveries and other	Allowances for credit losses as at July 31, 2022

Balance sheet
Cash and deposits with financial institutions⁽²⁾⁽³⁾		5	−	−	−	−	5
Securities⁽³⁾
	At fair value through other comprehensive income⁽⁴⁾	1	−	−	−	−	1
	At amortized cost⁽²⁾	6	(1)	−	−	−	5
Securities purchased under reverse repurchase
	agreements and securities borrowed⁽²⁾⁽³⁾	−	−	−	−	−	−
Loans⁽⁵⁾
	Residential mortgage	81	10	(1)	−	1	91
	Personal	215	26	(13)	−	3	231
	Credit card	122	15	(15)	−	3	125
	Business and government	448	9	(1)	−	1	457
	Customers' liability under acceptances	49	(1)	−	−	−	48
		915	59	(30)	−	8	952
Other assets⁽²⁾⁽³⁾		−	−	−	−	−	−
Off-balance-sheet commitments⁽⁶⁾
Letters of guarantee and documentary letters of credit		11	1	−	−	−	12
Undrawn commitments		115	(2)	−	−	−	113
Backstop liquidity and credit enhancement facilities		5	−	−	−	−	5
		131	(1)	−	−	−	130
		1,058	57	(30)	−	8	1,093

(1) The contractual amount outstanding on financial assets that were written off during the quarter ended July 31, 2023 and that are still subject to enforcement activity was $31 million ($21 million for the quarter ended July 31, 2022).

(2) These financial assets are presented net of the allowances for credit losses on the Consolidated Balance Sheet.

(3) As at July 31, 2023 and 2022, these financial assets were mainly classified in Stage 1 and their credit quality fell mostly within the Excellent category.

(4) The allowances for credit losses are reported in the Accumulated other comprehensive income item of the Consolidated Balance Sheet.

(5) The allowances for credit losses are reported in the Allowances for credit losses item of the Consolidated Balance Sheet.

(6) The allowances for credit losses are reported in the Other liabilities item of the Consolidated Balance Sheet.

					Nine months ended July 31, 2023
		Allowances for credit losses as at October 31, 2022	Provisions for credit losses	Write-offs⁽¹⁾	Disposals	Recoveries and other	Allowances for credit losses as at July 31, 2023

Balance sheet
Cash and deposits with financial institutions⁽²⁾⁽³⁾		5	4	−	−	−	9
Securities⁽³⁾
	At fair value through other comprehensive income⁽⁴⁾	2	1	−	−	−	3
	At amortized cost⁽²⁾	7	1	−	−	−	8
Securities purchased under reverse repurchase
	agreements and securities borrowed⁽²⁾⁽³⁾	−	−	−	−	−	−
Loans⁽⁵⁾
	Residential mortgage	118	29	(1)	−	(2)	144
	Personal	239	84	(66)	−	12	269
	Credit card	126	56	(60)	−	11	133
	Business and government	418	116	(12)	−	2	524
	Customers' liability under acceptances	54	(4)	−	−	−	50
		955	281	(139)	−	23	1,120
Other assets⁽²⁾⁽³⁾		−	−	−	−	−	−

Off-balance-sheet commitments⁽⁶⁾
Letters of guarantee and documentary letters of credit		13	−	−	−	−	13
Undrawn commitments		143	(6)	−	−	−	137
Backstop liquidity and credit enhancement facilities		6	1	−	−	−	7
		162	(5)	−	−	−	157
		1,131	282	(139)	−	23	1,297

						Nine months ended July 31, 2022
		Allowances for credit losses as at October 31, 2021	Provisions for credit losses	Write-offs⁽¹⁾	Disposals	Recoveries and other	Allowances for credit losses as at July 31, 2022

Balance sheet
Cash and deposits with financial institutions⁽²⁾⁽³⁾		5	−	−	−	−	5
Securities⁽³⁾
	At fair value through other comprehensive income⁽⁴⁾	1	−	−	−	−	1
	At amortized cost⁽²⁾	3	2	−	−	−	5
Securities purchased under reverse repurchase
	agreements and securities borrowed⁽²⁾⁽³⁾	−	−	−	−	−	−
Loans⁽⁵⁾
	Residential mortgage	71	21	(3)	−	2	91
	Personal	202	52	(36)	−	13	231
	Credit card	122	36	(45)	−	12	125
	Business and government	515	19	(82)	−	5	457
	Customers' liability under acceptances	88	(40)	−	−	−	48
		998	88	(166)	−	32	952
Other assets⁽²⁾⁽³⁾		−	−	−	−	−	−

Off-balance-sheet commitments⁽⁶⁾
Letters of guarantee and documentary letters of credit		13	(1)	−	−	−	12
Undrawn commitments		143	(30)	−	−	−	113
Backstop liquidity and credit enhancement facilities		6	(1)	−	−	−	5
		162	(32)	−	−	−	130
		1,169	58	(166)	−	32	1,093

(1) The contractual amount outstanding on financial assets that were written off during the nine-month period ended July 31, 2023 and that are still subject to enforcement activity was $83 million ($68 million for the nine-month period ended July 31, 2022).

(2) These financial assets are presented net of the allowances for credit losses on the Consolidated Balance Sheet.

(3) As at July 31, 2023 and 2022, these financial assets were mainly classified in Stage 1 and their credit quality fell mostly within the Excellent category.

(4) The allowances for credit losses are reported in the Accumulated other comprehensive income item of the Consolidated Balance Sheet.

(5) The allowances for credit losses are reported in the Allowances for credit losses item of the Consolidated Balance Sheet.

(6) The allowances for credit losses are reported in the Other liabilities item of the Consolidated Balance Sheet.

Note 6 - Loans and Allowances for Credit Losses (cont.)

The following tables present a reconciliation of allowances for credit losses for each loan category at amortized cost according to ECL impairment stage.

