Financial Reporting Method

 

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

 

The presentation of segment disclosures is consistent with the presentation adopted by the Bank for the fiscal year beginning November 1, 2021. This presentation reflects the fact that the loan portfolio comprising borrowers in the "Oil and gas" and "Pipelines" sectors as well as related activities, which had previously been reported in the Personal and Commercial segment, is now reported in the Financial Markets segment. The Bank made this change to better align the monitoring of its activities with its management structure.

 

In addition, a change in accounting policy, as described in the "Accounting Policy Changes" section of Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022 was applied retrospectively during the year ended October 31, 2022, after the International Financial Reporting Interpretations Committee (IFRIC) issued a final agenda decision on accounting for the costs of configuring or customizing a supplier's software in a cloud computing arrangement. The figures for the quarter and year ended October 31, 2021 have been adjusted to reflect this change in accounting policy.

 

Non-GAAP and Other Financial Measures

 

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

 

·     non-GAAP financial measures;

·     non-GAAP ratios;

·     supplementary financial measures;

·     capital management measures.

 

Non-GAAP Financial Measures

The Bank uses non-GAAP financial measures that do not have standardized meanings under GAAP and that therefore may not be comparable to similar measures used by other companies. Presenting non-GAAP financial measures helps readers to better understand how management analyzes results, shows the impacts of specified items on the results of the reported periods, and allows readers to better assess results without the specified items if they consider such items not to be reflective of the underlying performance of the Bank's operations. In addition, like many other financial institutions, the Bank uses the taxable equivalent basis to calculate net interest income, non-interest income, and income taxes. This calculation method consists of grossing up certain 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.

 

For additional information on non-GAAP financial measures, non-GAAP ratios, supplementary financial measures, and capital management measures, see the Financial Reporting Method section and the Glossary section, on pages 16 to 21 and 122 to 125, respectively, of the 2022 Annual Report, which is available on the Bank's website at nbc.ca or the SEDAR website at sedar.com.

 

Reconciliation of Non-GAAP Financial Measures

 

Presentation of Results - Adjusted

 

(millions of Canadian dollars)										Quarter ended October 31
												2022		2021(1)
		Personal and Commercial		Wealth Management		Financial Markets		USSF&I		Other
												Total		Total
Net interest income		785		187		49		277		(91)		1,207		1,190
Taxable equivalent		-		-		64		-		1		65		39
Net interest income - Adjusted		785		187		113		277		(90)		1,272		1,229
Non-interest income		286		426		420		(10)		5		1,127		1,021
Taxable equivalent		-		-		30		-		-		30		2
Non-interest income - Adjusted		286		426		450		(10)		5		1,157		1,023
Total revenues - Adjusted		1,071		613		563		267		(85)		2,429		2,252
Non-interest expenses		551		343		252		90		110		1,346		1,268
Impairment losses on intangible assets(2)		-		-		-		-		-		-		(9)
Non-interest expenses - Adjusted		551		343		252		90		110		1,346		1,259
Income before provisions for credit losses and income taxes - Adjusted		520		270		311		177		(195)		1,083		993
Provisions for credit losses		42		2		32		10		1		87		(41)
Income before income taxes - Adjusted		478		268		279		167		(196)		996		1,034
Income taxes		127		70		(20)		35		(49)		163		215
Taxable equivalent		-		-		94		-		1		95		41
Income taxes related to impairment losses on intangible assets(2)		-		-		-		-		-		-		2
Income taxes - Adjusted		127		70		74		35		(48)		258		258
Net income - Adjusted		351		198		205		132		(148)		738		776
Specified items after income taxes		-		-		-		-		-		-		(7)
Net income		351		198		205		132		(148)		738		769
Non-controlling interests		-		-		-		-		-		-		-
Net income attributable to the Bank's shareholders   and holders of other equity instruments		351		198		205		132		(148)		738		769
Net income attributable to the Bank's shareholders   and holders of other equity instruments - Adjusted		351		198		205		132		(148)		738		776
Dividends on preferred shares and distributions on   limited recourse capital notes												30		26
Net income attributable to common shareholders  - Adjusted												708		750

 

(1)       Certain amounts have been adjusted to reflect an accounting policy change applicable to cloud computing arrangements. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.

