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Nat Bank of Canada (32SS)

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Wednesday 04 December, 2019

Nat Bank of Canada

Press Release Q4 2019

RNS Number : 7106V
National Bank of Canada
04 December 2019
 

Regulatory Announcement

National Bank of Canada

December 4, 2019

Q4 2019 Results

National Bank of Canada (the "Bank") announces publication of its Fourth Quarter 2019 Release. The Fourth Quarter Results have been uploaded to the National Storage Mechanism and will shortly be available at www.morningstar.co.uk/uk/nsm and are 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 Fourth Quarter 2019 Release, please click on the following link:

http://www.rns-pdf.londonstockexchange.com/rns/7106V_1-2019-12-4.pdf

 

 

 

National Bank reports its 2019 annual and fourth quarter results and

raises its quarterly dividend by 4% to 71 cents per share

 

The financial information reported in this document is based on the unaudited interim condensed consolidated financial statements for the fourth quarter of fiscal 2019 and on the audited annual consolidated financial statements for the year ended October 31, 2019 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, December 4, 2019 - For the fourth quarter of 2019, National Bank is reporting net income of $604 million, a 7% increase from $566 million in the fourth quarter of 2018. Fourth-quarter diluted earnings per share stood at $1.67, up 10% from $1.52 in the same quarter of 2018. These increases were driven by net income growth across all the business segments.

 

For fiscal 2019, the Bank's net income totalled $2,322 million, up $90 million or 4% from $2,232 million in fiscal 2018. Its diluted earnings per share for fiscal 2019 stood at $6.34 versus $5.94 in 2018, a 7% increase owing essentially to growth across most of the business segments, tempered by a slowdown in the Financial Markets segment during the first six months of 2019. The Bank's 2019 net income excluding specified items totalled $2,328 million, up 4% from $2,232 million in 2018. The specified items are described on page 3.

 

"Fiscal 2019 was another strong year for National Bank. We achieved solid business growth and record profitability. Our credit quality is excellent, our capital ratios are strong, and disciplined cost management remains a priority throughout the organization," said Louis Vachon, President and Chief Executive Officer of National Bank of Canada. "The outlook in Quebec remains favourable and we continue to take advantage of Canada's broader economic soundness. In the current environment, we are comfortable with our positioning and we remain vigilant in balancing our objectives of sustainable growth with prudent risk management. Our overall objective is to position the Bank to perform well through the cycle," added Mr. Vachon.

 

Highlights

 

(millions of Canadian dollars)

 

 

 

Quarter ended October 31

 

 

Year ended October 31

 

 

 

 

 

2019

 

 

 

2018

 

 

% Change

 

 

2019

 

 

 

2018

 

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

604

 

 

 

566

 

 

7

 

 

2,322

 

 

 

2,232

 

 

4

 

Diluted earnings per share (dollars)

 

$

1.67

 

 

$

1.52

 

 

10

 

$

6.34

 

 

$

5.94

 

 

7

 

Return on common shareholders' equity

 

 

18.2

%

 

 

17.8

%

 

 

 

 

18.0

%

 

 

18.4

%

 

 

 

Dividend payout ratio

 

 

42

%

 

 

41

%

 

 

 

 

42

%

 

 

41

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding specified items(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income excluding specified items

 

 

612

 

 

 

566

 

 

8

 

 

2,328

 

 

 

2,232

 

 

4

 

Diluted earnings per share excluding specified items (dollars)

 

$

1.69

 

 

$

1.52

 

 

11

 

$

6.36

 

 

$

5.94

 

 

7

 

Return on common shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

excluding specified items

 

 

18.4

%

 

 

17.8

%

 

 

 

 

18.0

%

 

 

18.4

%

 

 

 

Dividend payout ratio excluding specified items

 

 

42

%

 

 

41

%

 

 

 

 

42

%

 

 

41

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at

October 31,

 2019

 

 

As at

October 31, 2018

 

 

 

 

CET1 capital ratio under Basel III

 

 

 

 

 

 

 

 

 

 

 

 

11.7

%

 

 

11.7

%

 

 

 

Leverage ratio under Basel III

 

 

 

 

 

 

 

 

 

 

 

 

4.0

%

 

 

4.0

%

 

 

 

 

(1)    See the Financial Reporting Method section on pages 2 and 3 for additional information on non-GAAP financial measures.

 

 

Financial Reporting Method                                                               

 

As stated in Note 1 to its audited annual consolidated financial statements for the year ended October 31, 2019 (the consolidated financial statements), the Bank adopted IFRS 15 on November 1, 2018. As permitted by IFRS 15, the Bank did not restate comparative consolidated financial statements, and Note 1 to the consolidated financial statements presents the impact of IFRS 15 adoption on the Bank's Consolidated Balance Sheet as at November 1, 2018. Since interim consolidated financial statements do not include all of the annual financial statement disclosures required under IFRS, they should be read in conjunction with the audited annual consolidated financial statements and accompanying notes for the year ended October 31, 2019.

 

The presentation of segment disclosures is consistent with the presentation adopted by the Bank for the year beginning November 1, 2018. This presentation reflects the fact that advisor banking service activities, which had previously been presented in the Wealth Management segment, are now presented in the Personal and Commercial segment. The Bank made this change to better align the monitoring of its activities with its management structure.

 

Non-GAAP 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, which are based on IFRS. 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 assess results without the specified items if they consider such items not to be reflective of the underlying financial performance of the Bank's operations. Securities regulators require companies to caution readers that non-GAAP financial measures do not have standardized meanings under GAAP and therefore may not be comparable to similar measures used by other companies.

 

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 tax-exempt income (particularly dividends) by the income tax that would have been otherwise payable. 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 specified items related to the acquisitions of recent years (mainly those of the Wealth Management segment) are no longer presented as specified items as of November 1, 2018, since the amounts are not considered significant. The figures for the quarter and the year ended October 31, 2018 reflect this change.

 

Financial Information

 

(millions of Canadian dollars, except per share amounts)

 

Quarter ended October 31

 

 

Year ended October 31

 

 

 

 

2019

 

 

 

2018

% Change

 

 

2019

 

 

 

2018

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income excluding specified items(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal and Commercial

 

 

270

 

 

 

257

 

5

 

 

1,027

 

 

 

952

 

 

8

 

 

Wealth Management

 

 

130

 

 

 

118

 

10

 

 

499

 

 

 

464

 

 

8

 

 

Financial Markets

 

 

205

 

 

 

192

 

7

 

 

717

 

 

 

764

 

 

(6)

 

 

U.S. Specialty Finance and International

 

 

78

 

 

 

55

 

42

 

 

279

 

 

 

222

 

 

26

 

 

Other

 

 

(71)

 

 

 

(56)

 

 

 

 

(194)

 

 

 

(170)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income excluding specified items

 

 

612

 

 

 

566

 

8

 

 

2,328

 

 

 

2,232

 

 

4

 

 

Gain on disposal of Fiera Capital shares(2)

 

 

 

 

 

 

 

 

 

68

 

 

 

 

 

 

 

 

Gain on disposal of premises and equipment(3)

 

 

 

 

 

 

 

 

 

43

 

 

 

 

 

 

 

 

Remeasurement at fair value of an investment(4)

 

 

 

 

 

 

 

 

 

(27)

 

 

 

 

 

 

 

 

Impairment losses on premises and equipment and on intangible assets(5)

 

 

 

 

 

 

 

 

 

(42)

 

 

 

 

 

 

 

 

Provisions for onerous contracts(6)

 

 

 

 

 

 

 

 

 

(33)

 

 

 

 

 

 

 

 

Charge related to Maple(7)

 

 

(8)

 

 

 

 

 

 

 

(8)

 

 

 

 

 

 

 

 

Severance pay(8)

 

 

 

 

 

 

 

 

 

(7)

 

 

 

 

 

 

 

Net income

 

 

604

 

 

 

566

 

7

 

 

2,322

 

 

 

2,232

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share excluding specified items

 

$

1.69

 

 

$

1.52

 

11

 

$

6.36

 

 

$

5.94

 

 

7

 

 

Gain on disposal of Fiera Capital shares(2)

 

 

 

 

 

 

 

 

 

0.20

 

 

 

 

 

 

 

 

Gain on disposal of premises and equipment(3)

 

 

 

 

 

 

 

 

 

0.12

 

 

 

 

 

 

 

 

Remeasurement at fair value of an investment(4)

 

 

 

 

 

 

 

 

 

(0.08)

 

 

 

 

 

 

 

 

Impairment losses on premises and equipment and on intangible assets(5)

 

 

 

 

 

 

 

 

 

(0.12)

 

 

 

 

 

 

 

 

Provisions for onerous contracts(6)

 

 

 

 

 

 

 

 

 

(0.10)

 

 

 

 

 

 

 

 

Charge related to Maple(7)

 

 

(0.02)

 

 

 

 

 

 

 

(0.02)

 

 

 

 

 

 

 

 

Severance pay(8)

 

 

 

 

 

 

 

 

 

(0.02)

 

 

 

 

 

 

 

Diluted earnings per share

 

$

1.67

 

 

$

1.52

 

10

 

$

6.34

 

 

$

5.94

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on common shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Including specified items

 

 

18.2

%

 

 

17.8

%

 

 

 

18.0

%

 

 

18.4

%

 

 

 

 

Excluding specified items

 

 

18.4

%

 

 

17.8

%

 

 

 

18.0

%

 

 

18.4

%

 

 

 

 

(1)    For the quarter and year ended October 31, 2018, certain amounts have been reclassified, mainly amounts related to advisor banking service activities, which have been transferred from the Wealth Management segment to the Personal and Commercial segment.

(2)    During the year ended October 31, 2019, following the Bank's disposal of a portion of its investment in Fiera Capital Corporation (Fiera Capital), a gain on disposal of $79 million ($68 million net of income taxes), including a gain of $31 million ($27 million net of income taxes) upon remeasurement at fair value of the retained interest, was recorded in the Other heading of segment results.

(3)    During the year ended October 31, 2019, the Bank completed the sale of its head office land and building located at 600 De La Gauchetière Street West, Montreal, Quebec, Canada, for gross proceeds of $187 million, and a gain on disposal of premises and equipment of $50 million ($43 million net of income taxes) was recorded in the Other heading of segment results.

(4)    During the year ended October 31, 2019, the Bank remeasured its investment in NSIA Participations (NSIA) at fair value and recorded a loss of $33 million ($27 million net of income taxes) in the Other heading of segment results.

(5)    During the year ended October 31, 2019, the Bank recorded $57 million ($42 million net of income taxes) in impairment losses on premises and equipment and on intangible assets related to computer equipment and technology developments in the Other heading of segment results.