				Quarter ended July 31, 2023						Quarter ended July 31, 2022
			Allowances for credit losses on non-impaired loans		Allowances for credit losses on impaired loans		Total	Allowances for credit losses on non-impaired loans		Allowances for credit losses on impaired loans		Total
			Stage 1	Stage 2	Stage 3	POCI⁽¹⁾	Total	Stage 1	Stage 2	Stage 3	POCI⁽¹⁾	Total
Residential mortgage
Balance at beginning			64	81	63	(67)	141	44	57	39	(59)	81
	Originations or purchases		5	−	−	−	5	5	−	−	−	5
	Transfers⁽²⁾:
		to Stage 1	17	(17)	−	−	−	5	(4)	(1)	−	−
		to Stage 2	(3)	5	(2)	−	−	(1)	3	(2)	−	−
		to Stage 3	(1)	(7)	8	−	−	−	(1)	1	−	−
	Net remeasurement of loss allowances⁽³⁾		(12)	20	7	(14)	1	(4)	3	9	(1)	7
	Derecognitions⁽⁴⁾		(1)	(2)	(1)	−	(4)	(1)	−	(1)	−	(2)
	Changes to models		(5)	7	−	−	2	−	−	−	−	−
Provisions for credit losses			−	6	12	(14)	4	4	1	6	(1)	10
Write-offs			−	−	−	−	−	−	−	(1)	−	(1)
Disposals			−	−	−	−	−	−	−	−	−	−
Recoveries			−	−	1	−	1	−	−	1	−	1
Foreign exchange movements and other			(1)	(1)	(2)	2	(2)	−	−	−	−	−
Balance at end			63	86	74	(79)	144	48	58	45	(60)	91
Includes:
	Amounts drawn		63	86	74	(79)	144	48	58	45	(60)	91
	Undrawn commitments⁽⁵⁾		−	−	−	−	−	−	−	−	−	−
Personal
Balance at beginning			82	114	83	(10)	269	70	109	65	(22)	222
	Originations or purchases		16	−	−	−	16	14	−	−	−	14
	Transfers⁽²⁾:
		to Stage 1	24	(21)	(3)	−	−	19	(18)	(1)	−	−
		to Stage 2	(7)	9	(2)	−	−	(3)	4	(1)	−	−
		to Stage 3	(1)	(29)	30	−	−	−	(6)	6	−	−
	Net remeasurement of loss allowances⁽³⁾		(19)	38	2	2	23	(22)	30	9	8	25
	Derecognitions⁽⁴⁾		(3)	(5)	(1)	−	(9)	(3)	(4)	(2)	−	(9)
	Changes to models		−	3	−	−	3	(2)	(2)	−	−	(4)
Provisions for credit losses			10	(5)	26	2	33	3	4	11	8	26
Write-offs			−	−	(29)	−	(29)	−	−	(13)	−	(13)
Disposals			−	−	−	−	−	−	−	−	−	−
Recoveries			−	−	6	−	6	−	−	3	−	3
Foreign exchange movements and other			(1)	−	(1)	−	(2)	−	−	1	(1)	−
Balance at end			91	109	85	(8)	277	73	113	67	(15)	238
Includes:
	Amounts drawn		88	104	85	(8)	269	71	108	67	(15)	231
	Undrawn commitments⁽⁵⁾		3	5	−	−	8	2	5	−	−	7

(1) The total amount of undiscounted initially expected credit losses on the POCI loans acquired during the quarter ended July 31, 2023 was $34 million ($3 million for the quarter ended July 31, 2022). The expected credit losses reflected in the purchase price have been discounted.

(2) Represent stage transfers deemed to have taken place at the beginning of the quarter in which the transfer occurred.

(3) Includes the net remeasurement of loss allowances (after transfers) attributable mainly to changes in volumes and in the credit quality of existing loans as well as to changes in risk parameters.

(4) Represent reversals to loss allowances arising from full loan repayments (excluding write-offs and disposals).

(5) The allowances for credit losses on undrawn commitments are reported in the Other liabilities item of the Consolidated Balance Sheet.

				Quarter ended July 31, 2023						Quarter ended July 31, 2022
			Allowances for credit losses on non-impaired loans		Allowances for credit losses on impaired loans		Total	Allowances for credit losses on non-impaired loans		Allowances for credit losses on impaired loans		Total
			Stage 1	Stage 2	Stage 3	POCI⁽¹⁾	Total	Stage 1	Stage 2	Stage 3	POCI⁽¹⁾	Total
Credit card
Balance at beginning			57	121	−	−	178	55	102	−	−	157
	Originations or purchases		3	−	−	−	3	3	−	−	−	3
	Transfers⁽²⁾:
		to Stage 1	27	(27)	−	−	−	24	(24)	−	−	−
		to Stage 2	(5)	5	−	−	−	(3)	3	−	−	−
		to Stage 3	−	(9)	9	−	−	(1)	(6)	7	−	−
	Net remeasurement of loss allowances⁽³⁾		(24)	34	9	−	19	(21)	29	5	−	13
	Derecognitions⁽⁴⁾		−	(1)	−	−	(1)	(1)	−	−	−	(1)
	Changes to models		−	−	−	−	−	−	−	−	−	−
Provisions for credit losses			1	2	18	−	21	1	2	12	−	15
Write-offs			−	−	(22)	−	(22)	−	−	(15)	−	(15)
Disposals			−	−	−	−	−	−	−	−	−	−
Recoveries			−	−	4	−	4	−	−	3	−	3
Foreign exchange movements and other			−	−	−	−	−	−	−	−	−	−
Balance at end			58	123	−	−	181	56	104	−	−	160
Includes:
	Amounts drawn		31	102	−	−	133	34	91	−	−	125
	Undrawn commitments⁽⁵⁾		27	21	−	−	48	22	13	−	−	35
Business and government⁽⁶⁾
Balance at beginning			218	204	191	−	613	166	190	214	−	570
	Originations or purchases		19	−	−	−	19	23	−	−	−	23
	Transfers⁽²⁾:
		to Stage 1	6	(6)	−	−	−	16	(16)	−	−	−
		to Stage 2	(7)	8	(1)	−	−	(5)	6	(1)	−	−
		to Stage 3	−	(2)	2	−	−	−	(1)	1	−	−
	Net remeasurement of loss allowances⁽³⁾		(2)	9	28	−	35	(15)	24	(11)	−	(2)
	Derecognitions⁽⁴⁾		(4)	(3)	−	−	(7)	(6)	(8)	(1)	−	(15)
	Changes to models		−	−	−	−	−	−	−	−	−	−
Provisions for credit losses			12	6	29	−	47	13	5	(12)	−	6
Write-offs			−	−	(4)	−	(4)	−	−	(1)	−	(1)
Disposals			−	−	−	−	−	−	−	−	−	−
Recoveries			−	−	−	−	−	−	−	1	−	1
Foreign exchange movements and other			−	(1)	−	−	(1)	−	−	−	−	−
Balance at end			230	209	216	−	655	179	195	202	−	576
Includes:
	Amounts drawn		174	184	216	−	574	129	174	202	−	505
	Undrawn commitments⁽⁵⁾		56	25	−	−	81	50	21	−	−	71
Total allowances for credit losses at end⁽⁷⁾			442	527	375	(87)	1,257	356	470	314	(75)	1,065
Includes:
	Amounts drawn		356	476	375	(87)	1,120	282	431	314	(75)	952
	Undrawn commitments⁽⁵⁾		86	51	−	−	137	74	39	−	−	113

(2) Represent stage transfers deemed to have taken place at the beginning of the quarter in which the transfer occurred.

(3) Includes the net remeasurement of loss allowances (after transfers) attributable mainly to changes in volumes and in the credit quality of existing loans as well as to changes in risk parameters.

(4) Represent reversals to loss allowances arising from full loan repayments (excluding write-offs and disposals).

(5) The allowances for credit losses on undrawn commitments are reported in the Other liabilities item of the Consolidated Balance Sheet.

(6) Includes customers' liability under acceptances.

(7) Excludes allowances for credit losses on other financial assets at amortized cost and on off-balance-sheet commitments other than undrawn commitments.

Note 6 - Loans and Allowances for Credit Losses (cont.)

