Annual Report 2024 (FS) Part 1, 4 Dec 2024 16:48

04 December 2024, 16:48

Source - LSE Regulatory

RNS Number : 8443O

National Bank of Canada

04 December 2024

Regulatory Announcement

RNS Number: ●

National Bank of Canada

December 4, 2024

2024 Annual Financial Statements (Part 1)

National Bank of Canada (the "Bank") announces publication of its 2024 Annual Report, including the audited consolidated financial statements for the years ended 31 October 2024 and 2023, together with the notes thereto and independent auditor's report thereon (the "2024 Financial Statements"). The 2024 Financial Statements have been uploaded to the National Storage Mechanism and will shortly be available at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and are available on the Bank's website as part of the 2024 Annual Report at https://www.nbc.ca/about-us/investors.html

To view the full PDF of the 2024 Financial Statements, the 2024 Annual Report and the 2024 Annual CEO and CFO Certifications, please click on the following links:

http://www.rns-pdf.londonstockexchange.com/rns/8421O_1-2024-12-4.pdf
http://www.rns-pdf.londonstockexchange.com/rns/8421O_2-2024-12-4.pdf
http://www.rns-pdf.londonstockexchange.com/rns/8421O_3-2024-12-4.pdf

Audited Consolidated

Financial Statements

	Management's Responsibility for Financial Reporting	136
	Independent Auditor's Report	137
	Consolidated Balance Sheets	140
	Consolidated Statements of Income	141
	Consolidated Statements of Comprehensive Income	142
	Consolidated Statements of Changes in Equity	144
	Consolidated Statements of Cash Flows	145
Notes to the Audited Consolidated Financial Statements		146

Management's Responsibility for Financial Reporting

The Consolidated Financial Statements of National Bank of Canada (the Bank) have been prepared in accordance 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 financial statements are to be prepared in accordance with International Financial Reporting Standards (IFRS^® Accounting Standards), as issued by the International Accounting Standards Board (IASB). IFRS Accounting Standards represent Canadian generally accepted accounting principles (GAAP). None of the OSFI accounting requirements are exceptions to IFRS Accounting Standards.

Management maintains the accounting and internal control systems needed to discharge its responsibility, which is to provide reasonable assurance that the financial accounts are accurate and complete and that the Bank's assets are adequately safeguarded. Controls that are currently in place include quality standards on staff hiring and training; the implementation of organizational structures with clear divisions of responsibility and accountability for performance; the Code of Professional Conduct; and the communication of operating policies and procedures.

As Chief Executive Officer and as Chief Financial Officer, we have overseen the evaluation of the design and operation of the Bank's internal control over financial reporting in accordance with National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings released by the Canadian Securities Administrators. Based on the evaluation work performed, we have concluded that the internal control over financial reporting and the disclosure controls and procedures were effective as at October 31, 2024 and that they provide reasonable assurance that the Bank's financial information is reliable and that its Consolidated Financial Statements have been prepared in accordance with IFRS Accounting Standards.

The Board of Directors (the Board) is responsible for reviewing and approving the financial information contained in the Annual Report. Acting through the Audit Committee, the Board also oversees the presentation of the Consolidated Financial Statements and ensures that accounting and control systems are maintained. Composed of directors who are neither officers nor employees of the Bank, the Audit Committee is responsible, through Internal Audit, for performing an independent and objective review of the Bank's internal control effectiveness, i.e., governance processes, risk management processes and control measures. Furthermore, the Audit Committee reviews the Consolidated Financial Statements and recommends their approval to the Board.

The control systems are further supported by the presence of the Compliance Service, which exercises independent oversight and evaluation in order to assist managers in effectively managing regulatory compliance risk and to obtain reasonable assurance that the Bank is compliant with regulatory requirements.

Both the Senior Vice-President, Internal Audit and the Senior Vice-President, Chief Compliance Officer and Chief Anti-Money Laundering Officer have a direct functional link to the Chair of the Audit Committee and to the Chair of the Risk Management Committee. They both also have direct access to the President and Chief Executive Officer.

In accordance with the Bank Act (Canada), OSFI is mandated to protect the rights and interests of depositors. Accordingly, OSFI examines and enquires into the business and affairs of the Bank, as deemed necessary, to ensure that the provisions of the Bank Act (Canada) are being satisfied and that the Bank is in sound financial condition.

The independent auditor, Deloitte LLP, whose report follows, was appointed by the shareholders at the recommendation of the Board. The auditor has full and unrestricted access to the Audit Committee to discuss audit and financial reporting matters.

Laurent Ferreira

President and Chief Executive Officer

Marie Chantal Gingras

Chief Financial Officer and Executive Vice-President, Finance

Montreal, Canada, December 3, 2024

Independent Auditor's Report

To the Shareholders of National Bank of Canada

Opinion

We have audited the Consolidated Financial Statements of National Bank of Canada (the Bank), which comprise the consolidated balance sheets as at October 31, 2024 and 2023, and the consolidated statements of income, the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows for the years then ended, and notes to the Consolidated Financial Statements, including a summary of material accounting policies (collectively referred to as the "financial statements").

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as at October 31, 2024 and 2023, and its financial performance and its cash flows for the years then ended in accordance with IFRS Accounting Standards.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards (Canadian GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Consolidated Financial Statements for the year ended October 31, 2024. These matters were addressed in the context of our audit of the Consolidated Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Allowances for credit losses - Refer to Notes 1 and 8 to the financial statements

Key Audit Matter Description

The allowances for credit losses represent management's estimate of expected credit losses (ECL) on financial assets calculated under the IFRS 9, Financial Instruments ECL framework. The calculation of ECL is based on the probability of default (PD), loss given default (LGD), and exposure at default (EAD) of the underlying assets and represents an unbiased and probability weighted estimate of losses expected to occur in the future based on forecasts of macroeconomic variables for three scenarios. Lifetime ECL is recorded for financial assets that have experienced significant increases in credit risk (SICR) since initial recognition or that are impaired; otherwise 12-month ECL is recorded. Given uncertainty surrounding the key inputs used to measure credit losses, the Bank has applied expert credit judgment to adjust the modelled ECL results.

We have identified the allowances for credit losses as a key audit matter due to the inherent complexity of the ECL models used and the significant judgment required by management in relation to the forward-looking nature of some key assumptions including the impact of a possible economic recession. Significant auditor judgment was required in evaluating: (i) the models and methodologies used to measure ECL; (ii) the forecasts of macroeconomic scenarios and probability weighting; (iii) the determination of SICR; and (iv) the adjustments to the modelled ECL results representing management's expert credit judgment. Auditing the ECL models and the key judgments and assumptions required a high degree of auditor judgment and an increased extent of audit effort, including the involvement of professionals with specialized skills in credit risk and economics.

How the Key Audit Matter Was Addressed in the Audit

Our audit procedures related to the models and the key judgments and assumptions used by management to estimate the ECL included the following, among others:

· With the assistance of professionals with specialized skills in credit risk or economics:

o For a selection of ECL models, evaluated the appropriateness of the models used to estimate ECL;

o Evaluated the forecasts of macroeconomic scenarios and their probability weighting by comparing them against independently developed forecasts and publicly available industry data, including the impact of a possible economic recession;

o Assessed management's determination of SICR and the appropriateness of the related model's programming;

o Assessed the adjustments to the modelled ECL results by evaluating management's expert credit judgment.

Independent Auditor's Report (cont.)

Income taxes - Uncertain tax positions - Refer to Notes 1 and 26 to the financial statements

Key Audit Matter Description

In the normal course of its business, the Bank is involved in a number of transactions for which the tax impacts are uncertain. The Bank accounts for provisions for uncertain tax positions that adequately represent the risk stemming from tax matters under discussion or being audited by tax authorities or from other matters involving uncertainty. These provisions reflect management's best possible estimate of the amounts that may have to be paid based on qualitative assessments of all relevant factors. As disclosed in Note 24, the Bank was reassessed by the tax authorities for additional income taxes and interest in respect of certain Canadian dividends received by the Bank for certain taxation years and may be reassessed for subsequent taxation years in regard to similar activities. The Bank has not recognized any tax liability related to these uncertain tax positions.

We have identified the assessment of the accounting of the uncertain tax positions related to certain Canadian dividends as a key audit matter given the significant judgment made by management when evaluating the probability of acceptance of the Bank's tax positions and when interpreting relevant tax and case law and administrative positions. Auditing these judgments required a high degree of auditor judgment and resulted in an increased extent of audit effort, including the involvement of tax specialists.

How the Key Audit Matter Was Addressed in the Audit

Our audit procedures pertaining to the assessment of the accounting of the uncertain tax positions related to certain Canadian dividends included the following, among others:

· With the assistance of tax specialists, evaluated management's assessment of the probability of acceptance of the Bank's tax positions by assessing:

o The Bank's interpretations of relevant tax and case law and administrative positions;

o The correspondence with the relevant tax authorities; and

o The advice and legal opinions obtained by the Bank's external tax advisors.

Other Information

Management is responsible for the other information. The other information comprises:

· Management's Discussion and Analysis; and

· The information, other than the financial statements and our auditor's report thereon, in the Annual Report.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management's Discussion and Analysis and the Annual Report prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Bank's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Bank's financial reporting process.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank's internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

· Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

· Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Bank to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Consolidated Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor's report is Carl Magnan.

/s/ Deloitte LLP¹

December 3, 2024

Montreal, Quebec

¹ CPA auditor, public accountancy permit No. A121501

Consolidated Balance Sheets

As at October 31			2024	2023⁽¹⁾
Assets
Cash and deposits with financial institutions			31,549	35,234
Securities		Notes 4, 5 and 7
At fair value through profit or loss			115,935	99,994
At fair value through other comprehensive income			14,622	9,242
At amortized cost			14,608	12,582
			145,165	121,818
Securities purchased under reverse repurchase agreements
	and securities borrowed		16,265	11,260
Loans		Note 8
Residential mortgage			95,009	86,847
Personal			46,883	46,358
Credit card			2,761	2,603
Business and government			99,720	84,192
			244,373	220,000
Customers' liability under acceptances			−	6,627
Allowances for credit losses			(1,341)	(1,184)
			243,032	225,443
Other
Derivative financial instruments		Note 18	12,309	17,516
Investments in associates and joint ventures		Note 10	40	49
Premises and equipment		Note 11	1,868	1,592
Goodwill		Note 12	1,522	1,521
Intangible assets		Note 12	1,233	1,256
Other assets		Notes 2 and 13	9,243	7,788
			26,215	29,722
			462,226	423,477
Liabilities and equity
Deposits		Notes 5, 14 and 16	333,545	288,173
Other
Acceptances			−	6,627
Obligations related to securities sold short			10,873	13,660
Obligations related to securities sold under repurchase agreements
	and securities loaned	Note 9	38,177	38,347
Derivative financial instruments		Note 18	15,760	19,888
Liabilities related to transferred receivables		Notes 5 and 9	28,377	25,034
Other liabilities		Notes 2 and 15	8,686	7,416
			101,873	110,972
Subordinated debt		Note 17	1,258	748
Equity
Equity attributable to the Bank's shareholders and holders of other equity instruments		Notes 20 and 24
Preferred shares and other equity instruments			3,150	3,150
Common shares			3,463	3,294
Contributed surplus			85	68
Retained earnings		Note 2	18,633	16,650
Accumulated other comprehensive income			219	420
			25,550	23,582
Non-controlling interests		Note 21	−	2
			25,550	23,584
			462,226	423,477
The accompanying notes are an integral part of these audited Consolidated Financial Statements.