(6)    During the year ended October 31, 2019, the Bank reviewed all of its corporate building leases and recorded a provision for onerous contracts of $45 million ($33 million net of income taxes) in the Other heading of segment results.

(7)    During the quarter ended October 31, 2019, the Bank recorded a charge of $11 million ($8 million net of income taxes) related to Maple Financial Group Inc. (Maple) in the Other heading of segment results following the event of November 19, 2019, as described in the section entitled "Event After the Consolidated Balance Sheet Date" on page 12.

(8)    For the year ended October 31, 2019, following an optimization of certain organizational structures, the Bank recorded $10 million ($7 million net of income taxes) in severance pay in the Other heading of segment results.

 

Highlights

 

(millions of Canadian dollars, except per share amounts)

 

Quarter ended October 31

 

 

Year ended October 31

 

 

 

 

2019

 

 

 

2018

 

 

% Change

 

 

2019

 

 

 

2018

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating results

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

1,915

 

 

 

1,814

 

 

6

 

 

7,432

 

 

 

7,166

 

4

 

Net income

 

 

604

 

 

 

566

 

 

7

 

 

2,322

 

 

 

2,232

 

4

 

Net income attributable to the Bank's shareholders

 

 

590

 

 

 

550

 

 

7

 

 

2,256

 

 

 

2,145

 

5

 

Return on common shareholders' equity

 

 

18.2

%

 

 

17.8

%

 

 

 

 

18.0

%

 

 

18.4

%

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.68

 

 

$

1.53

 

 

10

 

$

6.39

 

 

$

6.01

 

6

 

 

Diluted

 

 

1.67

 

 

 

1.52

 

 

10

 

 

6.34

 

 

 

5.94

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating results on a taxable equivalent basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and excluding specified items(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues on a taxable equivalent basis and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

excluding specified items

 

 

2,008

 

 

 

1,874

 

 

7

 

 

7,666

 

 

 

7,411

 

3

 

Net income excluding specified items

 

 

612

 

 

 

566

 

 

8

 

 

2,328

 

 

 

2,232

 

4

 

Return on common shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

excluding specified items

 

 

18.4

%

 

 

17.8

%

 

 

 

 

18.0

%

 

 

18.4

%

 

 

Efficiency ratio on a taxable equivalent basis and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

excluding specified items

 

 

54.0

%

 

 

55.3

%

 

 

 

 

54.5

%

 

 

54.8

%

 

 

Earnings per share excluding specified items(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.70

 

 

$

1.53

 

 

11

 

$

6.40

 

 

$

6.01

 

6

 

 

Diluted

 

 

1.69

 

 

 

1.52

 

 

11

 

 

6.36

 

 

 

5.94

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common share information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

$

0.68

 

 

$

0.62

 

 

 

 

$

2.66

 

 

$

2.44

 

 

 

Book value

 

 

36.89

 

 

 

34.40

 

 

 

 

 

36.89

 

 

 

34.40

 

 

 

Share price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

 

68.02

 

 

 

65.63

 

 

 

 

 

68.02

 

 

 

65.63

 

 

 

 

Low

 

 

60.38

 

 

 

58.93

 

 

 

 

 

54.97

 

 

 

58.69

 

 

 

 

Close

 

 

68.02

 

 

 

59.76

 

 

 

 

 

68.02

 

 

 

59.76

 

 

 

Number of common shares (thousands)

 

 

334,172

 

 

 

335,071

 

 

 

 

 

334,172

 

 

 

335,071

 

 

 

Market capitalization

 

 

22,730

 

 

 

20,024

 

 

 

 

 

22,730

 

 

 

20,024

 

 

 

 

(millions of Canadian dollars)

As at October 31,

2019

 

 

As at

October 31,

2018

 

% Change

 

 

 

 

 

 

 

 

 

 

 

Balance sheet and off-balance-sheet

 

 

 

 

 

 

 

 

Total assets

 

281,458

 

 

262,471

 

7

 

Loans and acceptances, net of allowances

 

153,251

 

 

146,082

 

5

 

Deposits

 

189,566

 

 

170,830

 

11

 

Equity attributable to common shareholders

 

12,328

 

 

11,526

 

7

 

Assets under administration and under management 

 

565,396

 

 

485,080

 

17

 

 

 

 

 

 

 

 

 

 

 

Regulatory ratios under Basel III

 

 

 

 

 

 

 

 

Capital ratios

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 (CET1)

 

11.7

%

 

11.7

%

 

 

 

Tier 1

 

15.0

%

 

15.5

%

 

 

 

Total

 

16.1

%

 

16.8

%

 

 

Leverage ratio

 

4.0

%

 

4.0

%

 

 

Liquidity coverage ratio (LCR)

 

146

%

 

147

%

 

 

 

 

 

 

 

 

 

 

 

 

Other information

 

 

 

 

 

 

 

 

Number of employees - Worldwide

 

25,487

 

 

23,450

 

9

 

Number of branches in Canada 

 

422

 

 

428

 

(1)

 

Number of banking machines in Canada

 

939

 

 

937

 

 

 

(1)    See the Financial Reporting Method section on pages 2 and 3 for additional information on non-GAAP financial measures.

 

Financial Analysis

 

This press release should be read in conjunction with the 2019 Annual Report (which includes the audited annual consolidated financial statements and MD&A) available on the Bank's website at nbc.ca. 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.

 

Consolidated Results

 

Total Revenues

For the fourth quarter of 2019, the Bank's total revenues amounted to $1,915 million, up $101 million or 6% from the same quarter of 2018. The Personal and Commercial segment's total revenues were up 3% owing to growth in loan and deposit volumes. The Wealth Management segment's total revenues were up 4% owing to growth in mutual fund revenues and trust service revenues. The Financial Markets segment's revenues were up 14% owing to growth in the Global Markets revenue category, which more than offset a decline in corporate and investment banking revenues. Furthermore, the USSF&I segment's total revenues grew 22%, essentially due to revenue growth at the ABA Bank subsidiary. Total revenues on a taxable equivalent basis and excluding specified items amounted to $2,008 million in the fourth quarter of 2019, up 7% from $1,874 million in the fourth quarter of 2018.

 

For the year ended October 31, 2019, total revenues amounted to $7,432 million, up $266 million or 4% from $7,166 million in fiscal 2018. The fiscal 2019 revenues include a $79 million gain on disposal of Fiera Capital shares, a $50 million gain on disposal of premises and equipment, and a $33 million loss arising from the remeasurement at fair value of the Bank's investment in NSIA. In the Personal and Commercial segment, total revenues were up 4%, mainly due to growth in loan and deposit volumes as well as to higher card revenues and higher insurance revenues. The increase in total revenues was also driven by higher net interest income in the Wealth Management segment arising from growth in loan and deposit volumes as well as from increases in mutual fund revenues and in trust service revenues. Conversely, revenues from securities brokerage commissions were down given a decrease in transaction volume during the year ended October 31, 2019. In the Financial Markets segment, total revenues were up $7 million year over year despite a slowdown in financial markets activity during the first six months of 2019. Lastly, in the USSF&I segment, total revenues grew 12% owing to expansion in ABA Bank's banking network, whereas revenues from the Credigy subsidiary were down year over year as a result of changes in the loan portfolio mix. Total revenues on a taxable equivalent basis and excluding specified items amounted to $7,666 million for the year ended October 31, 2019, up 3% from $7,411 million in fiscal 2018.

 

Non-Interest Expenses

For the fourth quarter of 2019, non-interest expenses stood at $1,095 million, a 6% year-over-year increase resulting mainly from higher compensation and employee benefits (in particular variable compensation associated with revenue growth as well as compensation related to the expansion of ABA Bank's banking network). Other factors contributing to the increase in non-interest expenses were higher professional fees and occupancy expense. The other expenses for fourth quarter 2019 include an $11 million charge related to Maple. Non-interest expenses excluding specified items stood at $1,084 million for the quarter ended October 31, 2019, up 5% from $1,036 million in the fourth quarter of 2018.

 

For the year ended October 31, 2019, non-interest expenses stood at $4,301 million, up 6% year over year. The fiscal 2019 non-interest expenses include $57 million in impairment losses on premises and equipment and on intangible assets, $45 million in provisions for onerous contracts, an $11 million charge related to Maple, and $10 million in severance pay. Other factors contributing to the increase in non-interest expenses were higher compensation and employee benefits, higher occupancy expenses arising mainly from the expansion of ABA Bank's banking network, and higher technology investment expenses incurred as part of the Bank's transformation plan and for business development. Furthermore, other expenses were also up mainly due to expenses related to the activities of the Financial Markets segment and to the charge related to Maple. Non-interest expenses excluding specified items stood at $4,178 million for the year ended October 31, 2019, up 3% from $4,063 million in fiscal 2018.

 

Provisions for Credit Losses

For the fourth quarter of 2019, the Bank recorded $89 million in provisions for credit losses compared to $73 million in the fourth quarter of 2018. This increase was due to higher credit loss provisions on personal loans, on credit card receivables, and on loans in the Financial Markets segment. These higher provisions were partly offset by lower credit loss provisions on USSF&I segment loans, essentially attributable to the ABA Bank subsidiary.

 

For the year ended October 31, 2019, the Bank recorded $347 million in provisions for credit losses, $20 million more than in fiscal 2018. This increase came essentially from higher credit loss provisions on credit card receivables and on loans in the Financial Markets segment, partly offset by lower credit loss provisions on USSF&I segment loans, essentially attributable to the Credigy subsidiary.

 

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 October 31, 2019, gross impaired loans excluding POCI loans stood at $684 million compared to $630 million as at October 31, 2018. Net impaired loans excluding POCI loans stood at $450 million as at October 31, 2019 compared to $404 million as at October 31, 2018, a $46 million increase related to net impaired loans in the Commercial Banking loan portfolio and the Financial Markets segment. Gross POCI loans stood at $1,166 million as at October 31, 2019, down from $1,576 million as at October 31, 2018 as a result of maturities and repayments of certain portfolios.

 

Income Taxes

For the fourth quarter of 2019, income taxes stood at $127 million compared to $139 million in the same quarter of 2018. The fourth-quarter effective income tax rate was 17% versus 20% in the same quarter of 2018. This change in effective tax rate is explained mainly by an increase in income from lower tax rate jurisdictions and by a year-over-year increase in tax-exempt dividend income.

 

For the year ended October 31, 2019, the effective income tax rate stood at 17% compared to 20% in fiscal 2018. This change in effective income tax rate was due to the same reasons as those provided for the quarter as well as to a realization of capital gains taxed at a lower rate.