			Nine months ended July 31, 2023					Nine months ended July 31, 2022
			Allowances for credit losses on non-impaired loans		Allowances for credit losses on impaired loans		Total	Allowances for credit losses on non-impaired loans		Allowances for credit losses on impaired loans		Total
			Stage 1	Stage 2	Stage 3	POCI⁽¹⁾	Total	Stage 1	Stage 2	Stage 3	POCI⁽¹⁾	Total
Residential mortgage
Balance at beginning			53	80	61	(76)	118	50	52	29	(60)	71
	Originations or purchases		13	−	−	−	13	14	−	−	−	14
	Transfers⁽²⁾:
		to Stage 1	38	(35)	(3)	−	−	15	(13)	(2)	−	−
		to Stage 2	(9)	23	(14)	−	−	(3)	5	(2)	−	−
		to Stage 3	(1)	(21)	22	−	−	−	(1)	1	−	−
	Net remeasurement of loss allowances⁽³⁾		(21)	41	15	(6)	29	(27)	16	21	2	12
	Derecognitions⁽⁴⁾		(4)	(7)	(4)	−	(15)	(2)	(2)	(1)	−	(5)
	Changes to models		(5)	7	−	−	2	−	−	−	−	−
Provisions for credit losses			11	8	16	(6)	29	(3)	5	17	2	21
Write-offs			−	−	(1)	−	(1)	−	−	(3)	−	(3)
Disposals			−	−	−	−	−	−	−	−	−	−
Recoveries			−	−	1	−	1	−	−	2	−	2
Foreign exchange movements and other			(1)	(2)	(3)	3	(3)	1	1	−	(2)	−
Balance at end			63	86	74	(79)	144	48	58	45	(60)	91
Includes:
	Amounts drawn		63	86	74	(79)	144	48	58	45	(60)	91
	Undrawn commitments⁽⁵⁾		−	−	−	−	−	−	−	−	−	−
Personal
Balance at beginning			70	117	75	(16)	246	73	103	63	(29)	210
	Originations or purchases		33	−	−	−	33	38	−	−	−	38
	Transfers⁽²⁾:
		to Stage 1	72	(66)	(6)	−	−	50	(46)	(4)	−	−
		to Stage 2	(14)	18	(4)	−	−	(9)	11	(2)	−	−
		to Stage 3	(1)	(55)	56	−	−	−	(19)	19	−	−
	Net remeasurement of loss allowances⁽³⁾		(62)	106	20	8	72	(67)	69	17	15	34
	Derecognitions⁽⁴⁾		(7)	(14)	(3)	−	(24)	(8)	(12)	(3)	−	(23)
	Changes to models		1	3	−	−	4	(4)	6	−	−	2
Provisions for credit losses			22	(8)	63	8	85	−	9	27	15	51
Write-offs			−	−	(66)	−	(66)	−	−	(36)	−	(36)
Disposals			−	−	−	−	−	−	−	−	−	−
Recoveries			−	−	15	−	15	−	−	13	−	13
Foreign exchange movements and other			(1)	−	(2)	−	(3)	−	1	−	(1)	−
Balance at end			91	109	85	(8)	277	73	113	67	(15)	238
Includes:
	Amounts drawn		88	104	85	(8)	269	71	108	67	(15)	231
	Undrawn commitments⁽⁵⁾		3	5	−	−	8	2	5	−	−	7

(1) The total amount of undiscounted initially expected credit losses on the POCI loans acquired during the nine-month period ended July 31, 2023 was $34 million ($12 million during the nine-month period ended July 31, 2022). The expected credit losses reflected in the purchase price have been discounted.

(2) Represent stage transfers deemed to have taken place at the beginning of the quarter in which the transfer occurred.

(3) Includes the net remeasurement of loss allowances (after transfers) attributable mainly to changes in volumes and in the credit quality of existing loans as well as to changes in risk parameters.

(4) Represent reversals to loss allowances arising from full loan repayments (excluding write-offs and disposals).

(5) The allowances for credit losses on undrawn commitments are reported in the Other liabilities item of the Consolidated Balance Sheet.

			Nine months ended July 31, 2023					Nine months ended July 31, 2022
			Allowances for credit losses on non-impaired loans		Allowances for credit losses on impaired loans		Total	Allowances for credit losses on non-impaired loans		Allowances for credit losses on impaired loans		Total
			Stage 1	Stage 2	Stage 3	POCI⁽¹⁾	Total	Stage 1	Stage 2	Stage 3	POCI⁽¹⁾	Total
Credit card
Balance at beginning			53	112	−	−	165	57	101	−	−	158
	Originations or purchases		8	−	−	−	8	9	−	−	−	9
	Transfers⁽²⁾:
		to Stage 1	74	(74)	−	−	−	67	(67)	−	−	−
		to Stage 2	(13)	13	−	−	−	(12)	12	−	−	−
		to Stage 3	−	(25)	25	−	−	(1)	(17)	18	−	−
	Net remeasurement of loss allowances⁽³⁾		(62)	99	24	−	61	(62)	76	15	−	29
	Derecognitions⁽⁴⁾		(2)	(2)	−	−	(4)	(2)	(1)	−	−	(3)
	Changes to models		−	−	−	−	−	−	−	−	−	−
Provisions for credit losses			5	11	49	−	65	(1)	3	33	−	35
Write-offs			−	−	(60)	−	(60)	−	−	(45)	−	(45)
Disposals			−	−	−	−	−	−	−	−	−	−
Recoveries			−	−	11	−	11	−	−	12	−	12
Foreign exchange movements and other			−	−	−	−	−	−	−	−	−	−
Balance at end			58	123	−	−	181	56	104	−	−	160
Includes:
	Amounts drawn		31	102	−	−	133	34	91	−	−	125
	Undrawn commitments⁽⁵⁾		27	21	−	−	48	22	13	−	−	35
Business and government⁽⁶⁾
Balance at beginning			177	195	197	−	569	177	238	287	−	702
	Originations or purchases		65	−	−	−	65	59	−	−	−	59
	Transfers⁽²⁾:
		to Stage 1	38	(38)	−	−	−	56	(56)	−	−	−
		to Stage 2	(18)	22	(4)	−	−	(17)	20	(3)	−	−
		to Stage 3	−	(4)	4	−	−	−	(2)	2	−	−
	Net remeasurement of loss allowances⁽³⁾		(17)	57	33	−	73	(72)	20	(4)	−	(56)
	Derecognitions⁽⁴⁾		(14)	(22)	(4)	−	(40)	(24)	(25)	(3)	−	(52)
	Changes to models		(1)	(1)	−	−	(2)	−	−	−	−	−
Provisions for credit losses			53	14	29	−	96	2	(43)	(8)	−	(49)
Write-offs			−	−	(12)	−	(12)	−	−	(82)	−	(82)
Disposals			−	−	−	−	−	−	−	−	−	−
Recoveries			−	−	3	−	3	−	−	3	−	3
Foreign exchange movements and other			−	−	(1)	−	(1)	−	−	2	−	2
Balance at end			230	209	216	−	655	179	195	202	−	576
Includes:
	Amounts drawn		174	184	216	−	574	129	174	202	−	505
	Undrawn commitments⁽⁵⁾		56	25	−	−	81	50	21	−	−	71
Total allowances for credit losses at end⁽⁷⁾			442	527	375	(87)	1,257	356	470	314	(75)	1,065
Includes:
	Amounts drawn		356	476	375	(87)	1,120	282	431	314	(75)	952
	Undrawn commitments⁽⁵⁾		86	51	−	−	137	74	39	−	−	113

(2) Represent stage transfers deemed to have taken place at the beginning of the quarter in which the transfer occurred.