(1) Certain amounts have been adjusted to reflect accounting policy changes arising from the adoption of IFRS 17. For additional information, see Note 2 to these audited Consolidated Financial Statements.

			Laurent Ferreira	Lynn Loewen
			President and Chief Executive Officer	Director

Consolidated Statements of Income

Year ended October 31			2024	2023⁽¹⁾
Interest income
Loans			15,581	12,676
Securities at fair value through profit or loss			1,834	1,681
Securities at fair value through other comprehensive income			541	279
Securities at amortized cost			468	473
Deposits with financial institutions			1,547	1,668
			19,971	16,777
Interest expense
Deposits			13,198	10,015
Liabilities related to transferred receivables			752	633
Subordinated debt			62	47
Other			3,020	2,496
			17,032	13,191
Net interest income⁽²⁾			2,939	3,586
Non-interest income
Underwriting and advisory fees			419	378
Securities brokerage commissions			194	174
Mutual fund revenues			638	578
Investment management and trust service fees			1,141	1,005
Credit fees			460	574
Card revenues			212	202
Deposit and payment service charges			294	300
Trading revenues (losses)		Note 23	4,299	2,677
Gains (losses) on non-trading securities, net			318	70
Insurance revenues, net		Note 2	73	59
Foreign exchange revenues, other than trading			225	183
Share in the net income of associates and joint ventures		Note 10	8	11
Other			180	261
			8,461	6,472
Total revenues			11,400	10,058
Non-interest expenses
Compensation and employee benefits		Note 2	3,725	3,425
Occupancy		Notes 2 and 11	366	350
Technology		Notes 2, 11 and 12	1,046	1,078
Communications			56	58
Professional fees		Note 2	316	256
Other		Notes 2 and 32	545	586
			6,054	5,753
Income before provisions for credit losses and income taxes			5,346	4,305
Provisions for credit losses		Note 8	569	397
Income before income taxes			4,777	3,908
Income taxes		Notes 2 and 26	961	619
Net income			3,816	3,289
Net income attributable to
Preferred shareholders and holders of other equity instruments			154	141
Common shareholders			3,663	3,150
Bank shareholders and holders of other equity instruments			3,817	3,291
Non-controlling interests			(1)	(2)
			3,816	3,289
Earnings per share (dollars)		Note 27
	Basic		10.78	9.33
	Diluted		10.68	9.24
Dividends per common share (dollars)		Note 20	4.32	3.98
The accompanying notes are an integral part of these audited Consolidated Financial Statements.

(2) Net interest income includes dividend income. For additional information, see Note 1 to these audited Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

Year ended October 31					2024	2023⁽¹⁾
Net income					3,816	3,289
Other comprehensive income, net of income taxes
	Items that may be subsequently reclassified to net income
		Net foreign currency translation adjustments
			Net unrealized foreign currency translation gains (losses) on investments in foreign operations		80	155
			Impact of hedging net foreign currency translation gains (losses)		(67)	(52)
					13	103
		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		68	(87)
			Net (gains) losses on debt securities at fair value through other comprehensive income
				reclassified to net income	(59)	85
			Change in allowances for credit losses on debt securities at fair value through
				other comprehensive income reclassified to net income	−	1
					9	(1)
		Net change in cash flow hedges
			Net gains (losses) on derivative financial instruments designated as cash flow hedges		(100)	90
			Net (gains) losses on designated derivative financial instruments reclassified to net income		(123)	25
					(223)	115
		Share in the other comprehensive income of associates and joint ventures			−	1
	Items that will not be subsequently reclassified to net income
		Remeasurements of pension plans and other post-employment benefit plans			83	(140)
		Net gains (losses) on equity securities designated at fair value through other comprehensive income			43	45
		Net fair value change attributable to credit risk on financial liabilities designated at
			fair value through profit or loss		(350)	(163)
					(224)	(258)
Total other comprehensive income, net of income taxes					(425)	(40)
Comprehensive income					3,391	3,249
Comprehensive income attributable to
	Bank shareholders and holders of other equity instruments				3,392	3,251
	Non-controlling interests				(1)	(2)
					3,391	3,249
The accompanying notes are an integral part of these audited Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income (cont.)

Income Taxes - Other Comprehensive Income

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

Year ended October 31				2024	2023
Items that may be subsequently reclassified to net income
	Net foreign currency translation adjustments
		Net unrealized foreign currency translation gains (losses) on investments in foreign operations		−	(3)
		Impact of hedging net foreign currency translation gains (losses)		(23)	(14)
				(23)	(17)
	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		27	(33)
		Net (gains) losses on debt securities at fair value through other comprehensive income
			reclassified to net income	(24)	33
		Change in allowances for credit losses on debt securities at fair value through
			other comprehensive income reclassified to net income	−	−
				3	−
	Net change in cash flow hedges
		Net gains (losses) on derivative financial instruments designated as cash flow hedges		(39)	35
		Net (gains) losses on designated derivative financial instruments reclassified to net income		(47)	9
				(86)	44
	Share in the other comprehensive income of associates and joint ventures			−	−
Items that will not be subsequently reclassified to net income
	Remeasurements of pension plans and other post-employment benefit plans			32	(43)
	Net gains (losses) on equity securities designated at fair value through other
		comprehensive income		16	8
	Net fair value change attributable to credit risk on financial liabilities designated at
		fair value through profit or loss		(135)	(63)
				(87)	(98)
				(193)	(71)
The accompanying notes are an integral part of these audited Consolidated Financial Statements.

Consolidated Statements of Changes in Equity

Year ended October 31			2024	2023⁽¹⁾
Preferred shares and other equity instruments at beginning and at end		Note 20	3,150	3,150
Common shares at beginning		Note 20	3,294	3,196
Issuances of common shares pursuant to the Stock Option Plan			146	95
Impact of shares purchased or sold for trading			23	3
Common shares at end			3,463	3,294
Contributed surplus at beginning			68	56
Stock option expense		Note 24	17	18
Stock options exercised			(16)	(10)
Other			16	4
Contributed surplus at end			85	68
Retained earnings at beginning			16,650	15,140
Impact of IFRS 17 adoption on November 1, 2022		Note 2	−	(48)
Net income attributable to the Bank's shareholders and holders of other equity instruments		Note 2	3,817	3,291
Dividends on preferred shares and distributions on other equity instruments		Note 20	(175)	(163)
Dividends on common shares		Note 20	(1,468)	(1,344)
Remeasurements of pension plans and other post-employment benefit plans			83	(140)
Net gains (losses) on equity securities designated at fair value through other comprehensive income			43	45
Net fair value change attributable to the credit risk on financial liabilities designated at fair value
	through profit or loss		(350)	(163)
Impact of a financial liability resulting from put options written to non-controlling interests		Note 15	18	10
Other			15	22
Retained earnings at end			18,633	16,650
Accumulated other comprehensive income at beginning			420	202
Net foreign currency translation adjustments			13	103
Net change in unrealized gains (losses) on debt securities at fair value through other comprehensive income			9	(1)
Net change in gains (losses) on instruments designated as cash flow hedges			(223)	115
Share in the other comprehensive income of associates and joint ventures			−	1
Accumulated other comprehensive income at end			219	420
Equity attributable to the Bank's shareholders and holders of other equity instruments			25,550	23,582
Non-controlling interests at beginning		Note 21	2	2
Net income attributable to non-controlling interests			(1)	(2)
Other			(1)	2
Non-controlling interests at end			−	2
Equity			25,550	23,584

Accumulated Other Comprehensive Income

As at October 31	2024	2023
Accumulated other comprehensive income
Net foreign currency translation adjustments	320	307
Net unrealized gains (losses) on debt securities at fair value through other comprehensive income	(26)	(35)
Net gains (losses) on instruments designated as cash flow hedges	(77)	146
Share in the other comprehensive income of associates and joint ventures	2	2
	219	420
The accompanying notes are an integral part of these audited Consolidated Financial Statements.

Consolidated Statements of Cash Flows

Year ended October 31			2024	2023⁽¹⁾
Cash flows from operating activities
Net income			3,816	3,289
Adjustments for
	Provisions for credit losses		569	397
	Depreciation of premises and equipment, including right-of-use assets		233	211
	Amortization of intangible assets		281	313
	Impairment losses on premises and equipment and on intangible assets	Notes 11 and 12	4	88
	Deferred taxes		(138)	(243)
	Losses (gains) on sales of non-trading securities, net		(144)	(70)
	Share in the net income of associates and joint ventures		(8)	(11)
	Stock option expense		17	18
	Gain on the fair value remeasurement of equity interests	Note 32	(174)	(91)
Change in operating assets and liabilities
	Securities at fair value through profit or loss		(15,941)	(12,619)
	Securities purchased under reverse repurchase agreements and securities borrowed		(5,005)	15,226
	Loans and acceptances, net of securitization		(21,442)	(20,252)
	Deposits		45,372	21,779
	Obligations related to securities sold short		(2,787)	(8,157)
	Obligations related to securities sold under repurchase agreements and securities loaned		(170)	4,874
	Derivative financial instruments, net		1,079	1,287
	Securitization - Credit cards		−	(29)
	Interest and dividends receivable and interest payable		128	407
	Current tax assets and liabilities		175	(313)
	Other items		(1,213)	(938)
			4,652	5,166
Cash flows from financing activities
Issuances of common shares (including the impact of shares purchased for trading)			153	88
Issuance of subordinated debt			500	−
Repurchase of subordinated debt			−	(750)
Repayments of lease liabilities			(110)	(102)
Dividends paid on shares and distributions on other equity instruments			(1,640)	(1,503)
			(1,097)	(2,267)
Cash flows from investing activities
Net change in investments in associates and joint ventures			10	−
Purchases of non-trading securities			(17,333)	(8,846)
Maturities of non-trading securities			4,470	4,249
Sales of non-trading securities			6,220	5,168
Net change in premises and equipment, excluding right-of-use assets			(443)	(352)
Net change in intangible assets			(260)	(299)
			(7,336)	(80)
			(443)	−
Impact of currency rate movements on cash and cash equivalents			96	545
Increase (decrease) in cash and cash equivalents			(3,685)	3,364
Cash and cash equivalents at beginning			35,234	31,870
Cash and cash equivalents at end⁽²⁾			31,549	35,234
Supplementary information about cash flows from operating activities
Interest paid			16,767	12,236
Interest and dividends received			19,834	16,228
Income taxes paid			1,085	741
The accompanying notes are an integral part of these audited Consolidated Financial Statements.

(2) This item represents the balance of Cash and deposits with financial institutions in the Consolidated Balance Sheet. It includes an amount of $11.7 billion as at October 31, 2024 ($9.3 billion as at October 31, 2023) for which there are restrictions and of which $6.5 billion ($6.5 billion as at October 31, 2023) represents the balances that the Bank must maintain with central banks, other regulatory agencies, and certain counterparties.