 

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. For presentation purposes, other operating activities, certain non-recurring items and Treasury activities are grouped in the Other heading. Each reportable segment is distinguished by services offered, type of clientele, and marketing strategy.

 

Personal and Commercial 

 

(millions of Canadian dollars)

 

 Quarter ended October 31

 

Year ended October 31

 

 

 

2019

 

 

2018(1)

 

 

% Change

 

2019

 

 

2018(1)

 

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating results

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

613

 

 

588

 

 

4

 

2,383

 

 

2,276

 

 

5

 

Non-interest income

 

263

 

 

261

 

 

1

 

1,069

 

 

1,033

 

 

3

 

Total revenues

 

876

 

 

849

 

 

3

 

3,452

 

 

3,309

 

 

4

 

Non-interest expenses

 

450

 

 

446

 

 

1

 

1,816

 

 

1,782

 

 

2

 

Contribution

 

426

 

 

403

 

 

6

 

1,636

 

 

1,527

 

 

7

 

Provisions for credit losses

 

59

 

 

52

 

 

13

 

237

 

 

228

 

 

4

 

Income before income taxes

 

367

 

 

351

 

 

5

 

1,399

 

 

1,299

 

 

8

 

Income taxes

 

97

 

 

94

 

 

3

 

372

 

 

347

 

 

7

 

Net income

 

270

 

 

257

 

 

5

 

1,027

 

 

952

 

 

8

 

Net interest margin(2)

 

2.23

%

 

2.25

%

 

 

 

2.23

%

 

2.24

%

 

 

 

Average interest-bearing assets

 

109,179

 

 

103,769

 

 

5

 

106,995

 

 

101,446

 

 

5

 

Average assets

 

114,975

 

 

109,490

 

 

5

 

112,798

 

 

106,857

 

 

6

 

Average loans and acceptances

 

114,481

 

 

109,116

 

 

5

 

112,290

 

 

106,513

 

 

5

 

Net impaired loans(3)

 

409

 

 

386

 

 

6

 

409

 

 

386

 

 

6

 

Net impaired loans(3) as a % of average loans and acceptances

 

0.4

%

 

0.4

%

 

 

 

0.4

%

 

0.4

%

 

 

 

Average deposits

 

64,488

 

 

61,068

 

 

6

 

62,487

 

 

58,383

 

 

7

 

Efficiency ratio

 

51.4

 

52.5

%

 

 

 

52.6

 

53.9

%

 

 

 

                                     

 

(1)    For the quarter and year ended October 31, 2018, certain amounts have been reclassified, mainly amounts related to advisor banking service activities, which have been transferred from the Wealth Management segment to the Personal and Commercial segment.

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

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

 

In the Personal and Commercial segment, net income totalled $270 million in the fourth quarter of 2019, up 5% from $257 million in the fourth quarter of 2018. The segment's total revenues increased by $27 million or 3%, mainly because of growth in net interest income, which rose $25 million in the fourth quarter of 2019. The net interest income growth was driven by higher personal and commercial loan and deposit volumes but was tempered by a narrowing of the net interest margin, which was 2.23% in the fourth quarter of 2019 versus 2.25% in the fourth quarter of 2018, a decrease arising mainly from deposit margins.

 

Personal Banking's fourth-quarter total revenues rose $15 million year over year, as net interest income was up owing to growth in loan and deposit volumes. As for Commercial Banking's fourth-quarter total revenues, they rose $12 million, as net interest income was up owing to growth in loan and deposit volumes during the fourth quarter of 2019. These increases were tempered by a decrease in revenues generated by derivative financial instruments and bankers' acceptances.

 

For the fourth quarter of 2019, the segment's non-interest expenses posted a $4 million or 1% year-over-year increase, a slight increase due to disciplined cost management. At 51.4%, the efficiency ratio for the fourth quarter of 2019 improved by 1.1 percentage points when compared to the same quarter last year. The segment's provisions for credit losses stood at $59 million, a $7 million year-over-year increase that was mainly due to higher provisions on credit card receivables and on non-impaired Personal Banking loans.

 

For the year ended October 31, 2019, the Personal and Commercial segment's net income totalled $1,027 million, up 8% from $952 million in fiscal 2018. The segment's fiscal 2019 revenues were also up, rising 4% year over year. Growth in Personal Banking's total revenues came from higher loan and deposit volumes, tempered by a narrowing of loan margins, as well as from higher card revenues and from an increase in insurance revenues to reflect revisions to actuarial reserves. Growth in Commercial Banking's total revenues was driven by higher loan and deposit volumes as well as by increases in revenues from bankers' acceptances, and from derivative financial instruments. For the year ended October 31, 2019, the segment's non-interest expenses rose $34 million or 2% year over year. This increase was mainly attributable to higher operations support charges, to the amortization expense related to the segment's activities as well as to higher compensation and employee benefits. The segment's fiscal 2019 contribution increased $109 million or 7%. At 52.6% for the year ended October 31, 2019, the efficiency ratio improved by 1.3 percentage points versus fiscal 2018. The fiscal 2019 provisions for credit losses were up $9 million compared to the same period in 2018, mainly due to higher credit loss provisions on credit card receivables.

 

Wealth Management 

 

(taxable equivalent basis)(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(millions of Canadian dollars)

 

 Quarter ended October 31

 

Year ended October 31

 

 

 

2019

 

 

2018(2)

 

 

% Change

 

2019

 

 

2018(2)

 

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating results

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income on a taxable equivalent basis

 

115

 

 

115

 

 

 

470

 

 

446

 

 

5

 

Fee-based revenues

 

262

 

 

247

 

 

6

 

1,013

 

 

983

 

 

3

 

Transaction-based and other revenues

 

69

 

 

65

 

 

6

 

260

 

 

260

 

 

 

Total revenues on a taxable equivalent basis

 

446

 

 

427

 

 

4

 

1,743

 

 

1,689

 

 

3

 

Non-interest expenses 

 

269

 

 

267

 

 

1

 

1,067

 

 

1,058

 

 

1

 

Contribution on a taxable equivalent basis

 

177

 

 

160

 

 

11

 

676

 

 

631

 

 

7

 

Provisions for credit losses

 

 

 

 

 

 

 

 

 

1

 

 

 

 

Income before income taxes on a taxable equivalent basis

 

177

 

 

160

 

 

11

 

676

 

 

630

 

 

7

 

Income taxes on a taxable equivalent basis

 

47

 

 

42

 

 

12

 

177

 

 

166

 

 

7

 

Net income

 

130

 

 

118

 

 

10

 

499

 

 

464

 

 

8

 

Average assets 

 

6,082

 

 

6,356

 

 

(4)

 

6,219

 

 

6,167

 

 

1

 

Average loans and acceptances

 

4,824

 

 

4,926

 

 

(2)

 

4,855

 

 

4,720

 

 

3

 

Net impaired loans(3)

 

3

 

 

3

 

 

 

3

 

 

3

 

 

 

Average deposits

 

31,759

 

 

31,833

 

 

 

32,321

 

 

31,261

 

 

3

 

Assets under administration and under management

 

565,396

 

 

485,080

 

 

17

 

565,396

 

 

485,080

 

 

17

 

Efficiency ratio on a taxable equivalent basis(1)

 

60.3

 

62.5

%

 

 

 

61.2

 

62.6

%

 

 

 

                                     

 

(1)    See the Financial Reporting Method section on pages 2 and 3 for additional information on non-GAAP financial measures.

(2)    For the quarter and year ended October 31, 2018, certain amounts have been reclassified, mainly amounts related to advisor banking service activities, which have been transferred from the Wealth Management segment to the Personal and Commercial segment.

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

 

In the Wealth Management segment, net income totalled $130 million in the fourth quarter of 2019, a 10% increase from $118 million in the same quarter of 2018. The segment's fourth-quarter total revenues on a taxable equivalent basis amounted to $446 million, up $19 million or 4% from $427 million in the fourth quarter of 2018. This increase was mainly driven by higher fee-based revenues, which rose 6% owing to growth in assets under administration and under management due to net inflows into various solutions and to stronger year-over-year stock market performance during the fourth quarter of 2019. Transaction-based and other revenues rose $4 million as a result of higher insurance commission revenues. As for the segment's net interest income on a taxable equivalent basis, it remained stable compared to the fourth quarter of 2018, as growth in loan and deposit volumes was offset by lower deposit margins.

 

For the fourth quarter of 2019, non-interest expenses stood at $269 million, a 1% year-over-year increase attributable mainly to the higher variable compensation associated with the revenue growth within the segment. The fourth-quarter efficiency ratio on a taxable equivalent basis was 60.3%, improving 2.2 percentage points from fourth quarter 2018. The segment's provisions for credit losses were nil in the fourth quarters of both 2019 and 2018.

 

For the year ended October 31, 2019, the Wealth Management segment's net income totalled $499 million, up 8% from $464 million in fiscal 2018. The segment's fiscal 2019 total revenues on a taxable equivalent basis amounted to $1,743 million, up 3% from $1,689 million in fiscal 2018. Its fiscal 2019 net interest income on a taxable equivalent basis was up 5% owing to growth in loan and deposit volumes. An increase in fee-based revenues was driven by growth in assets under administration and under management due to net inflows into various solutions and to stronger stock market performance in fiscal 2019. As for transaction-based and other revenues, they remained stable at $260 million for fiscal years 2019 and 2018. The fiscal 2019 non-interest expenses stood at $1,067 million compared to $1,058 million in fiscal 2018, for an increase resulting from higher compensation and employee benefits and from higher operations support charges related to the segment's initiatives. At 61.2%, the efficiency ratio on a taxable equivalent basis for the year ended October 31, 2019 improved from 62.6% in fiscal 2018.

 

Assets under administration and under management increased by $80.3 billion or 17% from a year ago, due to net inflows into various solutions and to strong stock market performance in fiscal 2019.