(3) Includes the net remeasurement of loss allowances (after transfers) attributable mainly to changes in volumes and in the credit quality of existing loans as well as to changes in risk parameters.

(4) Represent reversals to loss allowances arising from full loan repayments (excluding write-offs and disposals).

(5) The allowances for credit losses on undrawn commitments are reported in the Other liabilities item of the Consolidated Balance Sheet.

(6) Includes customers' liability under acceptances.

(7) Excludes allowances for credit losses on other financial assets at amortized cost and on off-balance-sheet commitments other than undrawn commitments.

Note 6 - Loans and Allowances for Credit Losses (cont.)

Main Macroeconomic Factors

The following tables show the main macroeconomic factors used to estimate the allowances for credit losses on loans. For each scenario, namely, the base scenario, upside scenario, and downside scenario, the average values of the macroeconomic factors over the next 12 months (used for Stage 1 credit loss calculations) and over the remaining forecast period (used for Stage 2 credit loss calculations) are presented.

										As at July 31, 2023
		Base scenario				Upside scenario					Downside scenario
		Next 12 months		Remaining forecast period		Next 12 months		Remaining forecast period			Next 12 months		Remaining forecast period

Macroeconomic factors⁽¹⁾
	GDP growth⁽²⁾	(0.4)	%	1.7	%	0.4	%	1.9	%		(4.9)	%	2.6	%
	Unemployment rate	6.1	%	6.5	%	5.7	%	5.6	%		7.5	%	7.0	%
	Housing price index growth⁽²⁾	−	%	2.4	%	6.1	%	2.3	%		(13.9)	%	0.3	%
	BBB spread⁽³⁾	2.4	%	2.1	%	1.9	%	1.8	%		3.1	%	2.4	%
	S&P/TSX growth⁽²⁾⁽⁴⁾	(5.5)	%	3.7	%	4.0	%	3.0	%		(25.6)	%	5.5	%
	WTI oil price⁽⁵⁾ (US$ per barrel)	67		70		82		77			41		50

										As at April 30, 2023
		Base scenario				Upside scenario					Downside scenario
		Next 12 months		Remaining forecast period		Next 12 months		Remaining forecast period			Next 12 months		Remaining forecast period

Macroeconomic factors⁽¹⁾
	GDP growth⁽²⁾	(0.3)	%	1.7	%	0.5	%	1.9	%		(5.1)	%	2.6	%
	Unemployment rate	5.8	%	6.3	%	5.5	%	5.5	%		7.3	%	6.9	%
	Housing price index growth⁽²⁾	(6.6)	%	1.4	%	(0.7)	%	1.2	%		(13.9)	%	0.3	%
	BBB spread⁽³⁾	2.2	%	2.0	%	1.9	%	1.8	%		3.1	%	2.3	%
	S&P/TSX growth⁽²⁾⁽⁴⁾	1.2	%	2.0	%	5.6	%	2.6	%		(25.6)	%	5.5	%
	WTI oil price⁽⁵⁾ (US$ per barrel)	71		69		84		80			43		52

										As at October 31, 2022
		Base scenario				Upside scenario					Downside scenario
		Next 12 months		Remaining forecast period		Next 12 months		Remaining forecast period			Next 12 months		Remaining forecast period

Macroeconomic factors⁽¹⁾
	GDP growth⁽²⁾	0.6	%	1.7	%	1.1	%	1.6	%		(5.2)	%	2.9	%
	Unemployment rate	6.0	%	6.1	%	5.4	%	5.4	%		7.4	%	6.4	%
	Housing price index growth⁽²⁾	(11.2)	%	0.7	%	−	%	0.2	%		(13.9)	%	0.3	%
	BBB spread⁽³⁾	2.4	%	2.1	%	2.0	%	1.9	%		3.4	%	2.6	%
	S&P/TSX growth⁽²⁾⁽⁴⁾	(4.3)	%	2.4	%	5.1	%	2.6	%		(25.6)	%	5.5	%
	WTI oil price⁽⁵⁾ (US$ per barrel)	78		77		102		97			44		51

(1) All macroeconomic factors are based on the Canadian economy unless otherwise indicated.

(2) Growth rate is annualized.

(3) Yield on corporate BBB bonds less yield on Canadian federal government bonds with 10-year maturity.

(4) Main stock index in Canada.

(5) The West Texas Intermediate (WTI) index is commonly used as a benchmark for the price of oil.

The main macroeconomic factors used for the personal credit portfolio are unemployment rate and growth in the housing price index, based on the economy of Canada or Quebec. The main macroeconomic factors used for the business and government credit portfolio are unemployment rate, spread on corporate BBB bonds, S&P/TSX growth, and WTI oil price. An increase in unemployment rate or BBB spread will generally lead to higher allowances for credit losses, whereas an increase in the other macroeconomic factors (GDP, S&P/TSX, housing price index, and WTI oil price) will generally lead to lower allowances for credit losses.

During the quarter ended July 31, 2023, the macroeconomic outlook deteriorated slightly and uncertainty remains high.

The global economic outlook evolved during the quarter, with inflation showing some improvement. This does not mean that the global economy is out of the woods, as most central banks are sticking with tight monetary policy and remain determined to lower the still-too-high level of inflation. In the United States, the agreement to raise the debt ceiling soothed worries, but a new risk emerged, namely, the restart of student loan payments coming in October, which could slow consumption. As financial conditions tighten, the U.S. economy could falter as of the fourth quarter of this year. In Canada, the Bank of Canada maintained its tightening policy in response to persistently strong inflation and domestic demand. However, the last rate hike came as the labour market appeared to be cooling, as evidenced by a higher unemployment rate. An erosion in company earnings should lead to greater prudence in workforce management. Consumption should contract slightly as a result of considerable interest payment shock, while growth in Canada should be lethargic. Despite these factors, strong demographic growth, greater excess savings, and ongoing advantageous foreign exchange terms lead us to believe that Canada's economy might be more resilient than the U.S. economy in the coming quarters. After 12 months, the unemployment rate rises 1.3 percentage points to 6.5%. Housing prices remain unchanged compared to a year ago. The S&P/TSX sits at 19,078 points after one year, and the price of oil hovers around US$65.

In the upside scenario, an easing of geopolitical tensions boosts confidence. Inflation comes under control as supply chains normalize, and the tight monetary policy does not inflict too much damage on the economy. Governments maintain a sizable fiscal stimulus in Canada and the United States, offsetting the tight monetary policy. In Canada, consumer spending is surprisingly high because of the excess savings amassed since the start of the pandemic. The housing market shows renewed vigour. After one year, the unemployment rate is more favourable than the base scenario (six-tenths lower). Housing prices rise 6.1%, the S&P/TSX is at 20,990 points after one year, and the price of oil hovers around US$81.