Notes to the Audited Consolidated Financial Statements

Note 1	Basis of Presentation and Summary of Material Accounting Policies	146	Note 18	Derivative Financial Instruments	198
Note 2	Accounting Policy Changes	162	Note 19	Hedging Activities	201
Note 3	Future Accounting Policy Changes	163	Note 20	Share Capital and Other Equity Instruments	207
Note 4	Fair Value of Financial Instruments	164	Note 21	Non-Controlling Interests	210
Note 5	Financial Instruments Designated at Fair Value Through Profit or Loss	175	Note 22	Capital Disclosure	211
Note 6	Offsetting Financial Assets and Financial Liabilities	176	Note 23	Trading Activity Revenues	212
Note 7	Securities	177	Note 24	Share-Based Payments	213
Note 8	Loans and Allowances for Credit Losses	179	Note 25	Employee Benefits - Pension Plans and Other
Note 9	Financial Assets Transferred But Not Derecognized	191		Post-Employment Benefit Plans	216
Note 10	Investments in Associates and Joint Ventures	192	Note 26	Income Taxes	220
Note 11	Premises and Equipment	193	Note 27	Earnings Per Share	223
Note 12	Goodwill and Intangible Assets	194	Note 28	Guarantees, Commitments and Contingent Liabilities	224
Note 13	Other Assets	195	Note 29	Structured Entities	226
Note 14	Deposits	196	Note 30	Related Party Disclosures	229
Note 15	Other Liabilities	196	Note 31	Financial Instruments Risk Management	230
Note 16	Subscription Receipts	197	Note 32	Segment Disclosures	235
Note 17	Subordinated Debt	197	Note 33	Acquisition	237

Note 1 - Basis of Presentation and Summary of Material Accounting Policies

National Bank of Canada (the Bank) is a financial institution incorporated and domiciled in Canada and whose shares are listed on the Toronto Stock Exchange. Its head office is located at 800 Saint-Jacques Street in Montreal, Quebec, Canada. The Bank is a chartered bank under Schedule 1 of the Bank Act (Canada) and is regulated by the Office of the Superintendent of Financial Institutions (Canada) (OSFI). The Bank offers financial services to individuals, businesses, institutional clients, and governments throughout Canada as well as specialized services at the international level. It operates four business segments: the Personal and Commercial segment, the Wealth Management segment, the Financial Markets segment, and the U.S. Specialty Finance and International (USSF&I) segment. Its full line of services includes banking and investing solutions for individuals and businesses, corporate banking and investment banking services, securities brokerage, insurance, and wealth management.

On December 3, 2024, the Board of Directors (the Board) authorized the publication of the Bank's audited annual Consolidated Financial Statements (the Consolidated Financial Statements) for the year ended October 31, 2024.

Basis of Presentation

The Bank's Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards (IFRS Accounting Standards), as issued by the International Accounting Standards Board (IASB). The financial statements also comply with section 308(4) of the Bank Act (Canada), which states that, except as otherwise specified by OSFI, the Consolidated Financial Statements are to be prepared in accordance with IFRS Accounting Standards. IFRS Accounting Standards represent Canadian generally accepted accounting principles (GAAP). None of the OSFI accounting requirements are exceptions to IFRS Accounting Standards. The accounting policies described in the Summary of Material Accounting Policies section have been applied consistently to all periods presented.

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

Interest Rate Benchmark Reform

The reform of interbank offered rates (IBORs) and other interest rate benchmarks is a global initiative being coordinated and led by central banks and governments around the world, including those in Canada. This reform has been unfolding for several years, with the IASB monitoring developments. To minimize the financial statement impacts arising from replacing current interest rate benchmarks with alternative benchmarks, the IASB amended certain IFRS Accounting Standards and allowed for some temporary exemptions, notably in the area of hedge accounting.

On December 31, 2021, all LIBOR (London Interbank Offered Rates) rates in European, British, Swiss, and Japanese currencies as well as the one-week and two-month USD LIBOR rates were discontinued, whereas the other USD LIBOR rates were discontinued as of June 30, 2023.

In Canada, CDOR (Canadian Dollar Offered Rate) ceased to be published on June 28, 2024 and was replaced by risk-free rates CORRA (Canadian Overnight Repo Rate Average) and term CORRA. As a result, the Bank ceased to grant loans based on bankers' acceptances and, consistent with its plan, it no longer has financial instruments referencing CDOR in its Consolidated Financial Statements as at October 31, 2024.

Summary of Material Accounting Policies

Judgments, Estimates and Assumptions

In preparing Consolidated Financial Statements in accordance with IFRS Accounting Standards, management must exercise judgment and make estimates and assumptions that affect the reporting date carrying amounts of assets and liabilities, net income, and related information. Furthermore, certain accounting policies require complex judgments and estimates because they apply to matters that are inherently uncertain, in particular accounting policies applicable to the following: the fair value determination of financial instruments, the impairment of financial assets, the impairment of non-financial assets, pension plans and other post-employment benefits, income taxes, provisions, the consolidation of structured entities, and the classification of debt instruments. Descriptions of these judgments and estimates are provided in each of the notes related thereto in the Consolidated Financial Statements. Actual results could therefore differ from these estimates, in which case the impacts are recognized in the Consolidated Financial Statements of future fiscal periods. The accounting policies described in this note provide greater detail about the use of estimates and assumptions and reliance on judgment.

The geopolitical landscape (notably, the Russia-Ukraine war and the clashes between Israel and Hamas), inflation, climate change, and high interest rates continue to create uncertainty. As a result, establishing reliable estimates and applying judgment continue to be substantially complex. The uncertainty surrounding certain key inputs used in measuring expected credit losses is described in Note 8 to these Consolidated Financial Statements.

Basis of Consolidation

Subsidiaries

These Consolidated Financial Statements include all the assets, liabilities, operating results and cash flows of the Bank and its subsidiaries, after elimination of intercompany transactions and balances. Subsidiaries are entities, including structured entities, controlled by the Bank. A structured entity is an entity created to accomplish a narrow and well-defined objective and is designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when voting rights relate solely to administrative tasks and the relevant activities are directed by means of contractual arrangements.

Management must exercise judgment in determining whether the Bank must consolidate an entity. The Bank controls an entity only if the following three conditions are met:

· it has decision-making authority regarding the entity's relevant activities;

· it has exposure or rights to variable returns from its involvement with the entity;

· it has the ability to use its power to affect the amount of the returns.

When determining decision-making authority, the Bank considers many factors, including the existence and effect of actual and potential voting rights held by the Bank that can be exercised as well as the holding of instruments that are convertible into voting shares. In addition, the Bank must determine whether, as an investor with decision-making rights, it acts as a principal or agent.

Based on these principles, an assessment of control is performed at the inception of a relationship between any entity and the Bank. When performing this assessment, the Bank considers all facts and circumstances, and it must reassess whether it still controls an investee if facts and circumstances indicate that one or more of the three conditions of control have changed.

The Bank consolidates the entities it controls from the date on which control is obtained and ceases to consolidate them from the date control ceases. The Bank uses the acquisition method to account for the acquisition of a subsidiary from a third party on the date control is obtained.

Non-Controlling Interests

Non-controlling interests in subsidiaries represent the equity interests held by third parties in the Bank's subsidiaries and are presented in total Equity, separately from Equity attributable to the Bank's shareholders and holders of other equity instruments. The non-controlling interests' proportionate shares of the net income and other comprehensive income of the Bank's subsidiaries are presented separately in the Consolidated Statement of Income and in the Consolidated Statement of Comprehensive Income, respectively.

With respect to units issued to third parties by mutual funds and certain other funds that are consolidated, they are presented at fair value in Other liabilities in the Consolidated Balance Sheet. Lastly, changes in ownership interests in subsidiaries that do not result in a loss of control are recognized as equity transactions. The difference between the adjustment in the carrying value of the non-controlling interest and the fair value of the consideration paid or received is recognized directly in Equity attributable to the Bank's shareholders and holders of other equity instruments.

Note 1 - Basis of Presentation and Summary of Material Accounting Policies (cont.)

Investments in Associates and Joint Ventures

The Bank exercises significant influence over an entity when it has the power to participate in the financial and operating policy decisions of the investee. The Bank has joint control when there is a contractually agreed sharing of control of an entity, and joint control exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Investments in associates, i.e., entities over which the Bank exercises significant influence, and investments in joint ventures, i.e., entities over which the Bank has rights to the net assets and exercises joint control, are accounted for using the equity method. Under the equity method, the investment is initially recorded at cost and, thereafter, the carrying amount is increased or decreased by the Bank's proportionate share of net income, recognized in Non-interest income in the Consolidated Statement of Income, and by the proportionate share in other comprehensive income, recognized in Other comprehensive income in the Consolidated Statement of Comprehensive Income. Distributions received reduce the carrying amount of the interest.

Translation of Foreign Currencies

The Consolidated Financial Statements are presented in Canadian dollars, which is the Bank's functional and presentation currency. Each foreign operation within the Bank's scope of consolidation determines its own functional currency, and the items reported in the financial statements of each foreign operation are measured using that currency.

Monetary items and non-monetary items measured at fair value and denominated in foreign currencies are translated into the functional currency at exchange rates prevailing at the Consolidated Balance Sheet date. Non-monetary items not measured at fair value are translated into the functional currency at historical rates. Revenues and expenses denominated in foreign currencies are translated at the average exchange rates for the period. Translation gains and losses are recognized in Non-interest income in the Consolidated Statement of Income, except for equity instruments designated at fair value through other comprehensive income, for which unrealized gains and losses are recorded in Other comprehensive income and will not be subsequently reclassified to net income.

In the Consolidated Financial Statements, the assets and liabilities of all foreign operations are translated into the Bank's functional currency at the exchange rates prevailing at the Consolidated Balance Sheet date, whereas the revenues and expenses of such foreign operations are translated into the Bank's functional currency at the average exchange rates for the period. Any goodwill resulting from the acquisition of a foreign operation that does not have the same functional currency as the parent company, and any fair value adjustments to the carrying amounts of assets and liabilities resulting from the acquisition, are treated as assets and liabilities of the foreign operation and translated at the exchange rates prevailing at the Consolidated Balance Sheet date. Unrealized translation gains and losses related to foreign operations, including the impact of hedges and income taxes on the related results, are presented in Other comprehensive income. Upon disposal of a foreign operation, any accumulated translation gains and losses, along with the related hedges, recorded under the Accumulated other comprehensive income item of this foreign operation, are reclassified to Non-interest income in the Consolidated Statement of Income.

Classification and Measurement of Financial Instruments

At initial recognition, all financial instruments are recorded at fair value in the Consolidated Balance Sheet. At initial recognition, financial assets must be classified as subsequently measured at fair value through other comprehensive income, at amortized cost, or at fair value through profit or loss. The Bank determines the classification based on the contractual cash flow characteristics of the financial assets and on the business model it uses to manage these financial assets. At initial recognition, financial liabilities are classified as subsequently measured at amortized cost or as at fair value through profit or loss.

