Q3 2023 MD&A (Part 1)

National Bank of Canada

30 August 2023

National Bank of Canada

August 30^th, 2023

Regulatory Announcement (Part 1)

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/8386K_1-2023-8-30.pdf

Report to Shareholders Third Quarter 2023

National Bank reports its results for the Third Quarter of 2023

The financial information reported in this document is based on the unaudited interim condensed consolidated financial statements for the quarter and nine-month period ended July 31, 2023 and is prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), unless otherwise indicated. IFRS represent Canadian generally accepted accounting principles (GAAP). All amounts are presented in Canadian dollars.

MONTREAL, August 30, 2023 - For the third quarter of 2023, National Bank is reporting net income of $839 million, up 2% from $826 million in the third quarter of 2022. Third-quarter diluted earnings per share stood at $2.36 compared to $2.35 in the third quarter of 2022. For the third quarter of 2023, adjusted net income⁽¹⁾ totalled $790 million, down 4% from $826 million in the same quarter of 2022, and third-quarter adjusted diluted earnings per share⁽¹⁾ stood at $2.21 compared to $2.35 in the third quarter of 2022. Revenue growth in all of the business segments, aside from the Financial Markets segment, was partly offset by higher provisions for credit losses. Adjusted income before provisions for credit losses and income taxes⁽¹⁾ stood at $1,184 million in the third quarter of 2023, an increase from $1,179 million in the same quarter of 2022.

For the nine-month period ended July 31, 2023, the Bank's net income totalled $2,567 million, down 3% from $2,645 million in the same period of 2022. Nine-month diluted earnings per share stood at $7.23 versus $7.53 in the same nine-month period last year. These decreases were partly due to higher non-interest expenses and higher provisions for credit losses. For the first nine months of 2023, adjusted net income⁽¹⁾ totalled $2,542 million, down 4% year over year, and nine-month adjusted diluted earnings per share⁽¹⁾ stood at $7.15 compared to $7.53 in the first nine months of 2022. Revenue growth in all of the business segments was offset by higher non-interest expenses and higher provisions for credit losses. Nine-month adjusted income before provisions for credit losses and income taxes⁽¹⁾ rose 3% year over year.

"The Bank reported solid third-quarter results, supported by revenue and earnings growth, in our Personal and Commercial Banking, Wealth Management, and U.S. Specialty Finance and International segments, partly offset by a less constructive backdrop in the Financial Markets segment," said Laurent Ferreira, President and Chief Executive Officer of National Bank of Canada. He added that "The Bank's performance highlights the strength of our strategic positioning in a challenging macroeconomic environment. With our high capital levels, strong earnings power, and constant discipline on managing cost and credit, the Bank is well-positioned to navigate continued uncertainty and generate long-term profitable growth."

Highlights

(millions of Canadian dollars)		Quarter ended July 31							Nine months ended July 31
		2023			2022⁽²⁾		% Change		2023			2022⁽²⁾		% Change

Net income		839			826		2		2,567			2,645		(3)
Diluted earnings per share (dollars)	$	2.36		$	2.35		−	$	7.23		$	7.53		(4)
Return on common shareholders' equity⁽³⁾		16.2	%		17.9	%			17.2	%		20.1	%
Dividend payout ratio⁽³⁾		41.3	%		34.4	%			41.3	%		34.4	%

Operating results - Adjusted⁽¹⁾
Net income - Adjusted		790			826		(4)		2,542			2,645		(4)
Diluted earnings per share - Adjusted (dollars)	$	2.21		$	2.35		(6)	$	7.15		$	7.53		(5)
Return on common shareholders' equity - Adjusted⁽⁴⁾		15.3	%		17.9	%			17.0	%		20.1	%
Dividend payout ratio - Adjusted⁽⁴⁾		41.6	%		34.3	%			41.6	%		34.3	%

								As at July 31, 2023			As at October 31, 2022
CET1 capital ratio under Basel III⁽⁵⁾									13.5	%		12.7	%
Leverage ratio under Basel III⁽⁵⁾									4.2	%		4.5	%

(1) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP financial measures.

(2) 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 to the audited annual consolidated financial statements for the year ended October 31, 2022.

(3) See the Glossary section on pages 51 to 54 for details on the composition of these measures.

(4) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP ratios.

(5) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.

Report to Shareholders Third Quarter 2023

Personal and Commercial

- Net income totalled $328 million in the third quarter of 2023 versus $319 million in the third quarter of 2022, a 3% increase that was driven by growth in total revenues, tempered by higher non-interest expenses and higher provisions for credit losses.

- Income before provisions for credit losses and income taxes totalled $527 million in the third quarter of 2023, up 9% from $483 million in the third quarter of 2022.

- At $1,140 million, third-quarter total revenues rose $97 million or 9% year over year due to an increase in net interest income (driven by growth in loan and deposit volumes) and to a higher net interest margin.

- Compared to a year ago, personal lending grew 2% and commercial lending grew 9%.

- The net interest margin⁽¹⁾ stood at 2.34% in the third quarter of 2023, up from 2.17% in the third quarter of 2022.

- Third-quarter non-interest expenses stood at $613 million, up 9% from the third quarter of 2022.

- Third-quarter provisions for credit losses rose $26 million from third-quarter 2022, mainly due to higher allowances for credit losses on impaired loans.

- At 53.8%, the third-quarter efficiency ratio⁽¹⁾ compares to 53.7% in the third quarter of 2022.

Wealth Management

- Net income totalled $183 million in the third quarter of 2023, a 5% increase from $175 million in the third quarter of 2022.

- Third-quarter total revenues amounted to $629 million compared to $591 million in third-quarter 2022, a $38 million or 6% increase driven by growth in net interest income and fee-based revenues.

- Third-quarter non-interest expenses stood at $375 million, up 7% from $351 million in third-quarter 2022.

- At 59.6%, the third-quarter efficiency ratio⁽¹⁾ compares to 59.4% in the third quarter of 2022.

Financial Markets

- Net income totalled $205 million in the third quarter of 2023, down 27% from $279 million in the third quarter of 2022.

- Third-quarter total revenues on a taxable equivalent basis amounted to $560 million, down $51 million or 8% year over year given a decrease in global markets revenues, partly offset by growth in corporate and investment banking revenues.

- Third-quarter non-interest expenses stood at $272 million compared to $254 million in third-quarter 2022, an increase that was partly due to wages and employee benefits as well as the segment's technological investments.

- Provisions for credit losses of $5 million were recorded in the third quarter of 2023 compared to credit loss recoveries of $23 million recorded in the third quarter of 2022.

- At 48.6%, the third-quarter efficiency ratio⁽¹⁾ on a taxable equivalent basis compares to 41.6% in the third quarter of 2022.

U.S. Specialty Finance and International

- Net income totalled $128 million in the third quarter of 2023 compared to $125 million in the third quarter of 2022, as growth in total revenues was offset by higher non-interest expenses.

- Third-quarter total revenues amounted to $292 million, a 7% year-over-year increase driven by revenue growth at both the Credigy and ABA Bank subsidiaries.

- Third-quarter non-interest expenses stood at $100 million, a 16% year-over-year increase attributable mainly to business growth at ABA Bank.

- Provisions for credit losses remained stable compared to the third quarter of 2022.

- At 34.2%, the third-quarter efficiency ratio⁽¹⁾ compares to 31.5% in the third quarter of 2022.

Other

- There was a net loss of $5 million in the third quarter of 2023 compared to a net loss of $72 million in the third quarter of 2022, a change arising mainly from a higher contribution from treasury activities as well as a gain of $91 million ($67 million net of income taxes) recorded in the third quarter of 2023 as a result of a fair value remeasurement of an equity interest, partly offset by an expense of $25 million ($18 million net of income taxes) related to the retroactive impact of the changes to the Excise Tax Act.

Capital Management

- As at July 31, 2023, the Common Equity Tier 1 (CET1) capital ratio under Basel III⁽²⁾ stood at 13.5%, up from 12.7% as at October 31, 2022, notably due to the positive impact of implementing the Basel III reforms.

- As at July 31, 2023, the Basel III⁽²⁾ leverage ratio was 4.2%, down from 4.5% as at October 31, 2022.

(1) See the Glossary section on pages 51 to 54 for details on the composition of these measures.

(2) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.

Management's Discussion

and Analysis

August 29, 2023

The following Management's Discussion and Analysis (MD&A) presents the financial condition and operating results of National Bank of Canada (the Bank). This analysis was prepared in accordance with the requirements set out in National Instrument 51-102, Continuous Disclosure Obligations, released by the Canadian Securities Administrators (CSA). It is based on the unaudited interim condensed consolidated financial statements (the consolidated financial statements) for the quarter and nine-month period ended July 31, 2023 and prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), unless otherwise indicated. IFRS represent Canadian generally accepted accounting principles (GAAP). This MD&A should be read in conjunction with the consolidated financial statements and accompanying notes for the quarter and nine-month period ended July 31, 2023 and with the 2022 Annual Report. All amounts are presented in Canadian dollars. Additional information about the Bank, including the Annual Information Form, can be obtained from the Bank's website at nbc.ca and SEDAR's website at sedar.com. The information found in the various documents and reports published by the Bank or the information available on the Bank's website and mentioned herein is not and should not be considered incorporated by reference into the Report to Shareholders, the Management's Discussion and Analysis, or the Consolidated Financial Statements, unless expressly stated otherwise.

Financial Reporting Method	4	Capital Management	25
Highlights	11	Risk Management	32
Economic Review and Outlook	12	Risk Disclosures	48
Financial Analysis	13	Accounting Policies and Financial Disclosure	49
Consolidated Results	13	Accounting Policies and Critical Accounting Estimates	49
Results by Segment	16	Accounting Policy Changes	49
Consolidated Balance Sheet	22	Financial Disclosure	49
Related Party Transactions	23	Quarterly Financial Information	50
Securitization and Off-Balance-Sheet Arrangements	23	Glossary	51
Income Taxes	24
Proposed Legislation	24

Caution Regarding Forward-Looking Statements

Certain statements in this document are forward-looking statements. All such statements are made in accordance with applicable securities legislation in Canada and the United States. Forward-looking statements in this document may include, but are not limited to, statements with respect to the economy-particularly the Canadian and U.S. economies-market changes, the Bank's objectives, outlook and priorities for fiscal year 2023 and beyond, the strategies or actions that will be taken to achieve them, expectations for the Bank's financial condition, the regulatory environment in which it operates, the impacts of-and the Bank's response to-the COVID-19 pandemic, and certain risks it faces. These forward-looking statements are typically identified by verbs or words such as "outlook", "believe", "foresee", "forecast", "anticipate", "estimate", "project", "expect", "intend" and "plan", in their future or conditional forms, notably verbs such as "will", "may", "should", "could" or "would" as well as similar terms and expressions. Such forward-looking statements are made for the purpose of assisting the holders of the Bank's securities in understanding the Bank's financial position and results of operations as at and for the periods ended on the dates presented, as well as the Bank's vision, strategic objectives, and financial performance targets, and may not be appropriate for other purposes. These forward-looking statements are based on current expectations, estimates, assumptions and intentions and are subject to uncertainty and inherent risks, many of which are beyond the Bank's control.

Assumptions about the performance of the Canadian and U.S. economies in 2023 and how that performance will affect the Bank's business are among the main factors considered in setting the Bank's strategic priorities and objectives, including provisions for credit losses. In determining its expectations for economic conditions, both broadly and in the financial services sector in particular, the Bank primarily considers historical economic data provided by the governments of Canada, the United States and certain other countries in which the Bank conducts business, as well as their agencies.

Statements about the economy, market changes, and the Bank's objectives, outlook and priorities for fiscal 2023 and thereafter are based on a number of assumptions and are subject to risk factors, many of which are beyond the Bank's control and the impacts of which are difficult to predict. These risk factors include, among others, the general economic environment and financial market conditions in Canada, the United States, and other countries where the Bank operates; the impact of upheavals in the U.S. banking industry; exchange rate and interest rate fluctuations; inflation; disruptions in global supply chains; higher funding costs and greater market volatility; changes made to fiscal, monetary, and other public policies; changes made to regulations that affect the Bank's business; geopolitical and sociopolitical uncertainty; the transition to a low-carbon economy and the Bank's ability to satisfy stakeholder expectations on environmental and social issues; significant changes in consumer behaviour; the housing situation, real estate market, and household indebtedness in Canada; the Bank's ability to achieve its long-term strategies and key short-term priorities; the timely development and launch of new products and services; the Bank's ability to recruit and retain key personnel; technological innovation and heightened competition from established companies and from competitors offering non-traditional services; changes in the performance and creditworthiness of the Bank's clients and counterparties; the Bank's exposure to significant regulatory matters or litigation; changes made to the accounting policies used by the Bank to report financial information, including the uncertainty inherent to assumptions and critical accounting estimates; changes to tax legislation in the countries where the Bank operates, i.e., primarily Canada and the United States; changes made to capital and liquidity guidelines as well as to the presentation and interpretation thereof; changes to the credit ratings assigned to the Bank; potential disruptions to key suppliers of goods and services to the Bank; potential disruptions to the Bank's information technology systems, including evolving cyberattack risk as well as identity theft and theft of personal information; the risk of fraudulent activity; and possible impacts of major events affecting the local and global economies, including international conflicts, natural disasters, and public health crises such as the COVID-19 pandemic, the evolution of which is difficult to predict and could continue to have repercussions on the Bank.

There is a strong possibility that the Bank's express or implied predictions, forecasts, projections, expectations or conclusions will not prove to be accurate, that its assumptions may not be confirmed and that its vision, strategic objectives and financial performance targets will not be achieved. The Bank recommends that readers not place undue reliance on forward-looking statements, as a number of factors could cause actual results to differ significantly from the expectations, estimates or intentions expressed in these forward-looking statements. These risk factors include credit risk, market risk, liquidity and funding risk, operational risk, regulatory compliance risk, reputation risk, strategic risk, environmental and social risk, and certain emerging risks or risks deemed significant, all of which are described in greater detail in the Risk Management section beginning on page 65 of the 2022 Annual Report.

The foregoing list of risk factors is not exhaustive. Additional information about these risk factors is provided in the Risk Management section of the 2022 Annual Report and the Risk Management section of this Report to Shareholders for the Third Quarter of 2023. Investors and others who rely on the Bank's forward-looking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. Except as required by law, the Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time, by it or on its behalf. The Bank cautions investors that these forward-looking statements are not guarantees of future performance and that actual events or results may differ significantly from these statements due to a number of factors.

Financial Reporting Method

The Bank's consolidated financial statements are prepared in accordance with IFRS, as issued by the IASB. The financial statements also comply with section 308(4) of the Bank Act (Canada), which states that, except as otherwise specified by the Office of the Superintendent of Financial Institutions (Canada) (OSFI), the consolidated financial statements are to be prepared in accordance with IFRS, which represent Canadian GAAP. None of the OSFI accounting requirements are exceptions to IFRS.

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 to the audited annual consolidated financial statements for the year ended October 31, 2022.

Non-GAAP and Other Financial Measures

The Bank uses a number of financial measures when assessing its results and measuring overall performance. Some of these financial measures are not calculated in accordance with GAAP. Regulation 52-112 Respecting Non-GAAP and Other Financial Measures Disclosure (Regulation 52-112) prescribes disclosure requirements that apply to the following measures used by the Bank:

· non-GAAP financial measures;

· non-GAAP ratios;

· supplementary financial measures;

· capital management measures.

Non-GAAP Financial Measures

The Bank uses non-GAAP financial measures that do not have standardized meanings under GAAP and that therefore may not be comparable to similar measures used by other companies. Presenting non-GAAP financial measures helps readers to better understand how management analyzes results, shows the impacts of specified items on the results of the reported periods, and allows readers to better assess results without the specified items if they consider such items not to be reflective of the underlying performance of the Bank's operations. In addition, like many other financial institutions, the Bank uses the taxable equivalent basis to calculate net interest income, non-interest income, and income taxes. This calculation method consists of grossing up certain revenues taxed at lower rates (notably dividends) by the income tax to a level that would make it comparable to revenues from taxable sources in Canada. An equivalent amount is added to income taxes. This adjustment is necessary in order to perform a uniform comparison of the return on different assets regardless of their tax treatment.

The key non-GAAP financial measures used by the Bank to analyze its results are described below, and a quantitative reconciliation of these measures is presented in the tables in the Reconciliation of Non-GAAP Financial Measures section on pages 8 to 10 and in the Consolidated Results table on page 13. Note that, for the quarter and nine-month period ended July 31, 2023, a gain of $91 million ($67 million net of income taxes) recorded upon the fair value remeasurement of an equity interest and an expense related to the retroactive impact of the changes to the Excise Tax Act of $25 million ($18 million net of income taxes) were excluded from results. In addition, for the nine-month period ended July 31, 2023, a $24 million tax expense related to the Canadian government's 2022 tax measures was also excluded from results. No specified items had been excluded from results for the quarter and nine-month period ended July 31, 2022.

Adjusted Net Interest Income

This item represents net interest income on a taxable equivalent basis and excluding specified items, if any. A taxable equivalent is added to net interest income so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that net interest income can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.

Adjusted Non-Interest Income

This item represents non-interest income on a taxable equivalent basis and excluding specified items, if any. A taxable equivalent is added to non-interest income so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that non‑interest income can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.

Adjusted Total Revenues

This item represents total revenues on a taxable equivalent basis and excluding specified items, if any. It consists of adjusted net interest income and adjusted non-interest income. A taxable equivalent is added to total revenues so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that total revenues can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.

Adjusted Non-Interest Expenses

This item represents non-interest expenses excluding specified items, if any. Specified items, if any, are excluded so that non-interest expenses can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.

Adjusted Income Before Provisions for Credit Losses and Income Taxes

This item represents income before provisions for credit losses and income taxes on a taxable equivalent basis and excluding specified items, if any. It also represents the difference between adjusted total revenues and adjusted non-interest expenses. A taxable equivalent is added to income before provisions for credit losses and income taxes so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that income before provisions for credit losses and income taxes can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.

Adjusted Income Taxes

This item represents income taxes on a taxable equivalent basis and excluding income taxes on specified items, if any.

Adjusted Net Income

This item represents net income excluding specified items, if any. Specified items, if any, are excluded so that net income can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.

Adjusted Net income Attributable to Common Shareholders

This item represents net income attributable to common shareholders excluding specified items, if any. Specified items, if any, are excluded so that net income attributable to common shareholders can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.

Adjusted Basic Earnings Per Share

This item represents basic earnings per share excluding specified items, if any. Specified items, if any, are excluded so that basic earnings per share can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.

Adjusted Diluted Earnings Per Share

This item represents diluted earnings per share excluding specified items, if any. Specified items, if any, are excluded so that diluted earnings per share can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.

The Bank also uses the below-described measures to assess its results. A quantitative reconciliation of these non-GAAP financial measures is presented in the Reconciliation of Non-GAAP Financial Measures section on pages 8 to 10.

Adjusted Non-Trading Net Interest Income

This item represents non-trading net interest income on a taxable equivalent basis. It includes revenues related to financial assets and financial liabilities associated with non-trading activities, net of interest expenses and interest income related to the financing of these financial assets and liabilities, and is used to calculate adjusted non-trading net interest margin. A taxable equivalent is added to non-trading net interest income so that the performance of the various assets can be compared irrespective of their tax treatment.

Net Interest Income From Trading Activities on a Taxable Equivalent Basis

This item represents net interest income from trading activities plus a taxable equivalent. It comprises dividends related to financial assets and liabilities associated with trading activities, net of interest expenses and interest income related to the financing of these financial assets and liabilities. A taxable equivalent is added to net interest income from trading activities so that the performance of the various assets can be compared irrespective of their tax treatment.

Non-Interest Income Related to Trading Activities on a Taxable Equivalent Basis

This item represents non-interest income related to trading activities to which a taxable equivalent amount is added. It consists of realized and unrealized gains and losses as well as interest income on securities measured at fair value through profit or loss, income from held-for-trading derivative financial instruments, changes in the fair value of loans at fair value through profit or loss, changes in the fair value of financial instruments designated at fair value through profit or loss, certain commission income, other trading activity revenues, and any applicable transaction costs. A taxable equivalent amount is added to the non-interest income related to trading activities such that the returns of different assets can be compared regardless of their tax treatment.

Trading Activity Revenues on a Taxable Equivalent Basis

This item represents trading activity revenues plus a taxable equivalent. They comprise dividends related to financial assets and liabilities associated with trading activities, net of interest expenses and interest income related to the financing of these financial assets and liabilities, realized and unrealized gains and losses, and interest income on securities measured at fair value through profit or loss, income from held-for-trading derivative financial instruments, changes in the fair value of loans at fair value through profit or loss, changes in the fair value of financial instruments designated at fair value through profit or loss, certain commission income, other trading activity revenues, and any applicable transaction costs. A taxable equivalent is added to trading activity revenues so that the performance of the various assets can be compared irrespective of their tax treatment.

Non-GAAP Ratios

The Bank uses non-GAAP ratios that do not have standardized meanings under GAAP and that may therefore not be comparable to similar measures used by other companies. A non-GAAP ratio is a ratio in which at least one component is a non-GAAP financial measure. The Bank uses non-GAAP ratios to present aspects of its financial performance or financial position.

The key non-GAAP ratios used by the Bank are described below.

Adjusted Return on Common Shareholders' Equity (ROE)

This item represents ROE excluding specified items, if any. It is adjusted net income attributable to common shareholders expressed as a percentage of average equity attributable to common shareholders. It is a general measure of the Bank's efficiency in using equity. Specified items, if any, are excluded so that ROE can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.