(2)       During the quarter ended October 31, 2021, the Bank recorded $9 million ($7 million net of income taxes) in intangible asset impairment losses related to technology developments, which were considered a specified item.

 

(millions of Canadian dollars)								Year ended October 31
												2022		2021(1)
		Personal and Commercial		Wealth Management		Financial Markets		USSF&I		Other
												Total		Total
Net interest income		2,865		594		1,029		1,090		(307)		5,271		4,783
Taxable equivalent		-		-		229		-		5		234		181
Net interest income - Adjusted		2,865		594		1,258		1,090		(302)		5,505		4,964
Non-interest income		1,169		1,781		1,162		20		249		4,381		4,144
Taxable equivalent		-		-		48		-		-		48		8
Non-interest income - Adjusted		1,169		1,781		1,210		20		249		4,429		4,152
Total revenues - Adjusted		4,034		2,375		2,468		1,110		(53)		9,934		9,116
Non-interest expenses		2,149		1,391		1,022		344		324		5,230		4,903
Impairment losses on intangible assets(2)		-		-		-		-		-		-		(9)
Non-interest expenses - Adjusted		2,149		1,391		1,022		344		324		5,230		4,894
Income before provisions for credit losses and income taxes - Adjusted		1,885		984		1,446		766		(377)		4,704		4,222
Provisions for credit losses		97		3		(23)		66		2		145		2
Income before income taxes - Adjusted		1,788		981		1,469		700		(379)		4,559		4,220
Income taxes		474		260		112		143		(95)		894		882
Taxable equivalent		-		-		277		-		5		282		189
Income taxes related to impairment losses on intangible assets(2)		-		-		-		-		-		-		2
Income taxes - Adjusted		474		260		389		143		(90)		1,176		1,073
Net income - Adjusted		1,314		721		1,080		557		(289)		3,383		3,147
Specified items after income taxes		-		-		-		-		-		-		(7)
Net income		1,314		721		1,080		557		(289)		3,383		3,140
Non-controlling interests		-		-		-		-		(1)		(1)		-
Net income attributable to the Bank's shareholders   and holders of other equity instruments		1,314		721		1,080		557		(288)		3,384		3,140
Net income attributable to the Bank's shareholders   and holders of other equity instruments - Adjusted		1,314		721		1,080		557		(288)		3,384		3,147
Dividends on preferred shares and distributions   on limited recourse capital notes												107		123
Net income attributable to common shareholders - Adjusted												3,277		3,024

 

(1)       Certain amounts have been adjusted to reflect an accounting policy change applicable to cloud computing arrangements. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.

(2)       During the year ended October 31, 2021, the Bank recorded $9 million ($7 million net of income taxes) in intangible asset impairment losses related to technology developments, which were considered a specified item.

 

Presentation of Basic and Diluted Earnings Per Share - Adjusted

 

(Canadian dollars)				Quarter ended October 31								Year ended October 31
					2022				2021(1)			2022				2021(1)
Basic earnings per share				$	2.10			$	2.20		$	9.72			$	8.95
Impairment losses on intangible assets(2)					-				0.02			-				0.02
Basic earnings per share - Adjusted				$	2.10			$	2.22		$	9.72			$	8.97
Diluted earnings per share				$	2.08			$	2.17		$	9.61			$	8.85
Impairment losses on intangible assets(2)					-				0.02			-				0.02
Diluted earnings per share - Adjusted				$	2.08			$	2.19		$	9.61			$	8.87

 

(1)       Certain amounts have been adjusted to reflect an accounting policy change applicable to cloud computing arrangements. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.

(2)       During the quarter and the year ended October 31, 2021, the Bank recorded $9 million ($7 million net of income taxes) in intangible asset impairment losses related to technology developments, which were considered a specified item.