For the purpose of classifying a financial asset, the Bank must determine whether the contractual cash flows associated with the financial asset are solely payments of principal and interest on the principal amount outstanding. The principal is generally the fair value of the financial asset at initial recognition. The interest consists of consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period, and for other basic lending risks and costs as well as of a profit margin. If the Bank determines that the contractual cash flows associated with a financial asset are not solely payments of principal and interest, the financial assets must be classified as measured at fair value through profit or loss.

When classifying financial assets, the Bank determines the business model used for each portfolio of financial assets that are managed together to achieve a same business objective. The business model reflects how the Bank manages its financial assets and the extent to which the financial asset cash flows are generated by the collection of the contractual cash flows, the sale of the financial assets, or both. The Bank determines the business model using scenarios that it reasonably expects to occur. Consequently, the business model determination is a matter of fact and requires the use of judgment and consideration of all the relevant evidence available to the Bank at the date of determination.

A financial asset portfolio falls within a "hold to collect" business model when the Bank's primary objective is to hold these financial assets in order to collect contractual cash flows from them and not to sell them. When the Bank's objective is achieved both by collecting contractual cash flows and by selling the financial assets, the financial asset portfolio falls within a "hold to collect and sell" business model. In this type of business model, collecting contractual cash flows and selling financial assets are both integral components to achieving the Bank's objective for this financial asset portfolio. Financial assets are mandatorily measured at fair value through profit or loss if they do not fall within either a "hold to collect" business model or a "hold to collect and sell" business model.

Financial Instruments Designated at Fair Value Through Profit or Loss

A financial asset may be irrevocably designated at fair value through profit or loss at initial recognition if certain conditions are met. The Bank may apply this option if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring financial assets or liabilities or recognizing gains and losses on them on different bases, and if the fair values are reliable. Financial assets thus designated are recognized at fair value, and any change in fair value is recorded in Non-interest income in the Consolidated Statement of Income. Interest income arising from these financial instruments designated at fair value through profit or loss is recorded in Net interest income in the Consolidated Statement of Income.

A financial liability may be irrevocably designated at fair value through profit or loss when it is initially recognized. Financial liabilities thus designated are recognized at fair value, and any changes in fair value attributable to changes in the Bank's own credit risk are recognized in Other comprehensive income unless these changes create or enlarge an accounting mismatch in Net income. Fair value changes not attributable to the Bank's own credit risk are recognized in Non‑interest income in the Consolidated Statement of Income. The amounts recognized in Other comprehensive income will not be subsequently reclassified to Net income. Interest expense arising from these financial liabilities designated at fair value through profit or loss is recorded in the Net interest income item of the Consolidated Statement of Income. The Bank may use this option in the following cases:

· if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring financial assets or liabilities or recognizing gains and losses on them on different bases, and if the fair values are reliable;

· if a group of financial assets and financial liabilities to which an instrument belongs is managed and its performance is evaluated on a fair value basis, in accordance with the Bank's documented risk management or investment strategy, and information is provided on that basis to senior management. Consequently, the Bank may use this option if it has implemented a documented risk management strategy to manage a group of financial instruments together on the fair value basis, if it can demonstrate that significant financial risks are eliminated or significantly reduced, and if the fair values are reliable;

· for hybrid financial instruments with one or more embedded derivatives that would significantly modify the cash flows of the financial instruments and that would otherwise be bifurcated and accounted for separately.

Financial Instruments Designated at Fair Value Through Other Comprehensive Income

At initial recognition, an investment in an equity instrument that is neither held for trading nor a contingent consideration recognized in a business combination may be irrevocably designated as being at fair value through other comprehensive income. In accordance with this designation, any change in fair value is recognized in Other comprehensive income with no subsequent reclassification to net income. Dividend income is recorded in Interest income in the Consolidated Statement of Income.

Securities Measured at Fair Value Through Other Comprehensive Income

Securities measured at fair value through other comprehensive income include: (i) debt securities for which the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding and that fall within a "hold to collect and sell" business model and (ii) equity securities designated at fair value through other comprehensive income with no subsequent reclassification of gains and losses to net income.

The Bank recognizes securities transactions at fair value through other comprehensive income on the trade date, and the transaction costs are capitalized. Interest income and dividend income are recognized in Interest income in the Consolidated Statement of Income.

Debt Securities Measured at Fair Value Through Other Comprehensive Income

Debt securities measured at fair value through other comprehensive income are recognized at fair value. Unrealized gains and losses are recognized, net of expected credit losses and related income taxes, and provided that they are not hedged by derivative financial instruments in a fair value hedging relationship, in Other comprehensive income. When the securities are sold, realized gains or losses, determined on an average cost basis, are reclassified to Non-interest income - Gains (losses) on non-trading securities, net in the Consolidated Statement of Income. Premiums, discounts and related transaction costs are amortized to interest income over the expected life of the instrument using the effective interest rate method.

Note 1 - Basis of Presentation and Summary of Material Accounting Policies (cont.)

Equity Securities Designated at Fair Value Through Other Comprehensive Income

Equity securities designated at fair value through other comprehensive income are recognized at fair value. Unrealized gains and losses are presented, net of income taxes, in Other comprehensive income with no subsequent reclassification of realized gains and losses to net income. Transaction costs incurred upon the purchase of such equity securities are not reclassified to net income upon the sale of the securities.

Securities Measured at Amortized Cost

Securities measured at amortized cost include debt securities for which the contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding and that fall within a "hold to collect" business model.

The Bank recognizes these securities transactions at fair value on the trade date, and the transaction costs are capitalized. After initial recognition, debt securities in this category are recorded at amortized cost. Interest income is recognized in Interest income in the Consolidated Statement of Income. Premiums, discounts and related transaction costs are amortized to interest income over the expected life of the instrument using the effective interest rate method. Securities measured at amortized cost are presented net of allowances for credit losses in the Consolidated Balance Sheet.

Securities Measured at Fair Value Through Profit or Loss

Securities not classified or designated as measured at fair value through other comprehensive income or at amortized cost are classified as measured at fair value through profit or loss.

Securities measured at fair value through profit or loss include (i) securities held for trading, (ii) securities designated at fair value through profit or loss, (iii) all equity securities other than those designated as measured at fair value through other comprehensive income with no subsequent reclassifications of gains and losses to net income, and (iv) debt securities for which the contractual cash flows are not solely payments of principal and any interest on any principal amount outstanding.

The Bank recognizes securities transactions at fair value through profit or loss on the settlement date in the Consolidated Balance Sheet. Changes in fair value between the trade date and the settlement date are recognized in Non-interest income in the Consolidated Statement of Income.

Securities at fair value through profit or loss are recognized at fair value. Interest income, any transaction costs, as well as realized and unrealized gains or losses on securities held for trading are recognized in Non-interest income - Trading revenues (losses) in the Consolidated Statement of Income. Dividend income is recorded in Interest income in the Consolidated Statement of Income. Interest income on securities designated at fair value through profit or loss is recorded in Interest income in the Consolidated Statement of Income. Realized and unrealized gains or losses on these securities are recognized in Non‑interest income - Trading revenues (losses) in the Consolidated Statement of Income.

Realized and unrealized gains or losses on equity securities at fair value through profit or loss, other than those held for trading, as well as debt securities for which the contractual cash flows are not solely payments of principal and interest on the principal amount outstanding, are recognized under Non-interest income - Gains (losses) on non-trading securities, net in the Consolidated Statement of Income. The dividend income and interest income on these financial assets are recognized under Interest income in the Consolidated Statement of Income.

Securities Purchased Under Reverse Repurchase Agreements, Obligations Related to Securities Sold

Under Repurchase Agreements, and Securities Borrowed and Loaned

The Bank recognizes these transactions at amortized cost using the effective interest rate method, except when they are designated at fair value through profit or loss and are recorded at fair value. These transactions are held within a business model whose objective is to collect contractual cash flows, i.e., cash flows that are solely payments of principal and interest on the principal amount outstanding. Securities sold under repurchase agreements remain on the Consolidated Balance Sheet, whereas securities purchased under reverse repurchase agreements are not recognized. Reverse repurchase agreements and repurchase agreements are treated as collateralized lending and borrowing transactions.

The Bank also borrows and lends securities. Securities loaned remain on the Consolidated Balance Sheet, while securities borrowed are not recognized. As part of these transactions, the Bank pledges or receives collateral in the form of cash or securities. Collateral pledged in the form of securities remains on the Consolidated Balance Sheet. Collateral received in the form of securities is not recognized in the Consolidated Balance Sheet. Collateral pledged or received in the form of cash is recognized in financial assets or liabilities in the Consolidated Balance Sheet.

When the collateral is pledged or received in the form of cash, the interest income and expense are recorded in Net interest income in the Consolidated Statement of Income.

Loans

Loans Measured at Amortized Cost

Loans classified as measured at amortized cost include loans originated or purchased by the Bank that are not classified as measured at fair value through profit or loss or designated at fair value through profit or loss. These loans are held within a business model whose objective is to collect contractual cash flows, i.e., cash flows that are solely payments of principal and interest on the principal amount outstanding. All loans originated by the Bank are recognized when cash is advanced to a borrower. Purchased loans are recognized when the cash consideration is paid by the Bank.

All loans are initially recognized at fair value plus directly attributable costs and are subsequently measured at amortized cost using the effective interest rate method, net of allowances for expected credit losses. For purchased performing loans, the acquisition date fair value adjustment on each loan is amortized to interest income over the expected remaining life of the loan using the effective interest rate method. For purchased credit-impaired loans, the acquisition date fair value adjustment on each loan consists of management's estimate of the shortfall of principal and interest cash flows that the Bank expects to collect and of the time value of money. The time value of money component of the fair value adjustment is amortized to interest income over the remaining life of the loan using the effective interest rate method. Loans are presented net of allowances for credit losses in the Consolidated Balance Sheet.

Loans Measured at Fair Value Through Profit or Loss

Loans classified as measured at fair value through profit or loss, loans designated at fair value through profit or loss, and loans for which the contractual cash flows are not solely payments of principal and interest on the principal amount outstanding are recognized at fair value in the Consolidated Balance Sheet. The interest income on loans at fair value through profit or loss is recorded in Interest income in the Consolidated Statement of Income.

Changes in the fair value of loans classified as at fair value through profit or loss and loans designated at fair value through profit or loss are recognized in Non-interest income - Trading revenues (losses) in the Consolidated Statement of Income. With respect to loans whose contractual cash flows are not solely payments of principal and interest on the principal amount outstanding, changes in fair value are recognized in Non-interest income - Other in the Consolidated Statement of Income.

Reclassification of Financial Assets

A financial asset, other than a derivative financial instrument or a financial asset that, at initial recognition, was designated as measured at fair value through profit or loss, is reclassified only in rare situations, i.e., when there is a change in the business model used to manage the financial asset. The reclassification is applied prospectively from the reclassification date.