Adjusted Dividend Payout Ratio

This item represents the dividend payout ratio excluding specified items, if any. It is dividends on common shares (per share amount) expressed as a percentage of adjusted basic earnings per share. This ratio is a measure of the proportion of earnings that is paid out to shareholders in the form of dividends. Specified items, if any, are excluded so that the dividend payout ratio can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.

Adjusted Operating Leverage

This item represents operating leverage on a taxable equivalent basis and excluding specified items, if any. It is the difference between the growth rate of adjusted total revenues and the growth rate of adjusted non-interest expenses, and it measures the sensitivity of the Bank's results to changes in its revenues. Adjusted operating leverage is presented on a taxable equivalent basis so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that the efficiency ratio can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.

Adjusted Efficiency Ratio

This item represents the efficiency ratio on a taxable equivalent basis and excluding specified items, if any. The ratio represents adjusted non-interest expenses expressed as a percentage of adjusted total revenues. It measures the efficiency of the Bank's operations. The adjusted efficiency ratio is presented on a taxable equivalent basis so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that the efficiency ratio can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.

Adjusted Net Interest Margin, Non-Trading

This item represents the non-trading net interest margin on a taxable equivalent basis. It is calculated by dividing net interest income related to adjusted non-trading activities by average non-trading interest-bearing assets. This ratio is a measure of the profitability of non-trading activities. The adjusted non-trading net interest margin includes adjusted non-trading net interest income, which includes a taxable equivalent amount so that the performance of the various assets can be compared irrespective of their tax treatment.

Supplementary Financial Measures

A supplementary financial measure is a financial measure that: (a) is not reported in the Bank's consolidated financial statements, and (b) is, or is intended to be, reported periodically to represent historical or expected financial performance, financial position, or cash flows. The composition of these supplementary financial measures is presented in table footnotes or in the Glossary section on pages 51 to 54 of this MD&A.

Capital Management Measures

The financial reporting framework used to prepare the financial statements requires disclosure that helps readers assess the Bank's capital management objectives, policies, and processes, as set out in IFRS in IAS 1 - Presentation of Financial Statements. The Bank has its own methods for managing capital and liquidity, and IFRS does not prescribe any particular calculation method. These measures are calculated using various guidelines and advisories issued by OSFI, which are based on the standards, recommendations, and best practices of the Basel Committee on Banking Supervision (BCBS), as presented in the following table.

OSFI guideline or advisory	Measure
Capital Adequacy Requirements	Common Equity Tier 1 (CET1) capital ratio Tier 1 capital ratio Total capital ratio CET1 capital Tier 1 capital Tier 2 capital Total capital Risk-weighted assets Maximum credit risk exposure under the Basel asset classes
Leverage Requirements	Leverage ratio Total exposure
Total Loss Absorbing Capacity (TLAC)	Key indicators - TLAC requirements Available TLAC TLAC ratio TLAC leverage ratio
Liquidity Adequacy Requirements	Liquid asset portfolio Encumbered assets and unencumbered assets Liquidity coverage ratio (LCR) High-quality liquid assets (HQLA) Cash inflows/outflows and net cash outflows Net stable funding ratio (NSFR) Available stable funding items Required stable funding items
Global Systemically Important Banks (G-SIBs) - Public Disclosure Requirements	G-SIB indicators

Reconciliation of Non-GAAP Financial Measures

Presentation of Results - Adjusted

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

Net interest income	837	192	(397)	273	(35)	870	1,419
Taxable equivalent	−	−	86	−	2	88	60
Net interest income - Adjusted	837	192	(311)	273	(33)	958	1,479

Non-interest income	303	437	807	19	79	1,645	994
Taxable equivalent	−	−	64	−	−	64	11
Gain on the fair value remeasurement of an equity interest⁽²⁾	−	−	−	−	(91)	(91)	−
Non-interest income - Adjusted	303	437	871	19	(12)	1,618	1,005

Total revenues - Adjusted	1,140	629	560	292	(45)	2,576	2,484
Non-interest expenses	613	375	272	100	57	1,417	1,305
Expense related to changes to the Excise Tax Act⁽³⁾	−	−	−	−	(25)	(25)	−
Non-interest expenses - Adjusted	613	375	272	100	32	1,392	1,305

Income before provisions for credit losses and income taxes - Adjusted	527	254	288	192	(77)	1,184	1,179
Provisions for credit losses	75	1	5	29	1	111	57
Income before income taxes - Adjusted	452	253	283	163	(78)	1,073	1,122
Income taxes	124	70	(72)	35	(9)	148	225
Taxable equivalent	−	−	150	−	2	152	71
Income taxes on the gain on the fair value remeasurement of an equity interest⁽²⁾	−	−	−	−	(24)	(24)	−
Income taxes on the expense related to changes to the Excise Tax Act⁽³⁾	−	−	−	−	7	7	−
Income taxes - Adjusted	124	70	78	35	(24)	283	296
Net income - Adjusted	328	183	205	128	(54)	790	826
Specified items after income taxes	−	−	−	−	49	49	−
Net income	328	183	205	128	(5)	839	826
Non-controlling interests	−	−	−	−	(1)	(1)	−

Net income attributable to the Bank's shareholders and holders of other equity instruments	328	183	205	128	(4)	840	826
Net income attributable to the Bank's shareholders and holders of other equity instruments - Adjusted	328	183	205	128	(53)	791	826
Dividends on preferred shares and distributions on limited recourse capital notes						36	26
Net income attributable to common shareholders - Adjusted						755	800

(1) For the quarter 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 to the audited annual consolidated financial statements for the year ended October 31, 2022.

(2) During the quarter ended July 31, 2023, the Bank concluded that it had lost significant influence over TMX Group Limited (TMX) and therefore ceased using the equity method to account for this investment. The Bank designated its investment in TMX as a financial asset measured at fair value through other comprehensive income in an amount of $191 million. Upon the fair value measurement, a gain of $91 million ($67 million net of income taxes) was recorded in the Other heading of segment results.

(3) During the quarter ended July 31, 2023, the Bank recorded a $25 million expense in the Other heading of segment results ($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).

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

Net interest income	2,464	590	(851)	841	(193)	2,851	4,064
Taxable equivalent	−	−	237	−	5	242	169
Net interest income - Adjusted	2,464	590	(614)	841	(188)	3,093	4,233

Non-interest income	900	1,293	2,363	55	114	4,725	3,254
Taxable equivalent	−	−	172	−	−	172	18
Gain on the fair value remeasurement of an equity interest⁽²⁾	−	−	−	−	(91)	(91)	−
Non-interest income - Adjusted	900	1,293	2,535	55	23	4,806	3,272

Total revenues - Adjusted	3,364	1,883	1,921	896	(165)	7,899	7,505
Non-interest expenses	1,820	1,111	842	296	125	4,194	3,884
Expense related to changes to the Excise Tax Act⁽³⁾	−	−	−	−	(25)	(25)	−
Non-interest expenses - Adjusted	1,820	1,111	842	296	100	4,169	3,884

Income before provisions for credit losses and income taxes - Adjusted	1,544	772	1,079	600	(265)	3,730	3,621
Provisions for credit losses	173	1	15	90	3	282	58
Income before income taxes - Adjusted	1,371	771	1,064	510	(268)	3,448	3,563
Income taxes	377	212	(116)	107	(47)	533	731
Taxable equivalent	−	−	409	−	5	414	187
Income taxes on the gain on the fair value remeasurement of an equity interest⁽²⁾	−	−	−	−	(24)	(24)	−
Income taxes on the expense related to changes to the Excise Tax Act⁽³⁾	−	−	−	−	7	7	−
Income taxes related to the Canadian government's 2022 tax measures⁽⁴⁾	−	−	−	−	(24)	(24)	−
Income taxes - Adjusted	377	212	293	107	(83)	906	918
Net income - Adjusted	994	559	771	403	(185)	2,542	2,645
Specified items after income taxes	−	−	−	−	25	25	−
Net income	994	559	771	403	(160)	2,567	2,645
Non-controlling interests	−	−	−	−	(2)	(2)	(1)
Net income attributable to the Bank's shareholders and holders of other equity instruments	994	559	771	403	(158)	2,569	2,646
Net income attributable to the Bank's shareholders and holders of other equity instruments - Adjusted	994	559	771	403	(183)	2,544	2,646
Dividends on preferred shares and distributions on limited recourse capital notes						106	77
Net income attributable to common shareholders - Adjusted						2,438	2,569

(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 to the audited annual consolidated financial statements for the year ended October 31, 2022.

(2) During the 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 gain of $91 million ($67 million net of income taxes) was recorded in the Other heading of segment results.

(3) During the nine-month period ended July 31, 2023, the Bank recorded a $25 million expense in the Other heading of segment results ($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).

(4) During the nine-month period ended July 31, 2023, the Bank recorded a $32 million tax expense in the Other heading of segment results with respect to the Canada Recovery Dividend, i.e., a one-time, 15% tax on the fiscal 2021 and 2020 average taxable income above $1 billion, as well as an $8 million tax recovery related to the 1.5% increase in the statutory tax rate, which includes the impact related to current and deferred taxes for fiscal 2022. For additional information on these tax measures, see the Income Taxes section on page 24.

Presentation of Basic and Diluted Earnings Per Share - Adjusted

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

Basic earnings per share	$	2.38	$	2.38	$	7.30	$	7.61
Gain on the fair value remeasurement of an equity interest⁽²⁾		(0.20)		−		(0.20)		−
Expense related to changes to the Excise Tax Act⁽³⁾		0.05		−		0.05		−
Income taxes related to the Canadian government's 2022 tax measures⁽⁴⁾		−		−		0.07		−
Basic earnings per share - Adjusted	$	2.23	$	2.38	$	7.22	$	7.61

Diluted earnings per share	$	2.36	$	2.35	$	7.23	$	7.53
Gain on the fair value remeasurement of an equity interest⁽²⁾		(0.20)		−		(0.20)		−
Expense related to changes to the Excise Tax Act⁽³⁾		0.05		−		0.05		−
Income taxes related to the Canadian government's 2022 tax measures⁽⁴⁾		−		−		0.07		−
Diluted earnings per share - Adjusted	$	2.21	$	2.35	$	7.15	$	7.53

(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 to the audited annual consolidated financial statements for the year ended October 31, 2022.

(2) 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 gain of $91 million ($67 million net of income taxes) was recorded in the Other heading of segment results.

(3) During the quarter and nine-month period ended July 31, 2023, the Bank recorded a $25 million expense in the Other heading of segment results ($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).

Presentation of Non-Trading Net Interest Income - Adjusted

(millions of Canadian dollars)	Quarter ended July 31		Nine months ended July 31
	2023	2022	2023	2022

Net interest income − Adjusted	958	1,479	3,093	4,233
Less: Net interest income (loss) related to trading activities on a taxable equivalent basis	(430)	293	(948)	895
Net interest income, non-trading − Adjusted	1,388	1,186	4,041	3,338

Highlights

(millions of Canadian dollars, except per share amounts)			Quarter ended July 31							Nine months ended July 31
			2023			2022⁽¹⁾		% Change		2023				2022⁽¹⁾			% Change
Operating results
Total revenues			2,515			2,413		4		7,576				7,318			4
Income before provisions for credit losses and income taxes			1,098			1,108		(1)		3,382				3,434			(2)
Net income			839			826		2		2,567				2,645			(3)
Return on common shareholders' equity⁽²⁾			16.2	%		17.9	%			17.2		%		20.1		%
Earnings per share
	Basic	$	2.38		$	2.38		−	$	7.30			$	7.61			(4)
	Diluted	$	2.36		$	2.35		−	$	7.23			$	7.53			(4)
Operating results - Adjusted⁽³⁾
Total revenues - Adjusted⁽³⁾			2,576			2,484		4		7,899				7,505			5
Income before provisions for credit losses and income taxes - Adjusted⁽³⁾			1,184			1,179		−		3,730				3,621			3
Net income - Adjusted⁽³⁾			790			826		(4)		2,542				2,645			(4)
Return on common shareholders' equity - Adjusted⁽⁴⁾			15.3	%		17.9	%			17.0		%		20.1		%
Operating leverage - Adjusted⁽⁴⁾			(3.0)	%		1.4	%			(2.1)		%		2.4		%
Efficiency ratio - Adjusted⁽⁴⁾			54.0	%		52.5	%			52.8		%		51.8		%
Earnings per share - Adjusted⁽³⁾
	Basic	$	2.23		$	2.38		(6)	$	7.22			$	7.61			(5)
	Diluted	$	2.21		$	2.35		(6)	$	7.15			$	7.53			(5)
Common share information
Dividends declared		$	1.02		$	0.92		11	$	2.96			$	2.66			11
Book value⁽²⁾		$	58.75		$	54.29			$	58.75			$	54.29
Share price
	High	$	103.28		$	97.87			$	103.45			$	105.44
	Low	$	94.62		$	83.33			$	91.02			$	83.33
	Close	$	103.28		$	89.85			$	103.28			$	89.85
Number of common shares (thousands)			338,228			336,456				338,228				336,456
Market capitalization			34,932			30,231				34,932				30,231

(millions of Canadian dollars)									As at July 31, 2023				As at October 31, 2022				% Change
Balance sheet and off-balance-sheet
Total assets									426,015				403,740				6
Loans and acceptances, net of allowances									219,433				206,744				6
Deposits									282,323				266,394				6
Equity attributable to common shareholders									19,872				18,594				7
Assets under administration⁽²⁾									678,753				616,165				10
Assets under management⁽²⁾									125,603				112,346				12

Regulatory ratios under Basel III⁽⁵⁾
Capital ratios
	Common Equity Tier 1 (CET1)								13.5		%		12.7		%
	Tier 1								16.1		%		15.4		%
	Total								16.9		%		16.9		%
Leverage ratio									4.2		%		4.5		%
TLAC ratio⁽⁵⁾									29.9		%		27.7		%
TLAC leverage ratio⁽⁵⁾									7.9		%		8.1		%
Liquidity coverage ratio (LCR)⁽⁵⁾									146		%		140		%
Net stable funding ratio (NSFR)⁽⁵⁾									118		%		117		%
Other information
Number of employees - Worldwide (full-time equivalent)									28,901				27,103				7
Number of branches in Canada									372				378				(2)
Number of banking machines in Canada									940				939				−

(2) See the Glossary section on pages 51 to 54 for details on the composition of these measures.

(3) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP financial measures.

(4) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP ratios.

(5) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.

Economic Review and Outlook

Global Economy

After months of increases, inflation worldwide finally appears to be improving. And although this good news seems to have restored optimism, especially on the stock markets, the battle to bring inflation back into line with the goals of central banks is far from won. Recall that the recent decline in prices is essentially due to a significant slowdown in the goods sector, and particularly a decrease in energy prices. The price of a barrel of oil has recently soared, which could limit the cooling of inflation in the next few months. The Chinese economy could counterbalance this headwind, since a vast amount of data from China indicates that it is currently experiencing a significant slowdown. The decline in Chinese producers' prices suggests an upcoming decrease in import prices in the developed nations. On the other hand, in the services sector, there is still no sign of significant progress. In this context, it is not surprising that many central banks are still in tightening mode. In many regions of the world, however, the central bankers' efforts to curb inflation are coming up against lax fiscal policy. This situation risks forcing the central banks to tighten their monetary policy more than they would otherwise have done, which increases the risk of a hard landing and, at the very least, is likely to inflict unnecessary economic suffering. We anticipate growth of 2.9%⁽¹⁾ this year, followed by only 2.1%⁽¹⁾ in 2024.

In the United States, the economy has been in good shape since the beginning of the year, but there are numerous signs of difficulties on the horizon. Household spending remains resilient for the time being, thanks to the excess savings amassed by U.S. consumers during the pandemic. Nevertheless, this resource is being eroded fast, based on the savings rate, which has been well below the pre-pandemic level for several quarters. We foresee that, at this rate, the pandemic savings will be used up in the last quarter of this year, which should tamp down consumption. Another obstacle for consumers is that this will occur at the exact same time that 40.5 million Americans resume their monthly student debt payments, which average around US$390. At the national level, these payments will reduce disposable income by 1% per month. Even assuming the labour market remains stable, this combination of factors should lead to a significant decrease in consumption. According to this scenario, and considering that financial conditions are likely to become even tighter, we believe that the U.S. economy will slow down considerably in the coming months, and might even enter a technical recession at the start of 2024 that could last for three quarters. Thus, production should grow by 2.3%⁽¹⁾ through 2023 before stagnating in 2024.

Canadian Economy

The Bank of Canada has raised its policy rate twice since June, losing patience with the lack of progress in curbing inflation and with domestic demand that it considers to be overly high. In our view, this decision is a dangerous one since the economy is already demonstrating an underlying weakness, and it has not yet even absorbed the entire impact of the rate increases applied since the start of the cycle of tightening monetary policy. First of all, although real GDP per capita is continuing to grow in absolute terms, it has been contracting for 12 months, which is a situation that has never before coincided with an increase in interest rates. In addition, the labour market is starting to loosen up, according to the increase in the unemployment rate, the decline in the job vacancy rate and the softening of hiring intentions. This is hardly surprising considering that corporate earnings have been dropping for three quarters and a high proportion of SMEs say that wages are creating difficulties for them. The challenge of profitability will make businesses much more cautious in the coming months, particularly due to the economic slowdown that we are forecasting, considering that monetary policy is at its most restrictive, in real terms, since 2009 and the most restrictive of all the G7 nations. The third quarter should avoid a contraction thanks to the "grocery rebate," a federal government tax measure that is frustrating the Bank of Canada's efforts to cool the economy. Nevertheless, we doubt that excess savings can prevent a contraction of consumption thereafter in the context of a far from negligible interest payment shock. In real terms per capita, transaction and notice deposits are only 5% higher than in 2019, which is by no means the bonanza one might have expected. Therefore, we continue to forecast anemic economic growth rates of 1.4%⁽¹⁾ in 2023 and 0%⁽¹⁾ in 2024.

Quebec Economy

From an economic growth perspective, Quebec had a mixed start to the year compared with the rest of Canada. Over the past four months, the pace of provincial GDP growth has trailed or matched national growth. This underperformance resulted in particular from Quebec's record as the province with the slowest population growth. For the coming quarters, sluggish population growth and the rising impact of interest rate hikes will continue to rein in growth. However, we believe some factors will offset this source of weakness. First, Quebec households have a lower debt ratio than in the rest of Canada, which means the interest payment shock packs less of a punch than elsewhere. Also, Quebec has easier access to housing compared to the rest of the country, and Quebec's predominance of hydroelectricity means households are less exposed to soaring electricity costs. Quebec also has a highly diversified economy, and a variety of tax support measures are provided by the provincial government. In the labour market, weaker immigration is expected curb the rise in the unemployment rate in an environment that may prompt businesses to approach hiring with greater caution. What is more, we note that the Quebec labour market continued to report Canada's lowest unemployment rate in July (4.5%). In light of all these factors, we believe that a recession is still avoidable in Quebec. Our growth forecast for the province is 1.2%⁽¹⁾ in 2023 followed by stagnation in 2024.

(1) Actual GDP growth forecasts, National Bank Financial's Economics and Strategy group

Financial Analysis

Consolidated Results

(millions of Canadian dollars)	Quarter ended July 31						Nine months ended July 31
	2023		2022⁽¹⁾		% Change		2023		2022⁽¹⁾		% Change

Operating results
Net interest income	870		1,419			(39)	2,851		4,064			(30)
Non-interest income	1,645		994			65	4,725		3,254			45
Total revenues	2,515		2,413			4	7,576		7,318			4
Non-interest expenses	1,417		1,305			9	4,194		3,884			8
Income before provisions for credit losses and income taxes	1,098		1,108			(1)	3,382		3,434			(2)
Provisions for credit losses	111		57				282		58
Income before income taxes	987		1,051			(6)	3,100		3,376			(8)
Income taxes	148		225			(34)	533		731			(27)
Net income	839		826			2	2,567		2,645			(3)
Diluted earnings per share (dollars)	2.36		2.35			−	7.23		7.53			(4)

Taxable equivalent basis⁽²⁾
Net interest income	88		60				242		169
Non-interest income	64		11				172		18
Income taxes	152		71				414		187
Impact of taxable equivalent basis on net income	−		−				−		−

Specified items⁽²⁾
Gain on the fair value remeasurement of an equity interest	91		−				91		−
Expense related to changes to the Excise Tax Act	(25)		−				(25)		−
Specified items before income taxes	66		−				66		−
Income taxes related to the Canadian government's 2022 tax measures	−		−				24		−
Income taxes related to other specified items	17		−				17		−
Specified items after income taxes	49		−				25		−
Operating results - Adjusted⁽²⁾
Net interest income - Adjusted	958		1,479			(35)	3,093		4,233			(27)
Non-interest income - Adjusted	1,618		1,005			61	4,806		3,272			47
Total revenues - Adjusted	2,576		2,484			4	7,899		7,505			5
Non-interest expenses - Adjusted	1,392		1,305			7	4,169		3,884			7
Income before provisions for credit losses and income taxes - Adjusted	1,184		1,179			−	3,730		3,621			3
Provisions for credit losses	111		57				282		58
Income before income taxes - Adjusted	1,073		1,122			(4)	3,448		3,563			(3)
Income taxes - Adjusted	283		296			(4)	906		918			(1)
Net income - Adjusted	790		826			(4)	2,542		2,645			(4)
Diluted earnings per share - Adjusted (dollars)	2.21		2.35			(6)	7.15		7.53			(5)
Average assets⁽³⁾	434,121		391,966			11	426,821		388,463			10
Average loans and acceptances⁽³⁾	218,115		197,650			10	213,823		191,092			12
Average deposits⁽³⁾	283,477		260,355			9	282,395		255,525			11
Operating leverage⁽⁴⁾	(4.4)	%	0.5	%			(4.5)	%	2.1	%
Operating leverage - Adjusted⁽⁵⁾	(3.0)	%	1.4	%			(2.1)	%	2.4	%
Efficiency ratio⁽⁴⁾	56.3	%	54.1	%			55.4	%	53.1	%
Efficiency ratio - Adjusted⁽⁵⁾	54.0	%	52.5	%			52.8	%	51.8	%
Net interest margin, non-trading - Adjusted⁽⁵⁾	2.18	%	1.99	%			2.15	%	1.93	%

(2) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP financial measures.