 

Financial Markets 

 

(taxable equivalent basis)(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(millions of Canadian dollars)

 

 

 Quarter ended October 31

 

Year ended October 31

 

 

 

2019

 

 

2018(2)

 

 

% Change

 

2019

 

 

2018(2)

 

 

 % Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating results

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global markets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equities

 

198

 

 

141

 

 

40

 

624

 

 

576

 

 

8

 

 

Fixed-income

 

79

 

 

65

 

 

22

 

289

 

 

267

 

 

8

 

 

Commodities and foreign exchange

 

24

 

 

29

 

 

(17)

 

126

 

 

130

 

 

(3)

 

 

 

301

 

 

235

 

 

28

 

1,039

 

 

973

 

 

7

 

Corporate and investment banking

 

196

 

 

202

 

 

(3)

 

719

 

 

750

 

 

(4)

 

Gains on investments and other

 

(2)

 

 

(1)

 

 

 

 

(8)

 

 

20

 

 

 

 

Total revenues on a taxable equivalent basis

 

495

 

 

436

 

 

14

 

1,750

 

 

1,743

 

 

 

Non-interest expenses

 

206

 

 

174

 

 

18

 

743

 

 

697

 

 

7

 

Contribution on a taxable equivalent basis

 

289

 

 

262

 

 

10

 

1,007

 

 

1,046

 

 

(4)

 

Provisions for credit losses

 

10

 

 

 

 

 

 

30

 

 

4

 

 

 

 

Income before income taxes on a taxable equivalent basis

 

279

 

 

262

 

 

6

 

977

 

 

1,042

 

 

(6)

 

Income taxes on a taxable equivalent basis

 

74

 

 

70

 

 

6

 

260

 

 

278

 

 

(6)

 

Net income

 

205

 

 

192

 

 

7

 

717

 

 

764

 

 

(6)

 

Average assets

 

119,244

 

 

97,976

 

 

22

 

112,493

 

 

100,721

 

 

12

 

Average loans and acceptances

 

16,950

 

 

16,005

 

 

6

 

16,575

 

 

15,116

 

 

10

 

Net impaired loans(3)

 

23

 

 

 

 

 

 

23

 

 

 

 

 

 

Average deposits

 

35,311

 

 

25,234

 

 

40

 

30,311

 

 

23,510

 

 

29

 

Efficiency ratio on a taxable equivalent basis(1)

 

41.6

 

39.9

%

 

 

 

42.5

 

40.0

%

 

 

 

 

(1)    See the Financial Reporting Method section on pages 2 and 3 for additional information on non-GAAP financial measures.

(2)    For the quarter and year ended October 31, 2018, certain amounts have been reclassified.

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

 

In the Financial Markets segment, net income totalled $205 million in the fourth quarter of 2019 compared to $192 million in the fourth quarter of 2018, and total revenues on a taxable equivalent basis amounted to $495 million, rising 14% from $436 million in the fourth quarter of 2018. Fourth-quarter Global Markets revenues grew 28% year over year, as revenues from equity securities and from fixed-income securities were up 40% and 22%, respectively, whereas revenues from commodities and foreign exchange activities were down 17%. Fourth-quarter revenues from corporate and investment banking services were down 3% compared to the fourth quarter of 2018 as higher revenues from banking services and capital markets activity was offset by a decrease in merger and acquisition activity.

 

For the fourth quarter of 2019, the segment's non-interest expenses stood at $206 million, an 18% year-over-year increase attributable essentially to higher variable compensation arising from revenue growth in the fourth quarter of 2019 as well as to the segment's higher technology investment and business development expenses. At 41.6%, the efficiency ratio on a taxable equivalent basis compares to 39.9% in the fourth quarter of 2018. The segment's fourth-quarter provisions for credit losses stood at $10 million, whereas no provisions were recorded in the same quarter of 2018, for an increase that comes from both provisions on impaired loans and non-impaired loans.

 

For the year ended October 31, 2019, the segment's net income totalled $717 million, down 6% from fiscal 2018. Its fiscal 2019 total revenues on a taxable equivalent basis amounted to $1,750 million compared to $1,743 million in fiscal 2018. Revenues from the Global Markets category posted year-over-year growth of 7%, with revenues from equity securities and from fixed-income securities each rising 8%, tempered by a 3% decrease in revenues from commodities and foreign exchange activities. As for the fiscal 2019 revenues from corporate and investment banking services, they were down 4% year over year given a slowdown in capital markets activity as well as to a decrease in merger and acquisition activities in fiscal 2019. Lastly, higher gains on investments and other revenues had been recorded during the year ended October 31, 2018.

 

For the year ended October 31, 2019, the segment's non-interest expenses rose $46 million or 7% year over year, as there were increases in compensation and employee benefits, in expenses related to technological investments and business development, and in operations support charges. The segment's fiscal 2019 efficiency ratio on a taxable equivalent basis was 42.5% compared to 40.0% in fiscal 2018. It recorded $30 million in provisions for credit losses for the year ended October 31, 2019 compared to $4 million in fiscal 2018, for an increase that relates mainly to credit loss provisions on impaired loans.

 

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

 

(millions of Canadian dollars)

 

 Quarter ended October 31

 

Year ended October 31

 

 

 

2019

 

 

2018

 

 

% Change

 

2019

 

 

2018

 

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credigy

 

95

 

 

100

 

 

(5)

 

402

 

 

446

 

 

(10)

 

 

ABA Bank

 

90

 

 

57

 

 

58

 

303

 

 

192

 

 

58

 

 

International

 

7

 

 

1

 

 

 

 

10

 

 

1

 

 

 

 

 

 

 

192

 

 

158

 

 

22

 

715

 

 

639

 

 

12

 

Non-interest expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credigy

 

38

 

 

38

 

 

 

152

 

 

156

 

 

(3)

 

 

ABA Bank

 

36

 

 

27

 

 

33

 

131

 

 

93

 

 

41

 

 

International

 

 

 

 

 

 

 

2

 

 

2

 

 

 

 

 

 

74

 

 

65

 

 

14

 

285

 

 

251

 

 

14

 

Contribution

 

118

 

 

93

 

 

27

 

430

 

 

388

 

 

11

 

Provisions for credit losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credigy

 

18

 

 

18

 

 

 

68

 

 

81

 

 

(16)

 

 

ABA Bank

 

2

 

 

4

 

 

(50)

 

12

 

 

13

 

 

(8)

 

 

 

 

20

 

 

22

 

 

(9)

 

80

 

 

94

 

 

(15)

 

Income before income taxes

 

98

 

 

71

 

 

38

 

350

 

 

294

 

 

19

 

Income taxes

 

20

 

 

16

 

 

25

 

71

 

 

72

 

 

(1)

 

Net income

 

78

 

 

55

 

 

42

 

279

 

 

222

 

 

26

 

Non-controlling interests

 

7

 

 

8

 

 

(13)

 

40

 

 

38

 

 

5

 

Net income attributable to the Bank's shareholders

 

71

 

 

47

 

 

51

 

239

 

 

184

 

 

30

 

Average assets

 

11,909

 

 

9,957

 

 

20

 

10,985

 

 

9,270

 

 

19

 

Average loans and receivables

 

9,333

 

 

8,218

 

 

14

 

8,907

 

 

7,853

 

 

13

 

Net impaired loans - Stage 3(1)

 

15

 

 

15

 

 

 

15

 

 

15

 

 

 

Purchased or originated credit-impaired (POCI) loans

 

1,166

 

 

1,576

 

 

(26)

 

1,166

 

 

1,576

 

 

(26)

 

Average deposits

 

4,227

 

 

2,289

 

 

85

 

3,474

 

 

1,907

 

 

82

 

Efficiency ratio

 

38.5

%

 

41.1

%

 

 

 

39.9

%

 

39.3

%

 

 

 

 

(1)    Net impaired loans - Stage 3 exclude POCI loans and are presented net of allowances for credit losses on Stage 3 loan amounts drawn.

 

In the USSF&I segment, net income totalled $78 million in the fourth quarter of 2019, up 42% from $55 million in the same quarter of 2018. The segment's fourth-quarter total revenues amounted to $192 million compared to $158 million in the fourth quarter of 2018. A 58% year-over-year increase in revenues at the ABA Bank subsidiary, driven by sustained growth in loan and deposit volumes, was tempered by lower year-over-year revenues at the Credigy subsidiary as a result of changes in the loan portfolio mix.

 

For the fourth quarter of 2019, the segment's non-interest expenses stood at $74 million, a $9 million year-over-year increase attributable mainly to ABA Bank's growing banking network. The segment recorded $20 million in provisions for credit losses in the fourth quarter of 2019 compared to $22 million in the same quarter of 2018, a decrease stemming from the credit loss provisions recorded by the ABA Bank subsidiary.

 

For the year ended October 31, 2019, the USSF&I segment's net income totalled $279 million, up 26% from $222 million in fiscal 2018. The segment's fiscal 2019 total revenues amounted to $715 million compared to $639 million in fiscal 2018, a 12% increase due mainly to a $111 million or 58% year-over-year increase in the revenues from the ABA Bank subsidiary, partly offset by a $44 million or 10% decrease in Credigy's revenues.

 

The segment's fiscal 2019 non-interest expenses stood at $285 million, a $34 million year-over-year increase attributable to ABA Bank's growing banking network. As for the non-interest expenses of the Credigy subsidiary, they were down slightly. For the year ended October 31, 2019, the segment recorded $80 million in provisions for credit losses, $14 million less than in fiscal 2018. This decrease was mainly due to lower credit loss provisions recorded by the Credigy subsidiary following repayments and maturities of certain loan portfolios, whereas the credit loss provisions recorded by the ABA Bank subsidiary remained relatively stable at $12 million.

 

Other

 

(taxable equivalent basis)(1)

 

 

 

 

 

 

 

 

 

(millions of Canadian dollars)

 

Quarter ended October 31

 

Year ended October 31

 

 

 

2019

 

2018(2)

 

2019

 

2018(2)

 

 

 

 

 

 

 

 

 

 

 

Operating results

 

 

 

 

 

 

 

 

 

Net interest income on a taxable equivalent basis

 

(44)

 

(60)

 

(192)

 

(189)

 

Non-interest income on a taxable equivalent basis

 

43

 

64

 

294

 

220

 

Total revenues on a taxable equivalent basis

 

(1)

 

4

 

102

 

31

 

Non-interest expenses

 

96

 

84

 

390

 

275

 

Contribution on a taxable equivalent basis

 

(97)

 

(80)

 

(288)

 

(244)

 

Provisions for credit losses

 

 

(1)

 

 

 

Income before income taxes on a taxable equivalent basis

 

(97)

 

(79)

 

(288)

 

(244)

 

Income taxes (recovery) on a taxable equivalent basis

 

(18)

 

(23)

 

(88)

 

(74)

 

Net loss

 

(79)

 

(56)

 

(200)

 

(170)

 

Non-controlling interests

 

7

 

8

 

26

 

49

 

Net loss attributable to the Bank's shareholders

 

(86)

 

(64)

 

(226)

 

(219)

 

Specified items after income taxes(1)

 

8

 

 

6

 

 

Net loss excluding specified items(1)

 

(71)

 

(56)

 

(194)

 

(170)

 

Average assets

 

41,416

 

44,086

 

43,667

 

42,925

 

 

(1)    See the Financial Reporting Method section on pages 2 and 3 for additional information on non-GAAP financial measures.

