Nat Bank of Canada - Press Release Q3 2023

Personal and Commercial

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

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

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

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

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

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

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

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

Wealth Management

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

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

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

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

Financial Markets

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

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

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

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

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

U.S. Specialty Finance and International

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

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

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

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

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

Other

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

Capital Management

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

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

Dividends

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

(1)       For details on the composition of these measures, see the Glossary section on pages 51 to 54 in the Report to Shareholders - Third Quarter 2023, which is available on the Bank's website at nbc.ca or the SEDAR website at sedar.com.

(2)       For additional information on capital management measures, see the Financial Reporting Method section on pages 4 to 10 in the Report to Shareholders - Third Quarter 2023, which is available on the Bank's website at nbc.ca or the SEDAR website at sedar.com.

Financial Reporting Method                                                               

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

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

Non-GAAP and Other Financial Measures

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

·     non-GAAP financial measures;

·     non-GAAP ratios;

·     supplementary financial measures;

·     capital management measures.

Non-GAAP Financial Measures

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

The key non-GAAP financial measures used by the Bank to analyze its results are described below, and a quantitative reconciliation of these measures is presented in the tables in the Reconciliation of Non-GAAP Financial Measures section on pages 4 to 6 and in the Consolidated Results table on page 13 in the Report to Shareholders - Third Quarter 2023, which is available on the Bank's website at nbc.ca or the SEDAR website at sedar.com. Note that, for the quarter and nine-month period ended July 31, 2023, a gain of $91 million ($67 million net of income taxes) recorded upon the fair value remeasurement of an equity interest and an expense related to the retroactive impact of the changes to the Excise Tax Act of $25 million ($18 million net of income taxes) were excluded from results. In addition, for the nine-month period ended July 31, 2023, a $24 million tax expense related to the Canadian government's 2022 tax measures was also excluded from results. No specified items had been excluded from results for the quarter and nine-month period ended July 31, 2022.

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 4 to 10 and 51 to 54, respectively, of the MD&A in the Report to shareholders for the Third quarter of 2023, 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

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

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

(3)       During the quarter ended July 31, 2023, the Bank recorded a $25 million expense in the Other heading of segment results ($18 million net of income taxes) related to retroactive impact of the changes to the Excise Tax Act, indicating that payment card clearing services rendered by a payment card network operator are subject to the goods and services tax (GST) and the harmonized sales tax (HST).

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

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

(3)       During the nine-month period ended July 31, 2023, the Bank recorded a $25 million expense in the Other heading of segment results ($18 million net of income taxes) related to the retroactive impact of the changes to the Excise Tax Act, indicating that payment card clearing services rendered by a payment card network operator are subject to the goods and services tax (GST) and the harmonized sales tax (HST).

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

Presentation of Basic and Diluted Earnings Per Share - Adjusted

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

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

(3)       During the quarter and nine-month period ended July 31, 2023, the Bank recorded a $25 million expense in the Other heading of segment results ($18 million net of income taxes) related to the retroactive impact of the changes to the Excise Tax Act, indicating that payment card clearing services rendered by a payment card network operator are subject to the goods and services tax (GST) and the harmonized sales tax (HST).

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

Highlights