(3) Represents an average of the daily balances for the period.

(4) See the Glossary section on pages 51 to 54 for details on the composition of these measures.

(5) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP ratios.

Financial Results

For the third quarter of 2023, the Bank reported net income of $839 million, up 2% from $826 million in the third quarter of 2022. Third-quarter diluted earnings per share stood at $2.36 compared to $2.35 in the third quarter of 2022. Revenue growth in all of the business segments, aside from the Financial Markets segment, was partly offset by higher provisions for credit losses.

For the third quarter of 2023, adjusted net income totalled $790 million, which excludes a gain of $91 million on the fair value remeasurement of an equity interest ($67 million net of income taxes) and an expense of $25 million ($18 million net of income taxes) related to the retroactive impact of the changes to the Excise Tax Act, down 4% from $826 million in the third quarter of 2022. Third-quarter adjusted diluted earnings per share stood at $2.21 compared to $2.35 in the third quarter of 2022. Revenue growth in all of the business segments, aside from the Financial Markets segment, was partly offset by higher provisions for credit losses. Adjusted income before provisions for credit losses and income taxes stood at $1,184 million in the third quarter of 2023, an increase from $1,179 million in the same quarter of 2022.

For the nine-month period ended July 31, 2023, the Bank's net income totalled $2,567 million, down 3% from $2,645 million in the same period of 2022. Diluted earnings per share stood at $7.23 for the nine-month period ended July 31, 2023 versus $7.53 for the nine months ended July 31, 2022. These decreases were partly due to higher non-interest expenses, higher provisions for credit losses, and the impact of a tax expense arising from the Canadian government's 2022 tax measures recorded in the first quarter of 2023.

For the nine months ended July 31, 2023, adjusted net income totalled $2,542 million, which excludes a $24 million tax expense arising from the Canadian government's 2022 tax measures, a gain of $91 million on the fair value remeasurement of an equity interest ($67 million net of income taxes), and an expense of $25 million ($18 million net of income taxes) related to the retroactive impact of the changes to the Excise Tax Act, down 4% from $2,645 million in the same nine-month period of 2022. Nine-month adjusted diluted earnings per share stood at $7.15 compared to $7.53 in the nine-month period of 2022. Revenue growth in all of the business segments was offset by higher non-interest expenses and higher provisions for credit losses. Nine-month adjusted income before provisions for credit losses and income taxes rose 3% year over year.

Return on common shareholders' equity was 17.2% for the nine-month period ended July 31, 2023 compared to 20.1% in the same nine-month period of 2022.

Total Revenues

For the third quarter of 2023, the Bank's total revenues amounted to $2,515 million, rising $102 million or 4% year over year. In the Personal and Commercial segment, third-quarter total revenues rose 9% year over year owing to growth in loans and deposits, to a higher net interest margin resulting from interest rate hikes, and to increases in credit card revenues and revenues from bankers' acceptances, partly offset by a decrease in insurance revenues and revenues from foreign exchange activities. In the Wealth Management segment, third-quarter total revenues grew 6% year over year, mainly due to higher net interest income resulting from higher interest rates as well as fee-based revenues, notably revenues from mutual funds and from investment management and trust service fees. This growth was tempered by securities brokerage commissions, which decreased year over year given lower commissions on transactions. In the Financial Markets segment, third-quarter total revenues on a taxable equivalent basis decreased by 8% year over year due to a decrease in global markets revenues, partly offset by growth in corporate and investment banking revenues. In the USSF&I segment, third-quarter total revenues were up 7% year over year owing to sustained revenue growth at ABA Bank as a result of business growth as well as to an increase in Credigy's revenues. In addition, during the third quarter of 2023, a gain of $91 million was recorded in other revenues following a fair value remeasurement of an equity interest.

For the nine-month period ended July 31, 2023, the Bank's total revenues amounted to $7,576 million, up 4% or $258 million from $7,318 million in the same period of 2022. In the Personal and Commercial segment, nine-month total revenues rose $401 million or 14% year over year owing to an increase in net interest income (as both loans and deposits grew), a higher net interest margin (resulting from higher interest rates) as well as to increases in credit card revenues and revenues from bankers' acceptances. In the Wealth Management segment, nine-month total revenues grew 7%, mainly due to an increase in net interest income, partly offset by a decrease in fee-based revenues and transaction-based and other revenues given weak market performance compared to the first nine months of 2022. In the Financial Markets segment, nine-month total revenues on a taxable equivalent basis were up $16 million or 1% year over year given growth in corporate and investment banking revenues, partly offset by a decrease in global markets revenues. In the USSF&I segment, nine-month total revenues were up 6% year over year owing to revenue growth, driven by business growth, at ABA Bank. In addition, nine-month other revenues included a gain of $91 million recorded upon the fair value remeasurement of an equity interest.

Non-Interest Expenses

For the third quarter of 2023, non-interest expenses stood at $1,417 million, up 9% from the third quarter of 2022. The increase was essentially attributable to higher compensation and employee benefits, notably due to wage growth and a greater number of employees, partly offset by a decrease in variable compensation. Occupancy expense was also up, partly related to expansion of the ABA Bank network. An increase in technology expenses, including amortization, was attributable to significant investments made to support the Bank's technological evolution and business development plan. Other expenses were also up, notably due to an increase in travel and business development expenses (as activities with clients resumed) and to an increase in advertising expenses. Other expenses also included a $25 million expense related to the retroactive impact of the changes to the Excise Tax Act. Third-quarter adjusted non-interest expenses stood at $1,392 million, up 7% from $1,305 million in third-quarter 2022.

Nine-month non-interest expenses stood at $4,194 million, an 8% year-over-year increase that was due to the same reasons provided above for the third quarter. The increase was also due to a higher occupancy expense related to the Bank's new head office building as well as to a reversal of the provision for the compensatory tax on salaries paid in Quebec of $20 million in the first quarter of 2022. Nine-month adjusted non-interest expenses stood at $4,169 million, a 7% year-over-year increase from $3,884 million in the same nine-month period of 2022.

Provisions for Credit Losses

For the third quarter of 2023, the Bank recorded $111 million in provisions for credit losses compared to $57 million in the same quarter of 2022. An increase in provisions for credit losses on non-impaired loans of $5 million was due to loan origination and the migration of credit risk. Third-quarter provisions for credit losses on impaired loans, excluding purchased or originated credit-impaired (POCI) loans⁽¹⁾ rose $68 million year over year. This increase came from Personal Banking (including credit card receivables) reflecting a normalization of credit performance, from Commercial Banking, from the Financial Markets segment, and from Credigy (excluding POCI loans). These increases were partly offset by a decrease in provisions for credit losses on Credigy's POCI loans of $19 million compared to the third quarter of 2022 due to a favourable remeasurement of certain portfolios.

For the nine-month period ended July 31, 2023, the Bank recorded $282 million in provisions for credit losses compared to $58 million in the same period of 2022. This increase stems mainly from higher provisions for credit losses on non-impaired loans recorded to reflect new loan origination, credit risk migration, and a less favourable macroeconomic outlook (notably, rising inflation and geopolitical instability). As for provisions for credit losses on impaired loans excluding POCI loans⁽¹⁾, they were also up, due to Personal Banking (including credit card receivables), Commercial Banking, the Financial Markets segment, and the Credigy subsidiary. These increases were partly offset by a decrease in provisions for credit losses on impaired loans at ABA Bank. Nine-month provisions for credit losses on Credigy's POCI loans were also down given a favourable remeasurement of certain portfolios during the first nine months of 2023.

Income Taxes

For the third quarter of 2023, income taxes stood at $148 million compared to $225 million in the same quarter of 2022. The 2023 third-quarter effective income tax rate was 15% compared to 21% in the same quarter of 2022. The year-over-year change in effective income tax rate stems mainly from a higher level and proportion of tax-exempt dividend income and from higher income in lower tax-rate jurisdictions, factors that were partly offset by the additional 1.5% tax on banks and life insurers.

For the nine-month period ended July 31, 2023, the effective income tax rate stood at 17% compared to 22% in the same period of 2022. The year-over-year change in effective income tax rate stems from the same reasons as those mentioned for the quarter, partly offset by the impact of the Canadian government's 2022 tax measures recorded in the first quarter of 2023, namely, the Canada Recovery Dividend and the additional 1.5% tax on banks and life insurers.

(1) See the Glossary section on pages 51 to 54 for details on the composition of these measures.

Results by Segment

The Bank carries out its activities in four business segments: Personal and Commercial, Wealth Management, Financial Markets, and U.S. Specialty Finance and International, which comprises the activities of the Credigy Ltd. (Credigy) and Advanced Bank of Asia Limited (ABA Bank) subsidiaries. Other operating activities, certain specified items, Treasury activities, and the operations of the Flinks Technology Inc. (Flinks) subsidiary are grouped in the Other heading of segment results. Each reportable segment is distinguished by services offered, type of clientele, and marketing strategy.

Personal and Commercial

(millions of Canadian dollars)	Quarter ended July 31					Nine months ended July 31
	2023		2022⁽¹⁾		% Change	2023		2022⁽¹⁾		% Change

Operating results
Net interest income	837		741		13	2,464		2,080		18
Non-interest income	303		302		−	900		883		2
Total revenues	1,140		1,043		9	3,364		2,963		14
Non-interest expenses	613		560		9	1,820		1,667		9
Income before provisions for credit losses and income taxes	527		483		9	1,544		1,296		19
Provisions for credit losses	75		49		53	173		55
Income before income taxes	452		434		4	1,371		1,241		10
Income taxes	124		115		8	377		329		15
Net income	328		319		3	994		912		9
Net interest margin⁽²⁾	2.34	%	2.17	%		2.34	%	2.11	%
Average interest-bearing assets⁽²⁾	141,939		135,396		5	140,493		132,018		6
Average assets⁽³⁾	148,934		142,241		5	147,462		138,670		6
Average loans and acceptances⁽³⁾	148,142		141,517		5	146,660		137,934		6
Net impaired loans⁽²⁾	246		168		46	246		168		46
Net impaired loans as a % of total loans and acceptances⁽²⁾	0.2	%	0.1	%		0.2	%	0.1	%
Average deposits⁽³⁾	86,852		83,012		5	85,310		80,680		6
Efficiency ratio⁽²⁾	53.8	%	53.7	%		54.1	%	56.3	%

(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 to the audited annual consolidated financial statements for the year ended October 31, 2022).

(2) See the Glossary section on pages 51 to 54 for details on the composition of these measures.

(3) Represents an average of the daily balances for the period.

In the Personal and Commercial segment, net income totalled $328 million in the third quarter of 2023, up 3% from $319 million in the third quarter of 2022. The segment's third-quarter income before provisions for credit losses and income taxes grew 9% year over year. Third-quarter net interest income rose 13% year over year owing to growth in personal and commercial loans and deposits as well as to a higher net interest margin, which was 2.34% in third-quarter 2023 compared to 2.17% in third-quarter 2022. This growth reflects the interest rate hikes and was mainly attributable to the deposit margin. As for third-quarter non-interest income, it remained relatively stable year over year.

Personal Banking's third-quarter total revenues increased by $40 million year over year. This increase came from an increase in net interest income driven by loan and deposit growth, from an improved margin on deposits, and from higher card revenues, partly offset by a decrease in insurance revenues. Commercial Banking's third-quarter total revenues grew $57 million year over year, mainly due to an increase in net interest income that was driven by loan and deposit growth and an improved deposit margin as well as to increases in revenues from bankers' acceptances, partly offset by a decrease in revenues from foreign exchange activities and derivative financial instruments.

For the third quarter of 2023, the segment's non-interest expenses stood at $613 million, a 9% year-over-year increase that was mainly due to higher compensation and employee benefits (given wage growth and a greater number of employees), greater investments made as part of the segment's technological evolution, and higher operations support charges. At 53.8%, the third-quarter efficiency ratio compares to 53.7% in the third quarter of 2022. The segment recorded $75 million in provisions for credit losses in the third quarter of 2023 compared to $49 million in the same quarter of 2022. The increase was mainly due to higher provisions for credit losses on impaired Personal Banking loans (including credit card receivables), reflecting continued normalization of credit performance, as well as on impaired Commercial Banking loans. Furthermore, provisions for credit losses on non-impaired loans were down year over year.

For the nine-month period ended July 31, 2023, Personal and Commercial's net income totalled $994 million, up from $912 million for the first nine months of last year. This increase was mainly due to 14% growth in the segment's total revenues. The segment's nine-month income before provisions for credit losses and income taxes stood at $1,544 million, rising 19% year over year. Personal Banking's nine-month total revenues were up, mainly due to growth in loans and deposits and to a higher deposit margin (partly offset by a lower margin on loans) as well as to increases in credit card revenues, partly offset by a decrease in insurance revenues. In addition, Commercial Banking's nine-month total revenues rose 23% owing to growth in loans and deposits, to a higher net interest margin, as well as to increases in revenues from bankers' acceptances, from letters of credit and guarantee, and from derivative financial instruments.

Nine-month non-interest expenses stood at $1,820 million, a 9% year-over-year increase that was due to the same reasons provided above for the third quarter. The efficiency ratio was 54.1% for the nine-month period, an improvement of 2.2 percentage points from the same period in 2022. The segment's nine-month provisions for credit losses stood at $173 million compared to $55 million in the same period of 2022. This increase came from higher provisions for credit losses on non-impaired loans recorded to reflect new loan origination and a less favourable macroeconomic outlook. In addition, nine-month provisions for credit losses on impaired loans were also up year over year.

Wealth Management

(millions of Canadian dollars)	Quarter ended July 31					Nine months ended July 31
	2023		2022⁽¹⁾		% Change	2023		2022⁽¹⁾		% Change

Operating results
Net interest income	192		161		19	590		407		45
Fee-based revenues	364		351		4	1,061		1,082		(2)
Transaction-based and other revenues	73		79		(8)	232		273		(15)
Total revenues	629		591		6	1,883		1,762		7
Non-interest expenses	375		351		7	1,111		1,068		4
Income before provisions for credit losses and income taxes	254		240		6	772		694		11
Provisions for credit losses	1		1		−	1		1		−
Income before income taxes	253		239		6	771		693		11
Income taxes	70		64		9	212		185		15
Net income	183		175		5	559		508		10
Average assets⁽²⁾	8,702		8,518		2	8,582		8,394		2
Average loans and acceptances⁽²⁾	7,711		7,455		3	7,602		7,287		4
Net impaired loans⁽³⁾	6		12		(50)	6		12		(50)
Average deposits⁽²⁾	40,028		34,881		15	40,194		34,569		16
Assets under administration⁽³⁾	678,753		621,126		9	678,753		621,126		9
Assets under management⁽³⁾	125,603		113,904		10	125,603		113,904		10
Efficiency ratio⁽³⁾	59.6	%	59.4	%		59.0	%	60.6	%

(2) Represents an average of the daily balances for the period.

(3) See the Glossary section on pages 51 to 54 for details on the composition of these measures.

In the Wealth Management segment, net income totalled $183 million in the third quarter of 2023, a 5% increase from $175 million in the third quarter of 2022. The segment's third-quarter total revenues amounted to $629 million, up $38 million or 6% from $591 million in the third quarter of 2022. This increase in revenues was driven by a $31 million or 19% increase in net interest income resulting from the interest rate hikes. Third-quarter fee-based revenues increased by 4%, as there was stronger stock market performance year over year and positive net inflows into various solutions. As for transaction-based and other revenues, they decreased 8% year over year as a result of lower commissions on transactions in the third quarter of 2023.

For the third quarter of 2023, the segment's non-interest expenses stood at $375 million, a $24 million or 7% year-over-year increase that was due to higher compensation and employee benefits and higher technology expenses related to the segment's initiatives. The efficiency ratio was 59.6% in the third quarter of 2023 compared to 59.4% in the same quarter of 2022. Provisions for credit losses were $1 million, stable compared to the third quarter of 2022.

For the first nine months of 2023, Wealth Management's net income totalled $559 million, up 10% from $508 million in the same period of 2022. The segment's nine-month total revenues amounted to $1,883 million, up 7% from $1,762 million in the same period of 2022. Its nine-month net interest income grew $183 million or 45% year over year owing to higher interest rates. Nine-month fee-based revenues decreased by 2%, as there was weaker stock market performance year over year, partly offset by positive net inflows into various solutions. As for transaction-based and other revenues, they decreased 15% year over year. Nine-month non-interest expenses stood at $1,111 million compared to $1,068 million in the first nine months of 2022; this increase was due to higher compensation and employee benefits and to an increase in technology expenses related to the segment's initiatives, partly offset by a decrease in variable compensation and external management fees. The segment's nine-month efficiency ratio was 59.0%, an improvement of 1.6 percentage points from 60.6% in the same period of 2022. Nine-month provisions for credit losses stood at $1 million, stable compared to the same period in 2022.

Financial Markets

(taxable equivalent basis)⁽¹⁾
(millions of Canadian dollars)		Quarter ended July 31					Nine months ended July 31
		2023		2022⁽²⁾		% Change	2023		2022⁽²⁾		% Change

Operating results
Global markets
	Equities	171		202		(15)	585		772		(24)
	Fixed-income	85		117		(27)	333		296		13
	Commodities and foreign exchange	21		50		(58)	141		130		8
		277		369		(25)	1,059		1,198		(12)
Corporate and investment banking		283		242		17	862		707		22
Total revenues⁽¹⁾		560		611		(8)	1,921		1,905		1
Non-interest expenses		272		254		7	842		775		9
Income before provisions for credit losses and income taxes		288		357		(19)	1,079		1,130		(5)
Provisions for credit losses		5		(23)			15		(55)
Income before income taxes		283		380		(26)	1,064		1,185		(10)
Income taxes⁽¹⁾		78		101		(23)	293		314		(7)
Net income		205		279		(27)	771		871		(11)
Average assets⁽³⁾		186,236		149,653		24	176,575		152,183		16
Average loans and acceptances⁽³⁾ (Corporate Banking only)		29,974		22,991		30	28,613		21,549		33
Net impaired loans⁽⁴⁾		56		1			56		1
Net impaired loans as a % of total loans and acceptances⁽⁴⁾		0.2	%	−	%		0.2	%	−	%
Average deposits⁽³⁾		59,287		46,761		27	56,803		46,486		22
Efficiency ratio⁽⁴⁾		48.6	%	41.6	%		43.8	%	40.7	%

(1) The Total revenues and Income taxes items of the Financial Markets segment are presented on a taxable equivalent basis. Taxable equivalent basis is a calculation method that consists in grossing up certain revenues taxed at lower rates by the income tax to a level that would make it comparable to revenues from taxable sources in Canada. For the quarter ended July 31, 2023, Total revenues were grossed up by $150 million ($70 million in 2022) and an equivalent amount was recognized in Income taxes. For the nine-month period ended July 31, 2023, Total revenues were grossed up by $409 million ($183 million in 2022) and an equivalent amount was recognized in Income taxes. The effect of these adjustments is reversed under the Other heading in the segment results.

(2) 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 to the audited annual consolidated financial statements for the year ended October 31, 2022).

(3) Represents an average of the daily balances for the period.

(4) See the Glossary section on pages 51 to 54 for details on the composition of these measures.

In the Financial Markets segment, net income totalled $205 million in the third quarter of 2023, down 27% from $279 million in the third quarter of 2022. Third-quarter total revenues amounted to $560 million, down $51 million or 8% from $611 million in the third quarter of 2022. Global markets revenues were down 25% given decreases across all of its revenue categories. Third-quarter corporate and investment banking revenues grew 17% year over year given an increase in revenues from capital markets activity and banking service revenues, partly offset by a decrease in revenues from merger and acquisition activity.

For the third quarter of 2023, non-interest expenses stood at $272 million, a 7% year-over-year increase that was due to higher wages and employee benefits, technology investments made by the segment, and professional fees. This increase was partly offset by a decrease in variable compensation resulting from the decrease in the segment's third-quarter revenues. At 48.6%, the third-quarter efficiency ratio deteriorated when compared to 41.6% in the third quarter of 2022. The segment recorded $5 million in provisions for credit losses in the third quarter of 2023 compared to $23 million in recoveries of credit losses in the third quarter of 2022. This increase came from higher recoveries for credit losses on impaired loans in the third quarter of 2022 as well as from an increase in provisions for credit losses on non-impaired loans of $8 million related to loan origination and a less favourable macroeconomic environment in the third quarter of 2023.

For the nine-month period ended July 31, 2023, the Financial Markets segment's net income totalled $771 million, down 11% from the same period of 2022. As for nine-month total revenues, they amounted to $1,921 million, up $16 million or 1% from $1,905 million in the same period of 2022. Global markets revenues were down 12% due to a 24% decrease in revenues from equity securities, whereas revenues from fixed-income securities rose 13% and revenues from commodities and foreign exchange activities rose 8%. Nine-month corporate and investment banking revenues grew 22% year over year given an increase in revenues from merger and acquisition activity and in banking service revenues.

For the first nine months of 2023, non-interest expenses rose 9% year over year as a result of higher compensation and employee benefits (notably wage growth) as well as higher technology investment expenses, higher professional fees, and other expenses related to the segment's business growth. The efficiency ratio was 43.8% for the nine-month period compared to 40.7% in the same period of 2022. The segment recorded $15 million in provisions for credit losses during the first nine months of 2023 compared to $55 million in recoveries of credit losses in the same nine-month period of 2022. This increase came from higher recoveries for credit losses on impaired loans recorded in the nine-month period ended July 31, 2022 as well as from an increase in provisions for credit losses on non-impaired loans related to loan origination and a less favourable macroeconomic environment compared to the same period in 2022.

