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Nat Bank of Canada (32SS)

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Wednesday 27 February, 2019

Nat Bank of Canada

Part 2 IFS Q1 2019

RNS Number : 3209R
National Bank of Canada
27 February 2019
 

 

National Bank of Canada

February 27, 2019

Regulatory Announcement (Part 2)

Q1 2019 Results                                                              

National Bank of Canada (the "Bank") announces publication of its First Quarter 2019 Report to Shareholders. The First Quarter Results have been uploaded to the National Storage Mechanism and will shortly be available at www.morningstar.co.uk/uk/nsm and is available on the Bank's website at https://www.nbc.ca/en/about-us/investors/investor-relations/quarterly-results.html

To view the full PDF of this First Quarter 2019 Report to Shareholders, please click on the following link:

http://www.rns-pdf.londonstockexchange.com/rns/3197R_1-2019-2-27.pdf

 

 

Interim Condensed Consolidated

Financial Statements

(unaudited)

 

 

 

Consolidated Balance Sheets

38

 

Consolidated Statements of Income

39

 

Consolidated Statements of Comprehensive Income

40

 

Consolidated Statements of Changes in Equity

41

 

Consolidated Statements of Cash Flows

42

 

Notes to the Interim Condensed Consolidated Financial Statements

43

 

 

Consolidated Balance Sheets

(unaudited) (millions of Canadian dollars)

 

 

 

 

 

As at January 31, 2019

 

As at October 31,2018

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and deposits with financial institutions

 

 

 

12,353

 

12,756

 

 

 

 

 

 

 

 

 

Securities (Notes 4, 5 and 6)

 

 

 

 

 

 

 

At fair value through profit or loss

 

 

 

59,411

 

55,817

 

At fair value through other comprehensive income

 

 

 

6,575

 

5,668

 

At amortized cost

 

 

 

8,727

 

8,298

 

 

 

 

 

 

74,713

 

69,783

 

 

 

 

 

 

 

 

 

 

Securities purchased under reverse repurchase agreements

 

 

 

 

 

 

 

 

and securities borrowed

 

 

 

15,162

 

18,159

 

 

 

 

 

 

 

 

 

 

Loans (Note 7)

 

 

 

 

 

 

 

Residential mortgage

 

 

 

54,131

 

53,651

 

Personal

 

 

 

36,698

 

37,357

 

Credit card

 

 

 

2,249

 

2,325

 

Business and government

 

 

 

47,469

 

46,606

 

 

 

 

 

 

140,547

 

139,939

 

Customers' liability under acceptances

 

 

6,827

 

6,801

 

Allowances for credit losses

 

 

 

(664)

 

(658)

 

 

 

 

 

 

146,710

 

146,082

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Derivative financial instruments

 

 

 

7,157

 

8,608

 

Investments in associates and joint ventures

 

 

649

 

645

 

Premises and equipment

 

 

 

606

 

601

 

Goodwill

 

 

 

1,412

 

1,412

 

Intangible assets

 

 

 

1,332

 

1,314

 

Other assets (Note 9)

 

 

 

3,261

 

3,111

 

 

 

 

 

 

14,417

 

15,691

 

 

 

 

 

 

263,355

 

262,471

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

Deposits (Notes 5 and 10)

 

 

 

172,930

 

170,830

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Acceptances

 

 

 

6,827

 

6,801

 

Obligations related to securities sold short

 

 

 

15,306

 

17,780

 

Obligations related to securities sold under repurchase agreements

 

 

 

 

 

 

 

 

and securities loaned

 

 

 

21,311

 

19,998

 

Derivative financial instruments

 

 

 

6,251

 

6,036

 

Liabilities related to transferred receivables (Notes 5 and 8)

 

 

 

19,298

 

20,100

 

Other liabilities (Note 11)

 

 

 

6,153

 

5,824

 

 

 

 

 

 

75,146

 

76,539

 

 

 

 

 

 

 

 

 

 

Subordinated debt

 

 

 

764

 

747

 

 

 

 

 

 

 

 

 

 

Equity 

 

 

 

 

 

 

 

Equity attributable to the Bank's shareholders (Notes 12 and 15)

 

 

 

 

 

 

 

Preferred shares

 

 

 

2,450

 

2,450

 

Common shares

 

 

 

2,880

 

2,822

 

Contributed surplus

 

 

 

53

 

57

 

Retained earnings

 

 

 

8,695

 

8,472

 

Accumulated other comprehensive income

 

 

 

65

 

175

 

 

 

 

 

 

14,143

 

13,976

 

Non-controlling interests (Note 13)

 

 

 

372

 

379

 

 

 

 

 

 

14,515

 

14,355

 

 

 

 

 

 

263,355

 

262,471

 

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 January 31

 

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Loans

 

1,604

 

1,324

 

Securities at fair value through profit or loss

 

232

 

157

 

Securities at fair value through other comprehensive income

 

37

 

35

 

Securities at amortized cost

 

53

 

36

 

Deposits with financial institutions

 

70

 

46

 

 

 

 

1,996

 

1,598

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

Deposits

 

840

 

549

 

Liabilities related to transferred receivables 

 

106

 

99

 

Subordinated debt

 

6

 

 

Other

 

181

 

116

 

 

 

 

1,133

 

764

 

Net interest income(1)

 

863

 

834

 

 

 

 

 

 

 

 

Non-interest income

 

 

 

 

 

Underwriting and advisory fees

 

61

 

103

 

Securities brokerage commissions

 

44

 

54

 

Mutual fund revenues

 

106

 

111

 

Trust service revenues

 

147

 

145

 

Credit fees

 

102

 

97

 

Card revenues

 

41

 

40

 

Deposit and payment service charges

 

68

 

68

 

Trading revenues (losses)

 

228

 

228

 

Gains (losses) on non-trading securities, net

 

32

 

28

 

Insurance revenues, net

 

34

 

31

 

Foreign exchange revenues, other than trading

 

24

 

22

 

Share in the net income of associates and joint ventures

 

8

 

7

 

Other

 

41

 

38

 

 

 

 

936

 

972

 

Total revenues

 

1,799

 

1,806

 

Provisions for credit losses (Note 7)

 

88

 

87

 

 

 

 

1,711

 

1,719

 

 

 

 

 

 

 

 

Non-interest expenses

 

 

 

 

 

Compensation and employee benefits

 

616

 

631

 

Occupancy

 

62

 

58

 

Technology

 

161

 

161

 

Communications

 

16

 

16

 

Professional fees

 

62

 

60

 

Other

 

109

 

98

 

 

 

 

1,026

 

1,024

 

Income before income taxes 

 

685

 

695

 

Income taxes

 

133

 

145

 

Net income

 

552

 

550

 

 

 

 

 

 

 

 

Net income attributable to

 

 

 

 

 

Preferred shareholders

 

29

 

22

 

Common shareholders

 

507

 

505

 

Bank shareholders

 

536

 

527

 

Non-controlling interests

 

16

 

23

 

 

 

 

552

 

550

 

 

 

 

 

 

 

 

Earnings per share (dollars) (Note 17)

 

 

 

 

 

 

Basic

 

1.51

 

1.48

 

 

Diluted

 

1.50

 

1.46

 

Dividends per common share (dollars)

 

0.65

 

0.60

 

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

 

(1)       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, 2018.