Establishing Fair Value

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

Unadjusted quoted prices in active markets, based on bid prices for financial assets and offered prices for financial liabilities, provide the best evidence of fair value. A financial instrument is considered quoted in an active market when prices in exchange, dealer, broker or principal-to-principal markets are accessible at the measurement date. An active market is one where transactions occur with sufficient frequency and volume to provide quoted prices on an ongoing basis.

When there is no quoted price in an active market, the Bank uses another valuation technique that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. The chosen valuation technique incorporates all the factors that market participants would consider when pricing a transaction. Judgment is required when applying a large number of acceptable valuation techniques and estimates to determine fair value. The estimated fair value reflects market conditions on the valuation date and, consequently, may not be indicative of future fair value.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e., the fair value of the consideration received or paid. If there is a difference between the fair value at initial recognition and the transaction price, and the fair value is determined using a valuation technique based on observable market inputs or, in the case of a derivative, if the risks are fully offset by other contracts entered into with third parties, this difference is recognized in the Consolidated Statement of Income. In other cases, the difference between the fair value at initial recognition and the transaction price is deferred in the Consolidated Balance Sheet. The amount of the deferred gain or loss is recognized over the term of the financial instrument. The unamortized balance is immediately recognized in net income when (i) observable market inputs can be obtained and support the fair value of the transaction, (ii) the risks associated with the initial contract are substantially offset by other contracts entered into with third parties, (iii) the gain or loss is realized through a cash receipt or payment, or (iv) the transaction matures or is terminated before maturity.

Note 1 - Basis of Presentation and Summary of Material Accounting Policies (cont.)

In certain cases, measurement adjustments are recognized to address factors that market participants would use at the measurement date to determine fair value but that are not included in the measurement techniques due to system limitations or uncertainty surrounding the measure. These factors include, but are not limited to, the unobservable nature of the inputs used in the valuation model, assumptions about risk such as market risk, credit risk, or valuation model risk, and future administration costs. The Bank may also consider market liquidity risk when determining the fair value of financial instruments when it believes these instruments could be disposed of for a consideration that is below the fair value otherwise determined due to a lack of market liquidity or an insufficient volume of transactions in a given market. The measurement adjustments also include the funding valuation adjustment applied to derivative financial instruments to reflect the market implied cost or benefits of funding collateral for uncollateralized or partly collateralized transactions.

As permitted when certain criteria are met, the Bank has elected to determine fair value based on net exposure to credit risk or market risk for certain portfolios of financial instruments, mainly derivative financial instruments.

Impairment of Financial Assets

At the end of each reporting period, the Bank applies a three-stage impairment approach to measure the expected credit losses (ECL) on all debt instruments measured at amortized cost or at fair value through other comprehensive income and on loan commitments and financial guarantees that are not measured at fair value. The ECL model is forward looking. Measurement of ECLs at each reporting period reflects reasonable and supportable information about past events, current conditions, and forecasts of future events and future economic conditions.

Determining the Stage

The ECL three-stage impairment approach is based on the change in the credit quality of financial assets since initial recognition. If, at the reporting date, the credit risk of non-impaired financial instruments has not increased significantly since initial recognition, these financial instruments are classified in Stage 1, and an allowance for credit losses that is measured, at each reporting date, in an amount equal to 12-month expected credit losses, is recorded. When there is a significant increase in credit risk since initial recognition, these non-impaired financial instruments are migrated to Stage 2, and an allowance for credit losses that is measured, at each reporting date, in an amount equal to lifetime expected credit losses, is recorded. In subsequent reporting periods, if the credit risk of a financial instrument improves such that there is no longer a significant increase in credit risk since initial recognition, the ECL model requires reverting to Stage 1, i.e., recognition of 12-month expected credit losses. When one or more events that have a detrimental impact on the estimated future cash flows of a financial asset occurs, the financial asset is considered credit-impaired and is migrated to Stage 3, and an allowance for credit losses equal to lifetime expected credit losses continues to be recorded or the financial asset is written off. Interest income is calculated on the gross carrying amount for financial assets in Stages 1 and 2 and on the net carrying amount for financial assets in Stage 3.

Assessment of Significant Increase in Credit Risk

In determining whether credit risk has increased significantly, the Bank uses an internal credit risk grading system, external risk ratings, and forward-looking information to assess deterioration in the credit quality of a financial instrument. To assess whether or not the credit risk of a financial instrument has increased significantly, the Bank compares the probability of default (PD) occurring over its expected life as at the reporting date with the PD occurring over its expected life on the date of initial recognition and considers reasonable and supportable information indicative of a significant increase in credit risk since initial recognition. The Bank includes relative and absolute thresholds in the definition of significant increase in credit risk and a backstop of 30 days past due. All financial instruments that are more than 30 days past due since initial recognition are migrated to Stage 2 even if other metrics do not indicate that a significant increase in credit risk has occurred. The assessment of a significant increase in credit risk requires significant judgment.

Measurement of Expected Credit Losses

ECLs are measured as the probability-weighted present value of all expected cash shortfalls over the remaining expected life of the financial instrument, and reasonable and supportable information about past events, current conditions, and forecasts of future events and economic conditions is considered. The estimation and application of forward-looking information requires significant judgment. Cash shortfalls represent the difference between all contractual cash flows owed to the Bank and all cash flows that the Bank expects to receive.

The measurement of ECLs is primarily based on the product of the financial instrument's PD, loss given default (LGD), and exposure at default (EAD). Forward-looking macroeconomic factors such as unemployment rates, housing price indices, interest rates, and gross domestic product (GDP) are incorporated into the risk parameters. The estimate of expected credit losses reflects an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes. The Bank incorporates three forward-looking macroeconomic scenarios in its ECL calculation process: a base scenario, an upside scenario, and a downside scenario. Probability weights are assigned to each scenario. The scenarios and probability weights are reassessed quarterly and subject to management review. The Bank applies experienced credit judgment to adjust the modelled ECL results when it becomes evident that known or expected risk factors and information were not considered in the credit risk rating and modelling process.

ECLs for all financial instruments are recognized in Provisions for credit losses in the Consolidated Statement of Income. In the case of debt instruments measured at fair value through other comprehensive income, ECLs are recognized in Provisions for credit losses in the Consolidated Statement of Income, and a corresponding amount is recognized in Other comprehensive income with no reduction in the carrying amount of the asset in the Consolidated Balance Sheet. As for debt instruments measured at amortized cost, they are presented net of the related allowances for credit losses in the Consolidated Balance Sheet. Allowances for credit losses for off-balance-sheet credit exposures that are not measured at fair value are included in Other liabilities in the Consolidated Balance Sheet.

Purchased or Originated Credit-Impaired Financial Assets

On initial recognition of a financial asset, the Bank determines whether the asset is credit-impaired. For financial assets that are credit-impaired upon purchase or origination, the lifetime expected credit losses are reflected in the initial fair value. In subsequent reporting periods, the Bank recognizes only the cumulative changes in these lifetime ECLs since initial recognition as an allowance for credit losses. The Bank recognizes changes in ECLs under Provisions for credit losses in the Consolidated Statement of Income, even if the lifetime ECLs are less than the ECLs that were included in the estimated cash flows on initial recognition.

Definition of Default

The definition of default used by the Bank to measure ECLs and transfer financial instruments between stages is consistent with the definition of default used for internal credit risk management purposes. The Bank considers a financial asset, other than a credit card receivable, to be credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred or when contractual payments are 90 days past due. Credit card receivables are considered credit-impaired and are fully written off at the earlier of the following dates: when a notice of bankruptcy is received, a settlement proposal is made, or contractual payments are 180 days past due.

Write-Offs

A financial asset and its related allowance for credit losses are normally written off in whole or in part when the Bank considers the probability of recovery to be non-existent and when all guarantees and other remedies available to the Bank have been exhausted or if the borrower is bankrupt or winding up and balances owing are not likely to be recovered.

Derecognition of Financial Assets and Securitization

A financial asset is considered for derecognition when the Bank has transferred contractual rights to receive the cash flows or assumed an obligation to transfer these cash flows to a third party. The Bank derecognizes a financial asset when it considers that substantially all the risks and rewards of ownership of the asset have been transferred or when the contractual rights to the cash flows of the financial asset expire. When the Bank considers that it has retained substantially all the risks and rewards of ownership of the transferred asset, it continues to recognize the financial asset and, if applicable, recognizes a financial liability in the Consolidated Balance Sheet. If, due to a derivative financial instrument, the transfer of a financial asset does not result in derecognition, the derivative financial instrument is not recognized in the Consolidated Balance Sheet.

When the Bank has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset, it derecognizes the financial asset it no longer controls. Any rights and obligations retained following the asset transfer are recognized separately as an asset or liability. If the Bank retains control of the financial asset, it continues to recognize the asset to the extent of its continuing involvement in that asset, i.e., the extent to which it is exposed to changes in the value of the transferred asset.

To diversify its funding sources, the Bank participates in two Canada Mortgage and Housing Corporation (CMHC) securitization programs: the Mortgage-Backed Securities Program under the National Housing Act (Canada) (NHA) and Canada Mortgage Bond (CMB) program. Under the first program, the Bank issues NHA securities backed by insured residential mortgages and, under the second, the Bank sells NHA securities to Canada Housing Trust (CHT). As part of these transactions, the Bank retains substantially all the risks and rewards related to ownership of the mortgage loans sold. Therefore, the insured mortgage loans securitized under the CMB program continue to be recognized in Loans in the Bank's Consolidated Balance Sheet, and the liabilities for the considerations received from the transfer are recognized in Liabilities related to transferred receivables in the Consolidated Balance Sheet. Moreover, insured mortgage loans securitized and retained by the Bank continue to be recognized in Loans in the Consolidated Balance Sheet.

Derecognition of Financial Liabilities

A financial liability is derecognized when the obligation is discharged, cancelled, or expires. The difference between the carrying value of the financial liability transferred and the consideration paid is recognized in the Consolidated Statement of Income.

Cash and Deposits With Financial Institutions

Cash and deposits with financial institutions consist of cash and cash equivalents, amounts pledged as collateral as well as amounts placed in escrow. Cash and cash equivalents consist of cash, bank notes, deposits with the Bank of Canada and other financial institutions, including net receivables related to cheques, and other items in the clearing process.

Note 1 - Basis of Presentation and Summary of Material Accounting Policies (cont.)

Acceptances and Customers' Liability Under Acceptances

The potential liability of the Bank under acceptances is recorded as a customer commitment liability in the Consolidated Balance Sheet. The Bank's potential recourse vis-à-vis clients is recorded as an equivalent offsetting asset. Fees are recorded in Non-interest income in the Consolidated Statement of Income.

Obligations Related to Securities Sold Short

This financial liability represents the Bank's obligation to deliver the securities it sold but did not own at the time of sale. Obligations related to securities sold short are recorded at fair value and presented as liabilities in the Consolidated Balance Sheet. Realized and unrealized gains and losses are recognized in Non‑interest income in the Consolidated Statement of Income.

Derivative Financial Instruments

In the normal course of business, the Bank uses derivative financial instruments to meet the needs of its clients, to generate trading activity revenues, and to manage its exposure to interest rate risk, foreign exchange risk, credit risk, and other market risks.