 

Highlights

 

(millions of Canadian dollars, except per share amounts)				Quarter ended October 31											Year ended October 31
				2022				2021(1)			% Change				2022						2021(1)				% Change
Operating results
Total revenues				2,334				2,211			6				9,652						8,927				8
Income before provisions for credit losses and income taxes				988				943			5				4,422						4,024				10
Net income				738				769			(4)				3,383						3,140				8
Net income attributable to the Bank's shareholders and   holders of other equity instruments				738				769			(4)				3,384						3,140				8
Return on common shareholders' equity(2)				15.3	%			18.7	%						18.8		%				20.7		%
Earnings per share
	Basic		$	2.10			$	2.20			(5)			$	9.72					$	8.95				9
	Diluted			2.08				2.17			(4)				9.61						8.85				9
Operating results - Adjusted(3)
Total revenues - Adjusted(3)				2,429				2,252			8				9,934						9,116				9
Income before provisions for credit losses   and income taxes - Adjusted(3)				1,083				993			9				4,704						4,222				11
Net income - Adjusted(3)				738				776			(5)				3,383						3,147				7
Return on common shareholders' equity - Adjusted(4)				15.3	%			18.9	%						18.8		%				20.7		%
Operating leverage - Adjusted(4)				1.0	%			(1.1)	%						2.1		%				1.9		%
Efficiency ratio - Adjusted(4)				55.4	%			55.9	%						52.6		%				53.7		%
Earnings per share - Adjusted(3)
	Basic		$	2.10			$	2.22			(5)			$	9.72					$	8.97				8
	Diluted			2.08				2.19			(5)				9.61						8.87				8
Common share information
Dividends declared			$	0.92			$	0.71			30			$	3.58					$	2.84				26
Book value(2)				55.24				47.44							55.24						47.44
Share price
	High			94.37				104.32							105.44						104.32
	Low			83.12				95.00							83.12						65.54
	Close			92.76				102.46							92.76						102.46
Number of common shares (thousands)				336,582				337,912							336,582						337,912
Market capitalization				31,221				34,622							31,221						34,622
(millions of Canadian dollars)														As at October 31, 2022						As at  October 31, 2021(1)				% Change
Balance sheet and off-balance-sheet
Total assets														403,740						355,621				14
Loans and acceptances, net of allowances														206,744						182,689				13
Deposits														266,394						240,938				11
Equity attributable to common shareholders														18,594						16,029				16
Assets under administration(2)														616,165						651,530				(5)
Assets under management(2)														112,346						117,186				(4)
Regulatory ratios under Basel III(5)
Capital ratios
	Common Equity Tier 1 (CET1)													12.7		%				12.4		%
	Tier 1													15.4		%				15.0		%
	Total													16.9		%				15.9		%
Leverage ratio														4.5		%				4.4		%
TLAC ratio(5)														27.7		%				26.3		%
TLAC leverage ratio(5)														8.1		%				7.8		%
Liquidity coverage ratio (LCR)(5)														140		%				154		%
Net stable funding ratio (NSFR)(5)														117		%				117		%
Other information
Number of employees - Worldwide														29,509						26,920				10
Number of branches in Canada														378						384				(2)
Number of banking machines in Canada														939						927				1

 

(1)       Certain amounts have been adjusted to reflect an accounting policy change applicable to cloud computing arrangements. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.

(2)       For additional information on the composition of these measures, see the Glossary section on pages 122 to 125 of the Bank's 2022 Annual Report, which is available on the Bank's website at nbc.ca or the SEDAR website at sedar.com.

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

(4)       For additional information on non-GAAP ratios, see the Financial Reporting Method section on pages 16 to 21 of the Bank's 2022 Annual Report, which is available on the Bank's website at nbc.ca or the SEDAR website at sedar.com.

(5)       For additional information on capital management measures, see the Financial Reporting Method section on pages 16 to 21 of the Bank's 2022 Annual Report, which is available on the Bank's website at nbc.ca or the SEDAR website at sedar.com.

 

 

 

 

Financial Analysis

 

This press release should be read in conjunction with the 2022 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 or SEDAR's website at sedar.com.