 

Consolidated Statements of Comprehensive Income

(unaudited) (millions of Canadian dollars)

 

 

 

 

 

 

Quarter ended January 31

 

 

 

2019

 

2018

 

Net income

 

552

 

550

 

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

 

(8)

 

(81)

 

 

 

 

Impact of hedging net foreign currency translation gains (losses)

 

1

 

20

 

 

 

 

 

(7)

 

(61)

 

 

 

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

 

8

 

4

 

 

 

 

Net (gains) losses on debt securities at fair value through other comprehensive income

 

 

 

 

 

 

 

 

 

reclassified to net income

 

(10)

 

1

 

 

 

 

 

 

 

(2)

 

5

 

 

 

Net change in cash flow hedges

 

 

 

 

 

 

 

 

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

 

(94)

 

11

 

 

 

 

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

 

(9)

 

(10)

 

 

 

 

 

 

 

(103)

 

1

 

 

 

Share in the other comprehensive income of associates and joint ventures

 

1

 

2

 

 

Items that will not be subsequently reclassified to net income

 

 

 

 

 

 

 

Remeasurements of pension plans and other post-employment benefit plans

 

(52)

 

36

 

 

 

Net gains (losses) on equity securities designated at fair value through other

 

 

 

 

 

 

 

 

comprehensive income

 

(6)

 

3

 

 

 

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

 

 

 

 

 

 

 

 

at fair value through profit or loss

 

53

 

(26)

 

 

 

 

 

 

 

(5)

 

13

 

Total other comprehensive income, net of income taxes

 

(116)

 

(40)

 

Comprehensive income

 

436

 

510

 

Comprehensive income attributable to

 

 

 

 

 

 

Bank shareholders

 

421

 

492

 

 

Non-controlling interests

 

15

 

18

 

 

 

 

436

 

510

 

 

Income Taxes - Other Comprehensive Income

 

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

 

 

 

 

Quarter ended January 31

 

 

 

2019

 

2018

 

Net foreign currency translation adjustments

 

 

 

 

 

 

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

 

3

 

 

 

Impact of hedging net foreign currency translation gains (losses)

 

 

6

 

 

 

 

 

 

3

 

6

 

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

 

2

 

 

Net (gains) losses on debt securities at fair value through other comprehensive income

 

 

 

 

 

 

 

reclassified to net income

 

(4)

 

1

 

 

 

 

 

 

(1)

 

3

 

Net change in cash flow hedges

 

 

 

 

 

 

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

 

(34)

 

4

 

 

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

 

(3)

 

(3)

 

 

 

 

 

 

(37)

 

1

 

Share in the other comprehensive income of associates and joint ventures

 

 

 

Remeasurements of pension plans and other post-employment benefit plans

 

(19)

 

13

 

Net gains (losses) on equity securities designated at fair value through other

 

 

 

 

 

 

comprehensive income

(2)

 

1

 

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

 

 

 

 

 

 

fair value through profit or loss

 

19

 

(10)

 

 

 

(37)

 

14

 

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)

 

 

 

 

Quarter ended January 31

 

 

 

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

Preferred shares at beginning (Note 12)

 

 

 

 

2,450

 

2,050

 

Issuances of Series 40 preferred shares

 

 

 

 

 

300

 

Redemption of Series 28 preferred shares for cancellation

 

 

 

 

 

(200)

 

Preferred shares at end

 

 

 

 

2,450

 

2,150

 

 

 

 

 

 

 

 

 

 

 

Common shares at beginning (Note 12)

 

 

 

 

2,822

 

2,768

 

Issuances of common shares pursuant to the Stock Option Plan

 

 

 

 

23

 

71

 

Repurchases of common shares for cancellation

 

 

 

 

(9)

 

(13)

 

Impact of shares purchased or sold for trading

 

 

 

 

44

 

35

 

Common shares at end

 

 

 

 

2,880

 

2,861

 

 

 

 

 

 

 

 

 

 

 

Contributed surplus at beginning

 

 

 

 

57

 

58

 

Stock option expense (Note 15)

 

 

 

 

3

 

3

 

Stock options exercised

 

 

 

 

(3)

 

(9)

 

Other

 

 

 

 

(4)

 

 

Contributed surplus at end

 

 

 

 

53

 

52

 

 

 

 

 

 

 

 

 

 

 

Retained earnings at beginning

 

 

 

 

8,472

 

7,706

 

Impact of adopting IFRS 15 on November 1, 2018 (IFRS 9 on November 1, 2017)

 

 

 

 

(4)

 

(139)

 

Net income attributable to the Bank's shareholders

 

 

 

 

536

 

527

 

Dividends on preferred shares (Note 12)

 

 

 

 

(29)

 

(22)

 

Dividends on common shares (Note 12)

 

 

 

 

(218)

 

(205)

 

Premium paid on common shares repurchased for cancellation (Note 12)

 

 

 

 

(51)

 

(78)

 

Share issuance expenses, net of income taxes

 

 

 

 

 

(5)

 

Remeasurements of pension plans and other post-employment benefit plans

 

 

 

 

(52)

 

36

 

Net gains (losses) on equity securities designated at fair value through other comprehensive income

 

 

 

 

(6)

 

3

 

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

 

 

 

 

 

 

 

 

 

designated at fair value through profit or loss

 

 

 

 

53

 

(26)

 

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

 

 

 

 

(4)

 

 

Other

 

 

 

 

(2)

 

(12)

 

Retained earnings at end

 

 

 

 

8,695

 

7,785

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income at beginning

 

 

 

 

175

 

168

 

Impact of adopting IFRS 9 on November 1, 2017

 

 

 

 

 

(10)

 

Net foreign currency translation adjustments

 

 

 

 

(6)

 

(61)

 

Net change in unrealized gains (losses) on debt securities at fair value through other comprehensive income

 

 

 

 

(2)

 

5

 

Net change in gains (losses) on cash flow hedges

 

 

 

(103)

 

6

 

Share in the other comprehensive income of associates and joint ventures

 

 

 

 

1

 

2

 

Accumulated other comprehensive income at end

 

 

 

 

 

65

 

110

 

Equity attributable to the Bank's shareholders

 

 

 

 

14,143

 

12,958

 

 

 

 

 

 

 

 

 

 

Non-controlling interests at beginning (Note 13)

 

 

 

 

379

 

808

 

Impact of adopting IFRS 9 on November 1, 2017

 

 

 

 

 

(16)

 

Net income attributable to non-controlling interests

 

 

 

 

16

 

23

 

Other comprehensive income attributable to non-controlling interests

 

 

 

 

(1)

 

(5)

 

Distributions to non-controlling interests

 

 

 

 

(22)

 

(60)

 

Non-controlling interests at end

 

 

 

 

372

 

750

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

14,515

 

13,708

 

 

 

Accumulated Other Comprehensive Income 

 

 

As at January 31, 2019

 

As at January 31, 2018

 

Accumulated other comprehensive income

 

 

 

 

 

Net foreign currency translation adjustments

 

8

 

(74)

 

Net unrealized gains (losses) on debt securities at fair value through other comprehensive income

 

11

 

34

 

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

 

48

 

152

 

Share in the other comprehensive income of associates and joint ventures

 

(2)

 

(2)

 

 

 

65

 

110

 

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

 

Consolidated Statements of Cash Flows

(unaudited) (millions of Canadian dollars)

 

 

 

 

Quarter ended January 31

 

 

 

2019

 

2018

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

552

 

550

 

Adjustments for

 

 

 

 

 

 

Provisions for credit losses

 

88

 

87

 

 

Amortization of premises and equipment and intangible assets

 

83

 

73

 

 

Deferred taxes

 

8

 

28

 

 

Losses (gains) on sales of non-trading securities, net

 

(32)

 

(28)

 

 

Share in the net income of associates and joint ventures

 

(8)

 

(7)

 

 

Stock option expense

 

3

 

3

 

Change in operating assets and liabilities

 

 

 

 

 

 

Securities at fair value through profit or loss

 

(3,594)

 

(6,476)

 

 

Securities purchased under reverse repurchase agreements and securities borrowed

 