All derivative financial instruments are measured at fair value in the Consolidated Balance Sheet. Derivative financial instruments with a positive fair value are included in assets, whereas derivative financial instruments with a negative fair value are included in liabilities in the Consolidated Balance Sheet. Where there are offsetting financial assets and financial liabilities, the net fair value of certain derivative financial instruments is reported either as an asset or as a liability, depending on the circumstance.

Embedded Derivative Financial Instruments

An embedded derivative is a component of a hybrid contract that also includes a non-derivative host, the effect being that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided, in the case of a non-financial variable, that the variable is not specific to one of the parties to the contract.

A derivative embedded in a financial liability is separated from the host contract and treated as a separate derivative if, and only if, the following three conditions are met: the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract, the embedded derivative is a separate instrument that meets the definition of a derivative financial instrument, and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives that are separately accounted for are measured at fair value in the Consolidated Balance Sheet, and subsequent changes in fair value are recognized in Non-interest income in the Consolidated Statement of Income.

All embedded derivatives are presented on a combined basis with the host contract.

Held-for-Trading Derivative Financial Instruments

Derivative financial instruments are recognized at fair value, and the realized and unrealized gains and losses (including interest income and expense) are recorded in Non-interest income in the Consolidated Statement of Income.

Derivative Financial Instruments Designated as Hedging Instruments

Policy

The purpose of a hedging transaction is to modify the Bank's exposure to one or more risks by creating an offset between changes in the fair value of, or the cash flows attributable to, the hedged item and the hedging instrument. Hedge accounting ensures that offsetting gains, losses, revenues and expenses are recognized in the Consolidated Statement of Income in the same period or periods.

Documenting and Assessing Effectiveness

The Bank designates and formally documents each hedging relationship, at its inception, by detailing the risk management objective and the hedging strategy. The documentation identifies the specific asset, liability, or cash flows being hedged, the related hedging instrument, the nature of the specific risk exposure or exposures being hedged, the intended term of the hedging relationship, and the method for assessing the effectiveness or ineffectiveness of the hedging relationship. At the inception of the hedging relationship, and for every financial reporting period for which the hedge has been designated, the Bank ensures that the hedging relationship is highly effective and consistent with its originally documented risk management objective and strategy. When a hedging relationship meets the hedge accounting requirements, it is designated as either a fair value hedge, a cash flow hedge or a foreign exchange hedge of a net investment in a foreign operation.

Interest Rate Benchmark Reform

A hedging relationship is directly affected by interest rate benchmark reform such as interbank offered rates (IBORs) only if the reform gives rise to uncertainties about (a) the interest rate benchmark (contractually or non-contractually specified) designated as a hedged risk; and/or (b) the timing or the amount of the interest-rate-benchmark-based cash flows of the hedged item or of the hedging instrument.

For such hedging relationships, the following temporary exceptions apply during the period of uncertainty:

• when determining whether a forecast transaction is highly probable or expected to occur, it is assumed that the interest rate benchmark on which the hedged cash flows (contractually or non-contractually specified) are based is not altered as a result of interest rate benchmark reform;

• when assessing whether a hedge is expected to be highly effective, it is assumed that the interest rate benchmark on which the hedged cash flows and/or the hedged risk (contractually or non-contractually specified) are based, or the interest rate benchmark on which the cash flows of the hedging instrument are based, is not altered as a result of interest rate benchmark reform;

• a hedge is not required to be discontinued if the actual results of the hedge are outside an effectiveness range of 80% to 125% as a result of interest rate benchmark reform;

• for a hedge of a non-contractually specified benchmark portion of interest rate risk, the requirement that the designated portion be separately identifiable need only be met at the inception of the hedging relationship.

Fair Value Hedges

For fair value hedges, the Bank mainly uses interest rate swaps to hedge changes in the fair value of a hedged item. The carrying amount of the hedged item is adjusted based on the effective portion of the gains or losses attributable to the hedged risk, which are recognized in the Consolidated Statement of Income, as well as the change in the fair value of the hedging instrument. The resulting ineffective portion is recognized in Non-interest income in the Consolidated Statement of Income.

The Bank prospectively discontinues hedge accounting if the hedging instrument is sold or expires or if the hedging relationship no longer qualifies for hedge accounting or if the Bank revokes the designation. When the designation is revoked, the hedged item is no longer adjusted to reflect changes in fair value, and the amounts previously recorded as cumulative adjustments with respect to the effective portion of gains and losses attributable to the hedged risk are amortized using the effective interest rate method and recognized in the Consolidated Statement of Income over the remaining useful life of the hedged item. If the hedged item is sold or terminated before maturity, the cumulative adjustments with respect to the effective portion of gains and losses attributable to the hedged risk are immediately recorded in the Consolidated Statement of Income.

Cash Flow Hedges

For cash flow hedges, the Bank mainly uses interest rate swaps and total return swaps to hedge variable cash flows attributable to the hedged risk related to a financial asset or liability (or to a group of financial assets or financial liabilities). The effective portion of changes in fair value of the hedging instrument is recognized in Other comprehensive income, whereas the ineffective portion is recognized in Non-interest income in the Consolidated Statement of Income.

The amounts previously recorded in Accumulated other comprehensive income are reclassified to the Consolidated Statement of Income of the period or periods during which the cash flows of the hedged item affect the Consolidated Statement of Income. If the hedging instrument is sold or expires or if the hedging relationship no longer qualifies for hedge accounting or if the Bank cancels that designation, then the amounts previously recognized in Accumulated other comprehensive income are reclassified to the Consolidated Statement of Income in the period or periods during which the cash flows of the hedged item affect the Consolidated Statement of Income.

Hedges of Net Investments in Foreign Operations

Derivative and non-derivative financial instruments are used to hedge foreign exchange risk related to investments made in foreign operations whose functional currency is not the Canadian dollar. The effective portion of the gains and losses on the hedging instrument is recognized in Other comprehensive income, whereas the ineffective portion is recognized in Non-interest income in the Consolidated Statement of Income. Upon the total or partial sale of a net investment in a foreign operation, amounts reported under Accumulated other comprehensive income are reclassified, in whole or in part, to Non-interest income in the Consolidated Statement of Income.

Offsetting of Financial Assets and Liabilities

Financial assets and liabilities are offset, and the net amount is presented in the Consolidated Balance Sheet when the Bank has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis or to realize the asset and settle the liability simultaneously.

Note 1 - Basis of Presentation and Summary of Material Accounting Policies (cont.)

Premises and Equipment

Premises and equipment, except for land and the portion under construction of the head office building, are recognized at cost less accumulated depreciation and accumulated impairment losses, if any. Land and the portion under construction of the head office building are recorded at cost less any accumulated impairment losses. Right-of-use assets are presented in Premises and equipment in the Consolidated Balance Sheet. For additional information about the accounting treatment of right-of-use assets, see the Leases section presented below.

Buildings, computer equipment, and equipment and furniture are systematically depreciated over their estimated useful lives. The depreciation period for leasehold improvements is the lesser of the estimated useful life of the leasehold improvements or the non-cancellable period of the lease. Depreciation methods and estimated useful lives are reviewed annually. The depreciation expense is recorded in Non-interest expenses in the Consolidated Statement of Income.

		Method	Useful life
Significant components of the head office building
	Interior design	Straight-line	10-20 years
	Exterior design, roofing and electromechanical system	Straight-line	30 years
	Structure	Straight-line	75 years
Other buildings		5% declining balance
Computer equipment		Straight-line	3-7 years
Equipment and furniture		Straight-line	8 years
Leasehold improvements		Straight-line	(1)

(1) The depreciation period is the lesser of the estimated useful life or the lease term.

Leases

At the inception date of a contract, the Bank assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. When the Bank is a lessee, it recognizes a right-of-use asset and a corresponding lease liability at the lease commencement date except for short-term leases (defined as leases with terms of 12 months or less) other than real estate leases and leases for which the underlying asset is of low value. For such leases, the Bank recognizes the lease payments under Non-interest expenses in the Consolidated Statement of Income on a straight-line basis over the lease term. As a practical expedient, the Bank elected, for real estate leases, not to separate non-lease components from lease components and instead account for them as a single lease component. When the Bank is the lessor, the leased assets remain in the Consolidated Balance Sheet and are reported under Premises and equipment, and the rental income is recognized net of related expenses under Non-interest income in the Consolidated Statement of Income.

Right-of-use assets are initially measured at cost and subsequently measured at cost less accumulated depreciation and accumulated impairment losses, if any, and adjusted for certain remeasurements of lease liabilities. The cost of a right-of-use asset comprises the amount of the initial measurement of the lease liability, any lease payments made at or before the commencement date, any initial direct costs incurred when entering into the lease, and an estimate of costs to dismantle the asset or restore the site, less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the lesser of the lease term and the estimated useful life of the asset. Right-of-use assets are presented in Premises and equipment in the Consolidated Balance Sheet. The depreciation expense and impairment losses, if any, are recorded in Non-interest expenses in the Consolidated Statement of Income.

The lease liability is initially measured at the present value of future lease payments net of lease incentives not yet received. The present value of lease payments is determined using the Bank's incremental borrowing rate. The lease liability is subsequently measured at amortized cost using the effective interest method. In determining the lease term, the Bank considers all the facts and circumstances that create an economic incentive to exercise an extension option or not to exercise a termination option. The lease term determined by the Bank comprises the non-cancellable period of lease contracts, the periods covered by an option to extend the lease if the Bank is reasonably certain to exercise that option, and the periods covered by an option to terminate the lease if the Bank is reasonably certain not to exercise that option. The Bank reassesses the lease term if a significant event or change in circumstances occurs and that is within its control. The Bank applies judgment to determine the lease term when the lease contains extension and termination options. Lease liabilities are presented under Other liabilities in the Consolidated Balance Sheet, and the interest expense is presented in Interest expense - Other in the Consolidated Statement of Income.

Goodwill

The Bank uses the acquisition method to account for business combinations. The consideration transferred in a business combination is measured at the acquisition-date fair value, and the transaction costs related to the acquisition are expensed as incurred. When the Bank acquires control of a business, all of the identifiable assets and liabilities of the acquiree, including intangible assets, are recorded at fair value. The interests previously held in the acquiree are also measured at fair value. Goodwill represents the excess of the purchase consideration and all previously held interests over the fair value of the identifiable net assets of the acquiree. If the fair value of the identifiable net assets exceeds the purchase consideration and all previously held interests, the difference is immediately recognized in income as a gain on a bargain purchase.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Bank's ownership interest and can be initially measured at either fair value or at the non-controlling interest's proportionate share of the acquiree's identifiable net assets. The measurement basis is selected on a case-by-case basis. Following an acquisition, non-controlling interests consist of the value assigned to those interests at initial recognition plus the non-controlling interests' share of changes in equity since the date of the acquisition.

Intangible Assets

Intangible Assets With Finite Useful Lives

Software that is not part of a cloud computing arrangement and certain other intangible assets are recognized at cost less accumulated amortization and accumulated impairment losses. These intangible assets are systematically amortized on a straight-line basis over their useful lives, which vary between four and ten years. The amortization expense is recorded in Non-interest expenses in the Consolidated Statement of Income.