In the downside scenario, central bankers have underestimated the impact of their simultaneous tightening measures, and the global economy sinks into a recession, as a decrease in demand is reflected in reduced investment by businesses, which also carry out significant layoffs. Given budgetary constraints, governments cannot support households and businesses as they did during the pandemic. After 12 months, the economic contraction pushes the unemployment rate to 8.2%. Housing prices decrease considerably. The S&P/TSX sits at 15,018 points after one year, and the price of oil hovers around US$36.

Given the uncertainty surrounding key inputs used to measure credit losses, the Bank has applied expert credit judgment to adjust the modelled expected credit loss results.

Sensitivity Analysis of Allowances for Credit Losses on Non-Impaired Loans

Scenarios

The following table shows a comparison of the Bank's allowances for credit losses on non-impaired loans (Stages 1 and 2) as at July 31, 2023 based on the probability weightings of three scenarios with allowances for credit losses resulting from simulations of each scenario weighted at 100%.

		Allowances for credit losses on non-impaired loans

Balance as at July 31, 2023		969

Simulations
	100% upside scenario	692
	100% base scenario	785
	100% downside scenario	1,237

Note 7 - Other Assets

	As at July 31, 2023	As at October 31, 2022

Receivables, prepaid expenses and other items	3,874	2,591
Interest and dividends receivable	1,458	1,057
Due from clients, dealers and brokers	640	842
Defined benefit asset	420	498
Deferred tax assets	487	389
Current tax assets	875	471
Reinsurance assets	−	6
Insurance assets	143	104
	7,897	5,958

Note 8 - Deposits

			As at July 31, 2023		As at October 31, 2022
	On demand⁽¹⁾	After notice⁽²⁾	Fixed term⁽³⁾	Total	Total

Personal	4,385	35,294	46,911	86,590	78,811
Business and government	62,964	33,391	96,413	192,768	184,230
Deposit-taking institutions	1,292	108	1,565	2,965	3,353
	68,641	68,793	144,889	282,323	266,394

(1) Demand deposits are deposits for which the Bank does not have the right to require a notice of withdrawal and consist essentially of deposits in chequing accounts.

(2) Notice deposits are deposits for which the Bank may legally require a 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 other similar instruments.

The Deposits - Business and government item includes, among other items, covered bonds for which the balance was $11.8 billion as at July 31, 2023 ($10.4 billion as at October 31, 2022). During the nine-month period ended July 31, 2023, the Bank issued 280 million Swiss francs and 1.0 billion euros in covered bonds, and 750 million euros in covered bonds came to maturity (the Bank issued 1.3 billion euros, US$1.5 billion and 750 million pounds sterling in covered bonds, and 1.0 billion euros and US$1.0 billion in covered bonds came to maturity during the nine-month period ended July 31, 2022). For additional information on covered bonds, see Note 27 to the audited annual consolidated financial statements for the year ended October 31, 2022.

In addition, as at July 31, 2023, the Deposits - Business and government item also includes deposits of $17.1 billion ($12.8 billion as at October 31, 2022) that are subject to the bank bail-in conversion regulations issued by the Government of Canada. These regulations provide certain powers to the Canada Deposit Insurance Corporation (CDIC), notably the power to convert certain eligible Bank shares and liabilities into common shares should the Bank become non-viable.

Note 9 - Other Liabilities

	As at July 31, 2023	As at October 31, 2022

Accounts payable and accrued expenses	2,306	2,582
Subsidiaries' debts to third parties	335	156
Interest and dividends payable	1,749	1,063
Lease liabilities	519	552
Due to clients, dealers and brokers	737	730
Defined benefit liability	113	111
Allowances for credit losses - Off-balance-sheet commitments (Note 6)	157	162
Deferred tax liabilities	31	14
Current tax liabilities	176	67
Insurance liabilities	7	10
Other items^(1)(2)(3)	925	914
	7,055	6,361

(1) As at July 31, 2023, Other items included $4 million in litigation provisions ($11 million as at October 31, 2022).

(2) As at July 31, 2023, Other items included $33 million in provisions for onerous contracts ($33 million as at October 31, 2022).

(3) As at July 31, 2023, Other items included the financial liability resulting from put options written to non-controlling interests of Flinks Technology Inc. (Flinks) for an amount of $27 million ($33 million as at October 31, 2022).

Note 10 - Subordinated Debt

Redemption of Subordinated Debt

On February 1, 2023, the Bank redeemed $750 million of medium-term notes maturing on February 1, 2028 at a price equal to their nominal value plus accrued interest.

Note 11 - Share Capital and Other Equity Instruments

Shares and Other Equity Instruments Outstanding

		As at July 31, 2023		As at October 31, 2022
		Number of shares or LRCN⁽¹⁾	Shares or LRCN $	Number of shares or LRCN	Shares or LRCN $
		Number of shares or LRCN⁽¹⁾	Shares or LRCN $	Number of shares or LRCN	Shares or LRCN $

First Preferred Shares
	Series 30	14,000,000	350	14,000,000	350
	Series 32	12,000,000	300	12,000,000	300
	Series 38	16,000,000	400	16,000,000	400
	Series 40	12,000,000	300	12,000,000	300
	Series 42	12,000,000	300	12,000,000	300
		66,000,000	1,650	66,000,000	1,650
Other equity instruments
	LRCN - Series 1	500,000	500	500,000	500
	LRCN - Series 2	500,000	500	500,000	500
	LRCN - Series 3	500,000	500	500,000	500
		1,500,000	1,500	1,500,000	1,500
Preferred shares and other equity instruments		67,500,000	3,150	67,500,000	3,150
Common shares at beginning of fiscal year		336,582,124	3,196	337,912,283	3,160
Issued pursuant to the Stock Option Plan		1,538,861	86	1,193,663	61
Repurchases of common shares for cancellation		−	−	(2,500,000)	(24)
Impact of shares purchased or sold for trading⁽²⁾		115,119	12	(18,295)	(1)
Other		(7,791)	−	(5,527)	−
Common shares at end of period		338,228,313	3,294	336,582,124	3,196

(1) Limited Recourse Capital Notes (LRCN).

(2) As at July 31, 2023, a total of 109,869 shares were sold short for trading, representing $12 million (5,250 shares were held for trading, representing a negligible amount as at October 31, 2022).

Note 11 - Share Capital and Other Equity Instruments (cont.)

Dividends Declared and Distributions on Other Equity Instruments

				Nine months ended July 31
		2023		2022
		Dividends or interest $	Dividends per share	Dividends or interest $	Dividends per share
		Dividends or interest $	Dividends per share	Dividends or interest $	Dividends per share

First Preferred Shares
	Series 30	11	0.7547	10	0.7547
	Series 32	9	0.7198	9	0.7198
	Series 38	21	1.3176	13	0.8344
	Series 40	11	0.9386	11	0.8625
	Series 42	11	0.9281	11	0.9281
		63		54
Other equity instruments
	LRCN - Series 1⁽¹⁾	15		16
	LRCN - Series 2⁽²⁾	15		15
	LRCN - Series 3⁽³⁾	29		−
		59		31
Preferred shares and other equity instruments		122		85
Common shares		999	2.9600	897	2.6600
		1,121		982

(1) The LRCN - Series 1 bear interest at a fixed rate of 4.30% per annum.