2,997

 

4,269

 

 

Loans and acceptances, net of securitization

 

(1,506)

 

(449)

 

 

Deposits

 

2,100

 

108

 

 

Obligations related to securities sold short

 

(2,474)

 

437

 

 

Obligations related to securities sold under repurchase agreements and securities loaned

 

1,313

 

5,005

 

 

Derivative financial instruments, net

 

1,666

 

535

 

 

Interest and dividends receivable and interest payable

 

(80)

 

(53)

 

 

Current tax assets and liabilities

 

(67)

 

(91)

 

 

Other items

 

69

 

(309)

 

 

 

 

 

1,118

 

3,682

 

Cash flows from financing activities

 

 

 

 

 

Issuance of preferred shares

 

 

300

 

Redemption of preferred shares for cancellation

 

 

(200)

 

Issuances of common shares (including the impact of shares purchased for trading)

 

64

 

97

 

Repurchases of common shares for cancellation

 

(60)

 

(91)

 

Share issuance expenses

 

 

(5)

 

Dividends paid

 

(241)

 

(225)

 

Distributions to non-controlling interests

 

(22)

 

(60)

 

 

 

 

 

(259)

 

(184)

 

Cash flows from investing activities

 

 

 

 

 

Purchases of securities measured at fair value through other comprehensive income

 

(2,999)

 

(855)

 

Maturities of securities measured at fair value through other comprehensive income

 

52

 

 

Sales of securities measured at fair value through other comprehensive income

 

2,112

 

997

 

Purchases of securities measured at amortized cost

 

(727)

 

(842)

 

Maturities of securities measured at amortized cost

 

135

 

 

Sales of securities measured at amortized cost

 

166

 

4

 

Net change in tangible assets leased under operating leases

 

 

46

 

Net change in premises and equipment

 

(31)

 

(95)

 

Net change in intangible assets

 

(75)

 

(56)

 

 

 

 

 

(1,367)

 

(801)

 

Impact of currency rate movements on cash and cash equivalents

105

 

(293)

 

Increase (decrease) in cash and cash equivalents

 

(403)

 

2,404

 

Cash and cash equivalents at beginning

 

12,756

 

8,801

 

Cash and cash equivalents at end(1)

 

12,353

 

11,205

 

Supplementary information about cash flows from operating activities

 

 

 

 

 

Interest paid

 

1,212

 

857

 

Interest and dividends received

 

1,995

 

1,638

 

Income taxes paid

 

76

 

201

 

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

 

 

(1)        This item is the equivalent of Consolidated Balance Sheet item Cash and deposits with financial institutions. It includes an amount of $2.8 billion as at January 31, 2019 ($2.5 billion as at October 31, 2018) for which there are restrictions.

Notes to the Interim Condensed Consolidated Financial Statements

(unaudited) (millions of Canadian dollars)

 

 

 

 

 

 

 

 

 

 

 

Note 1

Basis of Presentation

43

 

Note 11

Other Liabilities

62

 

 

Note 2

Accounting Policy Changes

43

 

Note 12

Share Capital

63

 

 

Note 3

Future Accounting Policy Changes

44

 

Note 13

Non-Controlling Interests

64

 

 

Note 4

Fair Value of Financial Instruments

45

 

Note 14

Capital Disclosure

64

 

 

Note 5

Financial Instruments Designated at Fair Value Through Profit or Loss

50

 

Note 15

Share-Based Payments

65

 

 

Note 6

Securities

51

 

Note 16

Employee Benefits - Pension Plans and Other Post-Employment Benefits

65

 

 

Note 7

Loans and Allowances for Credit Losses

52

 

Note 17

Earnings Per Share

66

 

 

Note 8

Financial Assets Transferred But Not Derecognized

61

 

Note 18

Contingent Liabilities

66

 

 

Note 9

Other Assets

62

 

Note 19

Segment Disclosures

67

 

 

Note 10

Deposits

62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 1 - Basis of Presentation

 

On February 26, 2019, the Board of Directors authorized the publication of the Bank's unaudited interim condensed consolidated financial statements (the consolidated financial statements) for the quarter ended January 31, 2019.

 

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, 2018, except for the changes described in Note 2 to these consolidated financial statements, which have been applied since November 1, 2018 following the Bank's adoption of IFRS 15 - Revenue From Contracts With Customers.

 

As stated in Note 2 to its audited annual consolidated financial statements for the year ended October 31, 2018, the Bank adopted IFRS 15 on November 1, 2018. As permitted by IFRS 15, the Bank did not restate comparative consolidated financial statements, and Note 2 to these consolidated financial statements presents the impact of IFRS 15 adoption on the Bank's Consolidated Balance Sheet as at November 1, 2018. Since 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, 2018.

 

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

 

 

Note 2 - Accounting Policy Changes

 

Effective November 1, 2018, the Bank adopted IFRS 15 - Revenue From Contracts With Customers, which replaces the previous revenue recognition standards and interpretations. Excluded from the scope of IFRS 15 are revenues related to lease contracts, insurance contracts and financial instruments. Fees earned, which are an integral component of the effective interest rate of financial assets and liabilities measured at amortized cost, are within the scope of IFRS 9 - Financial Instruments and therefore outside the scope of IFRS 15. Most of the Bank's revenues, including net interest income, are not impacted by the adoption of this standard.

 

IFRS 15 provides a single comprehensive model to use when accounting for revenue from contracts with customers. The new revenue recognition is based on a control approach that differs from the risks and rewards approach applied under previous IFRS. The core principle of IFRS 15 is to recognize revenue upon the transfer of control of the promised goods or services to customers in an amount that reflects the consideration expected to be entitled in exchange for the goods and services. Consequently, revenue is recognized when the performance obligation is satisfied by transferring control of the promised good or service to the customer. Transfer of control occurs when the customer has the ability to direct the use of and obtain the benefits of the good or service. A performance obligation may be satisfied at a point in time or over time. For performance obligations satisfied over time, revenue is recognized over time.

 

 

Note 2 - Accounting Policy Changes (cont.)

 

The Bank must also determine whether its performance obligation is to provide the service itself or to arrange for another party to provide the service (in other words, whether the Bank is acting as a principal or agent). A principal may satisfy its performance obligation to provide the specified good or service itself or it may engage another party to satisfy some or all of the performance obligation on its behalf. A principal obtains control of the goods or services of another party in advance of transferring control of those goods or services to a customer. A principal has the primary responsibility for fulfilling the promise to transfer goods or services to a customer.  If the Bank is acting as a principal, revenue is recognized on a gross basis in an amount corresponding to the consideration to which the Bank expects to be entitled. If the Bank is acting as an agent, then revenue is recognized net of the service fees and other costs incurred in relation to the commission and fees earned.

 

The Bank has elected to apply the standard using the modified retrospective basis, recognizing the cumulative effect of initially applying the standard as an adjustment to the opening balance of Retained earnings without restating comparative figures. Adoption of IFRS 15 resulted in a decrease of $4 million to opening Retained earnings as at November 1, 2018.

 

Described below are the significant revenue recognition policies applied to the revenue streams that fall within the scope of IFRS 15.

 

Underwriting and Advisory Fees

Underwriting and advisory fees include underwriting fees, financial advisory fees and loan syndication fees. These fees are mainly earned in the Financial Markets segment and are recognized at a point in time as revenue upon successful completion of the engagement. Financial advisory services consist of fees earned for assisting customers with transactions related to mergers and acquisitions and financial restructurings. Loan syndication fees represent fees earned as the agent or lead lender responsible for structuring, arranging and administering a loan syndication and are recorded in Non-interest income unless the yield on the loan retained by the Bank is less than that of other comparable lenders involved in the financing. In such cases, an appropriate portion of the fees is deferred and amortized using the effective interest rate method, and the amortization is recognized in Interest income over the term of the loan.