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

(millions of Canadian dollars)		Quarter ended July 31					Nine months ended July 31
		2023		2022		% Change	2023		2022		% Change

Total revenues
	Credigy	112		105		7	357		351		2
	ABA Bank	181		168		8	539		490		10
	International	(1)		−			−		2
		292		273		7	896		843		6
Non-interest expenses
	Credigy	33		31		6	102		99		3
	ABA Bank	66		55		20	192		154		25
	International	1		−			2		1
		100		86		16	296		254		17
Income before provisions for credit losses and income taxes		192		187		3	600		589		2
Provisions for credit losses
	Credigy	20		19		5	71		37		92
	ABA Bank	9		10		(10)	19		19		−
		29		29		−	90		56		61
Income before income taxes		163		158		3	510		533		(4)
Income taxes
	Credigy	12		11		9	38		45		(16)
	ABA Bank	23		22		5	69		63		10
		35		33		6	107		108		(1)
Net income
	Credigy	47		44		7	146		170		(14)
	ABA Bank	83		81		2	259		254		2
	International	(2)		−			(2)		1
		128		125		2	403		425		(5)
Average assets⁽¹⁾		23,589		18,941		25	22,586		18,383		23
Average loans and receivables⁽¹⁾		19,103		15,438		24	18,472		14,826		25
Purchased or originated credit-impaired (POCI) loans		532		336		58	532		336		58
Net impaired loans excluding POCI loans⁽²⁾		229		120			229		120
Average deposits⁽¹⁾		10,966		8,722		26	10,454		8,320		26
Efficiency ratio⁽²⁾		34.2	%	31.5	%		33.0	%	30.1	%

(1) Represents an average of the daily balances for the period.

(2) See the Glossary section on pages 51 to 54 for details on the composition of these measures.

In the USSF&I segment, net income totalled $128 million in the third quarter of 2023, up 2% from $125 million in the same quarter of 2022. For the first nine months of 2023, the segment recorded net income of $403 million compared to $425 million in the same nine-month period of 2022, a 5% decrease that was attributable to Credigy's business activities.

Credigy

The Credigy subsidiary's net income totalled $47 million in the third quarter of 2023, up $3 million or 7% year over year. Its third-quarter total revenues amounted to $112 million compared to $105 million in the same quarter of 2022, an increase that was due to loan volume growth as well as to growth in non-interest income given the unfavourable impact of remeasuring certain portfolios at fair value during the third quarter of 2022. These items were partly offset by a lower net interest margin related to the portfolio mix. Credigy's third-quarter non-interest expenses stood at $33 million, a $2 million year-over-year increase that was mainly due to compensation and employee benefits. Provisions for credit losses increased by $1 million compared to the same quarter of 2022, due to an increase in provisions for credit losses on non-impaired loans associated with growth in the loan portfolio and a deterioration in certain risk parameters as well as to impaired loans, with these increases being offset by a decrease in provisions for credit losses on POCI loans.

For the first nine months of 2023, Credigy recorded net income of $146 million, a 14% year-over-year decrease that was due to an increase in provisions for credit losses. The subsidiary's nine-month income before provisions for credit losses and income taxes stood at $255 million, up 1% year over year. Its nine-month total revenues amounted to $357 million compared to $351 million in the same period of 2022. A decrease in net interest income was more than offset by growth in non-interest income, related to an unfavourable impact of remeasuring the fair value of certain portfolios during the first nine months of 2022. Nine-month non-interest expenses stood at $102 million, a 3% year-over-year increase. Nine-month provisions for credit losses rose $34 million year over year, mainly due to the same reasons provided above for the third quarter.

ABA Bank

The ABA Bank subsidiary's net income totalled $83 million in the third quarter of 2023, up $2 million or 2% year over year. The subsidiary's third-quarter total revenues rose 8%, due mainly to sustained loan growth as well as to the impact of exchange rate changes, factors that were partly offset by an increase in interest expenses on deposits. Non-interest expenses for the third quarter of 2023 stood at $66 million, an $11 million or 20% year-over-year increase attributable essentially to higher compensation and employee benefits (notably due to wage growth given a greater number of employees) and to higher occupancy expenses resulting from the subsidiary's business growth and opening of new branches. Third-quarter provisions for credit losses, which stood at $9 million in the third quarter of 2023, decreased $1 million year over year.

For the first nine months of 2023, ABA Bank recorded net income of $259 million, a 2% year-over-year increase. Growth in the subsidiary's business activities, mainly sustained growth in loans, explains a 10% year-over-year increase in its nine-month total revenues. This increase was, however, partly offset by higher interest rates on deposits and lower interest rates on loans given a competitive environment in Cambodia. The subsidiary's nine-month non-interest expenses stood at $192 million, a 25% year-over-year increase that was due to the same reasons provided above for the third quarter. Nine-month provisions for credit losses stood at $19 million, stable compared to the same period in 2022.

Other

(millions of Canadian dollars)	Quarter ended July 31		Nine months ended July 31
	2023	2022⁽¹⁾	2023	2022⁽¹⁾

Operating results
Net interest income⁽²⁾	(121)	(141)	(430)	(381)
Non-interest income⁽²⁾	15	36	(58)	226
Total revenues	(106)	(105)	(488)	(155)
Non-interest expenses	57	54	125	120
Income before provisions for credit losses and income taxes	(163)	(159)	(613)	(275)
Provisions for credit losses	1	1	3	1
Income before income taxes	(164)	(160)	(616)	(276)
Income taxes (recovery)⁽²⁾	(159)	(88)	(456)	(205)
Net loss	(5)	(72)	(160)	(71)
Non-controlling interests	(1)	−	(2)	(1)
Net income (loss) attributable to the Bank's shareholders and holders of other equity instruments	(4)	(72)	(158)	(70)
Less: Specified items after income taxes⁽³⁾	49	−	25	−
Net loss - Adjusted⁽³⁾	(54)	(72)	(185)	(71)
Average assets⁽⁴⁾	66,660	72,613	71,616	70,833

(2) For the quarter ended July 31, 2023, an amount of $88 million ($60 million in 2022) was deducted from Net interest income, an amount of $64 million ($11 million in 2022) was deducted from Non-interest income, and an equivalent amount was recorded in Income taxes (recovery). For the nine-month period ended July 31, 2023, Net interest income was reduced by $242 million ($169 million in 2022), Non-interest income was reduced by $172 million ($18 million in 2022), and an equivalent amount was recognized in Income taxes (recovery). These adjustments include a reversal of the taxable equivalent of the Financial Markets segment and the Other heading. Taxable equivalent basis is a calculation method that consists of grossing up certain revenues taxed at lower rates by the income tax to a level that would make it comparable to revenues from taxable sources in Canada.

(3) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP financial measures.

(4) Represents an average of the daily balances for the period.

For the Other heading of segment results, there was a reduction in net loss of $67 million. This change came essentially from a $91 million gain ($67 million net of income taxes) recorded upon the fair value remeasurement of an equity interest in the third quarter of 2023 as well as from a higher contribution from treasury activities. Non-interest expenses grew year over year, notably due to a $25 million expense related to the retroactive impact of the changes to the Excise Tax Act, partly offset by a decrease in variable compensation. Adjusted net loss was $54 million for the third quarter of 2023 compared to $72 million in the same quarter of 2022.

For the first nine months of 2023, net loss stood at $160 million compared to $71 million in the same period of 2022. The change came from a decrease in total revenues, notably due to lower gains on investments during the nine months ended July 31, 2023. As for the specified items after income taxes recorded for the nine-month period, they had a favourable impact of $25 million on net loss. Adjusted net loss was $185 million for the first nine months of 2023 compared to a net loss of $71 million in the same period of 2022.

Consolidated Balance Sheet

Consolidated Balance Sheet Summary

(millions of Canadian dollars)	As at July 31, 2023	As at October 31, 2022	% Change

Assets
Cash and deposits with financial institutions	39,808	31,870	25
Securities	127,705	109,719	16
Securities purchased under reverse repurchase agreements and securities borrowed	12,368	26,486	(53)
Loans and acceptances, net of allowances	219,433	206,744	6
Other	26,701	28,921	(8)
	426,015	403,740	6

Liabilities and equity
Deposits	282,323	266,394	6
Other	119,920	114,101	5
Subordinated debt	748	1,499	(50)
Equity attributable to the Bank's shareholders and holders of other equity instruments	23,022	21,744	6
Non-controlling interests	2	2	−
	426,015	403,740	6

Assets

As at July 31, 2023, the Bank had total assets of $426.0 billion, a $22.3 billion or 6% increase from $403.7 billion as at October 31, 2022. At $39.8 billion as at July 31, 2023, cash and deposits with financial institutions were up $7.9 billion, mainly due to an increase in deposits with the Bank of Canada and the U.S. Federal Reserve. The high level of cash and deposits with financial institutions was partly due to the excess liquidity related to the accommodative monetary policies that have been applied by central banks since 2020.

As at July 31, 2023, securities totalled $127.7 billion, increasing $18.0 billion since October 31, 2022. Securities at fair value through profit or loss increased by $19.2 billion or 22%, essentially due to equity securities and securities issued or guaranteed by the Canadian government, partly offset by a decrease in securities issued or guaranteed by the U.S. Treasury, other U.S. agencies and other foreign governments. Securities other than those measured at fair value through profit or loss were down, decreasing by $1.2 billion. Securities purchased under reverse repurchase agreements and securities borrowed decreased by $14.1 billion since October 31, 2022, mainly due to the activities of the Financial Markets segment and Treasury.

Totalling $219.4 billion as at July 31, 2023, loans and acceptances, net of allowances for credit losses, rose $12.7 billion or 6% since October 31, 2022. The following table provides a breakdown of the main loan and acceptance portfolios.

(millions of Canadian dollars)	As at July 31, 2023	As at October 31, 2022	As at July 31, 2022
Loans and acceptances
Residential mortgage and home equity lines of credit	114,481	109,648	107,105
Personal	16,088	15,804	15,669
Credit card	2,491	2,389	2,318
Business and government	87,493	79,858	76,784
	220,553	207,699	201,876
Allowances for credit losses	(1,120)	(955)	(952)
	219,433	206,744	200,924

Since October 31, 2022, residential mortgages (including home equity lines of credit) rose $4.9 billion or 4% given the activities of the Personal and Commercial segment, the Financial Markets segment, and the Credigy subsidiary. Also since October 31, 2022, personal loans and credit card receivables were up, loans and acceptances to business and government rose $7.6 billion or 10%, mainly due to business growth at Commercial Banking, corporate banking financial services, Treasury activities, and ABA Bank, partly offset by Credigy's repayment of loan portfolios.

Since July 31, 2022, loans and acceptances, net of allowances for credit losses, grew $18.5 billion or 9%. Residential mortgages (including home equity lines of credit) rose $7.4 billion or 7% due to sustained demand for mortgage credit in the Personal and Commercial segment and to business growth in the Financial Markets segment and at the ABA Bank and Credigy subsidiaries. Also since July 31, 2022, personal loans and credit card receivables were up and loans and acceptances to business and government rose $10.7 billion or 14%, owing essentially to the activities of Commercial Banking, corporate financial services, Treasury, and ABA Bank.

Impaired loans include loans classified in Stage 3 of the expected credit loss model and the purchased or originated credit-impaired (POCI) loans of the Credigy subsidiary. As at July 31, 2023, gross impaired loans stood at $1,444 million compared to $1,271 million as at October 31, 2022. As for net impaired loans, they totalled $1,156 million as at July 31, 2023 compared to $1,030 million as at October 31, 2022. Net impaired loans excluding POCI loans amounted to $537 million, rising $58 million from $479 million as at October 31, 2022. This increase was due to an increase in the net impaired loans of the loan portfolios of Personal and Commercial Banking and of the Credigy (excluding POCI loans) and ABA Bank subsidiaries, partly offset by a decrease in the net impaired loans of the loan portfolios of the Wealth Management and Financial Markets segments. Net POCI loans stood at $619 million as at July 31, 2023 compared to $551 million as at October 31, 2022, an increase due to acquisitions of portfolios during the third quarter of 2023.

As at July 31, 2023, other assets totalled $26.7 billion, a $2.2 billion decrease since October 31, 2022 that was mainly due to a decrease in derivative financial instruments, which were down $4.1 billion. This decrease was partly offset by increases in other assets, notably receivables, prepaid expenses and other items, interest and dividends receivable as well as current tax assets.

Liabilities

As at July 31, 2023, the Bank had total liabilities of $403.0 billion compared to $382.0 billion as at October 31, 2022.

The Bank's total deposit liability stood at $282.3 billion as at July 31, 2023, rising $15.9 billion or 6% from $266.4 billion as at October 31, 2022. As at July 31, 2023, personal deposits stood at $86.6 billion, rising $7.8 billion since October 31, 2022. This increase came mainly from business growth at Personal Banking, in the Wealth Management segment, in the Financial Markets segment, and at ABA Bank.

Business and government deposits stood at $192.8 billion as at July 31, 2023, rising $8.6 billion since October 31, 2022. This increase came from the Financial Markets segment and Treasury funding activities, including $4.3 billion in deposits subject to bank recapitalization (bail-in) conversion regulations, partly offset by a decrease in deposits from the activities of Wealth Management. Deposits from deposit-taking institutions stood at $3.0 billion as at July 31, 2023, decreasing $0.4 billion since October 31, 2022 due to Treasury funding activities.

Other liabilities, totalling $119.9 billion as at July 31, 2023, increased by $5.8 billion since October 31, 2022, resulting essentially from a $4.9 billion increase in obligations related to securities sold under repurchase agreements and securities loaned, a $1.0 billion increase in obligations related to securities sold short, and a $0.7 billion increase in other liabilities, notably interest and dividends payable. These increases were partly offset by a $0.8 billion decrease in derivative financial instruments.

Subordinated debt decreased since October 31, 2022 as a result of the Bank's redemption, on February 1, 2023, of $750 million in medium-term notes.

Equity

As at July 31, 2023, equity attributable to the Bank's shareholders and holders of other equity instruments was $23.0 billion, rising $1.3 billion since October 31, 2022. This increase was due to net income net of dividends and to issuances of common shares under the stock option plan and to accumulated other comprehensive income, notably gains (losses) on cash flow hedges. These increases were partly offset by remeasurements of pension plans and other post-employment benefit plans as well as by the net fair value change attributable to the credit risk on financial liabilities designated at fair value through profit or loss.

Related Party Transactions

The Bank's policies and procedures regarding related party transactions have not significantly changed since October 31, 2022. For additional information, see Note 28 to the audited annual consolidated financial statements for the year ended October 31, 2022.

Securitization and Off-Balance-Sheet Arrangements

In the normal course of business, the Bank is party to various financial arrangements that, under IFRS, are not required to be recorded on the Consolidated Balance Sheet or are recorded under amounts other than their notional or contractual values. These arrangements include, among others, transactions with structured entities, derivative financial instruments, issuances of guarantees, credit instruments, and financial assets received as collateral. A complete analysis of these types of arrangements, including their nature, business purpose, and importance, is provided on pages 53 and 54 of the 2022 Annual Report.

For additional information on financial assets transferred but not derecognized, guarantees, commitments, and structured entities, see Notes 8, 26, and 27 to the audited annual consolidated financial statements for the year ended October 31, 2022.

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.

The federal budget of March 28, 2023 also included another tax measure on amendments 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). On April 20, 2023, the Government of Canada tabled Bill C-47 - An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023 to implement, among other things, these amendments to the GST/HST for payment cards. On June 22, 2023, Bill C-47 received royal assent. Given that the amendment to the Excise Tax Act had been adopted at the reporting date, an expense of $25 million was recognized in the consolidated financial statements as at July 31, 2023.

Capital Management

Capital management has a dual role of ensuring a competitive return to the Bank's shareholders while maintaining a solid capital foundation that covers the risks inherent to the Bank's business activities, supports its business segments, and protects its clients. The Bank's capital management policy defines the guiding principles as well as the roles and responsibilities of its internal capital adequacy assessment process. This process aims to determine the capital that the Bank needs to maintain to pursue its business activities and accommodate unexpected losses arising from extremely adverse economic and operational conditions. For additional information on the capital management framework, see the Capital Management section on pages 55 to 64 of the Bank's 2022 Annual Report.

Basel Accord

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%. For additional information on the ratio calculations, see page 56 of the 2022 Annual Report. All of these ratios include a capital conservation buffer of 2.5% established by the BCBS and OSFI, a 1.0% surcharge applicable solely to Domestic Systemically Important Banks (D‑SIBs), and a 3.0% domestic stability buffer established by OSFI. 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 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 consists exclusively of CET1 capital. A D-SIB that fails to meet this buffer requirement is not subject to automatic constraints to reduce capital distributions but must provide a remediation plan to OSFI. 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. For additional information on the leverage ratio calculation, see page 57 of the 2022 Annual Report.

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.

The Basel Accord proposes a range of approaches of varying complexity, the choice of which determines the sensitivity of capital to risks. A less complex approach, such as the Standardized Approach, uses regulatory weightings, while a more complex approach uses the Bank's internal estimates of risk components to establish risk-weighted assets (RWA) and calculate regulatory capital.

As required under Basel, RWA is calculated for each credit risk, market risk, and operational risk. The Bank uses the IRB Approaches for credit risk to determine minimum regulatory capital requirements for a majority of its portfolios. The Bank must use the Foundation Internal Ratings-Based (FIRB) Approach for certain specific exposure types such as large corporates and financial institutions. For all other exposure types treated under an IRB Approach, the Bank uses the Advanced Internal Ratings-Based (AIRB) Approach. Under the FIRB Approach, the Bank can use its own estimate of probability of default (PD) but must also rely on OSFI estimates for loss given default (LGD) and exposure at default (EAD) risk parameters. Under the AIRB Approach, the Bank can use its own estimates for all risk parameters: PD, LGD, EAD. Under both IRB Approaches, risk parameters are subject to specific input floors. The credit risk of certain portfolios considered to be less significant is weighted according to the revised Standardized Approach, which uses prescribed regulatory weightings. Exposure to banking book equity securities is also weighted according to the revised Standardized Approach. With respect to the capital requirements related to securitization operations, the risk weighting methodologies remain significantly unchanged.

For operational risk, the Bank is applying the revised Standardized Approach, which now incorporates the Bank's internal operational risk loss experience in the calculation of RWA.

Market risk and CVA capital requirement weighting methodologies will remain unchanged until the first quarter of 2024. Market risk-weighted assets are primarily determined using the Internal Model-Based Approach, while the Standardized Approach is used to assess interest-rate-specific risk. CVA risk-weighted assets are determined under a prescribed Standardized Approach.

The Bank must also meet the requirements of an updated capital output floor that will ensure that its total calculated RWA is not below 72.5% of the total RWA as calculated under the Basel III Standardized Approaches. OSFI is allowing a phase-in of the floor factor over three years, starting at 65.0% in the second quarter of 2023 and rising 2.5% per year to reach 72.5% in fiscal 2026. If the capital requirement is less than the capital output floor requirement after applying the floor factor, the difference is added to the total RWA.

The implementation of the Basel III reforms in the second quarter of 2023 had a positive impact of 44 bps on the Bank's CET1 capital ratio. As at April 30, 2023 and July 31, 2023, the Bank was not impacted by the implementation of the updated capital output floor. Lastly, the implementation of the revised leverage ratio framework did not have a significant impact on the Bank.

In addition, OSFI requires that regulatory capital instruments other than common equity must have a non-viability contingent capital (NVCC) clause to ensure that investors bear losses before taxpayers should the government determine that rescuing a non-viable financial institution is in the public interest. As at July 31, 2023, all of the Bank's regulatory capital instruments, other than common shares, have an NVCC clause.

OSFI's Total Loss Absorbing Capacity (TLAC) Guideline, which applies to all D-SIBs under the federal government's bail-in regulations, 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. Available TLAC includes total capital as well as certain senior unsecured debts that satisfy all of the eligibility criteria of OSFI's TLAC guideline. OSFI requires D-SIBs to maintain a risk-based TLAC ratio of at least 24.5% (including the domestic stability buffer) of risk-weighted assets and a TLAC leverage ratio of at least 7.25%. The TLAC ratio is calculated by dividing available TLAC by risk‑weighted assets, and the TLAC leverage ratio is calculated by dividing available TLAC by total exposure. As at July 31, 2023, outstanding liabilities of $17.1 billion ($12.8 billion as at October 31, 2022) were subject to conversion under the bail-in regulations.

Requirements - Regulatory Capital⁽¹⁾, Leverage⁽¹⁾, and TLAC⁽²⁾ Ratios

								Requirements as at July 31, 2023								Ratios as at July 31, 2023
		Minimum		Capital conservation buffer		Minimum set by BCBS		D-SIB surcharge		Minimum set by OSFI⁽³⁾		Domestic stability buffer⁽⁴⁾		Minimum set by OSFI⁽³⁾, including the domestic stability buffer
		Minimum		Capital conservation buffer		Minimum set by BCBS		D-SIB surcharge		Minimum set by OSFI⁽³⁾		Domestic stability buffer⁽⁴⁾

Capital ratios
	CET1	4.5	%	2.5	%	7.0	%	1.0	%	8.0	%	3.0	%	11.0	%	13.5	%
	Tier 1	6.0	%	2.5	%	8.5	%	1.0	%	9.5	%	3.0	%	12.5	%	16.1	%
	Total	8.0	%	2.5	%	10.5	%	1.0	%	11.5	%	3.0	%	14.5	%	16.9	%
Leverage ratio		3.0	%	n.a.		3.0	%	0.5	%	3.5	%	n.a.		3.5	%	4.2	%
TLAC ratio		21.5	%	n.a.		21.5	%	n.a.		21.5	%	3.0	%	24.5	%	29.9	%
TLAC leverage ratio		6.75	%	n.a.		6.75	%	0.5	%	7.25	%	n.a.		7.25	%	7.9	%

n.a. Not applicable

(1) The capital ratios and the leverage ratio are calculated in accordance with the Basel III rules, as set out in OSFI's Capital Adequacy Requirements Guideline and Leverage Requirements Guideline.