(2)    For the quarter and year ended October 31, 2018, certain amounts have been reclassified.

 

For the Other heading of segment results, there was a net loss of $79 million in the fourth quarter of 2019 compared to a net loss of $56 million in the fourth quarter of 2018. This change in net loss came mainly from an increase in non-interest expenses, in particular a charge related to Maple, and from a higher tax rate related to the non-recoverable portion of foreign tax credits. Net loss excluding specified items stood at $71 million for the quarter ended October 31, 2019 compared to a $56 million net loss in the fourth quarter of 2018.

 

For the year ended October 31, 2019, net loss stood at $200 million compared to a net loss of $170 million in fiscal 2018. This change in net loss was partly due to a lower contribution from treasury activities during fiscal 2019 arising in part from the impact of market volatility on the Bank's asset/liability management portfolio during the first quarter of 2019. The specified items recorded for fiscal 2019 had a $6 million unfavourable impact on the net income recorded in the Other heading of segment results. Net loss excluding specified items stood at $194 million for the year ended October 31, 2019 compared to a $170 million net loss in fiscal 2018.

 

Total revenues on a taxable equivalent basis were up, mainly due to the specified items recorded for fiscal 2019, which include a $79 million gain on disposal of Fiera Capital shares, a $50 million gain on disposal of premises and equipment, and a $33 million loss arising from the fair value remeasurement of the Bank's investment in NSIA. The fiscal 2019 non-interest expenses were also up as a result of the following specified items: $57 million in impairment losses on premises and equipment and on intangible assets, $45 million in provisions for onerous contracts, an $11 million charge related to Maple, and $10 million in severance pay.

 

 

 

Consolidated Balance Sheet

 

Consolidated Balance Sheet Summary

 

(millions of Canadian dollars)

 

As at October 31, 2019

 

As at October 31, 2018

 

% Change

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and deposits with financial institutions

 

13,698

 

12,756

 

7

 

Securities

 

82,226

 

69,783

 

18

 

Securities purchased under reverse repurchase agreements

 

 

 

 

 

 

 

 

and securities borrowed

 

17,723

 

18,159

 

(2)

 

Loans and acceptances, net of allowances

 

153,251

 

146,082

 

5

 

Other

 

14,560

 

15,691

 

(7)

 

 

 

 

281,458

 

262,471

 

7

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

Deposits

 

189,566

 

170,830

 

11

 

Other

 

75,983

 

76,539

 

(1)

 

Subordinated debt

 

773

 

747

 

3

 

Equity attributable to the Bank's shareholders

 

14,778

 

13,976

 

6

 

Non-controlling interests

 

358

 

379

 

(6)

 

 

 

 

281,458

 

262,471

 

7

 

 

Assets

As at October 31, 2019, the Bank had total assets of $281.5 billion, a 7% or $19.0 billion increase from $262.5 billion as at October 31, 2018. Cash and deposits with financial institutions, totalling $13.7 billion as at October 31, 2019, increased $0.9 billion or 7% since October 31, 2018, mainly due to ABA Bank's deposits with financial institutions. Securities rose $12.4 billion since October 31, 2018, partly due to a $6.0 billion or 11% increase in securities at fair value through profit or loss, attributable to a $13.5 billion increase in equity securities and to a $1.3 billion increase in securities issued or guaranteed by U.S. Treasury, other U.S. agencies and other foreign governments. These increases were tempered by a $4.2 billion decrease in securities issued or guaranteed by the Canadian government and a $3.9 billion decrease in securities issued or guaranteed by Canadian provincial and municipal governments. Securities other than those measured at fair value through profit or loss were up $6.4 billion, essentially due to a $2.1 billion increase in securities issued or guaranteed by the Canadian government, to a $3.5 billion increase in securities issued or guaranteed by U.S. Treasury, other U.S. agencies, and other foreign governments, and to a $0.8 billion increase in other debt securities. Securities purchased under reverse repurchase agreements and securities borrowed decreased by $0.5 billion, mainly related to the activities of the Financial Markets segment. 

 

Totalling $153.3 billion as at October 31, 2019, loans and acceptances, net of allowances, rose $7.2 billion or 5% since October 31, 2018. The following table provides a breakdown of the main loan and acceptance portfolios.

 

(millions of Canadian dollars)

 

As at October 31, 2019

 

As at October 31, 2018

 

Loans and acceptances

 

 

 

 

 

Residential mortgage and home equity lines of credit

 

80,214

 

75,773

 

Personal

 

13,901

 

15,235

 

Credit card

 

2,322

 

2,325

 

Business and government

 

57,492

 

53,407

 

 

 

 

153,929

 

146,740

 

Allowances for credit losses

 

(678)

 

(658)

 

 

 

 

153,251

 

146,082

 

 

When compared to October 31, 2018, residential mortgages (including home equity lines of credit) were up $4.4 billion or 6% due to sustained demand for mortgage credit and business growth at the ABA Bank subsidiary; personal loans were down $1.3 billion, partly due to changes in the composition of Credigy's loan portfolio; and credit card receivables remained stable. Loans and acceptances to business and government rose $4.1 billion or 8%, mainly due to growth in Commercial Banking and Credigy subsidiary activities.

 

Liabilities

As at October 31, 2019, the Bank had total liabilities of $266.3 billion compared to $248.1 billion as at October 31, 2018.

 

The Bank's total deposit liability stood at $189.6 billion as at October 31, 2019 compared to $170.8 billion as at October 31, 2018, an $18.8 billion increase arising essentially from growth in business and government deposits. The table on the following page provides a breakdown of total personal savings.

 

(millions of Canadian dollars)

 

As at October 31, 2019

 

As at October 31, 2018

 

 

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

Deposits

 

60,065

 

55,688

 

 

 

 

 

 

 

 

Off-balance-sheet

 

 

 

 

 

Brokerage

 

135,768

 

123,458

 

Mutual funds

 

36,819

 

31,874

 

Other

 

319

 

440

 

 

 

 

172,906

 

155,772

 

Total personal savings

 

232,971

 

211,460

 

 

As at October 31, 2019, personal deposits stood at $60.1 billion, rising $4.4 billion since October 31, 2018, essentially due to the Bank's initiatives to increase this type of deposit as well as to growth at the ABA Bank subsidiary. As at October 31, 2019, total personal savings amounted to $233.0 billion, up from $211.5 billion as at October 31, 2018. Overall, off-balance-sheet personal savings stood at $172.9 billion as at October 31, 2019, rising $17.1 billion or 11% from a year ago given net inflows in brokerage operations and stronger stock market performance.

 

Business and government deposits grew $15.0 billion since October 31, 2018, reaching $125.3 billion as at October 31, 2019. This increase came from business growth at Commercial Banking, treasury funding activity, including $3.5 billion in deposits subject to bank recapitalization (bail-in) conversion regulations, corporate financing activities, and issuances of structured notes. Other liabilities stood at $76.0 billion, declining 1% since October 31, 2018, essentially due to a $5.0 billion decrease in obligations related to securities sold short, partly offset by a $1.9 billion increase in obligations related to securities sold under repurchase agreements and securities loaned, a $0.9 billion increase in derivative financial instruments, and a $1.2 billion increase in liabilities related to transferred receivables.

 

Equity

As at October 31, 2019, equity attributable to the Bank's shareholders was $14.8 billion, up $0.8 billion since October 31, 2018. This increase came from net income net of dividends, tempered by remeasurements of pension plans and other post-employment benefit plans, by a net change in gains (losses) on cash flow hedges, and by repurchases of common shares for cancellation, factors which themselves were partly offset by issuances of common shares under the Stock Option Plan and the impact of shares purchased or sold for trading.

 

Acquisition

 

On September 27, 2019, the Bank acquired the entire remaining non-controlling interest in the Cambodian subsidiary Advanced Bank of Asia Limited (ABA Bank) for $84 million. Following this transaction, ABA Bank became a wholly owned subsidiary of the Bank.

 

Event After the Consolidated Balance Sheet Date

 

On November 19, 2019, the Bank paid 7.7 million euros to the German tax authorities in relation to the Maple case. This payment was made upon a final tax claim of the tax authorities against the insolvency administrator that was approved by the Maple GmbH creditor assembly. As at October 31, 2019, a provision of $11 million was recorded to reflect this adjusting event after the Consolidated Balance Sheet date. For additional information, refer to the Contingent Liabilities section on page 13.

 

Income Taxes

 

In June 2019, the Bank was reassessed by the Canada Revenue Agency (CRA) for additional income tax and interest of approximately $150 million (including estimated provincial tax and interest) in respect of certain Canadian dividends received by the Bank during 2014. 

 

In prior fiscal years, the Bank was reassessed for additional income tax and interest of approximately $220 million (including provincial tax and interest) in respect of certain Canadian dividends received by the Bank during the 2013 and 2012 taxation years.

 

The transactions to which the above-mentioned reassessments relate are similar to those prospectively addressed by income tax legislation enacted as a result of the 2015 Canadian federal budget.

 

The CRA may issue reassessments to the Bank for taxation years subsequent to 2014 in regard to activities similar to those that were the subject of the abovementioned reassessments. The Bank remains confident that its tax position was appropriate and intends to vigorously defend its position. As a result, no amount has been recognized in the consolidated financial statements as at October 31, 2019.

 

Contingent Liabilities

 

Maple Financial Group Inc.

The Bank has a 24.9% equity interest in Maple Financial Group Inc. (Maple), a privately owned Canadian company that operated through direct and indirect wholly owned subsidiaries in Canada, Germany, the United Kingdom and the United States.

 

Maple Bank GmbH (Maple GmbH), an indirect wholly owned subsidiary of Maple, has been the subject of an investigation into alleged tax irregularities by German prosecutors since September 2015 and, to the Bank's knowledge, that investigation is ongoing. The Bank understands that the investigation is focusing on selected trading activities by Maple GmbH and some of its former employees, primarily during taxation years 2006 to 2010. The German authorities have alleged that these trading activities, often referred to as "cum/ex trading," violated German tax laws. Neither the Bank nor its employees were involved in these trading activities and, to the Bank's knowledge, are not the subject of this investigation. At that time, the Bank announced that if it were determined that portions of the dividends it received from Maple could be reasonably attributed to tax fraud by Maple GmbH, arrangements would be made to repay those amounts to the relevant authority.