 

Securities Brokerage Commissions

Securities brokerage commissions are earned in the Wealth Management segment and are recognized at a point in time when the transaction is executed.

 

Mutual Fund and Trust Service Revenues

Mutual fund and trust service revenues include management and administration fees. Management fees are primarily calculated on assets under management and are recorded over the period the services are performed. Administration fees are generally based on assets under administration or management and are recorded over the period the services are performed.  These fees are earned in the Wealth Management segment.

 

Card Revenues

Card revenues are earned in the Personal and Commercial segment and include card fees such as annual and transactional fees as well as interchange fees. Interchange fees are recognized when the card transaction is settled. Card fees are recognized at the transaction date except for annual fees, which are recorded evenly throughout the year. Reward costs are recorded as a reduction to card fees.

 

Credit Fees and Deposit and Payment Service Charges

Credit fees and deposit and payment service charges are earned in the Personal and Commercial, Financial Markets, and U.S. Specialty Finance and International segments. Credit fees are generally recognized in income over the period the services are provided. Deposit and payment service charges include fees related to account maintenance activities and transaction-based service charges. Fees related to account maintenance activities are recognized over the period the services are provided, whereas transaction-based service charges are recognized at a point in time when the transaction is completed.

 

 

Note 3 - Future Accounting Policy Changes

 

The Bank closely monitors both new accounting standards and amendments to existing accounting standards issued by the IASB. The Bank is currently assessing how adoption of new and amended IASB accounting standards will impact its consolidated financial statements. Aside from the adoption of IFRS 15 on November 1, 2018, there have been no significant updates to the future accounting policy changes disclosed in Note 2 to the audited annual consolidated financial statements for the year ended October 31, 2018.

 

 

Note 4 - 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 January 31, 2019

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and deposits with financial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

institutions

 

 

 

 

 

12,353

 

 

12,353

 

12,353

12,353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities

 

55,933

 

3,478

 

6,222

 

353

 

8,727

 

 

8,741

 

74,713

74,727

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities purchased under reverse

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

repurchase agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and securities borrowed

 

 

441

 

 

 

14,721

 

 

14,721

 

15,162

15,162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and acceptances, net of allowances

 

6,062

 

 

 

 

140,648

 

 

140,548

 

146,710

146,610

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

7,157

 

 

 

 

 

 

 

7,157

7,157

 

 

Other assets

 

 

 

 

 

1,947

 

 

1,947

 

1,947

1,947

 

 

 

 

 

 

7,157

 

 

 

 

 

 

 

7,157

7,157

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

9,787

 

 

 

 

 

163,143

(1)

 

163,371

 

172,930

173,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acceptances

 

 

 

 

 

 

 

6,827

 

 

6,827

 

6,827

6,827

 

 

Obligations related to securities sold short

 

15,306

 

 

 

 

 

 

 

 

 

15,306

15,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations related to securities sold under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

repurchase agreements and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities loaned

 

 

 

 

 

 

 

21,311

 

 

21,311

 

21,311

21,311

 

 

Derivative financial instruments

 

6,251

 

 

 

 

 

 

 

 

 

6,251

6,251

 

 

Liabilities related to transferred receivables

 

 

6,742

 

 

 

 

 

12,556

 

 

12,611

 

19,298

19,353

 

 

Other liabilities

 

21

 

 

 

 

 

 

4,707

 

 

4,711

 

4,728

4,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subordinated debt

 

 

 

 

 

 

 

764

 

 

752

 

764

752

 

 

(1)       Includes embedded derivative financial instruments.

 

 

 

Note 4 - Fair Value of Financial Instruments (cont.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at October 31, 2018

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and deposits with financial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

institutions

 

 

 

 

 

12,756

 

 

12,756

 

12,756

12,756

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities

 

51,927

 

3,890

 

5,317

 

351

 

8,298

 

 

8,237

 

69,783

69,722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities purchased under reverse

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

repurchase agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and securities borrowed

 

 

479

 

 

 

17,680

 

 

17,680

 

18,159

18,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and acceptances, net of allowances

 

6,108

 

 

 

 

139,974

 

 

139,551

 

146,082

145,659

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

8,608

 

 

 

 

 

 

 

8,608

8,608

 

 

Other assets

 

 

 

 

 

1,804

 

 

1,804

 

1,804

1,804

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

10,126

 

 

 

 

 

160,704

(1)

 

160,938

 

170,830

171,064

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acceptances

 

 

 

 

 

 

 

6,801

 

 

6,801

 

6,801

6,801

 

 

Obligations related to securities sold short

 

17,780

 

 

 

 

 

 

 

 

 

17,780

17,780

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations related to securities sold under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

repurchase agreements and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities loaned

 

 

 

 

 

 

 

19,998

 

 

19,998

 

19,998

19,998

 

 

Derivative financial instruments

 

6,036

 

 

 

 

 

 

 

 

 

6,036

6,036

 

 

Liabilities related to transferred receivables

 

 

7,714

 

 

 

 

 

12,386

 

 

12,361

 

20,100

20,075

 

 

Other liabilities

 

21

 

 

 

 

 

 

3,163

 

 

3,152

 

3,184

3,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subordinated debt

 

 

 

 

 

 

 

747

 

 

734

 

747

734

 

 

(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 valuation was based on its assessment of the conditions prevailing as at January 31, 2019 and may change in the future. Furthermore, there may be valuation 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 4 to the audited annual consolidated financial statements for the year ended October 31, 2018. The valuation techniques used to determine the fair value of financial assets and liabilities are also described in this note, and no significant changes have been made to the valuation techniques.

Financial Instruments Recorded at Fair Value on the Consolidated Balance Sheet

 

Hierarchy of Fair Value Measurements

IFRS establishes a fair value hierarchy that classifies the inputs used in financial instrument fair value measurement techniques according to three levels. This fair value hierarchy requires observable market inputs to be used whenever such inputs exist. According to the hierarchy, the highest level of inputs are unadjusted quoted prices in active markets for identical instruments and the lowest level of inputs are unobservable inputs. If inputs from different levels of the hierarchy are used, the financial instrument is classified in the same level as the lowest level input that is significant to the fair value measurement. For additional information, see Note 4 to the audited annual consolidated financial statements for the year ended October 31, 2018.

 

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 about the inputs used to determine fair value and the observable nature of those inputs.

 

During the quarter ended January 31, 2019, $34 million in securities classified as at fair value through profit or loss and $1 million in obligations related to securities sold short were transferred from Level 2 to Level 1 resulting from changing market conditions ($219 million in securities classified as at fair value through profit or loss and $24 million in obligations related to securities sold short during the quarter ended January 31, 2018). Also during the quarter ended January 31, 2019, $3 million in securities classified as at fair value through profit or loss and $1 million in obligations related to securities sold short were transferred from Level 1 to Level 2 ($23 million in securities classified as at fair value through profit or loss and $1 million in obligations related to securities sold short during the quarter ended January 31, 2018). During the quarters ended January 31, 2019 and 2018, financial instruments were transferred to (or from) Level 3 due to changes in the availability of observable market inputs resulting from changing market conditions.