(2) The LRCN - Series 2 bear interest at a fixed rate of 4.05% per annum.

(3) The LRCN - Series 3 bear interest at a fixed rate of 7.50% per annum.

Repurchase of Common Shares

On December 12, 2022, 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 outstanding common shares) over the 12-month period ending on December 11, 2023. On December 10, 2021, the Bank had begun a normal course issuer bid to repurchase for cancellation up to 7,000,000 common shares (representing approximately 2% of its then outstanding common shares) over the 12-month period ended December 9, 2022. Any repurchase through the Toronto Stock Exchange will be done at market prices. The common shares may also be repurchased through other means authorized by the Toronto Stock Exchange and applicable regulations, including private agreements or share repurchase programs under issuer bid exemption orders issued by the securities regulators. A private purchase made under an exemption order issued by a securities regulator will be done at a discount to the prevailing market price. The amounts that are paid above the average book value of the common shares are charged to Retained earnings. During the nine-month period ended July 31, 2023, the Bank did not repurchase any common shares. During the nine-month period ended July 31, 2022, the Bank had repurchased 2,500,000 common shares for $245 million, which had reduced Common share capital by $24 million and Retained earnings by $221 million.

Note 12 - Capital Disclosure

The Bank and all other major Canadian banks have to maintain the following minimum capital ratios established by OSFI: a CET1 capital ratio of at least 11.0%, a Tier 1 capital ratio of at least 12.5%, and a Total capital ratio of at least 14.5%. All of these ratios include a capital conservation buffer of 2.5% established by the Basel Committee on Banking Supervision and OSFI, a 1.0% surcharge applicable solely to Domestic Systemically Important Banks (D-SIBs), and a 3.0% domestic stability buffer. On December 8, 2022, OSFI expanded the domestic stability buffer range, setting it at 0% to 4.0% instead of the previous range of 0% to 2.5%, and it announced that the domestic stability buffer would rise from 2.5% to 3.0% effective February 1, 2023. On June 20, 2023, OSFI announced that the domestic stability buffer will rise from 3.0% to 3.5% effective November 1, 2023. The domestic stability buffer must consist exclusively of CET1 capital. A D‑SIB that fails to meet this buffer requirement will not be subject to automatic constraints to reduce capital distributions but must provide a remediation plan to OSFI. Banks also have to meet the requirements of an updated capital output floor calculated under the Basel III revised Standardized Approach. If the capital requirement is less than 65.0% of the capital output floor requirement calculated using the Basel III revised Standardized Approach, the difference is added to the total risk-weighted assets. Lastly, OSFI requires D-SIBs to maintain a Basel III leverage ratio of at least 3.5%. Effective February 1, 2023, OSFI increased the leverage ratio minimum requirement by imposing a Tier 1 capital buffer of 0.5% applicable only to D-SIBs.

OSFI also requires D-SIBs to maintain a risk-based total loss-absorbing capacity (TLAC) ratio of at least 24.5% (including the domestic stability buffer) of risk-weighted assets and a TLAC leverage ratio of at least 7.25% (increased by 0.5% effective February 1, 2023). The purpose of TLAC is to ensure that a D-SIB has sufficient loss-absorbing capacity to support its internal recapitalization in the unlikely event it becomes non-viable.

In the second quarter of 2023, the Bank implemented OSFI's finalized guidance relating to the Basel III reforms, consisting primarily of:

· a revised Standardized Approach and Internal Ratings-Based (IRB) Approach for credit risk;

· a revised Standardized Approach for operational risk;

· a revised capital output floor;

· a revised Leverage Ratio Framework; and

· revised Pillar 3 disclosure requirements.

The Basel III reforms also affected the market risk and credit valuation adjustment (CVA) risk frameworks, which will be implemented in the first quarter of 2024.

During the quarter and nine-month period ended July 31, 2023, the Bank was compliant with all of OSFI's regulatory capital, leverage, and TLAC requirements.

Note 12 - Capital Disclosure (cont.)

Regulatory Capital⁽¹⁾, Leverage Ratio⁽¹⁾ and TLAC⁽²⁾

		As at July 31, 2023		As at October 31, 2022
Capital
	CET1	16,259		14,818
	Tier 1	19,408		17,961
	Total	20,409		19,727
Risk-weighted assets		120,562		116,840

Total exposure		458,293		401,780

Capital ratios
	CET1	13.5	%	12.7	%
	Tier 1	16.1	%	15.4	%
	Total	16.9	%	16.9	%
Leverage ratio		4.2	%	4.5	%
Available TLAC		36,015		32,351
TLAC ratio		29.9	%	27.7	%
TLAC leverage ratio		7.9	%	8.1	%

(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. The calculation of the figures as at October 31, 2022 had included the transitional measure applicable to expected credit loss provisioning and the temporary measure regarding the exclusion of central bank reserves implemented by OSFI in response to the COVID-19 pandemic. These provisions ceased to apply on November 1, 2022 and April 1, 2023, respectively.

(2) Available TLAC, the TLAC ratio, and the TLAC leverage ratio are calculated in accordance with OSFI's Total Loss Absorbing Capacity Guideline.

Note 13 - Share-Based Payments

Stock Option Plan

During the quarters ended July 31, 2023 and 2022, the Bank did not award any stock options. During the nine-month period ended July 31, 2023, the Bank awarded 1,416,060 stock options (1,771,588 stock options during the nine-month period ended July 31, 2022) with an average fair value of $14.76 per option ($13.24 in 2022).

As at July 31, 2023, there were 11,696,319 stock options outstanding (11,861,749 stock options as at October 31, 2022).

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.

	Nine months ended July 31
	2023	2022

Risk-free interest rate	3.25%	1.79%
Expected life of options	7 years	7 years
Expected volatility	23.13%	22.68%
Expected dividend yield	4.23%	3.88%

During the quarter ended July 31, 2023, a $5 million compensation expense was recorded for this plan ($4 million for the quarter ended July 31, 2022). During the nine-month period ended July 31, 2023, a $14 million compensation expense was recorded for this plan ($12 million for the nine-month period ended July 31, 2022).