 

On February 6, 2016, the German Federal Financial Supervisory Authority, BaFin, placed a moratorium on the business activities of Maple GmbH preventing it from carrying out its normal business activities. In August 2016, Maple filed for bankruptcy under applicable Canadian laws, and a trustee was appointed to administer the company. Similar proceedings were initiated for each of Maple's other material subsidiaries in their home jurisdictions. In light of the situation, the Bank wrote off the carrying value of its equity interest in Maple in an amount of $164 million ($145 million net of income taxes) during the first quarter of 2016. The $164 million write-off of the equity interest in this associate was recognized in the Non-interest income - Other item of the Consolidated Statement of Income for the year ended October 31, 2016 and was reported in the Financial Markets segment.

 

While there has not yet been a determination of tax fraud on the part of Maple GmbH or its employees, in the insolvency proceedings of Maple GmbH the German finance office issued a declaration about the result of the tax audit at Maple GmbH and about the relevant tax consequences of the cum/ex trading and concluded a final tax claim of the tax authorities against the insolvency administrator. This claim was approved by the Maple GmbH creditor assembly.  

 

The Bank has been in contact with the German prosecutors, who have confirmed that, in their view based upon the evidence they have considered since the occurrence of the insolvency, the Bank was not involved in any respect with the alleged tax fraud undertaken by Maple GmbH nor was it negligent in failing to identify that alleged fraud. Further to discussions between the Bank and the German prosecutors concerning the amounts deemed attributable to the alleged tax fraud, the Bank paid 7.7 million euros to the German tax authorities on November 19, 2019.

 

The Bank has been engaging in discussions with the bankruptcy and insolvency administrators of relevant Maple entities regarding potential claims they may assert against Maple's former shareholders in relation to the insolvency of Maple and its subsidiaries. The Bank does not see a legal basis for any such liability but is nevertheless continuing discussions at this time. If any payments are required, they are not expected to be material to the Bank's financial position.

 

Litigation

 

In the normal course of business, the Bank and its subsidiaries are involved in various claims relating, among other matters, to loan portfolios, investment portfolios and supplier agreements, including court proceedings, investigations or claims of a regulatory nature, class actions or other legal remedies of varied natures.

 

More specifically, the Bank is involved as a defendant in class actions instituted by consumers contesting, inter alia, certain transaction fees or who wish to avail themselves of certain legislative provisions relating to consumer protection. The recent developments in the main legal proceedings involving the Bank are as follows:

 

Watson

In 2011, a class action was filed in the Supreme Court of British Columbia against Visa Corporation Canada (Visa) and MasterCard International Incorporated (MasterCard) (the Networks) as well as National Bank and a number of other Canadian financial institutions. A similar action was also initiated in Quebec, Ontario, Alberta and Saskatchewan. In each of the actions, the Networks and financial institutions are alleged to have been involved in a price-fixing system to maintain and increase the fees paid by merchants on transactions executed using the credit cards of the Networks. In so doing, they would notably be in breach of the Competition Act. An unspecified amount of compensatory and punitive damages is being claimed. In 2017, a settlement was reached with the plaintiffs; in 2018 it was approved by the trial courts in each of the five jurisdictions where the action was initiated. The rulings approving the settlement are now the subject of appeal proceedings in multiple jurisdictions.

 

 

Defrance

On January 21, 2019, the Quebec Superior Court authorized a class action against the Bank and several other Canadian financial institutions. The originating application was served to the Bank on April 23, 2019. The class action was initiated on behalf of consumers residing in Quebec. The plaintiffs allege that non-sufficient funds charges, billed by all of the defendants when a payment order is refused due to non-sufficient funds, are illegal and prohibited by the Consumer Protection Act. The plaintiffs are claiming, in the form of damages, the repayment of these charges as well as punitive damages.

 

It is impossible to determine the outcome of the claims instituted or which may be instituted against the Bank and its subsidiaries. The Bank estimates, based on the information at its disposal, that while the amount of contingent liabilities pertaining to these claims, taken individually or in the aggregate, could have a material impact on the Bank's consolidated results of operation for a particular period, it would not have a material adverse impact on the Bank's consolidated financial position.

 

Capital Management

 

Regulatory Capital Ratios 

As at October 31, 2019, the Bank's CET1, Tier 1 and Total capital ratios were, respectively, 11.7%, 15.0% and 16.1%, i.e., above the regulatory requirements, compared to ratios of, respectively, 11.7%, 15.5% and 16.8% as at October 31, 2018. The CET1 capital ratio remained stable. Net income net of dividends, and common share issuances under the Stock Option Plan offset the application of the Standardized Approach for measuring Counterparty Credit Risk (SA-CCR) rules for measuring counterparty credit risk, growth in risk-weighted assets, the common share repurchases during the year ended October 31, 2019, and remeasurements of pension plans and other post-employment benefit plans. The decreases in the Tier 1 capital ratio and the Total capital ratio were essentially due to growth in risk-weighted assets. As at October 31, 2019, the leverage ratio was 4.0%, stable compared to October 31, 2018. The growth in Tier 1 capital was offset by growth in total leverage exposure.

 

Regulatory Capital and Ratios Under Basel III

 

(millions of Canadian dollars)

 

As at October 31, 2019

 

 

As at October 31, 2018

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

 

 

 

 

 

 

CET1

 

9,692

 

 

8,608

 

 

 

Tier 1

 

12,492

 

 

11,410

 

 

 

Total

 

13,366

 

 

12,352

 

 

 

 

 

 

 

 

 

 

 

Risk-weighted assets

 

 

 

 

 

 

 

 

CET1 capital

 

83,039

 

 

73,654

 

 

 

Tier 1 capital

 

83,039

 

 

73,670

 

 

 

Total capital

 

83,039

 

 

73,685

 

 

 

 

 

 

 

 

 

 

 

Total exposure

 

308,902

 

 

284,337

 

 

 

 

 

 

 

 

 

 

 

Capital ratios

 

 

 

 

 

 

 

 

CET1

 

11.7

%

 

11.7

%

 

 

Tier 1

 

15.0

%

 

15.5

%

 

 

Total

 

16.1

%

 

16.8

%

 

Leverage ratio

 

4.0

%

 

4.0

%

 

 

Dividends

On December 3, 2019, the Board of Directors declared regular dividends on the various series of first preferred shares and a dividend of 71 cents per common share, up 3 cents or 4%, payable on February 1, 2020 to shareholders of record on December 30, 2019. 

 

Consolidated Balance Sheets

(unaudited) (millions of Canadian dollars)

 

 

 

 

 

As at October 31, 2019

 

As at October 31,2018

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and deposits with financial institutions

 

 

 

13,698

 

12,756

 

 

 

 

 

 

 

 

 

Securities

 

 

 

 

 

 

 

At fair value through profit or loss

 

 

 

61,823

 

55,817

 

At fair value through other comprehensive income

 

 

 

10,648

 

5,668

 

At amortized cost

 

 

 

9,755

 

8,298

 

 

 

 

 

 

82,226

 

69,783

 

 

 

 

 

 

 

 

 

 

Securities purchased under reverse repurchase agreements

 

 

 

 

 

 

 

 

and securities borrowed

 

 

 

17,723

 

18,159

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

Residential mortgage

 

 

 

57,171

 

53,651

 

Personal

 

 

 

36,944

 

37,357

 

Credit card

 

 

 

2,322

 

2,325

 

Business and government

 

 

 

50,599

 

46,606

 

 

 

 

 

 

147,036

 

139,939

 

Customers' liability under acceptances

 

 

6,893

 

6,801

 

Allowances for credit losses

 

 

 

(678)

 

(658)

 

 

 

 

 

 

153,251

 

146,082

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Derivative financial instruments

 

 

 

8,129

 

8,608

 

Investments in associates and joint ventures

 

 

385

 

645

 

Premises and equipment

 

 

 

490

 

601

 

Goodwill

 

 

 

1,412

 

1,412

 

Intangible assets

 

 

 

1,406

 

1,314

 

Other assets

 

 

 

2,738

 

3,111

 

 

 

 

 

 

14,560

 

15,691

 

 

 

 

 

 

281,458

 

262,471

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

Deposits

 

 

 

189,566

 

170,830

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Acceptances

 

 

 

6,893

 

6,801

 

Obligations related to securities sold short

 

 

 

12,849

 

17,780

 

Obligations related to securities sold under repurchase agreements

 

 

 

 

 

 

 

 

and securities loaned

 

 

 

21,900

 

19,998

 

Derivative financial instruments

 

 

 

6,852

 

6,036

 

Liabilities related to transferred receivables

 

 

 

21,312

 

20,100

 

Other liabilities

 

 

 

6,177

 

5,824

 

 

 

 

 

 

75,983

 

76,539

 

 

 

 

 

 

 

 

 

 

Subordinated debt

 

 

 

773

 

747

 

 

 

 

 

 

 

 

 

 

Equity 

 

 

 

 

 

 

 

Equity attributable to the Bank's shareholders

 

 

 

 

 

 

 

Preferred shares

 

 

 

2,450

 

2,450

 

Common shares

 

 

 

2,949

 

2,822

 

Contributed surplus

 

 

 

51

 

57

 

Retained earnings

 

 

 

9,312

 

8,472

 

Accumulated other comprehensive income

 

 

 

16

 

175

 

 

 

 

 

 

14,778

 

13,976

 

Non-controlling interests

 

 

 

358

 

379

 

 

 

 

 

 

15,136

 

14,355

 

 

 

 

 

 

281,458

 

262,471

 

Consolidated Statements of Income

(unaudited) (millions of Canadian dollars)

 

 

 

 

Quarter ended October 31

 

Year ended October 31

 

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

 

 

 

 

Loans

 

1,673

 

1,506

 

6,468

 

5,632

 

Securities at fair value through profit or loss

 

265

 

186

 

1,086

 

771

 

Securities at fair value through other comprehensive income

 

67

 

44

 

195

 

152

 

Securities at amortized cost

 

55

 

50

 

210

 

174

 

Deposits with financial institutions

 

36

 

55

 

215

 

206

 

 

 

 

2,096

 

1,841

 

8,174

 

6,935

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

Deposits

 

911

 

748

 

3,468

 

2,562

 

Liabilities related to transferred receivables 

 

117

 

110

 

444

 

414

 

Subordinated debt

 

7

 

6

 

25

 

18

 

Other

 

125

 

151

 

641

 

559

 

 

 

 

1,160

 

1,015

 

4,578

 

3,553

 

Net interest income(1)

 

936

 

826

 

3,596

 

3,382

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income

 

 

 

 

 

 

 

 

 

Underwriting and advisory fees

 

96

 

104

 

314

 

388

 

Securities brokerage commissions

 

45

 

48

 

178

 

195

 

Mutual fund revenues

 

116

 

110

 

449

 