 

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

 

 

 

 

 

 

 

 

 

As at January 31, 2019

 

 

 

 

 

 

 

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

 

8,725

 

 

13,461

 

 

 

 

 

Canadian provincial and municipal governments

 

 

7,239

 

 

7,239

 

 

 

 

 

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

 

4,330

 

224

 

 

4,554

 

 

 

 

Other debt securities

 

 

3,278

 

25

 

3,303

 

 

 

 

Equity securities

 

29,745

 

809

 

300

 

30,854

 

 

 

 

 

 

 

38,811

 

20,275

 

325

 

59,411

 

 

 

At fair value through other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

Securities issued or guaranteed by

 

 

 

 

 

 

 

 

 

 

 

 

 

Canadian government

 

180

 

2,602

 

 

2,782

 

 

 

 

 

Canadian provincial and municipal governments

 

 

2,118

 

 

2,118

 

 

 

 

 

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

 

742

 

 

 

742

 

 

 

 

Other debt securities

 

 

580

 

 

580

 

 

 

 

Equity securities

 

 

120

 

233

 

353

 

 

 

 

 

 

 

922

 

5,420

 

233

 

6,575

 

 

Securities purchased under reverse repurchase agreements and

 

 

 

 

 

 

 

 

 

 

 

securities borrowed

 

 

441

 

 

441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

5,693

 

369

 

6,062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

75

 

7,067

 

15

 

7,157

 

 

 

39,808

 

38,896

 

942

 

79,646

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

9,912

 

7

 

9,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Obligations related to securities sold short

 

10,610

 

4,696

 

 

15,306

 

 

 

Derivative financial instruments

 

121

 

6,110

 

20

 

6,251

 

 

 

Liabilities related to transferred receivables

 

 

6,742

 

 

6,742

 

 

 

Other liabilities

 

 

21

 

 

21

 

 

 

10,731

 

27,481

 

27

 

38,239

 

Note 4 - Fair Value of Financial Instruments (cont.)

 

 

 

 

 

 

 

 

 

As at October 31, 2018

 

 

 

 

 

 

 

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

 

5,469

 

9,130

 

 

14,599

 

 

 

 

 

Canadian provincial and municipal governments

 

 

10,628

 

 

10,628

 

 

 

 

 

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

 

314

 

249

 

 

563

 

 

 

 

Other debt securities

 

 

3,391

 

25

 

3,416

 

 

 

 

Equity securities

 

25,928

 

395

 

288

 

26,611

 

 

 

 

 

 

 

31,711

 

23,793

 

313

 

55,817

 

 

 

At fair value through other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

Securities issued or guaranteed by

 

 

 

 

 

 

 

 

 

 

 

 

 

Canadian government

 

265

 

2,320

 

 

2,585

 

 

 

 

 

Canadian provincial and municipal governments

 

 

2,184

 

 

2,184

 

 

 

 

 

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

 

123

 

 

 

123

 

 

 

 

Other debt securities

 

 

425

 

 

425

 

 

 

 

Equity securities

 

 

118

 

233

 

351

 

 

 

 

 

 

 

388

 

5,047

 

233

 

5,668

 

 

Securities purchased under reverse repurchase agreements and

 

 

 

 

 

 

 

 

 

 

 

securities borrowed

 

 

479

 

 

479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

5,722

 

386

 

6,108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

97

 

8,491

 

20

 

8,608

 

 

 

 

 

 

32,196

 

43,532

 

952

 

76,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

10,210

 

11

 

10,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Obligations related to securities sold short

 

12,524

 

5,256

 

 

17,780

 

 

 

Derivative financial instruments

 

211

 

5,798

 

27

 

6,036

 

 

 

Liabilities related to transferred receivables

 

 

7,714

 

 

7,714

 

 

 

Other liabilities

 

 

21

 

 

21

 

 

 

 

 

 

12,735

 

28,999

 

38

 

41,772

 

 

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 4 to the audited annual consolidated financial statements for the year ended October 31, 2018. For the quarter ended January 31, 2019, no significant change was made to the valuation techniques and significant unobservable inputs used in determining fair value.

 

Sensitivity Analysis of Financial Instruments Classified in Level 3

The Bank performs sensitivity analyses on the fair value measurements of financial instruments classified in Level 3, substituting unobservable inputs with one or more reasonably possible alternative assumptions. For additional information on how a change in unobservable input might affect the fair value measurements of Level 3 financial instruments, see Note 4 to the audited annual consolidated financial statements for the year ended October 31, 2018. For the quarter ended January 31, 2019, there were no significant changes in the sensitivity analyses of Level 3 financial instruments.

 

 

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

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

 

 

 

 

 

 

 

 

 

Quarter ended January 31, 2019

 

 

 

 

Securities

at fair value

through profit

or loss

 

Securities

at fair value

through other

comprehensive

income

 

Loans

 

Derivative

financial

instruments(1)

 

Deposits

 

Fair value as at October 31, 2018

 

313

 

233

 

386

 

(7)

 

(11)

 

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

 

22

 

 

 

4

 

1

 

Total realized and unrealized gains (losses) included in

 

 

 

 

 

 

 

 

 

 

 

 

 Other comprehensive income

 

 

 

 

 

 

Purchases

 

24

 

 

 

 

 

Sales

 

(34)

 

 

 

 

 

Issuances

 

 

 

2

 

 

 

Settlements and other

 

 

 

(19)

 

2

 

 

Financial instruments transferred into Level 3

 

 

 

 

(10)

 

 

Financial instruments transferred out of Level 3

 

 

 

 

6

 

3

 

Fair value as at January 31, 2019

 

325

 

233

 

369

 

(5)

 

(7)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

to financial assets and financial liabilities held as at January 31, 2019(3)

 

16

 

 

 

4

 

1

 


 

 

 

 

 

 

 

 

 

Quarter ended January 31, 2018

 

 

 

 

Securities

at fair value

through profit

or loss

 

Securities

at fair value

through other

comprehensive

income

 

Loans

 

Derivative

financial

instruments(1)

 

Deposits

 

Fair value as at November 1, 2017

 

184

 

158

 

428

 

20

 

(1)

 

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

 

17

 

 

 

(5)

 

 

Total realized and unrealized gains (losses) included in

 

 

 

 

 

 

 

 

 

 

 

 

 Other comprehensive income

 

 

 

 

 

 

Purchases

 

7

 

30

 

 

 

 

Sales

 

(6)

 

 

 

 

 

Issuances

 

 

 

2

 

 

 

Settlements and other

 

 

 

(34)

 

1

 

 

Financial instruments transferred into Level 3

 

 

 

 

 

 

Financial instruments transferred out of Level 3

 

 

 

 

(1)

 

 

Fair value as at January 31, 2018

 

202

 

188

 

396

 

15

 

(1)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

to financial assets and financial liabilities held as at January 31, 2018(5)

 

(1)

 

 

 

(5)

 

 

 

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

(2)       Total gains (losses) included in Non-interest income was a gain of $27 million.

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

(4)       Total gains (losses) included in Non-interest income was a gain of $12 million.

(5)       Total unrealized gains (losses) included in Non-interest income was a loss of $6 million.

 

Note 5 - 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, 2018. Consistent with its risk management strategy and under 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 liabilities or recognizing gains and losses on different bases, the Bank designated at fair value through profit or loss certain securities, certain securities purchased under reverse repurchase agreements, and certain obligations related to securities sold under repurchase agreements, and certain liabilities related to transferred receivables. The fair value of liabilities related to transferred receivables does not include credit risk, as the holders of these liabilities are not exposed to the Bank's credit risk. There is no exposure to credit risk on the loans to the extent that they are fully collateralized. 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, using an observed discount rate for similar securities that reflects the Bank's credit spread and, then, using a rate that excludes the Bank's credit spread. The difference obtained between the two values is then compared to the difference obtained using the same rates at the end of the period.