Intangible Assets With Indefinite Useful Lives

The Bank's intangible assets with indefinite useful lives come from the acquisition of subsidiaries or groups of assets and consist of management contracts and a trademark. They are recognized at the acquisition-date fair value. The management contracts are for the management of open-ended funds. At the end of each reporting period, the Bank reviews the useful lives to determine whether facts and circumstances continue to support an indefinite useful life assessment. Intangible assets are deemed to have an indefinite useful life following an examination of all relevant factors, in particular: (a) the contracts do not have contractual maturities; (b) the stability of the business segment to which the intangible assets belong; (c) the Bank's capacity to control the future economic benefits of the intangible assets; and (d) the continued economic benefits generated by the intangible assets.

Impairment of Non-Financial Assets

Premises and equipment and intangible assets with finite useful lives are tested for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. At the end of each reporting period, the Bank determines whether there is an indication that premises and equipment or intangible assets with finite useful lives may be impaired. Goodwill and intangible assets that are not available for use or that have indefinite useful lives are tested for impairment annually or more frequently if there is an indication that the asset might be impaired.

An asset is tested for impairment by comparing its carrying amount with its recoverable amount. The recoverable amount must be estimated for the individual asset. Where it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the cash-generating unit (CGU) to which the asset belongs will be determined. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The Bank uses judgment to identify CGUs.

An asset's recoverable amount is the higher of fair value less costs to sell and the value in use of the asset or CGU. Value in use is the present value of expected future cash flows from the asset or CGU. The recoverable amount of the asset or CGU is determined using valuation models that consider various factors such as projected future cash flows, discount rates, and growth rates. The use of different estimates and assumptions in applying the impairment tests could have a significant impact on income.

Corporate assets, such as the head office building and computer equipment, do not generate cash inflows that are largely independent of the cash inflows generated by other assets or groups of assets. Therefore, the recoverable amount of an individual corporate asset cannot be determined unless management has decided to dispose of the asset. However, if there is an indication that a corporate asset may be impaired, the recoverable amount is determined for the CGU or group of CGUs to which the corporate asset belongs, and that recoverable amount is compared with the carrying amount of this CGU or group of CGUs.

Note 1 - Basis of Presentation and Summary of Material Accounting Policies (cont.)

Goodwill is always tested for impairment at the level of a CGU or group of CGUs. For impairment testing purposes, from the acquisition date, goodwill resulting from a business combination must be allocated to the CGU or group of CGUs expected to benefit from the synergies of the business combination. Each CGU or group of CGUs to which goodwill is allocated must represent the lowest level for which the goodwill is monitored internally at the Bank and must not be larger than an operating segment. The allocation of goodwill to a CGU or group of CGUs involves management's judgment. If an impairment loss is to be recognized, the Bank does so by first reducing the carrying amount of goodwill allocated to the CGU or group of CGUs and then reducing the carrying amounts of the other assets of the CGU or group of CGUs in proportion to the carrying amount of each asset in the CGU or group of CGUs.

If the recoverable amount of an asset or a CGU is less than its carrying amount, the carrying amount is reduced to its recoverable amount and an impairment loss is recognized in Non-interest expenses in the Consolidated Statement of Income. An impairment loss recognized in prior periods for an asset other than goodwill must be reversed if, and only if, there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment was recognized. If this is the case, the carrying amount of the asset is increased, given that the impairment loss was reversed, but shall not exceed the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for this asset in previous years.

Provisions

Provisions are liabilities of uncertain timing and amount. A provision is recognized when the Bank has a present obligation (legal or constructive) arising from a past event, when it is probable that an outflow of economic resources will be required to settle the obligation and when the amount of the obligation can be reliably estimated. Provisions are based on the Bank's best estimates of the economic resources required to settle the present obligation, given all relevant risks and uncertainties, and, when it is significant, the effect of the time value of money. Provisions are reviewed at the end of each reporting period. Provisions are presented in Other liabilities in the Consolidated Balance Sheet.

Interest Income and Expense

Interest income and expense, except for the interest income on securities classified as at fair value through profit or loss, are recognized in Net interest income and calculated using the effective interest rate method.

The effective interest rate is the rate that exactly discounts estimated future cash inflows and outflows through the expected life of a financial asset or financial liability to the gross carrying amount of a financial asset or to the amortized cost of a financial liability. When calculating the effective interest rate, the Bank estimates expected cash flows by considering all the contractual terms of the financial instrument but does not consider expected credit losses. The calculation includes all fees and points paid or received between the parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for purchased or originated credit-impaired financial assets and financial assets that were not impaired upon their purchase or origination but became impaired thereafter. For purchased or originated credit-impaired financial assets, the Bank applies the credit-adjusted effective interest rate to the amortized cost of the financial asset from initial recognition. The credit-adjusted effective interest rate reflects expected credit losses. As for loans that have subsequently become credit-impaired, interest income is calculated by applying the effective interest rate to the net carrying amount (net of allowances for credit losses) rather than to the gross carrying amount.

Loan origination fees, including commitment, restructuring, and renegotiation fees, are considered an integral part of the yield earned on the loan. They are deferred and amortized using the effective interest rate method, and the amortization is recognized in Interest income over the term of the loan. Direct costs for originating a loan are netted against the loan origination fees. If it is likely that a commitment will result in a loan, commitment fees receive the same accounting treatment, i.e., they are deferred and amortized using the effective interest rate method and the amortization is recognized in Interest income over the term of the loan. Otherwise, they are recorded in Non-interest income over the term of the commitment.

Loan syndication fees are recorded in Non-interest income unless the yield on the loan retained by the Bank is less than that of other comparable lenders involved in the financing. In such cases, an appropriate portion of the fees is deferred and amortized using the effective interest rate method, and the amortization is recognized in Interest income over the term of the loan. Certain mortgage loan prepayment fees are recognized in Interest income in the Consolidated Statement of Income when earned.

Dividend Income

Dividends from an equity instrument are recognized under Net interest income in the Consolidated Statement of Income when the Bank's right to receive payment is established.

Fee and Commission Income

Fee and commission income is recognized when, or as, a performance obligation is satisfied, i.e., when control of a promised service is transferred to a customer and in an amount that reflects the consideration that the entity expects to be entitled to receive in exchange for the service. The revenue may therefore be recognized at a point in time, upon completion of the service, or over time as services are provided.

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

Underwriting and Advisory Fees

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

Securities Brokerage Commissions

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

Mutual Fund Revenues

Mutual fund revenues include management fees earned in the Wealth Management segment. Management fees are primarily calculated based on a fund's net asset value and are recorded in the period the services are performed.

Investment Management and Trust Service Fees

Investment management and trust service fees include management fees, trust service fees, and fees for other investment services provided to clients and earned in the Wealth Management segment. Generally, these fees are calculated using the balances of assets under administration and assets under management. Such fees are recognized in the period the service is performed.

Card Revenues

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

Credit Fees and Deposit and Payment Service Charges

Credit fees and deposit and payment service charges are earned in the Personal and Commercial, Financial Markets, and U.S. Specialty Finance and International segments. Credit fees include commissions earned by providing services for loan commitments, financial guarantee contracts, bankers' acceptances, and letters of credit and guarantee, and they are generally recognized in income over the period the services are provided. Deposit and payment service charges include fees related to account maintenance activities and transaction-based service charges. Fees related to account maintenance activities are recognized in the period the services are provided, whereas transaction-based service charges are recognized when the transaction is executed.

Insurance Revenues

Insurance contracts, including reinsurance contracts, are arrangements under which one party accepts significant insurance risk by agreeing to compensate the policyholder if a specified uncertain future event that adversely affect the policyholder was to occur.

The Bank uses the General Measurement Model (GMM) to measure most of its insurance and reinsurance contracts based on the present value of estimates of the expected future cash flows necessary to fulfill the contracts, including an adjustment for non-financial risk as well as the contractual service margin (CSM), which represents the unearned profits that will be recognized as services are provided in the future. The Bank chose to apply the simplified approach (the Premium Allocation Approach or PAA) to measure insurance contracts with coverage periods of one year or less. The insurance revenues from these contracts are recognized systematically over the coverage period. For all measurement approaches, if contracts are expected to be onerous, losses are recognized immediately in the Consolidated Statement of Income.

Note 1 - Basis of Presentation and Summary of Material Accounting Policies (cont.)

Upon the issuance of a contract, an insurance contract asset or liability and a reinsurance contract asset, if applicable, are recognized under Other assets and under Other liabilities in the Consolidated Balance Sheet. Subsequent changes in the carrying values of the insurance contract asset and liability and reinsurance contract asset are recognized on a net basis under Non-interest income in the Consolidated Statement of Income.

Insurance service expenses consist mainly of incurred claims and other insurance service expenses, amortization of insurance acquisition cash flows, and losses on onerous contracts as well as reversals of such losses. Royalties received from reinsurers are recognized in the Consolidated Statement of Income as the Bank receives services under groups of reinsurance contracts. Amounts recovered from reinsurers comprise cash flows related to the claims or benefit experience of the underlying contracts. All of these amounts are recognized as a deduction from insurance revenues under Non-interest income in the Consolidated Statement of Income.

Income Taxes

Income taxes include current taxes and deferred taxes and are recorded in net income except for income taxes generated by items recognized in Other comprehensive income or directly in equity.

Current tax is the amount of income tax payable on the taxable income for a period. It is calculated using the enacted or substantively enacted tax rates prevailing on the reporting date, and any adjustments recognized in the period for the current tax of prior periods. Current tax assets and liabilities are offset, and the net balance is presented under either Other assets or Other liabilities in the Consolidated Balance Sheet when the Bank has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis or to simultaneously realize the asset and settle the liability.

Deferred tax is established based on temporary differences between the carrying values and the tax bases of assets and liabilities, in accordance with enacted or substantively enacted income tax laws and rates that will apply on the date the differences reverse. Deferred tax is not recognized for temporary differences related to the following:

· the initial accounting of goodwill;

· the initial accounting of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither accounting income nor taxable income;

· investments in subsidiaries, associates and joint ventures when it is probable that the temporary difference will not reverse in the foreseeable future and that the Bank controls the timing of the reversal of the temporary difference;

· investments in subsidiaries, associates and joint ventures when it is probable that the temporary difference will not reverse in the foreseeable future and that there will not be taxable income to which the temporary difference can be recognized.

Deferred tax assets are tax benefits in the form of deductions that the Bank may claim to reduce its taxable income in future years. At the end of each reporting period, the carrying amount of deferred tax assets is revised, and it is reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow the benefit of the deferred tax asset to be utilized.

Deferred tax assets and liabilities are offset, and the net balance is presented under either Other assets or Other liabilities in the Consolidated Balance Sheet when the Bank has a legally enforceable right to set off the current tax assets and liabilities and if the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on the same taxable entity or on different taxable entities that intend to settle current tax assets and liabilities based on their net amount.

The Bank makes assumptions to estimate income taxes as well as deferred tax assets and liabilities. This process involves estimating the actual amount of current taxes and evaluating tax loss carryforwards and temporary differences arising from differences between the values of items reported for accounting and for income tax purposes. Deferred tax assets and liabilities presented in the Consolidated Balance Sheet are calculated according to the tax rates to be applied in future periods. Previously recorded deferred tax assets and liabilities must be adjusted when the date of the future event is revised based on current information.