438

 

Trust service revenues

 

158

 

150

 

609

 

587

 

Credit fees

 

109

 

104

 

417

 

403

 

Card revenues

 

41

 

39

 

175

 

159

 

Deposit and payment service charges

 

71

 

73

 

271

 

280

 

Trading revenues (losses)

 

245

 

248

 

829

 

840

 

Gains (losses) on non-trading securities, net

 

5

 

9

 

77

 

77

 

Insurance revenues, net

 

28

 

29

 

136

 

121

 

Foreign exchange revenues, other than trading

 

23

 

23

 

96

 

95

 

Share in the net income of associates and joint ventures

 

11

 

9

 

34

 

28

 

Other

 

31

 

42

 

251

 

173

 

 

 

 

979

 

988

 

3,836

 

3,784

 

Total revenues

 

1,915

 

1,814

 

7,432

 

7,166

 

Provisions for credit losses

 

89

 

73

 

347

 

327

 

 

 

 

1,826

 

1,741

 

7,085

 

6,839

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expenses

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

661

 

616

 

2,532

 

2,466

 

Occupancy

 

66

 

60

 

298

 

236

 

Technology

 

158

 

157

 

704

 

620

 

Communications

 

16

 

15

 

62

 

63

 

Professional fees

 

70

 

65

 

249

 

244

 

Other

 

124

 

123

 

456

 

434

 

 

 

 

1,095

 

1,036

 

4,301

 

4,063

 

Income before income taxes 

 

731

 

705

 

2,784

 

2,776

 

Income taxes

 

127

 

139

 

462

 

544

 

Net income

 

604

 

566

 

2,322

 

2,232

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to

 

 

 

 

 

 

 

 

 

Preferred shareholders

 

29

 

32

 

116

 

105

 

Common shareholders

 

561

 

518

 

2,140

 

2,040

 

Bank shareholders

 

590

 

550

 

2,256

 

2,145

 

Non-controlling interests

 

14

 

16

 

66

 

87

 

 

 

 

604

 

566

 

2,322

 

2,232

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share (dollars)

 

 

 

 

 

 

 

 

 

 

Basic

 

1.68

 

1.53

 

6.39

 

6.01

 

 

Diluted

 

1.67

 

1.52

 

6.34

 

5.94

 

Dividends per common share (dollars)

 

0.68

 

0.62

 

2.66

 

2.44

 

 

(1)    Net interest income includes dividend income. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2019.

 

Consolidated Statements of Comprehensive Income

(unaudited) (millions of Canadian dollars)

 

 

 

 

 

 

Quarter ended October 31

Year ended October 31

 

 

 

2019

 

2018

 

2019

 

2018

 

Net income

 

604

 

566

 

2,322

 

2,232

 

Other comprehensive income, net of income taxes

 

 

 

 

 

 

 

 

 

 

Items that may be subsequently reclassified to net income

 

 

 

 

 

 

 

 

 

 

 

Net foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

(10)

 

21

 

(9)

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassified to net income

 

6

 

 

(2)

 

 

 

 

 

 

2

 

(7)

 

4

 

(13)

 

 

 

 

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

 

(6)

 

 

 

 

 

 

 

 

(8)

 

14

 

(7)

 

28

 

 

 

Net change in debt securities at fair value through other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

(9)

 

54

 

(11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassified to net income

 

(8)

 

4

 

(53)

 

(5)

 

 

 

 

 

 

 

3

 

(5)

 

1

 

(16)

 

 

 

Net change in cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

(33)

 

27

 

(137)

 

51

 

 

 

 

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

 

(5)

 

(14)

 

(20)

 

(46)

 

 

 

 

 

 

 

(38)

 

13

 

(157)

 

5

 

 

 

Share in the other comprehensive income of associates and joint ventures

 

(1)

 

(5)

 

3

 

1

 

 

Items that will not be subsequently reclassified to net income

 

 

 

 

 

 

 

 

 

 

 

Remeasurements of pension plans and other post-employment benefit plans

 

(13)

 

(70)

 

(135)

 

103

 

 

 

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

 

(7)

 

(3)

 

(21)

 

(2)

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

at fair value through profit or loss

 

13

 

6

 

5

 

21

 

 

 

 

 

 

 

(7)

 

(67)

 

(151)

 

122

 

Total other comprehensive income, net of income taxes

 

(51)

 

(50)

 

(311)

 

140

 

Comprehensive income

 

553

 

516

 

2,011

 

2,372

 

Comprehensive income attributable to

 

 

 

 

 

 

 

 

 

 

Bank shareholders

 

540

 

499

 

1,946

 

2,284

 

 

Non-controlling interests

 

13

 

17

 

65

 

88

 

 

 

 

553

 

516

 

2,011

 

2,372

 

 

Income Taxes - Other Comprehensive Income

 

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

 

 

 

 

Quarter ended October 31

 

Year ended October 31

 

 

 

2019

 

2018

 

2019

 

2018

 

Net foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

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

 

2

 

1

 

3

 

1

 

 

Net foreign currency translation (gains) losses on investments in foreign operations reclassified to net income

 

 

 

(1)

 

 

 

Impact of hedging net foreign currency translation gains (losses)

 

1

 

(1)

 

2

 

 

 

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

 

 

 

2

 

 

 

 

 

 

 

3

 

 

6

 

1

 

Net change in debt securities at fair value through other comprehensive income

 

 

 

 

 

 

 

 

 

 

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

 

3

 

(4)

 

19

 

(4)

 

 

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

 

 

 

 

 

 

 

 

 

 

 

reclassified to net income

 

(3)

 

2

 

(19)

 

(1)

 

 

 

 

 

 

 

(2)

 

 

(5)

 

Net change in cash flow hedges

 

 

 

 

 

 

 

 

 

 

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

 

(13)

 

10

 

(50)

 

19

 

 

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

 

(1)

 

(5)

 

(7)

 

(17)

 

 

 

 

 

 

(14)

 

5

 

(57)

 

2

 

Share in the other comprehensive income of associates and joint ventures

 

(1)

 

(1)

 

 

 

Remeasurements of pension plans and other post-employment benefit plans

 

(4)

 

(26)

 

(48)

 

37

 

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

(3)

 

(2)

 

(6)

 

(1)

 

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

 

 

 

 

 

 

 

 

 

 

fair value through profit or loss

 

5

 

2

 

2

 

7

 

 

 

(14)

 

(24)

 

(103)

 

41

 

Consolidated Statements of Changes in Equity

(unaudited) (millions of Canadian dollars)

 

 

 

 

Year ended October 31

 

 

 

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

Preferred shares at beginning

 

 

 

 

2,450

 

2,050

 

Issuance of Series 40 and 42 preferred shares

 

 

 

 

 

600

 

Redemption of Series 28 preferred shares for cancellation

 

 

 

 

 

(200)

 

Preferred shares at end

 

 

 

 

2,450

 

2,450

 

 

 

 

 

 

 

 

 

 

 

Common shares at beginning

 

 

 

 

2,822

 

2,768

 

Issuances of common shares pursuant to the Stock Option Plan

 

 

 

 

122

 

128

 

Repurchases of common shares for cancellation

 

 

 

 

(40)

 

(64)

 

Impact of shares purchased or sold for trading

 

 

 

 

45

 

(10)

 

Common shares at end

 

 

 

 

2,949

 

2,822

 

 

 

 

 

 

 

 

 

 

 

Contributed surplus at beginning

 

 

 

 

57

 

58

 

Stock option expense

 

 

 

 

11

 

12

 

Stock options exercised

 

 

 

 

(15)

 

(15)

 

Other

 

 

 

 

(2)

 

2

 

Contributed surplus at end

 

 

 

 

51

 

57

 

 

 

 

 

 

 

 

 

 

 

Retained earnings at beginning

 

 

 

 

8,472

 

7,706

 

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

 

 

 

 

(4)

 

(139)

 

Net income attributable to the Bank's shareholders

 

 

 

 

2,256

 

2,145

 

Dividends on preferred shares

 

 

 

 

(116)

 

(105)

 

Dividends on common shares

 

 

 

 

(892)

 

(829)

 

Premium paid on common shares repurchased for cancellation

 

 

 

 

(241)

 

(403)

 

Share issuance expenses, net of income taxes

 

 

 

 

 

(12)

 

Remeasurements of pension plans and other post-employment benefit plans

 

 

 

 

(135)

 

103

 

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

 

 

 

 

(21)

 

(2)

 

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

 

 

 

 

 

 

 

 

 

designated at fair value through profit or loss

 

 

 

 

5

 

21

 

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

 

 

 

 

(12)

 

 

Other

 

 

 

 

 

(13)

 

Retained earnings at end

 

 

 

 

9,312

 

8,472

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income at beginning

 

 

 

 

175

 

168

 

Impact of adopting IFRS 9 on November 1, 2017

 

 

 

 

 

 

(10)

 

Net foreign currency translation adjustments

 

 

 

 

(6)

 

27

 

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

 

 

 

 

1

 

(16)

 

Net change in gains (losses) on cash flow hedges

 

 

 

(157)

 

5

 

Share in the other comprehensive income of associates and joint ventures

 

 

 

 

3

 

1

 

Accumulated other comprehensive income at end

 

 

 

 

 

16

 

175

 

Equity attributable to the Bank's shareholders

 

 

 

 

14,778

 

13,976

 

 

 

 

 

 

 

 

 

 

Non-controlling interests at beginning

 

 

 

 

379

 

808

 

Impact of adopting IFRS 9 on November 1, 2017

 

 

 

 

 

 

(16)

 

Purchase of the non-controlling interest of the Advanced Bank of Asia Limited subsidiary

 

 

 

 

(30)

 

 

Redemption of trust units issued by NBC Asset Trust

 

 

 

 

 

(400)

 

Net income attributable to non-controlling interests

 

 

 

 

66

 

87

 

Other comprehensive income attributable to non-controlling interests

 

 

 

 

(1)

 

1

 

Distributions to non-controlling interests

 

 

 

 

(56)

 

(101)

 

Non-controlling interests at end

 

 

 

 

358

 

379

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

15,136

 

14,355

 

 

 

Accumulated Other Comprehensive Income 

 

 

As at October 31, 2019

 

As at October 31, 2018

 

Accumulated other comprehensive income

 

 

 

 

 

Net foreign currency translation adjustments

 

8

 

14

 

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

 

14

 

13

 

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

 

(6)

 

151

 

Share in the other comprehensive income of associates and joint ventures

 

 

(3)

 

 

 

16

 

175

 

Segment Disclosures

(unaudited) (millions of Canadian dollars)

 

The Bank carries out its activities in four business segments, which are defined below. For presentation purposes, other activities are grouped in the Other heading. Each reportable segment is distinguished by services offered, type of clientele, and marketing strategy.