 

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

 

 

 

Carrying

value as at

January 31, 2019

 

Unrealized

gains (losses) for

the quarter ended

January 31, 2019

 

Unrealized

gains (losses) since

the initial recognition

of the instrument

 

Financial assets designated at fair value through profit or loss

 

 

 

 

 

 

 

 

Securities

 

3,478

 

52

 

(20)

 

 

Securities purchased under reverse repurchase agreements

 

441

 

 

 

 

 

3,919

 

52

 

(20)

 

Financial liabilities designated at fair value through profit or loss

 

 

 

 

 

 

 

 

Deposits(1)(2)

 

9,787

 

(217)

 

361

 

 

Liabilities related to transferred receivables

 

6,742

 

(103)

 

(15)

 

.

 

16,529

 

(320)

 

346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying

value as at

January 31, 2018

 

Unrealized

gains (losses) for

the quarter ended

January 31, 2018

 

Unrealized

gains (losses) since

the initial recognition

of the instrument

 

 

Financial assets designated at fair value through profit or loss

 

 

 

 

 

 

 

 

 

Securities

 

4,830

 

(51)

 

(100)

 

 

 

Securities purchased under reverse repurchase agreements

 

467

 

 

 

 

 

 

5,297

 

(51)

 

(100)

 

 

Financial liabilities designated at fair value through profit or loss

 

 

 

 

 

 

 

 

 

Deposits(1)(2)

 

8,731

 

4

 

81

 

 

 

Securities sold under repurchase agreements

 

443

 

 

 

 

 

Liabilities related to transferred receivables

 

7,548

 

91

 

5

 

 

 

 

16,722

 

95

 

86

 

 

                                   

 

(1)       For the quarter ended January 31, 2019, 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 gain of $72 million ($36 million loss for the quarter ended January 31, 2018).

(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 6 - Securities

 

Credit Quality

 

As at January 31, 2019 and as at October 31, 2018, securities at fair value through other comprehensive income and securities at amortized cost are classified in Stage 1, with their credit quality falling mainly 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 7 to these consolidated financial statements.

 

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

 

 

 

As at January 31, 2019

 

 

 

 

Amortized

cost

 

Gross unrealized gains

 

Gross unrealized losses

 

Carrying

value(1)

 

 

 

 

 

 

 

 

 

 

 

 

Securities issued or guaranteed by

 

 

 

 

 

 

 

 

 

 

Canadian government

 

2,775

 

12

 

(5)

 

2,782

 

 

Canadian provincial and municipal governments

 

2,100

 

20

 

(2)

 

2,118

 

 

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

 

740

 

2

 

 

742

 

Other debt securities

 

575

 

8

 

(3)

 

580

 

Equity securities

 

366

 

 

(13)

 

353

 

 

 

6,556

 

42

 

(23)

 

6,575

 

 

 

 

As at October 31, 2018

 

 

 

 

Amortized

cost

 

Gross unrealized gains

 

Gross unrealized losses

 

Carrying

value(1)

 

 

 

 

 

 

 

 

 

 

 

 

Securities issued or guaranteed by

 

 

 

 

 

 

 

 

 

 

Canadian government

 

2,624

 

1

 

(40)

 

2,585

 

 

Canadian provincial and municipal governments

 

2,196

 

22

 

(34)

 

2,184

 

 

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

 

123

 

 

 

123

 

Other debt securities

 

434

 

1

 

(10)

 

425

 

Equity securities

 

356

 

 

(5)

 

351

 

 

 

5,733

 

24

 

(89)

 

5,668

 

 

(1)        The allowances for credit losses on securities at fair value through other comprehensive income, representing a negligible amount as at January 31, 2019 and October 31, 2018, are reported in Other comprehensive income. For additional information, see Note 7 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 quarter ended January 31, 2019, an amount of $2 million in dividend income was recognized for these investments ($1 million for the quarter ended January 31, 2018), including negligible amounts for investments that were sold during the quarters ended January 31, 2019 and 2018.

 

 

 

 

 

Quarter ended January 31, 2019

 

Quarter ended January 31, 2018

 

 

 

 

 

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 the beginning

 

233

 

118

 

351

 

158

 

122

 

280

 

 

Change in fair value

 

 

(8)

 

(8)

 

 

4

 

4

 

 

Designated at fair value through

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other comprehensive income

 

 

26

 

26

 

30

 

15

 

45

 

 

Sales(1)

 

 

(16)

 

(16)

 

 

(15)

 

(15)

 

Fair value at the end

 

233

 

120

 

353

 

188

 

126

 

314

 

 

(1)       The Bank disposed of public company equity securities for economic reasons.

 

Note 6 - Securities (cont.)

 

Securities at Amortized Cost

 

 

As at January 31, 2019

 

As at October 31, 2018

 

 

 

 

 

 

 

Securities issued or guaranteed by

 

 

 

 

 

Canadian government

5,107

 

4,952

 

 

Canadian provincial and municipal governments

1,817

 

1,680

 

 

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

110

 

21

 

Other debt securities

1,694

 

1,646

 

Gross carrying value

8,728

 

8,299

 

Allowances for credit losses

1

 

1

 

Carrying value

8,727

 

8,298

 

 

Gains (Losses) on Disposals of Securities at Amortized Cost

 

During the quarters ended January 31, 2019 and 2018, the Bank sold certain debt securities measured at amortized cost. The carrying value of these securities upon disposal was $166 million for the quarter ended January 31, 2019 ($4 million for the quarter ended January 31, 2018), and the Bank recognized negligible gains in Non-interest income - Gains (losses) on non-trading securities, net in the Consolidated Statement of Income.

 

 

Note 7 - 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.

 

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.

 

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 Note 8 to the audited annual consolidated financial statements for the year ended October 31, 2018.

 

Credit Quality of Loans

 

The following tables present the gross carrying amounts of loans as at January 31, 2019 and October 31, 2018, 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 Advanced Internal Rating-Based (AIRB) categories, see the "Internal Default Risk Rating" tables on pages 62 and 63 in the "Credit Risk Management" section of the 2018 Annual Report.

 

 

 

 

 

 

 

 

 

 

As at January 31, 2019

 

 

 

 

Non-impaired loans

 

Impaired loans

 

Loans at fair value

through profit or loss(1)

 

Total

 

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

POCI

 

 

 

Residential mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excellent

 

19,705

 

1

 

 

 

 

19,706

 

 

Good

 

14,910

 

8

 

 

 

 

14,918

 

 

Satisfactory

 

8,524

 

349

 

 

 

 

8,873

 

 

Special mention

 

424

 

567

 

 

 

 

991

 

 

Substandard

 

89

 

301

 

 

 

 

390

 

 

Default

 

 

 

128

 

 

 

128

 

AIRB approach

 

43,652

 

1,226

 

128

 

 

 

45,006

 

Standardized approach

 

2,844

 

21

 

25

 

454

 

5,781

 

9,125

 

Gross carrying amount

 

46,496

 

1,247

 

153

 

454

 

5,781

 

54,131

 

Allowances for credit losses(2)

 

32

 

12

 

23

 

(60)

 

 

7

 

Carrying amount

 

46,464

 

1,235

 

130

 

514

 

5,781

 

54,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excellent

 

13,588

 

3

 

 

 

 

13,591

 

 

Good

 

10,081

 

44

 

 

 

 

10,125

 

 

Satisfactory

 

5,593

 

822

 

 

 

 

6,415

 

 

Special mention

 

478

 

664

 

 

 

 

1,142

 

 

Substandard

 

94

 

203

 

 

 

 

297

 

 

Default

 

 

 

142

 

 

 

142

 

AIRB approach

 

29,834

 

1,736

 

142

 

 

 

31,712

 

Standardized approach

 

3,890

 

130

 

27

 

939

 

 

4,986

 

Gross carrying amount

 

33,724

 

1,866

 

169

 

939

 

 

36,698

 

Allowances for credit losses(2)

 

68

 

114

 