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

(3) The capital ratios and the TLAC ratio include the capital conservation buffer and the D-SIB surcharge. On February 1, 2023, OSFI raised the minimum leverage ratio and the TLAC leverage ratio by imposing a Tier 1 capital buffer of 0.5% (surcharge related to D-SIBs).

(4) On December 8, 2022, OSFI announced that the 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 Bank ensures that its capital levels are always above the minimum capital requirements set by OSFI, including the domestic stability buffer. By maintaining a strong capital structure, the Bank can cover the risks inherent to its business activities, support its business segments, and protect its clients.

Other disclosure requirements pursuant to Pillar 3 of the Basel Accord and a set of recommendations defined by the EDTF are presented in the Supplementary Regulatory Capital and Pillar 3 Disclosure report published quarterly and available on the Bank's website at nbc.ca. Furthermore, a complete list of capital instruments and their main features is also available on the Bank's website.

Regulatory Developments

The Bank closely monitors regulatory developments and participates actively in various consultative processes. In response to the impact of the COVID-19 pandemic, on March 27, 2020, OSFI announced a series of regulatory adjustments to support the financial and operational resilience of banks. For additional information about the regulatory context on October 31, 2022 and about COVID-19 relief measures still in effect as at October 31, 2022, see pages 58 and 59 of the Capital Management section in the 2022 Annual Report. The OSFI capital, leverage, liquidity and disclosure revised rules related to Basel III reforms took effect in the second quarter of 2023 except for the new market risk framework and the revised credit valuation adjustment (CVA) risk framework, which will take effect in the first quarter of 2024, as previously described. In addition, since November 1, 2022, the below-described regulatory development should also be considered.

On June 1, 2023, OSFI released a draft framework for public consultation: Parental Stand-alone (Solo) Total Loss-Absorbing Capacity (TLAC) for D-SIBs. This guideline focuses on the loss-absorbing capacity of the Canadian parent bank rather than its consolidated operations, allowing OSFI to assess the stand-alone financial strength of the parent bank and its ability to act as source of financial strength for its subsidiaries and branches. The draft framework complements OSFI's existing TLAC guideline for D-SIBs on a group consolidated basis, providing an additional layer of protection to safeguard the rights and interests of depositors, policyholders, and creditors. The Bank is participating actively in the consultation.

Management Activities

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 no later than December 11, 2023. During the nine-month period ended July 31, 2023, the Bank did not repurchase any common shares.

On February 1, 2023, the Bank redeemed $750 million of medium-term notes maturing on February 1, 2028. These instruments were excluded from the capital ratio calculations as at January 31, 2023.

Dividends

On August 29, 2023, the Board of Directors declared regular dividends on the various series of first preferred shares and a dividend of $1.02 per common share, payable on November 1, 2023, to shareholders of record on September 25, 2023.

Shares, Other Equity Instruments, and Stock Options

		As at July 31, 2023
		Number of shares or LRCN⁽¹⁾	$ million

First preferred shares
	Series 30	14,000,000	350
	Series 32	12,000,000	300
	Series 38	16,000,000	400
	Series 40	12,000,000	300
	Series 42	12,000,000	300
		66,000,000	1,650
Other equity instruments
	LRCN - Series 1	500,000	500
	LRCN - Series 2	500,000	500
	LRCN - Series 3	500,000	500
		1,500,000	1,500
		67,500,000	3,150
Common shares		338,228,313	3,294
Stock options		11,696,319

(1) Limited Recourse Capital Notes (LRCN).

As at August 25, 2023, there were 338,210,962 common shares and 11,603,801 stock options outstanding. NVCC provisions require the conversion of capital instruments into a variable number of common shares should OSFI deem a bank to be non-viable or should the government publicly announce that a bank has accepted or agreed to accept a capital injection. If an NVCC trigger event were to occur, all of the Bank's preferred shares, LRCNs, and medium-term notes maturing on August 16, 2032, which are NVCC capital instruments, would be converted into common shares of the Bank according to an automatic conversion formula at a conversion price corresponding to the greater of the following amounts: (i) a $5.00 contractual floor price; or (ii) the market price of the Bank's common shares on the date of the trigger event (10-day weighted average price). Based on a $5.00 floor price and including an estimate for accrued dividends and interest, these NVCC capital instruments would be converted into a maximum of 869 million Bank common shares, which would have a 72.0% dilutive effect based on the number of Bank common shares outstanding as at July 31, 2023.

Movement in Regulatory Capital⁽¹⁾

(millions of Canadian dollars)			Nine months ended July 31, 2023

Common Equity Tier 1 (CET1) capital
Balance at beginning			14,818
	Issuance of common shares (including Stock Option Plan)		77
	Impact of shares purchased or sold for trading		12
	Repurchase of common shares		−
	Other contributed surplus		9
	Dividends on preferred and common shares and distributions on other equity instruments		(1,121)

	Net income attributable to the Bank's shareholders and holders of other equity instruments		2,569
	Removal of own credit spread (net of income taxes)		321
	Other		(303)

	Movements in accumulated other comprehensive income
		Translation adjustments	(149)
		Debt securities at fair value through other comprehensive income	26
		Other	1
	Change in goodwill and intangible assets (net of related tax liability)		8
	Other, including regulatory adjustments
		Change in defined benefit pension plan asset (net of related tax liability)	67
		Change in amount exceeding 15% threshold
		Deferred tax assets	−
		Significant investment in common shares of financial institutions	−
		Deferred tax assets, unless they result from temporary differences (net of related tax liability)	(15)
		Other deductions or regulatory adjustments to CET1 implemented by OSFI	(61)
		Change in other regulatory adjustments	−
Balance at end			16,259

Additional Tier 1 capital
Balance at beginning			3,143
	New Tier 1 eligible capital issuances		−
	Redeemed capital		−
	Other, including regulatory adjustments		6
Balance at end			3,149

Total Tier 1 capital			19,408

Tier 2 capital
Balance at beginning			1,766
	New Tier 2 eligible capital issuances		−
	Redeemed capital		(750)
	Tier 2 instruments issued by subsidiaries and held by third parties		−
	Change in certain allowances for credit losses		(54)
	Other, including regulatory adjustments		39
Balance at end			1,001

Total regulatory capital			20,409

(1) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.

Risk-Weighted Assets by Key Risk Drivers

Risk-weighted assets (RWA) amounted to $120.6 billion as at July 31, 2023 compared to $116.8 billion as at October 31, 2022, a $3.8 billion increase resulting mainly from organic growth in RWA and a deterioration in the credit quality of the loan portfolio, offset by foreign exchange movements and by methodology changes related to the implementation of the Basel III reforms, notably for operational risk and credit risk. The changes in the Bank's RWA by risk type are presented in the following table.

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

(millions of Canadian dollars)			Quarter ended
		July 31, 2023			April 30, 2023	January 31, 2023	October 31, 2022
		Non-counterparty credit risk	Counterparty credit risk	Total	Total	Total	Total

Credit risk - Risk-weighted assets at beginning		95,176	6,810	101,986	100,820	96,141	91,229
	Book size	119	459	578	572	4,439	2,405
	Book quality	465	2	467	951	697	93
	Model updates	−	−	−	116	172	300
	Methodology and policy	−	−	−	(1,051)	106	339
	Acquisitions and disposals	−	−	−	−	−	−
	Foreign exchange movements	(853)	(91)	(944)	578	(735)	1,775
Credit risk - Risk-weighted assets at end		94,907	7,180	102,087	101,986	100,820	96,141

Market risk - Risk-weighted assets at beginning				5,060	5,960	6,025	5,696
	Movement in risk levels⁽²⁾			925	(900)	(65)	329
	Model updates			−	−	−	−
	Methodology and policy			−	−	−	−
	Acquisitions and disposals			−	−	−	−
Market risk - Risk-weighted assets at end				5,985	5,060	5,960	6,025

Operational risk - Risk-weighted assets at beginning				12,065	15,033	14,674	14,452
	Movement in risk levels			425	93	359	222
	Methodology and policy			−	(3,061)	−	−
	Acquisitions and disposals			−	−	−	−
Operational risk - Risk-weighted assets at end				12,490	12,065	15,033	14,674

Risk-weighted assets at end				120,562	119,111	121,813	116,840

(1) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.

(2) Also includes foreign exchange rate movements that are not considered material.

The table above provides risk-weighted asset movements by the key drivers underlying the different risk categories.

The Book size item reflects organic changes in book size and composition (including new loans and maturing loans). RWA movements attributable to book size include increases or decreases in exposures, measured by exposure at default, assuming a stable risk profile.

The Book quality item is the Bank's best estimate of changes in book quality related to experience, such as underlying customer behaviour or demographics, including changes resulting from model recalibrations or realignments and also including risk mitigation factors.

The Model updates item is used to reflect implementations of new models, changes in model scope, and any other change applied to address model malfunctions. During the nine-month period ended July 31, 2023, the Bank updated the models used for certain retail exposures, mortgages, and certain non-retail exposures.

The Methodology and policy item presents the impact of changes in calculation methods resulting from changes in regulatory policies or from new regulations. During the quarter ended April 30, 2023, the Bank finalized the implementation of the Basel III reforms requirements related to credit risk, operational risk, and capital output floor.

Regulatory Capital Ratios, Leverage Ratio, and TLAC Ratios

As at July 31, 2023, the Bank's CET1, Tier 1, and Total capital ratios were, respectively, 13.5%, 16.1%, and 16.9% compared to ratios of, respectively, 12.7%, 15.4% and 16.9% as at October 31, 2022. The CET1 and Tier 1 capital ratios increased since October 31, 2022, essentially due to the contribution from net income, net of dividends, to common share issuances under the Stock Option Plan and to the positive impact from the implementation of the Basel III reforms related to credit and operational risks frameworks. These factors were partly offset by growth in RWA and by the end of the transitional measures applicable to ECL provisioning implemented by OSFI at the beginning of the COVID-19 pandemic. The Total capital ratio remained unchanged. The net positive contribution from factors impacting the CET1 and Tier 1 capital ratios was offset by the $750 million redemption of medium-term notes on February 1, 2023.

As at July 31, 2023, the leverage ratio was 4.2% compared to 4.5% as at October 31, 2022. The decrease in the leverage ratio is essentially due to the growth in total exposure and to the end of the temporary measure permitted by OSFI with respect to the exclusion of central bank reserves from the leverage exposure calculation. These factors were partly offset by the growth in Tier 1 capital.

As at July 31, 2023, the Bank's TLAC ratio and TLAC leverage ratio were, respectively, 29.9% and 7.9%, compared to 27.7% and 8.1%, respectively, as at October 31, 2022. The increase in the TLAC ratio was due to the same factors described for the Total capital ratio as well as to the net instrument issuances that meet the TLAC eligibility criteria during the period. The decrease in the TLAC leverage ratio was due to the same factors as those provided for the leverage ratio, partly offset by the net TLAC instrument issuances.

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.

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

(millions of Canadian dollars)		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.

Public Disclosure Requirements for Global Systemically Important Banks

The BCBS developed an assessment methodology and additional loss absorbency requirements as well as indicators to be used by the BCBS and the Financial Stability Board to evaluate Global Systemically Important Banks (G-SIBs). The annual public disclosure requirements apply to large, globally active banks.

The most recent version of OSFI's advisory entitled Global Systemically Important Banks - Public Disclosure Requirements regarding implementation of public disclosure requirements for G-SIBs in Canada took effect in the first quarter of 2022. Canadian banks, including the Bank, that have not been designated as G‑SIBs and that have total exposure (as calculated using the Basel III leverage ratio) greater than 200 billion euros at fiscal year-end must publish the indicators annually. The indicators are calculated and presented in accordance with specific BCBS guidance, which is updated annually. Consequently, the values obtained may not be comparable to the other measures presented in this report. The following table presents the indicators used in the BCBS's assessment methodology for evaluating G-SIBs.

Indicators - Global Systemically Important Banks (G-SIBs)⁽¹⁾

(millions of Canadian dollars)		As at October 31
Category	Indicators	2022	2021
Cross-jurisdictional activity⁽²⁾	Cross-jurisdictional claims	97,929	87,661
	Cross-jurisdictional liabilities⁽³⁾	75,961	65,214
Size⁽⁴⁾	Total exposures as defined for use in the Basel III leverage ratio⁽⁵⁾	429,692	387,725
Interconnectedness⁽⁶⁾	Intra-financial system assets⁽⁵⁾	66,590	50,614
	Intra-financial system liabilities⁽³⁾⁽⁵⁾	42,806	40,301
	Securities outstanding⁽⁵⁾	105,572	105,213
Substitutability / financial institutions infrastructure⁽⁷⁾	Payment activity⁽⁸⁾	17,366,801	14,059,326
	Assets under custody	615,973	651,345
	Underwritten transactions in debt and equity markets	26,017	35,658
	Trading volume⁽⁹⁾
	Fixed-income securities⁽⁹⁾	829,877	740,927
	Equities and other securities⁽⁹⁾	1,335,166	1,289,087
Complexity⁽¹⁰⁾	Notional amount of over-the-counter derivative financial instruments⁽⁵⁾	1,816,770	1,481,260
	Trading and investment securities	49,493	52,936
	Level 3 financial assets⁽⁵⁾	1,128	1,077

(1) For the years ended October 31, 2022 and 2021, the G-SIB indicators were prepared using the methodology prescribed in the BCBS guidelines published in July 2018 and in the guidance provided by the BCBS in January 2023 and January 2022, respectively.

(2) Represents the Bank's level of interaction outside Canada.

(3) The amount as at October 31, 2022 has been revised compared to that previously presented.

(4) Represents the Bank's total on-and-off balance sheet exposures, as determined by OSFI's Basel III leverage ratio rules before regulatory adjustments.

(5) Includes insurance activities.

(6) Represents transactions with other financial institutions.

(7) Represents the extent to which the Bank's services could be substituted by other institutions.

(8) For the fiscal years ended October 31, 2022 and 2021.

(9) This indicator consists of two sub-indicators: fixed-income securities as well as equities and other securities.

(10) Includes the level of complexity and volume of the Bank's trading activities represented through derivative financial instruments, trading securities, investment securities, and Level 3 financial assets.

Risk Management

Risk-taking is intrinsic to a financial institution's business. The Bank views risk as an integral part of its development and the diversification of its activities. It advocates a risk management approach that is consistent with its business strategy. The Bank voluntarily exposes itself to certain risk categories, particularly credit and market risk, in order to generate revenue. It also assumes certain risks that are inherent to its activities-to which it does not choose to expose itself-and that do not generate revenue, i.e., mainly operational risks.

Despite the exercise of stringent risk management and existing mitigation measures, risk cannot be eliminated entirely, and residual risks may occasionally cause significant losses. Certain risks are discussed hereafter. For additional information, see the Risk Management section on pages 65 to 105 of the 2022 Annual Report. Risk management information is also provided in Note 6 to these consolidated financial statements, which covers loans.

Credit Risk

Credit risk is the risk of incurring a financial loss if an obligor does not fully honour its contractual commitments to the Bank. Obligors may be debtors, issuers, counterparties, or guarantors. Credit risk is the most significant risk facing the Bank in the normal course of business.

Since March 2, 2022, the Bank of Canada raised its policy rate ten times; the rate has thus risen from 0.25% to 5.00%. During the third quarter of 2023, the Bank of Canada twice raised its policy rate by 0.25%. This rapid increase in rates, undertaken primarily to counter inflation in Canada, is putting pressure on the ability of borrowers to make payments, notably borrowers who have variable-rate mortgages or for whom the mortgage term is up for renewal.

Regulatory Developments

The Bank closely monitors regulatory developments and participates actively in various consultative processes. For additional information about the regulatory context on October 31, 2022, see pages 77 and 78 of the Risk Management section of the 2022 Annual Report. In addition, since November 1, 2022, the below-described regulatory developments should also be considered.

On December 15, 2022, OSFI confirmed the qualifying rate for uninsured mortgages (i.e., residential mortgages with a down payment of 20% or more) will remain as the greater of the mortgage contract interest rate plus 2% and a minimum floor of 5.25%. OSFI is well aware that the country's economic recovery must be backed by a strong financial system capable of supporting the Canadian population in the current environment and that real estate market conditions in Canada could heighten the financial risk weighing on lenders. The minimum qualifying interest rate provides an additional level of safety to ensure that borrowers would have the ability to make mortgage payments should circumstances change, e.g., in the case of reduced income or a rise in interest rates.

On January 1, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act came into effect. This purpose of this law, which will be in effect until January 1, 2025, is to help Canadians access the property market and to reduce speculative purchasing that risks raising the prices of properties in some already overheated markets. On March 27, 2023, the Act was amended to relax rules and conditions permitting non-Canadians who want to live in Canada to purchase a residential property.

In January 2023, OSFI launched a public consultation on Guideline B-20 entitled Residential Mortgage Underwriting Practices and Procedures Guideline, starting with an initial consultation on debt servicing measures in order to mitigate the risk arising from the high debt levels of consumers. In follow-up to the public consultation, an industry response coordinated by the Canadian Bankers Association was provided to OSFI in April 2023.

On July 5, 2023, the Financial Consumer Agency of Canada (FCAC) published a new guideline on existing consumer mortgage loans in exceptional circumstances. The FCAC is concerned about the severe financial stress being experienced by certain vulnerable mortgage borrowers, notably due to the combined impacts of high household debt, a rapid increase in interest rates, and the rising cost of living. The guideline is designed to protect consumers of financial products and services and explains how the FCAC expects federally regulated financial institutions (FRFI) to provide tailored support to mortgage borrowers who are at risk of mortgage default. The FCAC expects FRFIs to consider all available mortgage relief measures and to adopt an approach that considers the personal situation of consumers and their financial needs.

The amounts in the following tables represent the Bank's maximum exposure to credit risk as at the financial reporting date without considering any collateral held or any other credit enhancements. These amounts do not include allowances for credit losses nor amounts pledged as collateral. The tables also exclude equity securities.

Maximum Credit Risk Exposure Under the Basel Asset Categories⁽¹⁾

(millions of Canadian dollars)			As at July 31, 2023
			Drawn⁽²⁾		Undrawn commitments		Repo-style transactions⁽³⁾		Derivative financial instruments		Other off-balance- sheet items⁽⁴⁾		Total		Standardized Approach⁽⁵⁾				IRB Approach

Retail
	Residential mortgages		75,485		9,154		−		−		−		84,639		11		%		89		%
	Qualifying revolving retail		3,083		11,963		−		−		−		15,046		−		%		100		%
	Other retail		15,217		2,744		−		−		32		17,993		14		%		86		%
			93,785		23,861		−		−		32		117,678
Non-retail
	Corporate		88,507		26,731		39,150		354		5,878		160,620		17		%		83		%
	Sovereign		65,942		5,961		68,787		−		353		141,043		3		%		97		%
	Financial institutions		7,145		1,013		93,790		1,260		1,390		104,598		20		%		80		%
			161,594		33,705		201,727		1,614		7,621		406,261
Trading portfolio			−		−		−		12,437		−		12,437		1		%		99		%
Securitization			4,471		−		−		−		4,733		9,204		91		%		9		%
Total - Gross credit risk			259,850		57,566		201,727		14,051		12,386		545,580		13		%		87		%

Standardized Approach⁽⁵⁾			30,495		1,068		32,246		1,255		4,749		69,813
IRB Approach			229,355		56,498		169,481		12,796		7,637		475,767
Total - Gross credit risk			259,850		57,566		201,727		14,051		12,386		545,580		13		%		87		%

(millions of Canadian dollars)		As at October 31, 2022
		Drawn⁽²⁾		Undrawn commitments		Repo-style transactions⁽³⁾		Derivative financial instruments		Other off-balance- sheet items⁽⁴⁾		Total		Standardized Approach⁽⁵⁾				AIRB Approach

Retail
	Residential mortgages	73,324		8,616		−		−		−		81,940		12		%		88		%
	Qualifying revolving retail	2,483		6,920		−		−		−		9,403		−		%		100		%
	Other retail	17,526		2,688		−		−		35		20,249		25		%		75		%
		93,333		18,224		−		−		35		111,592
Non-retail
	Corporate	81,763		29,811		36,194		322		5,538		153,628		13		%		87		%
	Sovereign	56,253		5,821		68,906		−		326		131,306		2		%		98		%
	Financial institutions	7,200		166		76,856		1,150		754		86,126		19		%		81		%
		145,216		35,798		181,956		1,472		6,618		371,060
Trading portfolio		−		−		−		13,662		−		13,662		2		%		98		%
Securitization		4,409		−		−		−		4,373		8,782		80		%		20		%
Total - Gross credit risk		242,958		54,022		181,956		15,134		11,026		505,096		12		%		88		%

Standardized Approach⁽⁵⁾		30,704		311		24,783		1,308		4,610		61,716
AIRB Approach		212,254		53,711		157,173		13,826		6,416		443,380
Total - Gross credit risk		242,958		54,022		181,956		15,134		11,026		505,096		12		%		88		%

(1) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.

(2) Excludes equity securities and certain other assets such as investments in deconsolidated subsidiaries and joint ventures, right-of-use properties and assets, goodwill, deferred tax assets, and intangible assets.