 

The presentation of segment disclosures is consistent with the presentation adopted by the Bank for the year beginning November 1, 2018. This presentation reflects the fact that advisor banking service activities, which had previously been presented in the Wealth Management segment, are now presented in the Personal and Commercial segment. The Bank made this change to better align the monitoring of its activities with its management structure.

 

Personal and Commercial 

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

 

Wealth Management

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

 

Financial Markets

The Financial Markets segment encompasses corporate banking and investment banking and financial solutions for large and mid-size corporations, public sector organizations, and institutional investors. The segment is also active in proprietary trading and investment activities for the Bank.

 

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

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

 

Other

This heading encompasses treasury activities, liquidity management, Bank funding, asset/liability management activities, certain non-recurring items, and the unallocated portion of corporate services.  

 

Results by Business Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended October 31(1)

 

 

Personal and

Commercial

 

Wealth

Management

 

Financial

Markets

 

 

USSF&I

 

Other

 

 

 

Total

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(2)

613

 

588

 

115

 

115

 

129

 

71

 

180

 

147

 

(101)

 

(95)

 

936

 

826

Non-interest income(2)

263

 

261

 

331

 

312

 

366

 

365

 

12

 

11

 

7

 

39

 

979

 

988

Total revenues

876

 

849

 

446

 

427

 

495

 

436

 

192

 

158

 

(94)

 

(56)

 

1,915

 

1,814

Non-interest expenses(3)

450

 

446

 

269

 

267

 

206

 

174

 

74

 

65

 

96

 

84

 

1,095

 

1,036

Contribution

426

 

403

 

177

 

160

 

289

 

262

 

118

 

93

 

(190)

 

(140)

 

820

 

778

Provisions for credit losses

59

 

52

 

 

 

10

 

 

20

 

22

 

 

(1)

 

89

 

73

Income before income taxes (recovery)

367

 

351

 

177

 

160

 

279

 

262

 

98

 

71

 

(190)

 

(139)

 

731

 

705

Income taxes (recovery)(2)

97

 

94

 

47

 

42

 

74

 

70

 

20

 

16

 

(111)

 

(83)

 

127

 

139

Net income

270

 

257

 

130

 

118

 

205

 

192

 

78

 

55

 

(79)

 

(56)

 

604

 

566

Non-controlling interests

 

 

 

 

 

 

7

 

8

 

7

 

8

 

14

 

16

Net income attributable 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to the Bank's shareholders

270

 

257

 

130

 

118

 

205

 

192

 

71

 

47

 

(86)

 

(64)

 

590

 

550

Average assets

114,975

 

109,490

 

6,082

 

6,356

 

119,244

 

97,976

 

11,909

 

9,957

 

41,416

 

44,086

 

293,626

 

267,865

 

 

 

 

 

 

 

 

 

 

 

 

Year ended October 31(1)

 

 

Personal and

Commercial

 

Wealth

Management

 

Financial

Markets

 

 

 

USSF&I

 

Other

 

 

 

Total

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(4)

2,383

 

2,276

 

470

 

446

 

474

 

409

 

656

 

584

 

(387)

 

(333)

 

3,596

 

3,382

Non-interest income(4)(5)

1,069

 

1,033

 

1,273

 

1,243

 

1,276

 

1,334

 

59

 

55

 

159

 

119

 

3,836

 

3,784

Total revenues

3,452

 

3,309

 

1,743

 

1,689

 

1,750

 

1,743

 

715

 

639

 

(228)

 

(214)

 

7,432

 

7,166

Non-interest expenses(6)

1,816

 

1,782

 

1,067

 

1,058

 

743

 

697

 

285

 

251

 

390

 

275

 

4,301

 

4,063

Contribution

1,636

 

1,527

 

676

 

631

 

1,007

 

1,046

 

430

 

388

 

(618)

 

(489)

 

3,131

 

3,103

Provisions for credit losses

237

 

228

 

 

1

 

30

 

4

 

80

 

94

 

 

 

347

 

327

Income before income taxes (recovery)

1,399

 

1,299

 

676

 

630

 

977

 

1,042

 

350

 

294

 

(618)

 

(489)

 

2,784

 

2,776

Income taxes (recovery)(4)

372

 

347

 

177

 

166

 

260

 

278

 

71

 

72

 

(418)

 

(319)

 

462

 

544

Net income

1,027

 

952

 

499

 

464

 

717

 

764

 

279

 

222

 

(200)

 

(170)

 

2,322

 

2,232

Non-controlling interests

 

 

 

 

 

 

40

 

38

 

26

 

49

 

66

 

87

Net income attributable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to the Bank's shareholders

1,027

 

952

 

499

 

464

 

717

 

764

 

239

 

184

 

(226)

 

(219)

 

2,256

 

2,145

Average assets

112,798

 

106,857

 

6,219

 

6,167

 

112,493

 

100,721

 

10,985

 

9,270

 

43,667

 

42,925

 

286,162

 

265,940

 

(1)    For the quarter and year ended October 31, 2018, certain amounts have been reclassified, mainly amounts related to advisor banking service activities, which have been transferred from the Wealth Management segment to the Personal and Commercial segment.

(2)    The Net interest income, Non-interest income and Income taxes (recovery) items of the business segments are presented on a taxable equivalent basis. Taxable equivalent basis is a calculation method that consists of grossing up certain tax-exempt income by the amount of income tax that would have been otherwise payable. For the business segments as a whole, Net interest income was grossed up by $57 million ($35 million in 2018), Non-interest income was grossed up by $36 million ($25 million in 2018), and an equivalent amount was recognized in Income taxes (recovery). The effect of these adjustments has been reversed under the Other heading.

(3)    For the quarter ended October 31, 2019, in the Other heading of segment results, the Non-interest expenses item includes an $11 million charge related to Maple.

(4)    For the year ended October 31, 2019, Net interest income was grossed up by $195 million ($144 million in 2018), Non-interest income was grossed up by $135 million ($101 million in 2018), and an equivalent amount was recognized in Income taxes (recovery). The effect of these adjustments has been reversed under the Other heading.

(5)    For the year ended October 31, 2019, in the Other heading of segment results, the Non-interest income item includes a $79 million gain on disposal of Fiera Capital Corporation shares, a $50 million gain on disposal of premises and equipment, and a $33 million loss resulting from the fair value measurement of an investment.

(6)    For the year ended October 31, 2019, in the Other heading of segment results, the Non-interest expenses item includes $57 million in impairment losses on premises and equipment and on intangible assets, $45 million in provisions for onerous contracts, an $11 million charge related to Maple, and $10 million in severance pay.

 

Caution Regarding Forward-Looking Statements

 

From time to time, the Bank makes written and oral forward-looking statements, such as those contained in the Economic Review and Outlook section of the 2019 Annual Report, in other filings with Canadian securities regulators, and in other communications, for the purpose of describing the economic environment in which the Bank will operate during fiscal 2020 and the objectives it hopes to achieve for that period. These forward-looking statements are made in accordance with current securities legislation in Canada and the United States. They include, among others, statements with respect to the economy-particularly the Canadian and U.S. economies-market changes, observations regarding the Bank's objectives and its strategies for achieving them, Bank-projected financial returns and certain risks faced by the Bank. These forward-looking statements are typically identified by future or conditional verbs or words such as "outlook," "believe," "anticipate," "estimate," "project," "expect," "intend," "plan," and similar terms and expressions.

 

By their very nature, such forward-looking statements require assumptions to be made and involve inherent risks and uncertainties, both general and specific. Assumptions about the performance of the Canadian and U.S. economies in 2020 and how that will affect the Bank's business are among the main factors considered in setting the Bank's strategic priorities and objectives and in determining its financial targets, including provisions for credit losses. In determining its expectations for economic growth, both broadly and in the financial services sector in particular, the Bank primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies.

 

There is a strong possibility that express or implied projections contained in these forward-looking statements will not materialize or will not be accurate. The Bank recommends that readers not place undue reliance on these statements, as a number of factors, many of which are beyond the Bank's control, could cause actual future results, conditions, actions or events to differ significantly from the targets, expectations, estimates or intentions expressed in the forward-looking statements. These factors include credit risk, market risk, liquidity and funding risk, operational risk, regulatory compliance risk, reputation risk, strategic risk and environmental risk; all of which are described in more detail in the Risk Management section beginning on page 58 of the 2019 Annual Report, and more specifically, general economic environment and financial market conditions in Canada, the United States and certain other countries in which the Bank conducts business, including regulatory changes affecting the Bank's business; changes in the accounting policies the Bank uses to report its financial condition, including uncertainties associated with assumptions and critical accounting estimates; tax laws in the countries in which the Bank operates, primarily Canada and the United States (including the U.S. Foreign Account Tax Compliance Act (FATCA)); changes to capital and liquidity guidelines and to the manner in which they are to be presented and interpreted; changes to the credit ratings assigned to the Bank; and potential disruptions to the Bank's information technology systems, including evolving cyberattack risk.

 

The foregoing list of risk factors is not exhaustive. Additional information about these factors can be found in the Risk Management section of the 2019 Annual Report. 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 forward-looking information contained in this document is presented for the purpose of interpreting the information contained herein and may not be appropriate for other purposes.

 

 

Information for Shareholders and Investors

Disclosure of Fourth Quarter 2019 Results

 

 

Conference Call

-     A conference call for analysts and institutional investors will be held on Wednesday, December 4, 2019 at 1:00 p.m. EST.

-     Access by telephone in listen-only mode: 1-800-806-5484 or 416-340-2217. The access code is 7294581#.

-     A recording of the conference call can be heard until January 1, 2020 by dialing 1-800-408-3053 or 905-694-9451. The access code is 9842774#.

 

Webcast

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

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

 

Financial Documents

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

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

-     The 2019 Annual Report (which includes the audited annual consolidated financial statements and management's discussion and analysis) will also be available on National Bank's website.

-     The Report to Shareholders for the first quarter ended January 31, 2020 will be available on February 27, 2020 (subject to approval by the Bank's Board of Directors).

 

 

 

 

 

 

For more

information:

 

 

Ghislain Parent

Chief Financial Officer and

Executive Vice-President

Finance

514-394-6807

 

 

Jean Dagenais

Senior Vice-President

Finance

514-394-6233

 

 

Linda Boulanger

Vice-President

Investor Relations

514-394-0296

 

 

Claude Breton

Vice-President

Communications

and Corporate

Social Responsibility

514-394-8644

 

 

 

 


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