72

 

(3)

 

 

251

 

Carrying amount

 

33,656

 

1,752

 

97

 

942

 

 

36,447

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit card

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excellent

 

351

 

 

 

 

 

351

 

 

Good

 

278

 

 

 

 

 

278

 

 

Satisfactory

 

870

 

39

 

 

 

 

909

 

 

Special mention

 

296

 

275

 

 

 

 

571

 

 

Substandard

 

13

 

100

 

 

 

 

113

 

 

Default

 

 

 

 

 

 

 

AIRB approach

 

1,808

 

414

 

 

 

 

2,222

 

Standardized approach

 

27

 

 

 

 

 

27

 

Gross carrying amount

 

1,835

 

414

 

 

 

 

2,249

 

Allowances for credit losses(2)

 

26

 

101

 

 

 

 

127

 

Carrying amount

 

1,809

 

313

 

 

 

 

2,122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business and government(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excellent

 

4,340

 

 

 

 

107

 

4,447

 

 

Good

 

24,425

 

5

 

 

 

53

 

24,483

 

 

Satisfactory

 

18,520

 

782

 

 

 

82

 

19,384

 

 

Special mention

 

1,329

 

1,226

 

 

 

 

2,555

 

 

Substandard

 

37

 

274

 

 

 

 

311

 

 

Default

 

 

 

246

 

 

 

246

 

AIRB approach

 

48,651

 

2,287

 

246

 

 

242

 

51,426

 

Standardized approach

 

2,794

 

 

35

 

2

 

39

 

2,870

 

Gross carrying amount

 

51,445

 

2,287

 

281

 

2

 

281

 

54,296

 

Allowances for credit losses(2)

 

45

 

98

 

135

 

1

 

 

279

 

Carrying amount

 

51,400

 

2,189

 

146

 

1

 

281

 

54,017

 

Total loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount

 

133,500

 

5,814

 

603

 

1,395

 

6,062

 

147,374

 

Allowances for credit losses(2)

 

171

 

325

 

230

 

(62)

 

 

664

 

Carrying amount

 

133,329

 

5,489

 

373

 

1,457

 

6,062

 

146,710

 

 

(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 7 - Loans and Allowances for Credit Losses (cont.)

 

 

 

 

 

 

 

 

 

 

As at October 31, 2018

 

 

 

 

Non-impaired loans

 

Impaired loans

 

Loans at fair value

through profit or loss(1)

 

Total

 

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

POCI

 

 

 

Residential mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excellent

 

19,035

 

 

 

 

 

19,035

 

 

Good

 

14,928

 

10

 

 

 

 

14,938

 

 

Satisfactory

 

8,838

 

348

 

 

 

 

9,186

 

 

Special mention

 

421

 

621

 

 

 

 

1,042

 

 

Substandard

 

81

 

300

 

 

 

 

381

 

 

Default

 

 

 

128

 

 

 

128

 

AIRB approach

 

43,303

 

1,279

 

128

 

 

 

44,710

 

Standardized approach

 

2,546

 

27

 

23

 

487

 

5,858

 

8,941

 

Gross carrying amount

 

45,849

 

1,306

 

151

 

487

 

5,858

 

53,651

 

Allowances for credit losses(2)

 

31

 

13

 

21

 

(64)

 

 

1

 

Carrying amount

 

45,818

 

1,293

 

130

 

551

 

5,858

 

53,650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excellent

 

13,625

 

2

 

 

 

 

13,627

 

 

Good

 

10,089

 

52

 

 

 

 

10,141

 

 

Satisfactory

 

5,430

 

902

 

 

 

 

6,332

 

 

Special mention

 

456

 

694

 

 

 

 

1,150

 

 

Substandard

 

91

 

204

 

 

 

 

295

 

 

Default

 

 

 

137

 

 

 

137

 

AIRB approach

 

29,691

 

1,854

 

137

 

 

 

31,682

 

Standardized approach

 

4,421

 

140

 

27

 

1,087

 

 

5,675

 

Gross carrying amount

 

34,112

 

1,994

 

164

 

1,087

 

 

37,357

 

Allowances for credit losses(2)

 

71

 

120

 

71

 

(3)

 

 

259

 

Carrying amount

 

34,041

 

1,874

 

93

 

1,090

 

 

37,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit card

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excellent

 

416

 

 

 

 

 

416

 

 

Good

 

306

 

 

 

 

 

306

 

 

Satisfactory

 

888

 

37

 

 

 

 

925

 

 

Special mention

 

294

 

249

 

 

 

 

543

 

 

Substandard

 

12

 

96

 

 

 

 

108

 

 

Default

 

 

 

 

 

 

 

AIRB approach

 

1,916

 

382

 

 

 

 

2,298

 

Standardized approach

 

27

 

 

 

 

 

27

 

Gross carrying amount

 

1,943

 

382

 

 

 

 

2,325

 

Allowances for credit losses(2)

 

24

 

105

 

 

 

 

129

 

Carrying amount

 

1,919

 

277

 

 

 

 

2,196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business and government(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excellent

 

4,736

 

 

 

 

111

 

4,847

 

 

Good

 

24,005

 

6

 

 

 

55

 

24,066

 

 

Satisfactory

 

18,986

 

1,068

 

 

 

84

 

20,138

 

 

Special mention

 

493

 

758

 

 

 

 

1,251

 

 

Substandard

 

55

 

121

 

 

 

 

176

 

 

Default

 

 

 

276

 

 

 

276

 

AIRB approach

 

48,275

 

1,953

 

276

 

 

250

 

50,754

 

Standardized approach

 

2,611

 

1

 

39

 

2

 

 

2,653

 

Gross carrying amount

 

50,886

 

1,954

 

315

 

2

 

250

 

53,407

 

Allowances for credit losses(2)

 

48

 

86

 

134

 

1

 

 

269

 

Carrying amount

 

50,838

 

1,868

 

181

 

1

 

250

 

53,138

 

Total loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount

 

132,790

 

5,636

 

630

 

1,576

 

6,108

 

146,740

 

Allowances for credit losses(2)

 

174

 

324

 

226

 

(66)

 

 

658

 

Carrying amount

 

132,616

 

5,312

 

404

 

1,642

 

6,108

 

146,082

 

 

(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 January 31, 2019 and October 31, 2018 according to credit quality and ECL impairment stage.

 

 

 

 

 

As at January 31, 2019

 

 

 

 

 

As at October 31, 2018

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Off-balance-sheet commitments(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excellent

11,626

 

8

 

 

11,634

 

11,440

 

9

 

 

11,449

 

 

Good

2,469

 

11

 

 

2,480

 

2,450

 

13

 

 

2,463

 

 

Satisfactory

980

 

109

 

 

1,089

 

969

 

117

 

 

1,086

 

 

Special mention

76

 

81

 

 

157

 

79

 

77

 

 

156

 

 

Substandard

1

 

14

 

 

15

 

2

 

13

 

 

15

 

 

Default

 

 

2

 

2

 

 

 

2

 

2

 

Non-retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excellent

9,535

 

 

 

9,535

 

5,881

 

 

 

5,881

 

 

Good

14,637

 

1

 

 

14,638

 

13,570

 

 

 

13,570

 

 

Satisfactory

4,685

 

305

 

 

4,990

 

4,302

 

353

 

 

4,655

 

 

Special mention

211

 

217

 

 

428

 

133

 

142

 

 

275

 

 

Substandard

2

 

16

 

 

18

 

3

 

6

 

 

9

 

 

Default

 

 

4

 

4

 

 

 

4

 

4

 

AIRB approach

44,222

 

762

 

6

 

44,990

 

38,829

 

730

 

6

 

39,565

 

Standardized approach

5,932

 