Note 14 - Employee Benefits - Pension Plans and Other Post-Employment Benefit Plans

The Bank offers pension plans that have a defined benefit component and a defined contribution component. The Bank also offers 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 July 31
		Pension plans		Other post-employment benefit plans
		2023	2022	2023	2022

Current service cost		23	31	−	−
Interest expense (income), net		(6)	(5)	1	2
Administrative costs		1	1
Expense of the defined benefit component		18	27	1	2
Expense of the defined contribution component		3
Expense recognized in Net income		21	27	1	2
Remeasurements⁽¹⁾
	Actuarial (gains) losses on defined benefit obligation	(161)	84	(3)	2
	Return on plan assets⁽²⁾	219	(30)
Remeasurements recognized in Other comprehensive income		58	54	(3)	2
		79	81	(2)	4

				Nine months ended July 31
			Pension plans	Other post-employment benefit plans
		2023	2022	2023	2022

Current service cost		69	93	−	−
Interest expense (income), net		(18)	(15)	4	4
Administrative costs		3	3
Expense of the defined benefit component		54	81	4	4
Expense of the defined contribution component		7
Expense recognized in Net income		61	81	4	4
Remeasurements⁽¹⁾
	Actuarial (gains) losses on defined benefit obligation	201	(826)	4	(21)
	Return on plan assets⁽²⁾	(82)	669
Remeasurements recognized in Other comprehensive income		119	(157)	4	(21)
		180	(76)	8	(17)

(1) Changes related to the discount rate and to the return on plan assets are reviewed and updated on a quarterly basis. All other assumptions are updated annually.

(2) Excludes interest income.

Note 15 - Income Taxes

Notice of Assessment

In March 2023, the Bank was reassessed by the Canada Revenue Agency (CRA) for additional income tax and interest of approximately $90 million (including estimated provincial tax and interest) in respect of certain Canadian dividends received by the Bank during the 2018 taxation year.

In prior fiscal years, the Bank had been reassessed for additional income tax and interest of approximately $875 million (including provincial tax and interest) in respect of certain Canadian dividends received by the Bank during the 2012-2017 taxation years.

In the reassessments, the CRA alleges that the dividends were received as part of a "dividend rental arrangement".

The CRA may issue reassessments to the Bank for taxation years subsequent to 2018 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 July 31, 2023.

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 include 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 were in effect at the financial reporting date, 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 as at July 31, 2023.

Proposed Legislation

In its March 28, 2023 budget, the Government of Canada proposed to introduce certain 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, the application of a 2% tax on the net value of equity repurchases occurring as of January 1, 2024, as well as the government's intention to implement the Pillar Two rules (global minimum tax) published by the Organization for Economic Co-operation and Development (OECD) for fiscal years beginning as of December 31, 2023. The proposed measures have not yet been included in a bill at the reporting date.

Note 16 - Earnings Per Share

Diluted earnings per share is calculated by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding after taking into account the dilution effect of stock options using the treasury stock method and any gain (loss) on the redemption of preferred shares.

		Quarter ended July 31		Nine months ended July 31
		2023	2022⁽¹⁾	2023	2022⁽¹⁾

Basic earnings per share
Net income attributable to the Bank's shareholders and holders of other equity instruments		840	826	2,569	2,646
Dividends on preferred shares and distributions on other equity instruments		36	26	106	77
Net income attributable to common shareholders		804	800	2,463	2,569
Weighted average basic number of common shares outstanding (thousands)		337,916	336,437	337,468	337,290
Basic earnings per share (dollars)		2.38	2.38	7.30	7.61

Diluted earnings per share
Net income attributable to common shareholders		804	800	2,463	2,569
Weighted average basic number of common shares outstanding (thousands)		337,916	336,437	337,468	337,290
Adjustment to average number of common shares (thousands)
	Stock options⁽²⁾	3,294	3,438	3,223	3,904
Weighted average diluted number of common shares outstanding (thousands)		341,210	339,875	340,691	341,194
Diluted earnings per share (dollars)		2.36	2.35	7.23	7.53

(2) For the quarter and nine-month period ended July 31, 2023, as the exercise price of the options was lower than the average price of the Bank's common shares, no options were excluded from the diluted earnings per share calculation. For the quarter ended July 31, 2022, the calculation of diluted earnings per share excluded an average number of 1,754,559 options outstanding with a weighted average exercise price of $96.35, given that the exercise price of these options was greater than the average price of the Bank's common shares. For the nine-month period ended July 31, 2022, the calculation of diluted earnings per share excluded an average number of 1,514,677 options outstanding with a weighted average exercise price of $96.35.

Note 17 - Segment Disclosures

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. Each reportable segment is distinguished by services offered, type of clientele, and marketing strategy. The presentation of segment disclosures is consistent with the presentation adopted by the Bank for the fiscal year beginning November 1, 2022. This presentation reflects a revision to the method used for the sectoral allocation of technology investment expenses, which are now immediately allocated to the various business segments, whereas certain expenses, notably costs incurred during the research phase of projects, had previously been recorded in the Other heading of segment results. This revision is consistent with the accounting policy change applied in fiscal 2022 related to cloud computing arrangements. For the quarter and nine-month period ended July 31, 2022, certain amounts have been adjusted to reflect this accounting policy change (for additional information, see Note 1).

Personal and Commercial

The Personal and Commercial segment encompasses the banking, financing, and investing services offered to individuals, advisors, and businesses as well as insurance operations.

Wealth Management

The Wealth Management segment comprises investment solutions, trust services, banking services, lending services, and other wealth management solutions offered through internal and third-party distribution networks.

Financial Markets

The Financial Markets segment encompasses corporate banking and investment banking and financial solutions for large and mid-size corporations, public sector organizations, and institutional investors.

U.S. Specialty Finance and International (USSF&I)

The USSF&I segment encompasses the specialty finance expertise provided by the Credigy subsidiary; the activities of the ABA Bank subsidiary, which offers financial products and services to individuals and businesses in Cambodia; and the activities of targeted investments in certain emerging markets.

Other

This heading encompasses treasury activities; liquidity management; Bank funding; asset/liability management activities; 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.

							Quarter ended July 31⁽¹⁾
		Personal and Commercial		Wealth Management		Financial Markets				USSF&I		Other			Total
		2023	2022	2023	2022	2023		2022	2023		2022	2023	2022	2023	2022

Net interest income⁽²⁾		837	741	192	161	(311)		392	273		266	(121)	(141)	870	1,419
Non-interest income⁽²⁾⁽³⁾		303	302	437	430	871		219	19		7	15	36	1,645	994
Total revenues		1,140	1,043	629	591	560		611	292		273	(106)	(105)	2,515	2,413
Non-interest expenses⁽⁴⁾		613	560	375	351	272		254	100		86	57	54	1,417	1,305
Income before provisions for credit losses and income taxes		527	483	254	240	288		357	192		187	(163)	(159)	1,098	1,108
Provisions for credit losses		75	49	1	1	5		(23)	29		29	1	1	111	57
Income before income taxes (recovery)		452	434	253	239	283		380	163		158	(164)	(160)	987	1,051
Income taxes (recovery)⁽²⁾		124	115	70	64	78		101	35		33	(159)	(88)	148	225
Net income		328	319	183	175	205		279	128		125	(5)	(72)	839	826
Non-controlling interests		−	−	−	−	−		−	−		−	(1)	−	(1)	−
Net income attributable
	to the Bank's shareholders and holders of other equity instruments	328	319	183	175	205		279	128		125	(4)	(72)	840	826
Average assets⁽⁵⁾		148,934	142,241	8,702	8,518	186,236		149,653	23,589		18,941	66,660	72,613	434,121	391,966
Total assets		150,699	144,911	8,697	8,855	181,712		147,428	23,564		19,188	61,343	66,451	426,015	386,833