(3) Securities purchased under reverse repurchase agreements and sold under repurchase agreements as well as securities loaned and borrowed.

(4) Letters of guarantee, documentary letters of credit, and securitized assets that represent the Bank's commitment to make payments in the event that an obligor cannot meet its financial obligations to third parties.

(5) Includes exposures to qualifying central counterparties (QCCP).

To meet OSFI's mortgage loan disclosure requirements, additional information has been provided in Supplementary Financial Information - Third Quarter 2023 and in Supplementary Regulatory Capital and Pillar 3 Disclosure - Third Quarter 2023, which are available on the Bank's website at nbc.ca.

Market Risk

Market risk is the risk of losses arising from movements in market prices. The Bank is exposed to market risk through its participation in trading, investment, and asset/liability management activities. In recent years, as a result of the COVID-19 pandemic and its impact on global and local economies, the Bank has been operating in a volatile environment. Adding to this uncertainty is the Russia-Ukraine war, which is affecting global financial and economic markets and exacerbating economic conditions as well as such issues as rising inflation, higher interest rates, and a disrupted global supply chain.

The following tables provide a breakdown of the Bank's Consolidated Balance Sheet into assets and liabilities by those that carry market risk and those that do not carry market risk, distinguishing between trading positions whose main risk measures are Value-at-Risk (VaR) and stressed VaR (SVaR) and non-trading positions that use other risk measures.

Reconciliation of Market Risk With Consolidated Balance Sheet Items

(millions of Canadian dollars)			As at July 31, 2023
				Market risk measures
			Balance sheet	Trading⁽¹⁾	Non-trading⁽²⁾	Not subject to market risk	Non-traded risk primary risk sensitivity

Assets
	Cash and deposits with financial institutions		39,808	1,249	20,020	18,539	Interest rate⁽³⁾
	Securities
		At fair value through profit or loss	106,569	105,152	1,417	−	Interest rate⁽³⁾ and equity
		At fair value through other comprehensive income	9,117	−	9,117	−	Interest rate⁽³⁾ and equity⁽⁴⁾
		At amortized cost	12,019	−	12,019	−	Interest rate⁽³⁾
	Securities purchased under reverse repurchase
		agreements and securities borrowed	12,368	−	12,368	−	Interest rate⁽³⁾⁽⁵⁾
	Loans and acceptances, net of allowances		219,433	12,486	206,947	−	Interest rate⁽³⁾
	Derivative financial instruments		14,362	13,019	1,343	−	Interest rate and exchange rate
	Defined benefit asset		420	−	420	−	Other
	Other		11,919	498	−	11,421
			426,015	132,404	263,651	29,960

Liabilities
	Deposits		282,323	18,843	263,480	−	Interest rate⁽³⁾
	Acceptances		6,709	−	6,709	−	Interest rate⁽³⁾
	Obligations related to securities sold short		22,825	22,825	−	−
	Obligations related to securities sold under repurchase
		agreements and securities loaned	38,433	−	38,433	−	Interest rate⁽³⁾⁽⁵⁾
	Derivative financial instruments		18,768	18,245	523	−	Interest rate and exchange rate
	Liabilities related to transferred receivables		26,130	9,626	16,504	−	Interest rate⁽³⁾
	Defined benefit liability		113	−	113	−	Other
	Other		6,942	−	48	6,894	Interest rate⁽³⁾
	Subordinated debt		748	−	748	−	Interest rate⁽³⁾
			402,991	69,539	326,558	6,894

(1) Trading positions whose risk measures are VaR as well as total SVaR. For additional information, see the table in the pages ahead and in the Market Risk section of the 2022 Annual Report that shows the VaR distribution of the trading portfolios by risk category and their diversification effect as well as total trading SVaR.

(2) Non-trading positions that use other risk measures.

(3) For additional information, see the table in the pages ahead and in the Market Risk section of the 2022 Annual Report that shows the VaR distribution of the trading portfolios by risk category and their diversification effect as well as total trading SVaR and the interest rate sensitivity table.

(4) The fair value of equity securities designated at fair value through other comprehensive income is presented in Notes 3 and 5 to the consolidated financial statements.

(5) These instruments are recorded at amortized cost and are subject to credit risk for capital management purposes. For trading-related transactions with maturities of more than one day, interest rate risk is included in the VaR and SVaR measures.

(millions of Canadian dollars)			As at October 31, 2022
				Market risk measures
			Balance sheet	Trading⁽¹⁾	Non-trading⁽²⁾	Not subject to market risk	Non-traded risk primary risk sensitivity

Assets
	Cash and deposits with financial institutions		31,870	837	20,269	10,764	Interest rate⁽³⁾
	Securities
		At fair value through profit or loss	87,375	85,805	1,570	−	Interest rate⁽³⁾ and equity⁽⁴⁾
		At fair value through other comprehensive income	8,828	−	8,828	−	Interest rate⁽³⁾ and equity⁽⁵⁾
		Amortized cost	13,516	−	13,516	−	Interest rate⁽³⁾
	Securities purchased under reverse repurchase
		agreements and securities borrowed	26,486	−	26,486	−	Interest rate⁽³⁾⁽⁶⁾
	Loans and acceptances, net of allowances		206,744	9,914	196,830	−	Interest rate⁽³⁾
	Derivative financial instruments		18,547	16,968	1,579	−	Interest rate⁽⁷⁾ and exchange rate⁽⁷⁾
	Defined benefit asset		498	−	498	−	Other⁽⁸⁾
	Other		9,876	405	−	9,471
			403,740	113,929	269,576	20,235

Liabilities
	Deposits		266,394	15,422	250,972	−	Interest rate⁽³⁾
	Acceptances		6,541	−	6,541	−	Interest rate⁽³⁾
	Obligations related to securities sold short		21,817	21,817	−	−
	Obligations related to securities sold under repurchase
		agreements and securities loaned	33,473	−	33,473	−	Interest rate⁽³⁾⁽⁶⁾
	Derivative financial instruments		19,632	18,909	723	−	Interest rate⁽⁷⁾ and exchange rate⁽⁷⁾
	Liabilities related to transferred receivables		26,277	9,927	16,350	−	Interest rate⁽³⁾
	Defined benefit liability		111	−	111	−	Other⁽⁸⁾
	Other		6,250	−	77	6,173	Interest rate⁽³⁾
	Subordinated debt		1,499	−	1,499	−	Interest rate⁽³⁾
			381,994	66,075	309,746	6,173

(1) Trading positions whose risk measures are VaR as well as total SVaR. For additional information, see the table on the following page and in the Market Risk section of the 2022 Annual Report that shows the VaR distribution of the trading portfolios by risk category and their diversification effect as well as total trading SVaR.

(2) Non-trading positions that use other risk measures.

(4) For additional information, see Note 6 to the audited annual consolidated financial statements for the year ended October 31, 2022.

(5) The fair value of equity securities designated at fair value through other comprehensive income is presented in Notes 3 and 5 to these consolidated financial statements.

(6) These instruments are recorded at amortized cost and are subject to credit risk for capital management purposes. For trading-related transactions with maturities of more than one day, interest rate risk is included in the VaR and SVaR measures.

(7) For additional information, see Notes 16 and 17 to the audited annual consolidated financial statements for the year ended October 31, 2022.

(8) For additional information, see Note 23 to the audited annual consolidated financial statements for the year ended October 31, 2022.

Trading Activities

The table below shows the VaR distribution of trading portfolios by risk category and their diversification effect as well as total trading SVaR, i.e., the VaR of the Bank's current portfolios obtained following a calibration of risk factors over a 12-month stress period.

VaR and SVaR of Trading Portfolios⁽¹⁾⁽²⁾

(millions of Canadian dollars)					Quarter ended				Nine months ended
	July 31, 2023				April 30, 2023		July 31, 2022		July 31, 2023	July 31, 2022
	Low	High	Average	Period end	Average	Period end	Average	Period end	Average	Average

Interest rate	(5.8)	(9.3)	(7.5)	(7.0)	(6.5)	(6.3)	(5.4)	(5.9)	(6.9)	(5.8)
Exchange rate	(1.6)	(5.9)	(2.9)	(3.3)	(2.2)	(3.3)	(2.5)	(1.7)	(2.4)	(1.9)
Equity	(5.1)	(10.8)	(7.8)	(5.8)	(7.7)	(6.5)	(7.9)	(6.4)	(7.5)	(7.0)
Commodity	(1.2)	(1.6)	(1.3)	(1.5)	(1.1)	(1.4)	(0.9)	(0.8)	(1.2)	(0.9)
Diversification effect⁽³⁾	n.m.	n.m.	9.5	7.8	8.8	9.1	8.1	7.6	8.9	8.0
Total trading VaR	(7.6)	(12.1)	(10.0)	(9.8)	(8.7)	(8.4)	(8.6)	(7.2)	(9.1)	(7.6)
Total trading SVaR	(12.9)	(25.1)	(18.7)	(15.4)	(14.2)	(11.3)	(18.5)	(14.4)	(17.1)	(13.4)

n.m. Computation of a diversification effect for the high and low is not meaningful, as highs and lows may occur on different days and be attributable to different types of risk.

(1) See the Glossary section on pages 51 to 54 for details on the composition of these measures.

(2) Amounts are presented on a pre-tax basis and represent one-day VaR and SVaR using a 99% confidence level.

(3) The total trading VaR is less than the sum of the individual risk factor VaR results due to the diversification effect.

The average total trading VaR rose to $10.0 million in the third quarter of 2023 from $8.7 million in the second quarter of 2023. The average total trading SVaR was also up, rising from $14.2 million in the second quarter of 2023 to $18.7 million in the third quarter of 2023, as a result of higher interest rate risk and equity risk.

Daily Trading and Underwriting Revenues

The following chart shows daily trading and underwriting revenues and VaR. During the quarter ended July 31, 2023, daily trading and underwriting revenues were positive 92% of the days. In addition, four trading days were marked by daily trading and underwriting net losses of more than $1 million. None of these losses exceeded the VaR.

Quarter Ended July 31, 2023

(millions of Canadian dollars)

Interest Rate Sensitivity - Non-Trading Activities (Before Tax)

The following table presents the potential before-tax impact of an immediate and sustained 100-basis-point increase or of an immediate and sustained 100‑basis-point decrease in interest rates on the economic value of equity and on the net interest income of the Bank's non-trading portfolios for the next 12 months, assuming no further hedging is undertaken.

(millions of Canadian dollars)	As at July 31, 2023				As at October 31, 2022
	Canadian dollar	Other currencies	Total	Canadian dollar	Other currencies	Total

Impact on equity
100-basis-point increase in the interest rate	(304)	1	(303)	(191)	(24)	(215)
100-basis-point decrease in the interest rate	280	(2)	278	179	27	206

Impact on net interest income
100-basis-point increase in the interest rate	87	6	93	128	2	130
100-basis-point decrease in the interest rate	(101)	(6)	(107)	(141)	(2)	(143)

Liquidity and Funding Risk

Liquidity and funding risk is the risk that the Bank will be unable to honour daily cash and financial obligations without resorting to costly and untimely measures. Liquidity and funding risk arises when sources of funds become insufficient to meet scheduled payments under the Bank's commitments.

Liquidity risk stems from mismatched cash flows related to assets and liabilities as well as the characteristics of certain products such as credit commitments and non-fixed-term deposits.

Funding risk is defined as the risk to the Bank's ongoing ability to raise sufficient funds to finance actual or proposed business activities on an unsecured or secured basis at an acceptable price. The funding management priority is to achieve an optimal balance between deposits, securitization, secured funding, and unsecured funding. This brings optimal stability to the funding and reduces vulnerability to unpredictable events.

Regulatory Developments

The Bank continues to closely monitor regulatory developments and participates actively in various consultative processes. For additional information about the regulatory context as at October 31, 2022, refer to page 91 of the Risk Management section in the 2022 Annual Report. Since November 1, 2022, the below-described regulatory developments should also be considered.

On November 7, 2022, OSFI published a new guideline entitled Assurance on Capital, Leverage and Liquidity Returns. OSFI relies largely on the regulatory returns produced by financial institutions when assessing their safety and soundness. The purpose of this draft guideline is to better inform auditors and institutions on the work to be performed on regulatory returns in order to clarify and align OSFI's assurance expectations across all financial institutions. In particular, the draft guideline addresses the assurance that must be provided by an external audit, attestation by senior management, the assurance that must be provided by an internal audit, and the proposed effective dates. The Bank is actively participating in this consultation.

On April 1, 2023, revisions to OSFI's Liquidity Adequacy Requirements Guideline came into effect. OSFI made changes that will improve the sensitivity to risk and ensure that financial institutions hold sufficient cash or other liquid investments to meet potential liquidity needs and to support the continued lending of credit, in particular during periods of financial stress.

Liquidity Management

Liquid Assets

To protect depositors and creditors from unexpected crisis situations, the Bank holds a portfolio of unencumbered liquid assets that can be readily liquidated to meet financial obligations. The majority of the unencumbered liquid assets are held in Canadian or U.S. dollars. Moreover, all assets that can be quickly monetized are considered liquid assets. The Bank's liquidity reserves do not factor in the availability of the emergency liquidity facilities of central banks. The following tables provide information on the Bank's encumbered and unencumbered assets.

Liquid Asset Portfolio⁽¹⁾

(millions of Canadian dollars)						As at July 31, 2023		As at October 31, 2022
			Bank-owned liquid assets⁽²⁾	Liquid assets received⁽³⁾	Total liquid assets	Encumbered liquid assets⁽⁴⁾	Unencumbered liquid assets	Unencumbered liquid assets

Cash and deposits with financial institutions			39,808	−	39,808	8,151	31,657	24,180
Securities
	Issued or guaranteed by the Canadian government, U.S.
		Treasury, other U.S. agencies and other foreign governments	34,030	38,403	72,433	46,567	25,866	25,894
	Issued or guaranteed by Canadian provincial and
		municipal governments	12,981	7,847	20,828	15,608	5,220	8,421
	Other debt securities		9,360	3,726	13,086	2,953	10,133	9,809
	Equity securities		71,334	43,322	114,656	88,294	26,362	27,291
Loans
	Securities backed by insured residential mortgages		12,486	−	12,486	6,994	5,492	5,582
As at July 31, 2023			179,999	93,298	273,297	168,567	104,730
As at October 31, 2022			153,384	92,257	245,641	144,464		101,177

(millions of Canadian dollars)		As at July 31, 2023	As at October 31, 2022

Unencumbered liquid assets by entity
	National Bank (parent)	55,314	52,544
	Domestic subsidiaries	9,583	14,576
	Foreign subsidiaries and branches	39,833	34,057
		104,730	101,177

(millions of Canadian dollars)		As at July 31, 2023	As at October 31, 2022

Unencumbered liquid assets by currency
	Canadian dollar	51,543	49,466
	U.S. dollar	32,744	24,871
	Other currencies	20,443	26,840
		104,730	101,177

Liquid Asset Portfolio⁽¹⁾ - Average⁽⁵⁾

(millions of Canadian dollars)						Quarter ended
						July 31, 2023		October 31, 2022
			Bank-owned liquid assets⁽²⁾	Liquid assets received⁽³⁾	Total liquid assets	Encumbered liquid assets⁽⁴⁾	Unencumbered liquid assets	Unencumbered liquid assets

Cash and deposits with financial institutions			41,313	−	41,313	7,757	33,556	29,994
Securities
	Issued or guaranteed by the Canadian government, U.S.
		Treasury, other U.S. agencies and other foreign governments	35,023	36,579	71,602	51,132	20,470	25,487
	Issued or guaranteed by Canadian provincial and
		municipal governments	14,108	7,452	21,560	15,808	5,752	7,749
	Other debt securities		10,254	3,794	14,048	3,164	10,884	10,316
	Equity securities		69,464	46,784	116,248	86,386	29,862	24,386
Loans
	Securities backed by insured residential mortgages		12,658	−	12,658	7,450	5,208	4,639
			182,820	94,609	277,429	171,697	105,732	102,571

(1) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.

(2) Bank-owned liquid assets include assets for which there are no legal or geographic restrictions.

(3) Securities received as collateral with respect to securities financing and derivative transactions and securities purchased under reverse repurchase agreements and securities borrowed.

(4) In the normal course of its funding activities, the Bank pledges assets as collateral in accordance with standard terms. Encumbered liquid assets include assets used to cover short sales, obligations related to securities sold under repurchase agreements and securities loaned, guarantees related to security-backed loans and borrowings, collateral related to derivative financial instrument transactions, asset-backed securities, and liquid assets legally restricted from transfers.

(5) The average is based on the sum of the end-of-period balances of the three months of the quarter divided by three.

Summary of Encumbered and Unencumbered Assets⁽¹⁾

(millions of Canadian dollars)						As at July 31, 2023
		Encumbered assets⁽²⁾		Unencumbered assets		Total	Encumbered assets as a % of total assets
		Pledged as collateral	Other⁽³⁾	Available as collateral	Other⁽⁴⁾

Cash and deposits with financial institutions		423	7,728	31,657	−	39,808	1.9
Securities		60,124	−	67,581	−	127,705	14.1
Securities purchased under reverse repurchase
	agreements and securities borrowed	−	12,368	−	−	12,368	2.9
Loans and acceptances, net of allowances		38,971	−	5,492	174,970	219,433	9.2
Derivative financial instruments		−	−	−	14,362	14,362	−
Investments in associates and joint ventures		−	−	−	45	45	−
Premises and equipment		−	−	−	1,553	1,553	−
Goodwill		−	−	−	1,514	1,514	−
Intangible assets		−	−	−	1,330	1,330	−
Other assets		−	−	−	7,897	7,897	−
		99,518	20,096	104,730	201,671	426,015	28.1


(millions of Canadian dollars)						As at October 31, 2022
		Encumbered assets⁽²⁾		Unencumbered assets		Total	Encumbered assets as a % of total assets
		Pledged as collateral	Other⁽³⁾	Available as collateral	Other⁽⁴⁾

Cash and deposits with financial institutions		295	7,395	24,180	−	31,870	1.9
Securities		42,972	−	66,747	−	109,719	10.6
Securities purchased under reverse repurchase
	agreements and securities borrowed	−	21,818	4,668	−	26,486	5.4
Loans and acceptances, net of allowances		37,426	−	5,582	163,736	206,744	9.3
Derivative financial instruments		−	−	−	18,547	18,547	−
Investments in associates and joint ventures		−	−	−	140	140	−
Premises and equipment		−	−	−	1,397	1,397	−
Goodwill		−	−	−	1,519	1,519	−
Intangible assets		−	−	−	1,360	1,360	−
Other assets		−	−	−	5,958	5,958	−
		80,693	29,213	101,177	192,657	403,740	27.2

(1) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.

(2) In the normal course of its funding activities, the Bank pledges assets as collateral in accordance with standard terms. Encumbered assets include assets used to cover short sales, obligations related to securities sold under repurchase agreements and securities loaned, guarantees related to security-backed loans and borrowings, collateral related to derivative financial instrument transactions, asset-backed securities, residential mortgage loans securitized and transferred under the Canada Mortgage Bond program, assets held in consolidated trusts supporting the Bank's funding activities, and mortgage loans transferred under the covered bond program.

(3) Other encumbered assets include assets for which there are restrictions and that cannot therefore be used for collateral or funding purposes as well as assets used to cover short sales.

(4) Other unencumbered assets are assets that cannot be used for collateral or funding purposes in their current form. This category includes assets that are potentially eligible as funding program collateral (e.g., mortgages insured by the Canada Mortgage and Housing Corporation that can be securitized into mortgage-backed securities under the National Housing Act (Canada)).

Liquidity Coverage Ratio

The liquidity coverage ratio (LCR) was introduced primarily to ensure that banks could withstand periods of severe short-term stress. LCR is calculated by dividing the total amount of high-quality liquid assets (HQLA) by the total amount of net cash outflows. OSFI requires Canadian banks to maintain a minimum LCR of 100%. An LCR above 100% ensures that banks are holding sufficient high-quality liquid assets to cover net cash outflows given a severe, 30‑day liquidity crisis. The assumptions underlying the LCR scenario are established by the BCBS and OSFI's Liquidity Adequacy Requirements Guideline.

The table on the following page provides average LCR data calculated using the daily figures in the quarter. For the quarter ended July 31, 2023, the Bank's average LCR was 146%, well above the 100% regulatory requirement and demonstrating the Bank's solid short-term liquidity position.

LCR Disclosure Requirements⁽¹⁾⁽²⁾

(millions of Canadian dollars)					Quarter ended
			July 31, 2023			April 30, 2023
			Total unweighted value⁽³⁾ (average)	Total weighted value⁽⁴⁾ (average)		Total weighted value⁽⁴⁾ (average)

High-quality liquid assets (HQLA)
	Total HQLA		n.a.	73,834		77,354
Cash outflows
	Retail deposits and deposits from small business customers, of which:		74,241	10,515		10,080
		Stable deposits	27,980	839		835
		Less stable deposits	46,261	9,676		9,245
	Unsecured wholesale funding, of which:		99,172	53,485		54,145
		Operational deposits (all counterparties) and deposits in networks of cooperative banks	30,033	7,314		7,202
		Non-operational deposits (all counterparties)	58,608	35,640		35,563
		Unsecured debt	10,531	10,531		11,380
	Secured wholesale funding		n.a.	22,390		20,652
	Additional requirements, of which:		62,032	16,327		14,784
		Outflows related to derivative exposures and other collateral requirements	19,833	8,510		7,577
		Outflows related to loss of funding on secured debt securities	1,805	1,805		1,289
		Backstop liquidity and credit enhancement facilities and commitments to extend credit	40,394	6,012		5,918
	Other contractual commitments to extend credit		2,483	769		763
	Other contingent commitments to extend credit		122,032	1,941		1,848
	Total cash outflows		n.a.	105,427		102,272

Cash inflows
	Secured lending (e.g., reverse repos)		111,321	26,779		27,060
	Inflows from fully performing exposures		10,233	6,634		6,598
	Other cash inflows		21,324	21,324		18,229
	Total cash inflows		142,878	54,737		51,887

				Total adjusted value⁽⁵⁾		Total adjusted value⁽⁵⁾

Total HQLA				73,834		77,354
Total net cash outflows				50,690		50,385
Liquidity coverage ratio (%)⁽⁶⁾				146	%	155	%

n.a. Not applicable

(1) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.