 

7

 

5,939

 

6,434

 

 

5

 

6,439

 

Total exposure

50,154

 

762

 

13

 

50,929

 

45,263

 

730

 

11

 

46,004

 

Allowances for credit losses

41

 

21

 

 

62

 

38

 

15

 

1

 

54

 

Total exposure, net

 

 

 

 

 

 

 

 

 

 of allowances

50,113

 

741

 

13

 

50,867

 

45,225

 

715

 

10

 

45,950

 

 

(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 January 31, 2019

 

 

 

 

 

As at October 31, 2018

 

 

 

 

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

 

94

 

96

 

28

 

44

 

105

 

102

 

27

 

36

 

 

61 to 90 days

 

38

 

35

 

13

 

22

 

41

 

59

 

13

 

41

 

 

Over 90 days(3)

 

 

 

28

 

 

 

 

27

 

 

 

 

132

 

131

 

69

 

66

 

146

 

161

 

67

 

77

 

 

(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(1)

 

 

 

 

As at January 31, 2019

 

As at October 31, 2018

 

 

 

Gross

 

Allowances for

credit losses

 

Net

 

Gross

 

Allowances for

credit losses

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

153

 

23

 

130

 

151

 

21

 

130

 

 

Personal

169

 

72

 

97

 

164

 

71

 

93

 

 

Credit card(2)

 

 

 

 

 

 

 

Business and government(3)

281

 

135

 

146

 

315

 

134

 

181

 

 

603

 

230

 

373

 

630

 

226

 

404

 

 

(1)        All loans classified in Stage 3 of the expected credit loss model are impaired loans. In this table, POCI loans have been excluded.

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

(3)        Includes customers' liability under acceptances.

 

Note 7 - 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 off-balance-sheet commitment.

 

 

 

 

 

 

 

 

 

 

 

Quarter ended January 31, 2019

 

 

 

Allowances for

credit losses as at

October 31, 2018

 

Provisions for

credit losses

 

Write-offs(1)

 

Disposals

 

Recoveries

and other

 

Allowances for

credit losses as

at January 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

 

 

 

 

 

 

 

Cash and deposits with financial institutions(2)(3)

1

 

 

 

 

 

1

 

Securities(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

At fair value through other comprehensive income(4)

 

 

 

 

 

 

 

At amortized cost(2)

1

 

 

 

 

 

1

 

Securities purchased under reverse repurchase

 

 

 

 

 

 

 

 

 

 

 

 

 

agreements and securities borrowed(2)(3)

 

 

 

 

 

 

Loans(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

1

 

7

 

(1)

 

 

 

7

 

 

Personal

259

 

41

 

(57)

 

 

8

 

251

 

 

Credit card

129

 

20

 

(25)

 

 

3

 

127

 

 

Business and government

249

 

(1)

 

(2)

 

 

 

246

 

 

Customers' liability under acceptances

20

 

13

 

 

 

 

33

 

 

 

658

 

80

 

(85)

 

 

11

 

664

 

Other assets(2)(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Off-balance-sheet commitments(6)

 

 

 

 

 

 

 

 

 

 

 

 

Letters of guarantee and documentary letters of credit

3

 

1

 

 

 

 

4

 

Undrawn commitments

49

 

7

 

 

 

 

56

 

Backstop liquidity and credit enhancement facilities

2

 

 

 

 

 

2

 

 

 

54

 

8

 

 

 

 

62

 

 

714

 

88

 

(85)

 

 

11

 

728

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended January 31, 2018

 

 

 

Allowances for

credit losses as at

November 1, 2017

 

Provisions for

credit losses

 

Write-offs(1)

 

Disposals

 

Recoveries

and other

 

Allowances for

credit losses as

at January 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

 

 

 

 

 

 

 

Cash and deposits with financial institutions(2)(3)

1

 

 

 

 

 

1

 

Securities(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

At fair value through other comprehensive income(4)

 

 

 

 

 

 

 

At amortized cost(2)

3

 

(2)

 

 

 

 

1

 

Securities purchased under reverse repurchase

 

 

 

 

 

 

 

 

 

 

 

 

 

agreements and securities borrowed(2)(3)

 

 

 

 

 

 

Loans(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

18

 

11

 

(3)

 

 

1

 

27

 

 

Personal

261

 

42

 

(41)

 

 

(2)

 

260

 

 

Credit card

128

 

23

 

(25)

 

 

4

 

130

 

 

Business and government

250

 

23

 

(37)

 

 

(3)

 

233

 

 

Customers' liability under acceptances

16

 

(3)

 

 

 

 

13

 

 

 

673

 

96

 

(106)

 

 

 

663

 

Other assets(2)(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Off-balance-sheet commitments(6)

 

 

 

 

 

 

 

 

 

 

 

 

Letters of guarantee and documentary letters of credit

3

 

 

 

 

 

3

 

Undrawn commitments

54

 

(7)

 

 

 

 

47

 

Backstop liquidity and credit enhancement facilities

1

 

 

 

 

 

1

 

 

 

58

 

(7)

 

 

 

 

51

 

 

735

 

87

 

(106)

 

 

 

716

 

 

(1)    The contractual amount outstanding on financial assets that were written off during the quarter ended January 31, 2019 and that are still subject to enforcement activity was $41 million ($35 million for the quarter ended January 31, 2018).

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

(3)    As at January 31, 2019 and 2018, these financial assets were mainly classified in Stage 1 and their credit quality fell 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.   

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

 

 

 

 

 

 

 

 

Quarter ended January 31, 2019

 

 

 

 

Allowances for credit losses

on non-impaired loans

 

Allowances for credit losses

on impaired loans

 

Total

 

 

Stage 1

 

Stage 2

 

Stage 3

 

POCI(1)

 

 

Residential mortgage

 

 

 

 

 

 

 

 

 

 

Balance as at October 31, 2018

31

 

13

 

21

 

(64)

 

1

 

 

Originations or purchases

6

 

 

 

 

6

 

 

Transfers(2):

 

 

 

 

 

 

 

 

 

 

 

 

to Stage 1

4

 

(3)

 

(1)

 

 

 

 

 

to Stage 2

 

 

 

 

 

 

 

to Stage 3

 

(1)

 

1

 

 

 

 

Net remeasurement of loss allowances(3)

(9)

 

3

 

3

 

4

 

1

 

 

Derecognitions(4)

 

 

 

 

 

 

Changes to models

 

 

 

 

 

Provisions for credit losses

1

 

(1)

 

3

 

4

 

7

 

Write-offs

 

 

(1)

 

 

(1)

 

Disposals

 

 

 

 

 

Recoveries

 

 

 

 

 

Foreign exchange movements and other

 

 

 

 

 

Balance as at January 31, 2019

32

 

12

 

23

 

(60)

 

7

 

Includes:

 

 

 

 

 

 

 

 

 

 

 

Amounts drawn

32

 

12

 

23

 

(60)

 

7

 

 

Undrawn commitments(5)

 

 

 

 

 

Personal

 

 

 

 

 

 

 

 

 

 

Balance as at October 31, 2018

72

 

121

 

71

 

(3)

 

261

 

 

Originations or purchases

9

 

 

 

 

9

 

 

Transfers(2):

 

 

 

 

 

 

 

 

 

 

 

 

to Stage 1

20

 

(18)

 

(2)

 

 

 

 

 

to Stage 2

(6)

 

7

 

(1)

 

 

 

 

 

to Stage 3

(2)

 

(27)

 

29

 

 

 

 

Net remeasurement of loss allowances(3)

(21)

 

35

 

25

 

 

39

 

 

Derecognitions(4)

(3)

 

(3)

 

(1)

 

 

(7)

 

 

Changes to models