							Nine months ended July 31⁽¹⁾
		Personal and Commercial		Wealth Management		Financial Markets				USSF&I	Other			Total
		2023	2022	2023	2022	2023		2022	2023	2022	2023	2022	2023	2022

Net interest income⁽⁶⁾		2,464	2,080	590	407	(614)		1,145	841	813	(430)	(381)	2,851	4,064
Non-interest income⁽³⁾⁽⁶⁾		900	883	1,293	1,355	2,535		760	55	30	(58)	226	4,725	3,254
Total revenues		3,364	2,963	1,883	1,762	1,921		1,905	896	843	(488)	(155)	7,576	7,318
Non-interest expenses⁽⁴⁾		1,820	1,667	1,111	1,068	842		775	296	254	125	120	4,194	3,884
Income before provisions for credit losses and income taxes		1,544	1,296	772	694	1,079		1,130	600	589	(613)	(275)	3,382	3,434
Provisions for credit losses		173	55	1	1	15		(55)	90	56	3	1	282	58
Income before income taxes (recovery)		1,371	1,241	771	693	1,064		1,185	510	533	(616)	(276)	3,100	3,376
Income taxes (recovery)⁽⁶⁾⁽⁷⁾		377	329	212	185	293		314	107	108	(456)	(205)	533	731
Net income		994	912	559	508	771		871	403	425	(160)	(71)	2,567	2,645
Non-controlling interests		−	−	−	−	−		−	−	−	(2)	(1)	(2)	(1)
Net income attributable
	to the Bank's shareholders and holders of other equity instruments	994	912	559	508	771		871	403	425	(158)	(70)	2,569	2,646
Average assets⁽⁵⁾		147,462	138,670	8,582	8,394	176,575		152,183	22,586	18,383	71,616	70,833	426,821	388,463
Total assets		150,699	144,911	8,697	8,855	181,712		147,428	23,564	19,188	61,343	66,451	426,015	386,833

(1) For the quarter and nine-month period ended July 31, 2022, certain amounts have been reclassified, notably due to a revised method for the sectoral allocation of technology investment expenses. In addition, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements (for additional information, see Note 1).

(2) The Net interest income, Non-interest income, and Income taxes (recovery) items of the business segments are presented on a taxable equivalent basis. 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. For the business segments as a whole, Net interest income was grossed up by $88 million ($60 million in 2022), Non-interest income was grossed up by $64 million ($11 million in 2022), and an equivalent amount was recognized in Income taxes (recovery). The effect of these adjustments is reversed under the Other heading.

(3) During the quarter and nine-month period ended July 31, 2023, the Bank concluded that it had lost significant influence over TMX and therefore ceased using the equity method to account for this investment. The Bank 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 $91 million gain ($67 million net of income taxes) was recorded in the Non-interest income item of the Other heading.

(4) During the quarter and nine-month period ended July 31, 2023, the Non-interest expenses item of the Other heading included an expense of $25 million ($18 million net of income taxes) related to the retroactive impact of the 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).

(5) Represents an average of the daily balances for the period, which is also the basis on which sectoral assets are reported in the business segments.

(6) During the nine-month period ended July 31, 2023, for the business segments as a whole, Net interest income was grossed up by $242 million ($169 million in 2022), Non-interest income was grossed up by $172 million ($18 million in 2022), and an equivalent amount was recognized in Income taxes (recovery). The effect of these adjustments is reversed under the Other heading.

(7) During the nine-month period ended July 31, 2023, the Bank 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 a 1.5% increase in the statutory tax rate, which includes the impact related to current and deferred taxes for fiscal 2022. These items are recorded in the Other heading. For additional information on these tax measures, see Note 15.

Information for Shareholders and Investors

Investor Relations

Financial analysts and investors who want to obtain financial information on the Bank may contact the Investor Relations Department.

600 De La Gauchetière Street West, 7^th Floor

Montreal, Quebec H3B 4L2

Toll-free: 1-866-517-5455

Email: investorrelations@nbc.ca

Website: nbc.ca/investorrelations

Communications and Corporate Social Responsibility

600 De La Gauchetière Street West, 18^th Floor

Montreal, Quebec H3B 4L2

Telephone: 514-394-8644

Email: pa@nbc.ca

Quarterly Report Publication Dates for Fiscal 2023

(subject to approval by the Board of Directors of the Bank)

First quarter	March 1
Second quarter	May 31
Third quarter	August 30
Fourth quarter	December 1

Disclosure of

Third Quarter 2023 Results

Conference Call

- A conference call for analysts and institutional investors will be held on Wednesday, August 30, 2023 at 1:00 p.m. EDT.

- Access by telephone in listen-only mode: 1-800-806-5484 or

416-340-2217. The access code is 8890472#.

- A recording of the conference call can be heard until November 30, 2023 by dialing 1-800-408-3053 or 905-694-9451. The access code is 4566460#.

Webcast

- The conference call will be webcast live at nbc.ca/investorrelations.

- A recording of the webcast will also be available on National Bank's website after the call.

Financial Documents

- The Report to Shareholders (which includes the quarterly consolidated financial statements) is available at all times on National Bank's website at nbc.ca/investorrelations.

- The Report to Shareholders, the Supplementary Financial Information, the Supplementary Regulatory Capital and Pillar 3 Disclosure, and a slide presentation will be available on the Investor Relations page of National Bank's website on the morning of the day of the conference call.

Transfer Agent and Registrar

For information about stock transfers, address changes, dividends, lost certificates, tax forms, and estate transfers, shareholders of record may contact the transfer agent, Computershare Trust Company of Canada, at the address or telephone number below.

Computershare Trust Company of Canada

Share Ownership Management

100 University Avenue, 8^th Floor

Toronto, Ontario M5J 2Y1

Telephone: 1-888-838-1407

Fax: 1-888-453-0330

Email: service@computershare.com

Website: computershare.com

Shareholders whose shares are held by a market intermediary are asked to contact the market intermediary concerned.

Direct Deposit Service for Dividends

Shareholders may elect to have their dividend payments deposited directly via electronic funds transfer to their bank account at any financial institution that is a member of the Canadian Payments Association. To do so, they must send a written request to the transfer agent, Computershare Trust Company of Canada.

Dividend Reinvestment and Share Purchase Plan

National Bank has a Dividend Reinvestment and Share Purchase Plan for holders of its common and preferred shares under which they can acquire common shares of the Bank without paying commissions or administration fees. Participants acquire common shares through the reinvestment of cash dividends paid on the shares they hold or through optional cash payments of at least $1 per payment, up to a maximum of $5,000 per quarter.

For additional information, shareholders may contact National Bank's registrar and transfer agent, Computershare Trust Company of Canada, at 1‑888‑838‑1407. To participate in the plan, National Bank's beneficial or non-registered common shareholders must contact their financial institution or broker.

Dividends

Dividends paid are "eligible dividends" in accordance with the Income Tax Act (Canada).

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

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