 

Total Revenues

For the fourth quarter of 2022, the Bank's total revenues amounted to $2,334 million, up $123 million or 6% from the fourth quarter of 2021. In the Personal and Commercial segment, fourth-quarter total revenues rose 15% year over year owing to loan and deposit growth, to a higher net interest margin resulting from recent interest rate hikes, and to increases in credit card revenues, revenues from bankers' acceptances, and revenues from foreign exchange activities, partly offset by a decrease in insurance revenues. In the Wealth Management segment, fourth-quarter total revenues grew 9% year over year, mainly due to the higher net interest income resulting from interest rate hikes. This increase was partly offset by a decrease in fee-based revenues, notably mutual fund revenues and revenues from investment management and trust service fees. In addition, securities brokerage commissions decreased year over year given fewer commission-generating transactions. In the Financial Markets segment, fourth-quarter total revenues on a taxable equivalent basis increased by 14% year over year due to increases in global markets revenues and in corporate and investment banking revenues. In the USSF&I segment, fourth-quarter total revenues were up 10% year over year owing to a sustained increase in the ABA Bank subsidiary's revenues as a result of business growth, partly offset by a decrease in the Credigy subsidiary's revenues, notably due to a less favourable impact from fair value remeasurements of certain loan portfolios. For the Other heading, fourth-quarter total revenues were down year over year, mainly due to a lower contribution from Treasury activities and to lower gains on investments.

 

For the year ended October 31, 2022, total revenues amounted to $9,652 million, up $725 million or 8% from $8,927 million in fiscal 2021. In the Personal and Commercial segment, fiscal 2022 total revenues rose $419 million or 12% year over year as net interest income increased owing to loan and deposit growth, a higher net interest margin arising from interest rate hikes, and increases in credit card revenues, insurance revenues, revenues from bankers' acceptances, revenues from derivative financial instruments, and revenues from foreign exchange activities. In the Wealth Management segment, fiscal 2022 total revenues grew 10% year over year, mainly due to higher net interest income as well as to an increase in fee-based revenues given growth in average assets under administration and assets under management and given greater market performance compared to the year ended October 31, 2021. In the Financial Markets segment, fiscal 2022 total revenues on a taxable equivalent basis were up $250 million or 11% year over year given growth in global markets revenues, partly offset by a decrease in corporate and investment banking revenues. In the USSF&I segment, fiscal 2022 total revenues rose 11% year over year owing to revenue growth at ABA Bank, which was driven by higher loans and deposits, partly offset by a decrease in Credigy's revenues, notably due to a gain that had been realized in fiscal 2021 upon a disposal of loan portfolios and to a more favourable impact of remeasuring certain loan portfolios during fiscal 2021. For fiscal 2022, the total revenues of the Other heading decreased year over year, as there was a lower contribution from Treasury activities and lower gains on investments in fiscal 2022.

 

Non-Interest Expenses

For the fourth quarter of 2022, the Bank's non-interest expenses stood at $1,346 million, a 6% year-over-year increase that was essentially driven by higher compensation, notably due to wage growth and a greater number of employees as well as to the variable compensation associated with revenue growth. In addition, fourth-quarter occupancy expenses were also up, partly due to the expansion to ABA Bank's banking network. Fourth-quarter other expenses increased as well, essentially due to an increase in travel and business development expenses given that activities with clients resumed and also due to higher advertising expenses.

 

For the year ended October 31, 2022, the Bank's non-interest expenses stood at $5,230 million, a 7% year-over-year increase that was essentially attributable to higher compensation and employee benefits, notably due to wage growth and a greater number of employees as well as to the variable compensation associated with revenue growth. Fiscal 2022 technology expenses, including amortization, were also up year over year, as significant investments were made to support the Bank's technological evolution and business development plan. Other expenses also rose year over year, due to an increase in travel and business development expenses as activities with clients resumed. These higher expenses were tempered by decreases in certain expenses; in particular, there was a $20 million reversal of the provision for the compensatory tax on salaries paid in Quebec during the first quarter of 2022 as well as a decrease in COVID-19-response expenses, which had been higher during fiscal 2021. Furthermore, a portion of the overall increase in non-interest expenses was attributable to the acquisition of the Flinks Technology Inc. (Flinks) subsidiary at the end of fiscal 2021.