(2) OSFI prescribed a table format in order to standardize disclosure throughout the banking industry.

(3) Unweighted values are calculated as outstanding balances maturing or callable within 30 days (for inflows and outflows).

(4) Weighted values are calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates.

(5) Total adjusted values are calculated after the application of both haircuts and inflow and outflow rates and any applicable caps.

(6) The data in this table is calculated using averages of the daily figures in the quarter.

As at July 31, 2023, Level 1 liquid assets represented 85% of the Bank's HQLA, which includes cash, central bank deposits, and bonds issued or guaranteed by the Canadian government and Canadian provincial governments.

Cash outflows arise from the application of OSFI-prescribed assumptions on deposits, debt, secured funding, commitments and additional collateral requirements. The cash outflows are partly offset by cash inflows, which come mainly from secured loans and performing loans. The Bank expects some quarter-over-quarter variation between reported LCRs without such variation being necessarily indicative of a trend. The variation between the quarter ended July 31, 2023 and the preceding quarter was a result of normal business operations. The Bank's liquid asset buffer is well in excess of its total net cash outflows.

The LCR assumptions differ from the assumptions used for the liquidity disclosures presented in the tables on the previous pages or those used for internal liquidity management rules. While the liquidity disclosure framework is prescribed by the EDTF, the Bank's internal liquidity metrics use assumptions that are calibrated according to its business model and experience.

Net Stable Funding Ratio

The BCBS has developed the net stable funding ratio (NSFR) to promote a more resilient banking sector. The NSFR requires institutions to maintain a stable funding profile in relation to the composition of their assets and off-balance-sheet activities. A viable funding structure is intended to reduce the likelihood that disruptions to an institution's regular sources of funding would erode its liquidity position in a way that would increase the risk of its failure and potentially lead to broader systemic stress. The NSFR is calculated by dividing available stable funding by required stable funding. OSFI has been requiring Canadian banks to maintain a minimum NSFR of 100%.

The following table provides the available stable funding and required stable funding in accordance with OSFI's Liquidity Adequacy Requirements Guideline. As at July 31, 2023, the Bank's NSFR was 118%, well above the 100% regulatory requirement and demonstrating the Bank's solid long-term liquidity position.

NSFR Disclosure Requirements⁽¹⁾⁽²⁾

(millions of Canadian dollars)							As at July 31, 2023		As at April 30, 2023
			Unweighted value by residual maturity				Weighted value⁽³⁾
			No maturity	6 months or less	Over 6 months to 1 year	Over 1 year	Weighted value⁽³⁾		Weighted value⁽³⁾
Available Stable Funding (ASF) Items
Capital:			23,024	−	−	748	23,772		23,369
	Regulatory capital		23,024	−	−	748	23,772		23,369
	Other capital instruments		−	−	−	−	−		−
Retail deposits and deposits from small business customers:			66,221	18,336	7,368	21,894	101,196		100,027
	Stable deposits		25,666	5,685	3,567	6,860	40,032		39,615
	Less stable deposits		40,555	12,651	3,801	15,034	61,164		60,412
Wholesale funding:			61,071	87,794	11,485	44,898	101,485		100,371
	Operational deposits		30,514	−	−	−	15,257		14,664
	Other wholesale funding		30,557	87,794	11,485	44,898	86,228		85,707
Liabilities with matching interdependent assets⁽⁴⁾			−	4,177	2,720	19,233	−		−
Other liabilities⁽⁵⁾:			26,499		8,936		674		650
	NSFR derivative liabilities⁽⁵⁾		n.a.		5,616		n.a.		n.a.
	All other liabilities and equity not included in the above categories		26,499	2,571	150	599	674		650
Total ASF			n.a.	n.a.	n.a.	n.a.	227,127		224,417
Required Stable Funding (RSF) Items
Total NSFR high-quality liquid assets (HQLA)			n.a.	n.a.	n.a.	n.a.	10,714		9,407
Deposits held at other financial institutions for operational purposes			−	−	−	−	−		−
Performing loans and securities:			61,341	67,205	24,540	100,960	154,770		155,439
	Performing loans to financial institutions secured by Level 1 HQLA		120	592	−	−	36		100
	Performing loans to financial institutions secured by non-Level-1 HQLA and unsecured performing loans to financial institutions		5,127	37,039	1,705	1,002	6,295		5,975
	Performing loans to non-financial corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and PSEs, of which:		30,451	23,387	15,977	36,525	76,011		76,138
		With a risk weight of less than or equal to 35% under the Basel II Standardized Approach for credit risk	186	2,030	402	753	1,826		2,243
	Performing residential mortgages, of which:		9,174	5,698	5,490	58,892	53,591		53,027
		With a risk weight of less than or equal to 35% under the Basel II Standardized Approach for credit risk	9,174	5,698	5,490	58,892	53,533		53,027
	Securities that are not in default and do not qualify as HQLA, including exchange-traded equities		16,469	489	1,368	4,541	18,837		20,199
Assets with matching interdependent liabilities⁽⁴⁾			−	4,177	2,720	19,233	−		−
Other assets⁽⁵⁾:			4,241		34,919		23,089		21,160
	Physical traded commodities, including gold		423	n.a.	n.a.	n.a.	423		416
	Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs⁽⁵⁾		n.a.		11,873		10,092		9,034
	NSFR derivative assets⁽⁵⁾		n.a.		1,666		−		−
	NSFR derivative liabilities before deduction of the variation margin posted⁽⁵⁾		n.a.		12,616		631		539
	All other assets not included in the above categories		3,818	5,409	1,757	1,598	11,943		11,171
Off-balance-sheet items⁽⁵⁾			n.a.		111,108		4,175		4,098
Total RSF			n.a.	n.a.	n.a.	n.a.	192,748		190,104
Net Stable Funding Ratio (%)			n.a.	n.a.	n.a.	n.a.	118	%	118	%

n.a. Not applicable

(1) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.

(2) OSFI prescribed a table format in order to standardize disclosure throughout the banking industry.

(3) Weighted values are calculated after application of the weightings set out in OSFI's Liquidity Adequacy Requirements Guideline.

(4) As per OSFI's specifications, liabilities arising from transactions involving the Canada Mortgage Bond program and their corresponding encumbered mortgages are given ASF and RSF weights of 0%, respectively.

(5) As per OSFI's specifications, there is no need to differentiate by maturities.

The NSFR represents the amount of ASF relative to the amount of RSF. ASF is defined as the portion of capital and liabilities expected to be reliable over the time horizon considered by the NSFR, which extends to one year. The amount of RSF of a specific institution is a function of the liquidity characteristics and residual maturities of the various assets held by that institution as well as those of its off-balance-sheet exposures. The amounts of ASF and RSF are calibrated to reflect the degree of stability of liabilities and liquidity of assets. The Bank expects some quarter-over-quarter variation between reported NSFRs without such variation being necessarily indicative of a long-term trend.

The NSFR assumptions differ from the assumptions used for the liquidity disclosures provided in the tables on the preceding pages or those used for internal liquidity management rules. While the liquidity disclosure framework is prescribed by the EDTF, the Bank's internal liquidity metrics use assumptions that are calibrated according to its business model and experience.

Funding

The Bank continuously monitors and analyzes market trends as well as possibilities for accessing less expensive and more flexible funding, considering both the risks and opportunities observed. The deposit strategy remains a priority for the Bank, which continues to prefer deposits to institutional funding.

The table below presents the residual contractual maturities of the Bank's wholesale funding. The information has been presented in accordance with the categories recommended by the EDTF for comparison purposes with other banks.

Residual Contractual Maturities of Wholesale Funding⁽¹⁾

(millions of Canadian dollars)								As at July 31, 2023
		1 month or less	Over 1 month to 3 months	Over 3 months to 6 months	Over 6 months to 12 months	Subtotal 1 year or less	Over 1 year to 2 years	Over 2 years	Total

Deposits from banks⁽²⁾		243	−	8	−	251	−	−	251
Certificates of deposit and commercial paper⁽³⁾		2,802	4,346	4,337	2,015	13,500	−	−	13,500
Senior unsecured medium-term notes⁽⁴⁾⁽⁵⁾		869	205	303	3,478	4,855	7,401	5,644	17,900
Senior unsecured structured notes		−	−	−	−	−	38	2,521	2,559
Covered bonds and asset-backed securities
	Mortgage securitization	−	2,484	1,529	2,831	6,844	4,009	15,277	26,130
	Covered bonds	−	1,087	1,087	−	2,174	1,767	7,851	11,792
	Securitization of credit card receivables	−	−	−	−	−	48	−	48
Subordinated liabilities⁽⁶⁾		−	−	−	−	−	−	748	748
		3,914	8,122	7,264	8,324	27,624	13,263	32,041	72,928

Secured funding		−	3,571	2,616	2,831	9,018	5,824	23,128	37,970
Unsecured funding		3,914	4,551	4,648	5,493	18,606	7,439	8,913	34,958
		3,914	8,122	7,264	8,324	27,624	13,263	32,041	72,928
As at October 31, 2022		6,122	8,390	8,393	7,113	30,018	9,338	32,752	72,108

(1) Bankers' acceptances are not included in this table.

(2) Deposits from banks include all non-negotiable term deposits from banks.

(3) Includes bearer deposit notes.

(4) Certificates of deposit denominated in euros are included in senior unsecured medium-term notes.

(5) Includes deposits subject to bank recapitalization (bail-in) conversion regulations.

(6) Subordinated debt is presented in this table, but the Bank does not consider it as part of its wholesale funding.

As part of a comprehensive liquidity management framework, the Bank regularly reviews its contracts that stipulate that additional collateral could be required in the event of a downgrade of the Bank's credit rating. The Bank's liquidity position management approach already incorporates additional collateral requirements in the event of a one-notch to three-notch downgrade in credit rating. The table below presents the additional collateral requirements in the event of a one-, two-, or three-notch credit rating downgrade.

(millions of Canadian dollars)		As at July 31, 2023
	One-notch downgrade	Two-notch downgrade	Three-notch downgrade

Derivatives⁽¹⁾	30	87	93

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

Residual Contractual Maturities of Balance Sheet Items and Off-Balance-Sheet Commitments

The following tables present balance sheet items and off-balance-sheet commitments by residual contractual maturity as at July 31, 2023 with comparative figures as at October 31, 2022. The information gathered from this maturity analysis is a component of liquidity and funding management. However, this maturity profile does not represent how the Bank manages its interest rate risk or its liquidity risk and funding needs. The Bank considers factors other than contractual maturity when assessing liquid assets or determining expected future cash flows.

In the normal course of business, the Bank enters into various off-balance-sheet commitments. The credit instruments used to meet the financing needs of its clients represent the maximum amount of additional credit the Bank could be obligated to extend if the commitments were fully drawn.

The Bank also has future minimum commitments under leases for premises as well as under other contracts, mainly commitments to purchase loans and contracts for outsourced information technology services. Most of the lease commitments are related to operating leases.

(millions of Canadian dollars)										As at July 31, 2023
			1 month or less	Over 1 month to 3 months	Over 3 months to 6 months	Over 6 months to 9 months	Over 9 months to 12 months	Over 1 year to 2 years	Over 2 years to 5 years	Over 5 years	No specified maturity	Total

Assets
Cash and deposits
	with financial institutions		31,152	156	345	215	47	20	−	−	7,873	39,808

Securities
	At fair value through
		profit or loss	1,356	516	1,507	2,057	2,156	4,289	12,466	11,460	70,762	106,569
	At fair value through
		other comprehensive income	2	28	31	187	228	994	4,280	2,795	572	9,117
	At amortized cost		4	753	210	265	284	4,223	4,932	1,348	−	12,019
			1,362	1,297	1,748	2,509	2,668	9,506	21,678	15,603	71,334	127,705

Securities purchased under
	reverse repurchase
	agreements and
	securities borrowed		3,225	2,139	334	340	408	659	−	−	5,263	12,368

Loans⁽¹⁾
	Residential mortgage		1,846	1,576	2,110	1,951	3,091	13,493	51,902	8,275	532	84,776
	Personal		656	723	994	1,029	1,278	5,695	16,421	5,180	13,817	45,793
	Credit card										2,491	2,491
	Business and government		19,393	3,786	4,096	3,590	3,009	5,817	11,978	5,076	24,039	80,784
	Customers' liability under
		acceptances	6,115	581	−	13	−	−	−	−	−	6,709
	Allowances for credit losses										(1,120)	(1,120)
			28,010	6,666	7,200	6,583	7,378	25,005	80,301	18,531	39,759	219,433

Other
	Derivative financial instruments		1,576	1,222	1,521	538	576	1,337	2,058	5,534	−	14,362
	Investments in associates and
		joint ventures									45	45
	Premises and equipment										1,553	1,553
	Goodwill										1,514	1,514
	Intangible assets										1,330	1,330
	Other assets⁽¹⁾		2,777	126	691	260	1,497	613	124	618	1,191	7,897
			4,353	1,348	2,212	798	2,073	1,950	2,182	6,152	5,633	26,701
			68,102	11,606	11,839	10,445	12,574	37,140	104,161	40,286	129,862	426,015

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

(millions of Canadian dollars)										As at July 31, 2023
			1 month or less	Over 1 month to 3 months	Over 3 months to 6 months	Over 6 months to 9 months	Over 9 months to 12 months	Over 1 year to 2 years	Over 2 years to 5 years	Over 5 years	No specified maturity	Total

Liabilities and equity
Deposits⁽¹⁾⁽²⁾
	Personal		4,457	3,878	6,088	4,395	5,356	7,363	10,656	4,718	39,679	86,590
	Business and government		35,706	12,576	10,275	5,634	3,546	9,879	14,491	4,306	96,355	192,768
	Deposit-taking institutions		769	591	32	29	92	7	14	31	1,400	2,965
			40,932	17,045	16,395	10,058	8,994	17,249	25,161	9,055	137,434	282,323

Other
	Acceptances		6,115	581	−	13	−	−	−	−	−	6,709
	Obligations related
		to securities sold short⁽³⁾	356	56	267	1,036	118	1,441	4,433	6,623	8,495	22,825
	Obligations related to
		securities sold under
		repurchase agreements and
		securities loaned	21,615	3,874	989	3,297	−	−	−	−	8,658	38,433
	Derivative financial
		instruments	2,028	2,013	1,859	653	724	2,273	5,158	4,060	−	18,768
	Liabilities related to transferred
		receivables⁽⁴⁾	−	2,484	1,529	736	2,095	4,009	8,566	6,711	−	26,130
	Securitization - Credit card⁽⁵⁾		−	−	−	−	−	48	−	−	−	48
	Lease liabilities⁽⁵⁾		8	16	23	23	22	86	214	127	−	519
	Other liabilities - Other items⁽¹⁾⁽⁵⁾		1,337	206	210	53	52	41	62	69	4,458	6,488
			31,459	9,230	4,877	5,811	3,011	7,898	18,433	17,590	21,611	119,920

Subordinated debt			−	−	−	−	−	−	−	748	−	748

Equity											23,024	23,024
			72,391	26,275	21,272	15,869	12,005	25,147	43,594	27,393	182,069	426,015

Off-balance-sheet commitments
	Letters of guarantee and
		documentary letters of credit	160	513	3,349	1,750	1,046	1,272	198	38	−	8,326
	Credit card receivables⁽⁶⁾										9,712	9,712
	Backstop liquidity and credit
		enhancement facilities⁽⁷⁾	−	−	15	5,552	15	−	−	−	3,656	9,238
	Commitments to extend credit⁽⁸⁾		4,139	10,909	7,152	6,794	4,855	4,071	3,238	62	47,666	88,886
	Obligations related to:
		Lease commitments⁽⁹⁾	1	1	1	1	2	5	7	2	−	20
		Other contracts⁽¹⁰⁾	16	31	47	43	1	2	78	13	124	355

(1) Amounts payable upon demand or notice are considered to have no specified maturity.

(2) The Deposits item is presented in greater detail than it is on the Consolidated Balance Sheet.

(3) Amounts are disclosed according to the remaining contractual maturity of the underlying security.

(4) These amounts mainly include liabilities related to the securitization of mortgage loans.

(5) The Other liabilities item is presented in greater detail than it is on the Consolidated Balance Sheet.

(6) These amounts are unconditionally revocable at the Bank's discretion at any time.

(7) In the event of payment on one of the backstop liquidity facilities, the Bank will receive as collateral government bonds in an amount up to $5.6 billion.

(8) These amounts include $47.0 billion that is unconditionally revocable at the Bank's discretion at any time.

(9) These amounts include leases for which the underlying asset is of low value and leases other than for real estate of less than one year.

(10) These amounts include $0.1 billion in contractual commitments related to the head office building under construction.

(millions of Canadian dollars)										As at October 31, 2022
			1 month or less	Over 1 month to 3 months	Over 3 months to 6 months	Over 6 months to 9 months	Over 9 months to 12 months	Over 1 year to 2 years	Over 2 years to 5 years	Over 5 years	No specified maturity	Total

Assets
Cash and deposits
	with financial institutions		23,141	142	311	18	685	−	−	−	7,573	31,870

Securities
	At fair value through
		profit or loss	1,527	6,450	5,405	2,267	2,337	3,369	8,634	10,661	46,725	87,375
	At fair value through
		other comprehensive income	5	30	13	20	46	952	4,910	2,296	556	8,828
	At amortized cost		602	196	1,876	1,032	95	2,840	5,802	1,073	−	13,516
			2,134	6,676	7,294	3,319	2,478	7,161	19,346	14,030	47,281	109,719

Securities purchased under
	reverse repurchase
	agreements and
	securities borrowed		12,489	1,231	890	−	409	1,044	−	−	10,423	26,486

Loans⁽¹⁾
	Residential mortgage		1,155	1,124	1,899	2,716	2,364	8,910	53,335	8,059	567	80,129
	Personal		423	449	878	1,208	1,036	3,701	17,792	5,085	14,751	45,323
	Credit card										2,389	2,389
	Business and government		19,980	3,491	3,971	3,586	2,604	6,167	11,452	2,985	19,081	73,317
	Customers' liability under
		acceptances	5,967	554	20	−	−	−	−	−	−	6,541
	Allowances for credit losses										(955)	(955)
			27,525	5,618	6,768	7,510	6,004	18,778	82,579	16,129	35,833	206,744

Other
	Derivative financial instruments		2,046	2,804	1,853	1,190	698	1,742	5,182	3,032	−	18,547
	Investments in associates and
		joint ventures									140	140
	Premises and equipment										1,397	1,397
	Goodwill										1,519	1,519
	Intangible assets										1,360	1,360
	Other assets⁽¹⁾		2,228	527	472	161	94	502	107	491	1,376	5,958
			4,274	3,331	2,325	1,351	792	2,244	5,289	3,523	5,792	28,921
			69,563	16,998	17,588	12,198	10,368	29,227	107,214	33,682	106,902	403,740

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

(millions of Canadian dollars)										As at October 31, 2022
			1 month or less	Over 1 month to 3 months	Over 3 months to 6 months	Over 6 months to 9 months	Over 9 months to 12 months	Over 1 year to 2 years	Over 2 years to 5 years	Over 5 years	No specified maturity	Total

Liabilities and equity
Deposits⁽¹⁾⁽²⁾
	Personal		1,482	1,493	2,955	6,013	6,141	6,418	7,942	4,252	42,115	78,811
	Business and government		36,864	11,605	10,644	4,875	3,728	5,988	13,659	4,227	92,640	184,230
	Deposit-taking institutions		724	624	54	122	30	−	7	36	1,756	3,353
			39,070	13,722	13,653	11,010	9,899	12,406	21,608	8,515	136,511	266,394

Other
	Acceptances		5,967	554	20	−	−	−	−	−	−	6,541
	Obligations related
		to securities sold short⁽³⁾	428	394	634	74	920	1,493	3,948	6,386	7,540	21,817
	Obligations related to
		securities sold under
		repurchase agreements and
		securities loaned	16,233	5,445	1,567	3,406	−	22	−	−	6,800	33,473
	Derivative financial
		instruments	2,584	2,302	1,640	1,009	595	2,047	3,570	5,885	−	19,632
	Liabilities related to transferred
		receivables⁽⁴⁾	−	2,672	422	1,329	2,288	4,558	9,612	5,396	−	26,277
	Securitization - Credit card⁽⁵⁾		−	−	−	29	−	−	49	−	−	78
	Lease liabilities⁽⁵⁾		8	16	23	23	24	87	219	152	−	552
	Other liabilities - Other items⁽¹⁾⁽⁵⁾		1,076	46	99	23	39	27	42	92	4,287	5,731
			26,296	11,429	4,405	5,893	3,866	8,234	17,440	17,911	18,627	114,101

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

Equity											21,746	21,746
			65,366	25,151	18,058	16,903	13,765	20,640	39,048	27,925	176,884	403,740

Off-balance-sheet commitments
	Letters of guarantee and
		documentary letters of credit	180	1,451	1,338	982	1,398	1,292	138	−	−	6,779
	Credit card receivables⁽⁶⁾										9,337	9,337
	Backstop liquidity and credit
		enhancement facilities⁽⁷⁾	−	15	5,552	15	−	−	−	−	3,125	8,707
	Commitments to extend credit⁽⁸⁾		3,126	9,205	6,179	6,678	3,270	4,066	3,186	39	46,368	82,117
	Obligations related to:
		Lease commitments⁽⁹⁾	1	1	2	2	2	6	9	8	−	31
		Other contracts⁽¹⁰⁾	38	42	47	46	47	21	34	−	102	377

(1) Amounts payable upon demand or notice are considered to have no specified maturity.

(2) The Deposits item is presented in greater detail than it is on the Consolidated Balance Sheet.

(3) Amounts are disclosed according to the remaining contractual maturity of the underlying security.

(4) These amounts mainly include liabilities related to the securitization of mortgage loans.

(5) The Other liabilities item is presented in greater detail than it is on the Consolidated Balance Sheet.

(6) These amounts are unconditionally revocable at the Bank's discretion at any time.

(7) In the event of payment on one of the backstop liquidity facilities, the Bank will receive as collateral government bonds in an amount up to $5.6 billion.

(8) These amounts include $44.8 billion that is unconditionally revocable at the Bank's discretion at any time.

(9) These amounts include leases for which the underlying asset is of low value and leases other than for real estate of less than one year.

(10) These amounts include $0.2 billion in contractual commitments related to the head office building under construction.

Regulatory Compliance Risk

The transition related to the interest rate benchmark reform continues in many countries, including in Canada. On December 31, 2021, all LIBOR (London Interbank Offered Rates) rates in European, British, Swiss, and Japanese currency as well as the one-week and two-month USD LIBOR rates were discontinued, whereas the other USD LIBOR rates were discontinued as of June 30, 2023. In Canada, publication of the CDOR (Canadian Dollar Offered Rate) will be discontinued on June 28, 2024 and will be replaced by the risk-free rate CORRA (Canadian Overnight Repo Rate Average) and a term CORRA rate, which will be available as of September 5, 2023. On July 27, 2023, the Canadian Alternative Reference Rate (CARR) Working Group published its recommendations and set a milestone stipulating that no new CDOR or bankers' acceptance loan contracts can be entered into after November 1, 2023. However, this milestone will have no impact on the ability to draw on existing credit facilities that have not yet matured, that have been extended, or that have been subject to material amendments before this deadline. As at July 31, 2023, the transition project was progressing according to schedule. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.

Social and Environmental Risk

Regulatory Developments

On March 7, 2023, OSFI published guideline B-15 Climate Risk Management, which sets out OSFI's expectations regarding climate risk. The guideline is OSFI's first supervisory framework dedicated to climate change and that addresses the impacts of climate change on managing the risks existing in the country's financial system. It covers two main topics: Governance and financial disclosures. The guideline will take effect for D-SIBs at the end of fiscal 2024. OSFI plans on revising this guideline to incorporate changes in practices and standards, in particular, to reflect the requirements of IFRS S2 - Climate-related Disclosures published by the International Sustainability Standards Board (ISSB).

On June 26, 2023, the ISSB published IFRS S1 - General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 - Climate-related Disclosures. IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short-, medium- and long-term. IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1. These standards will be applicable for fiscal years beginning on or after January 1, 2024, and certain relief measures will be available.

Risk Disclosures

One of the purposes of the 2022 Annual Report, the Report to Shareholders - Third Quarter 2023, and the related supplementary information documents is to provide transparent, high-quality risk disclosures in accordance with the recommendations made by the Financial Stability Board's EDTF group. The following table lists the references where users can find information that responds to the EDTF's 32 recommendations.

							Pages
					2022 Annual Report	Report to Shareholders⁽¹⁾	Supplementary Regulatory Capital and Pillar 3 Disclosure⁽¹⁾
General
	1	Location of risk disclosures			13	48
			Management's Discussion and Analysis		55 to 105, 117 and 119 to 121	25 to 47
			Consolidated Financial Statements		Notes 1, 7, 16, 20, 23 and 29	Notes 6 and 12
			Supplementary Financial Information				20 to 34⁽²⁾
			Supplementary Regulatory Capital and Pillar 3 Disclosure				5 to 58
	2	Risk terminology and risk measures			65 to 105
	3	Top and emerging risks			26 and 70 to 75	12, 32 to 47
	4	New key regulatory ratios			56 to 59, 91 and 95 to 98	25, 26, 37 and 39 to 42

Risk governance and risk management
	5	Risk management organization, processes and key functions			65 to 85, 91 to 93 and 98
	6	Risk management culture			65 and 66
	7	Key risks by business segment, risk management and risk appetite			64 to 66 and 70
	8	Stress testing			55, 66, 79, 89, 90 and 93

Capital adequacy and risk-weighted assets (RWA)
	9	Minimum Pillar 1 capital requirements			56 to 59	25 and 26
	10	Reconciliation of the accounting balance sheet to
			the regulatory balance sheet				8 to 14, 17 and 18
	11	Movements in regulatory capital			62	28
	12	Capital planning			55 to 64
	13	RWA by business segment and by risk type			64		6 and 7
	14	Capital requirements by risk and the RWA calculation method			75 to 79		6 and 7
	15	Banking book credit risk					6 and 7
	16	Movements in RWA by risk type			63	29	6 and 7
	17	Assessment of credit risk model performance			69, 76 to 79 and 84		39

Liquidity
	18	Liquidity management and components of the liquidity buffer			91 to 99	37 to 42

Funding
	19	Summary of encumbered and unencumbered assets			94 and 95	39
	20	Residual contractual maturities of balance sheet items and
			off-balance-sheet commitments		222 to 226	43 to 46
	21	Funding strategy and funding sources			98 to 100	42

Market risk
	22	Linkage of market risk measures to balance sheet			86 and 87	34 and 35
	23	Market risk factors			84 to 90, 210 and 211	34 to 37
	24	VaR: Assumptions, limitations and validation procedures			88
	25	Stress tests, stressed VaR and backtesting			84 to 90

Credit risk
	26	Credit risk exposures			83 and 171 to 182	33 and 70 to 81	19 to 50 and 19 to 27⁽²⁾
	27	Policies for identifying impaired loans			80, 81, 145 and 146
	28	Movements in impaired loans and allowances for credit losses		117, 120, 121 and 171 to 182		70 to 81	24 to 27⁽²⁾
	29	Counterparty credit risk relating to derivative transactions			80 to 82 and 190 to 193		40 to 50, 28 and 29⁽²⁾
	30	Credit risk mitigation			78 to 81 and 168		21, 25, 26 and 48 to 58

Other risks
	31	Other risks: Governance, measurement and management			73 to 75, 78 and 100 to 105
	32	Publicly known risk events			26, 100 and 101	12, 32 and 47

(1) Third quarter 2023.

(2) These pages are included in the document entitled Supplementary Financial Information - Third Quarter 2023.

Accounting Policies and Financial Disclosure

Accounting Policies and Critical Accounting Estimates

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 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. The unaudited interim condensed consolidated financial statements for the quarter and nine-month period ended July 31, 2023 were prepared in accordance with IAS 34 - Interim Financial Reporting 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, except for the changes described in Note 2 to the unaudited interim condensed consolidated financial statements, which have been applied since May 23, 2023.

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 accounting policies are considered critical given their importance to the presentation of the Bank's financial position and operating results and require subjective and complex judgments and estimates on matters that are inherently uncertain. Any change in these judgments and estimates could have a significant impact on the Bank's consolidated financial statements. The critical accounting estimates are the same as those described on pages 106 to 111 of the 2022 Annual Report.

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. 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 uncertainty regarding certain key inputs used in measuring ECLs is described in Note 6 to these unaudited interim condensed consolidated financial statements.

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.

Financial Disclosure

During the third quarter of 2023, no changes were made to the policies, procedures, and other processes that comprise the Bank's internal control over financial reporting that had or could reasonably have a significant impact on the internal control over financial reporting.

Quarterly Financial Information

(millions of Canadian dollars,
	except per share amounts)				2023				2022⁽¹⁾	2021⁽¹⁾	2022	2021⁽¹⁾
			Q3	Q2	Q1	Q4	Q3	Q2	Q1	Q4	Total	Total

Total revenues			2,515	2,479	2,582	2,334	2,413	2,439	2,466	2,211	9,652	8,927

Net income			839	847	881	738	826	889	930	769	3,383	3,140

Earnings per share ($)
	Basic		2.38	2.41	2.51	2.10	2.38	2.56	2.67	2.20	9.72	8.95
	Diluted		2.36	2.38	2.49	2.08	2.35	2.53	2.64	2.17	9.61	8.85
Dividends per common share ($)			1.02	0.97	0.97	0.92	0.92	0.87	0.87	0.71	3.58	2.84

Return on common
	shareholders' equity (%)⁽²⁾		16.2	17.5	17.9	15.3	17.9	20.7	21.9	18.7	18.8	20.7

Total assets			426,015	417,684	418,342	403,740	386,833	369,570	366,680	355,621
Net impaired loans excluding POCI loans⁽²⁾			537	477	476	479	301	293	287	283

Per common share ($)
	Book value⁽²⁾		58.75	57.65	55.92	55.24	54.29	52.28	49.71	47.44
	Share price
		High	103.28	103.45	99.95	94.37	97.87	104.59	105.44	104.32
		Low	94.62	92.67	91.02	83.12	83.33	89.33	94.37	95.00

(1) For the fiscal 2022 and 2021 comparatives figures, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.

(2) See the Glossary section on pages 51 to 54 for details on the composition of these measures.

Glossary

Acceptances

Acceptances and the customers' liability under acceptances constitute a guarantee of payment by a bank and can be traded in the money market. The Bank earns a "stamping fee" for providing this guarantee.

Allowances for credit losses

Allowances for credit losses represent management's unbiased estimate of expected credit losses as at the balance sheet date. These allowances are primarily related to loans and off-balance-sheet items such as loan commitments and financial guarantees.

Assets under administration

Assets in respect of which a financial institution provides administrative services on behalf of the clients who own the assets. Such services include custodial services, collection of investment income, settlement of purchase and sale transactions, and record-keeping. Assets under administration are not reported on the balance sheet of the institution offering such services.

Assets under management

Assets managed by a financial institution and that are beneficially owned by clients. Management services are more comprehensive than administrative services and include selecting investments or offering investment advice. Assets under management, which may also be administered by the financial institution, are not reported on the balance sheet of the institution offering such services.

Available TLAC

Available TLAC includes total capital as well as certain senior unsecured debt subject to the federal government's bail-in regulations that satisfy all of the eligibility criteria in OSFI's Total Loss Absorbing Capacity (TLAC) Guideline.

Average interest-bearing assets

Average interest-bearing assets include interest-bearing deposits with financial institutions and certain cash items, securities, securities purchased under reverse repurchase agreements and securities borrowed, and loans, while excluding customers' liability under acceptances and other assets. The average is calculated based on the daily balances for the period.

Average interest-bearing assets, non-trading

Average interest-bearing assets, non-trading, include interest-bearing deposits with financial institutions and certain cash items, securities purchased under reverse repurchase agreements and securities borrowed, and loans, while excluding other assets and assets related to trading activities. The average is calculated based on the daily balances for the period.

Average volumes

Average volumes represent the average of the daily balances for the period of the consolidated balance sheet items.

Basic earnings per share

Basic earnings per share is calculated by dividing net income attributable to common shareholders by the weighted average basic number of common shares outstanding.

Basis point (bps)

Unit of measure equal to one one-hundredth of a percentage point (0.01%).

Book value of a common share

The book value of a common share is calculated by dividing common shareholders' equity by the number of common shares on a given date.

Common Equity Tier 1 (CET1) capital ratio

CET1 capital consists of common shareholders' equity less goodwill, intangible assets, and other capital deductions. The CET1 capital ratio is calculated by dividing total CET1 capital by the corresponding risk-weighted assets.

Compound annual growth rate (CAGR)

CAGR is a rate of growth that shows, for a period exceeding one year, the annual change as though the growth had been constant throughout the period.

Derivative financial instruments

Derivative financial instruments are financial contracts whose value is derived from an underlying interest rate, exchange rate or equity, commodity price or credit instrument or index. Examples of derivatives include swaps, options, forward rate agreements, and futures. The notional amount of the derivative is the contract amount used as a reference point to calculate the payments to be exchanged between the two parties, and the notional amount itself is generally not exchanged by the parties.

Diluted 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.

Dividend payout ratio

The dividend payout ratio represents the dividends of common shares (per share amount) expressed as a percentage of basic earnings per share.

Economic capital

Economic capital is the internal measure used by the Bank to determine the capital required for its solvency and to pursue its business operations. Economic capital takes into consideration the credit, market, operational, business and other risks to which the Bank is exposed as well as the risk diversification effect among them and among the business segments. Economic capital thus helps the Bank to determine the capital required to protect itself against such risks and ensure its long-term viability.

Efficiency ratio

The efficiency ratio represents non-interest expenses expressed as a percentage of total revenues. It measures the efficiency of the Bank's operations.

Fair value

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

Gross impaired loans as a percentage of total loans and acceptances

This measure represents gross impaired loans expressed as a percentage of the balance of loans and acceptances.

Gross impaired loans excluding POCI loans

Gross impaired loans excluding POCI loans are all loans classified in Stage 3 of the expected credit loss model excluding POCI loans.

Gross impaired loans excluding POCI loans as a percentage of total loans and acceptances

This measure represents gross impaired loans excluding POCI loans expressed as a percentage of the balance of loans and acceptances.

Hedging

The purpose of a hedging transaction is to modify the Bank's exposure to one or more risks by creating an offset between changes in the fair value of, or the cash flows attributable to, the hedged item and the hedging instrument.

Impaired Loans

The Bank considers a financial asset, other than a credit card receivable, to be credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred or when contractual payments are 90 days past due. Credit card receivables are considered credit-impaired and are fully written off at the earlier of the following dates: when a notice of bankruptcy is received, a settlement proposal is made, or contractual payments are 180 days past due.

Leverage ratio

The leverage ratio is calculated by dividing Tier 1 capital by total exposure. Total exposure is defined as the sum of on-balance-sheet assets (including derivative financial instrument exposures and securities financing transaction exposures) and off-balance-sheet items.

Liquidity coverage ratio (LCR)

The LCR is a measure designed to ensure that the Bank has sufficient high-quality liquid assets to cover net cash outflows given a severe, 30‑day liquidity crisis.

Loans and acceptances

Loans and acceptances represent the sum of loans and of the customers' liability under acceptances.

Loan-to-value ratio

The loan-to-value ratio is calculated according to the total facility amount for residential mortgages and home equity lines of credit divided by the value of the related residential property.

Master netting agreement

Legal agreement between two parties that have multiple derivative contracts with each other that provides for the net settlement of all contracts through a single payment, in the event of default, insolvency or bankruptcy.

Net impaired loans

Net impaired loans are gross impaired loans presented net of allowances for credit losses on Stage 3 loan amounts drawn.

Net impaired loans as a percentage of total loans and acceptances

This measure represents net impaired loans as a percentage of the balance of loans and acceptances.

Net impaired loans excluding POCI loans

Net impaired loans excluding POCI loans are gross impaired loans excluding POCI loans presented net of allowances for credit losses on amounts drawn on Stage 3 loans granted by the Bank.

Net interest income from trading activities

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

Net interest income, non-trading

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

Net interest margin

Net interest margin is calculated by dividing net interest income by average interest-bearing assets.

Net stable funding ratio (NSFR)

The NSFR ratio is a measure that helps guarantee that the Bank is maintaining a stable funding profile to reduce the risk of funding stress.

Net write-offs as a percentage of average loans and acceptances

This measure represents the net write-offs (net of recoveries) expressed as a percentage of average loans and acceptances.

Non-interest income related to trading activities

Non-interest income related to trading activities consists of realized and unrealized gains and losses as well as interest income on securities measured at fair value through profit or loss, income from held-for-trading derivative financial instruments, changes in the fair value of loans at fair value through profit or loss, changes in the fair value of financial instruments designated at fair value through profit or loss, certain commission income, other trading activity revenues, and any applicable transaction costs.

Office of the Superintendent of Financial Institutions (Canada) (OSFI)

The mandate of OSFI is to regulate and supervise financial institutions and private pension plans subject to federal oversight, to help minimize undue losses to depositors and policyholders and, thereby, to contribute to public confidence in the Canadian financial system.

Operating leverage

Operating leverage is the difference between the growth rate for total revenues and the growth rate for non-interest expenses.

Provisioning rate

This measure represents the allowances for credit losses on impaired loans expressed as a percentage of gross impaired loans.

Provisioning rate excluding POCI loans

This measure represents the allowances for credit losses on impaired loans excluding POCI loans expressed as a percentage of gross impaired loans excluding POCI loans.

Provisions for credit losses

Amount charged to income necessary to bring the allowances for credit losses to a level deemed appropriate by management and is comprised of provisions for credit losses on impaired and non-impaired financial assets.

Provisions for credit losses as a percentage of average loans and acceptances

This measure represents the provisions for credit losses expressed as a percentage of average loans and acceptances.

Provisions for credit losses on impaired loans as a percentage of average loans and acceptances

This measure represents the provisions for credit losses on impaired loans expressed as a percentage of average loans and acceptances.

Provisions for credit losses on impaired loans excluding POCI loans as a percentage of average loans and acceptances or provisions for credit losses on impaired loans excluding POCI loans ratio

This measure represents the provisions for credit losses on impaired loans excluding POCI loans expressed as a percentage of average loans and acceptances.

Return on average assets

Return on average assets represents net income expressed as a percentage of average assets.

Return on common shareholders' equity (ROE)

ROE represents net income attributable to common shareholders expressed as a percentage of average equity attributable to common shareholders. It is a general measure of the Bank's efficiency in using equity.

Risk-weighted assets

Assets are risk weighted according to the guidelines established by OSFI. In the Standardized calculation approach, risk factors are applied directly to the face value of certain assets in order to reflect comparable risk levels. In the Advanced Internal Ratings-Based (AIRB) Approach, risk-weighted assets are derived from the Bank's internal models, which represent the Bank's own assessment of the risks it incurs. In the Foundation Internal Ratings-Based (FIRB) Approach the Bank can use its own estimate of probability of default but must rely on OSFI estimates for loss given default and exposure at default risk parameters. Off-balance-sheet instruments are converted to balance sheet (or credit) equivalents by adjusting the notional values before applying the appropriate risk-weighting factors.

Securities purchased under reverse repurchase agreements

Securities purchased by the Bank from a client pursuant to an agreement under which the securities will be resold to the same client on a specified date and at a specified price. Such an agreement is a form of short-term collateralized lending.

Securities sold under repurchase agreements

Financial obligations related to securities sold pursuant to an agreement under which the securities will be repurchased on a specified date and at a specified price. Such an agreement is a form of short-term funding.

Stressed VaR (SVaR)

SVaR is a statistical measure of risk that replicates the VaR calculation method but uses, instead of a two-year history of risk factor changes, a 12‑month data period corresponding to a continuous period of significant financial stress that is relevant in terms of the Bank's portfolios.

Structured entity

A structured entity is an entity created to accomplish a narrow and well-defined objective and is designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate solely to administrative tasks and the relevant activities are directed by means of contractual arrangements.

Taxable equivalent

Taxable equivalent basis is a calculation method that consists of grossing up certain revenues taxed at lower rates (notably dividends) by the income tax to a level that would make it comparable to revenues from taxable sources in Canada. The Bank uses the taxable equivalent basis to calculate net interest income, non-interest income and income taxes.

Tier 1 capital ratio

Tier 1 capital ratio consists of Common Equity Tier 1 capital and Additional Tier 1 instruments, namely, qualifying non-cumulative preferred shares and the eligible amount of innovative instruments. Tier 1 capital ratio is calculated by dividing Tier 1 capital, less regulatory adjustments, by the corresponding risk-weighted assets.

TLAC leverage ratio

The TLAC leverage ratio is an independent risk measure that is calculated by dividing available TLAC by total exposure, as set out in OSFI's Total Loss Absorbing Capacity (TLAC) Guideline.

TLAC ratio

The TLAC ratio is a measure used to assess whether a non-viable Domestic Systemically Important Bank (D-SIB) has sufficient loss-absorbing capacity to support its recapitalization. It is calculated by dividing available TLAC by risk weighted assets, as set out in OSFI's Total Loss Absorbing Capacity (TLAC) Guideline.

Total capital ratio

Total capital is the sum of Tier 1 and Tier 2 capital. Tier 2 capital consists of the eligible portion of subordinated debt and certain allowances for credit losses. The Total capital ratio is calculated by dividing Total capital, less regulatory adjustments, by the corresponding risk-weighted assets.

Total shareholder return (TSR)

TSR represents the average total return on an investment in the Bank's common shares. The return includes changes in share price and assumes that the dividends received were reinvested in additional common shares of the Bank.

Trading activity revenues

Trading activity revenues consist of the net interest income and the non-interest income related to trading activities. Net interest income comprises dividends related to financial assets and liabilities associated with trading activities, net of interest expenses and interest income related to the financing of these financial assets and liabilities. Non-interest income consists of realized and unrealized gains and losses as well as interest income on securities measured at fair value through profit or loss, income from held-for-trading derivative financial instruments, changes in the fair value of loans at fair value through profit or loss, changes in the fair value of financial instruments designated at fair value through profit or loss, certain commission income, other trading activity revenues, and any applicable transaction costs.

Value-at-Risk (VaR)

VaR is a statistical measure of risk that is used to quantify market risks across products, per types of risks, and aggregate risk on a portfolio basis. VaR is defined as the maximum loss at a specific confidence level over a certain horizon under normal market conditions. The VaR method has the advantage of providing a uniform measurement of financial-instrument-related market risks based on a single statistical confidence level and time horizon.

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