The Bank is subject to the jurisdictions of various tax authorities. In the normal course of its business, the Bank is involved in a number of transactions for which the tax impacts are uncertain. As a result, the Bank accounts for provisions for uncertain tax positions that adequately represent the tax risk stemming from tax matters under discussion or being audited by tax authorities or from other matters involving uncertainty. The amounts of these provisions reflect the best possible estimates of the amounts that may have to be paid based on qualitative assessments of all relevant factors. The provisions are estimated at the end of each reporting period. However, it is possible that, at a future date, a provision might need to be adjusted following an audit by the tax authorities. When the final assessment differs from the initially provisioned amounts, the difference will impact the income taxes of the period in which the assessment was made.

Financial Guarantee Contracts

A financial guarantee contract is a contract or indemnification agreement that could require the Bank to make specified payments (in cash, financial instruments, other assets, Bank shares, or provisions of services) to reimburse a beneficiary in the event of a loss resulting from a debtor defaulting on the original or amended terms of a debt instrument.

To reflect the fair value of an obligation assumed at the inception of a financial guarantee, a liability is recorded in Other liabilities in the Consolidated Balance Sheet. After initial recognition, the Bank must measure financial guarantee contracts at the higher of the allowance for credit losses, determined using the ECL model, and of the initially recognized amount less, where applicable, the cumulative amount of revenue recognized. This revenue is recognized in Credit fees in the Consolidated Statement of Income.

Employee Benefits - Pension Plans and Other Post-Employment Benefit Plans

The Bank offers pension plans that have a defined benefit component and a defined contribution component. The Bank also offers other post-employment benefit plans to eligible retirees. The other post-employment benefit plans include post-employment medical, dental, and life insurance coverage. The defined benefit component of the pension plans is funded, whereas the defined contribution component of the pension plans and of the other post-employment benefit plans are not funded.

Defined Benefit Component of the Pension Plans and Other Post-Employment Benefit Plans

Plan expenses and obligations are actuarially determined based on the projected benefit method prorated on service. The calculations incorporate management's best estimates of various actuarial assumptions such as discount rates, rates of compensation increase, health care cost trend rates, mortality rates, and retirement age.

The net asset or net liability related to these plans is calculated separately for each plan as the difference between the present value of the future benefits earned by employees for current and prior-period service and the fair value of plan assets. The net asset or net liability is included under either Other assets or Other liabilities in the Consolidated Balance Sheet.

The expense related to these plans consists of the following items: current service cost, net interest on the net plan asset or liability, administration costs, and past service cost, if any, recognized when a plan is amended. This expense is recognized in Compensation and employee benefits in the Consolidated Statement of Income. The net amount of interest income and expense is determined by applying a discount rate to the net plan asset or liability amount.

Remeasurements of defined benefit pension plans and other post-employment benefit plans represent actuarial gains and losses related to the defined benefit obligation and the actual return on plan assets, excluding net interest determined by applying a discount rate to the net plan asset or liability amount. Remeasurements are immediately recognized in Other comprehensive income and are not subsequently reclassified to net income; these cumulative gains and losses are reclassified to Retained earnings.

Defined Contribution Component of the Pension Plans

The expense for these plans is equivalent to the Bank's contributions during the period and is recognized in Compensation and employee benefits in the Consolidated Statement of Income.

Share-Based Payments

The Bank has several share-based compensation plans: the Stock Option Plan, the Stock Appreciation Rights (SAR) Plan, the Deferred Stock Unit (DSU) Plan, the Restricted Stock Unit (RSU) Plan, the Performance Stock Unit (PSU) Plan, the Deferred Compensation Plan (DCP) of National Bank Financial, and the Employee Share Ownership Plan.

Compensation expense is recognized over the service period required for employees to become fully entitled to the award. This period is generally the same as the vesting period, except where the required service period begins before the award date. Compensation expense related to awards granted to employees eligible to retire on the award date is immediately recognized on the award date. Compensation expense related to awards granted to employees who will become eligible to retire during the vesting period is recognized over the period from the award date to the date the employee becomes eligible to retire. For all of these plans, as of the first year of recognition, the expense includes cancellation and forfeiture estimates. These estimates are subsequently revised, as necessary. The Bank uses derivative financial instruments to hedge the risks associated with some of these plans. The compensation expense for these plans, net of related hedges, is recognized in the Consolidated Statement of Income.

Under the Stock Option Plan, the Bank uses the fair value method to account for stock options awarded. The options vest at 25% per year, and each tranche is treated as though it was a separate award. The fair value of each of the tranches is measured on the award date using the Black-Scholes model, and this fair value is recognized in Compensation and employee benefits and Contributed surplus. When the options are exercised, the Contributed surplus amount is credited to Equity - Common shares in the Consolidated Balance Sheet. The proceeds received from the employees when these options are exercised are also credited to Equity - Common shares in the Consolidated Balance Sheet.

Note 1 - Basis of Presentation and Summary of Material Accounting Policies (cont.)

SARs are recorded at fair value when awarded, and their fair value is remeasured at the end of each reporting period until they are exercised. The cost is recognized in Compensation and employee benefits in the Consolidated Statement of Income and under Other liabilities in the Consolidated Balance Sheet. The obligation that results from the change in fair value at each period is recognized in net income gradually over the vesting period, and periodically thereafter, until the SARs are exercised. When a SAR is exercised, the Bank makes a cash payment equal to the increase in the stock price since the date of the award.

The obligation that results from the award of a DSU, RSU, PSU and DCP unit is recognized in net income, and the corresponding amount is included in Other liabilities in the Consolidated Balance Sheet. For the DSU, RSU and DCP plans, the change in the obligation attributable to changes in the share price and dividends paid on the common shares of these plans is recognized in Compensation and employee benefits in the Consolidated Statement of Income for the period in which the changes occur. On the redemption date, the Bank makes a cash payment equal to the value of the common shares on that date. For the PSU Plan, the change in the obligation attributable to changes in the share price, adjusted upward or downward depending on the relative result of the performance criteria, and the change in the obligation attributable to dividends paid on the shares awarded under the plan, are recognized in Compensation and employee benefits in the Consolidated Statement of Income for the period in which the changes occur. On the redemption date, the Bank makes a cash payment equal to the value of the common shares on that date, adjusted upward or downward according to the performance criteria.

The Bank's contributions to the employee share ownership plan are expensed as incurred.

Note 2 - Accounting Policy Changes

On November 1, 2023, the Bank adopted IFRS 17 - Insurance Contracts (IFRS 17).

Impacts of IFRS 17 Adoption

The IFRS 17 requirements have been applied retrospectively by adjusting the Consolidated Balance Sheet balances on the date of initial application, i.e., November 1, 2022. The impacts of IFRS 17 adoption have been recognized through an adjustment to Retained earnings as at November 1, 2022. The following information presents the impacts on the Consolidated Balance Sheets as at November 1, 2022 and as at October 31, 2023:

Consolidated Balance Sheets

	As at October 31, 2023		As at October 31, 2023	As at October 31, 2022		As at November 1, 2022
	As reported	IFRS 17 adjustments	Adjusted	As reported	IFRS 17 adjustments	Adjusted
Assets
Other assets	7,889	(101)	7,788	5,958	(50)	5,908
Liabilities
Other liabilities	7,423	(7)	7,416	6,361	(2)	6,359
Equity
Retained earnings	16,744	(94)	16,650	15,140	(48)	15,092

As at October 31, 2023, the net CSM amount related to the new recognition and measurement principles for insurance and reinsurance assets and liabilities had stood at $109 million ($89 million as at November 1, 2022).

The following information presents the impacts on the Consolidated Statement of Income for the comparative fiscal year:

Consolidated Statement of Income - Increase (Decrease)

Year ended October 31, 2023
Non-interest income - Insurance revenues, net		(112)
Total revenues		(112)
Compensation and employee benefits		(27)
Occupancy		(3)
Technology		(7)
Professional fees		(1)
Other		(10)
Non-interest expenses		(48)
Income before provisions for credit losses and income taxes		(64)
Income before income taxes		(64)
Income taxes		(18)
Net income		(46)

Note 3 - Future Accounting Policy Changes

The Bank closely monitors both new accounting standards and amendments to existing accounting standards issued by the IASB. The following standards have been issued but are not yet effective. The Bank is currently assessing the impact of applying these standards on the Consolidated Financial Statements.

Effective Date - November 1, 2026

Amendments to the Classification and Measurement of Financial Instruments

In May 2024, the IASB issued Amendments to the Classification and Measurement of Financial Instruments, which affects certain provisions of IFRS 9 - Financial Instruments and IFRS 7 - Financial Instruments: Disclosures. Specifically, the amendments apply to the derecognition of financial liabilities settled through electronic transfer, to the classification of certain financial assets, to disclosures regarding equity instruments designated at fair value through other comprehensive income, and to contractual terms that could change the timing or amount of contractual cash flows. These amendments must be applied retrospectively for annual periods beginning on or after January 1, 2026. Earlier application is permitted.

Effective Date - November 1, 2027

IFRS 18 - Presentation and Disclosure in Financial Statements

In April 2024, the IASB issued a new accounting standard, IFRS 18 - Presentation and Disclosure in Financial Statements (IFRS 18). This new standard replaces the current IAS 1 accounting standard on presentation of financial statements. IFRS 18 presents a new accounting framework that will improve how information is communicated in financial statements, in particular performance-related information in the Consolidated Statement of Income, and that will introduce limited changes to the Consolidated Statement of Cash Flows and the Consolidated Balance Sheet. IFRS 18 must be applied retrospectively for annual periods beginning on or after January 1, 2027. Earlier application is permitted.

Note 4 - Fair Value of Financial Instruments

Fair Value and Carrying Value of Financial Instruments by Category

Financial assets and financial liabilities are recognized in the Consolidated Balance Sheet at fair value or at amortized cost in accordance with the categories set out in the accounting framework for financial instruments.

								As at October 31, 2024
			Carrying value and fair value				Carrying value	Fair value	Total carrying value	Total fair value
			Financial instruments classified as at fair value through profit or loss	Financial instruments designated at fair value through profit or loss	Debt securities classified as at fair value through other comprehensive income	Equity securities designated at fair value through other comprehensive income	Financial instruments at amortized cost, net	Financial instruments at amortized cost, net	Total carrying value	Total fair value
Financial assets
	Cash and deposits with financial
		institutions	−	−	−	−	31,549	31,549	31,549	31,549
									−	−
	Securities		115,578	357	13,956	666	14,608	14,551	145,165	145,108

	Securities purchased under reverse
		repurchase agreements
		and securities borrowed	−	−	−	−	16,265	16,265	16,265	16,265

	Loans, net of allowances		14,972	−	−	−	228,060	229,614	243,032	244,586

	Other
	Derivative financial instruments		12,309	−	−	−	−	−	12,309	12,309
	Other assets		2,059	−	−	−	3,674	3,674	5,733	5,733
Financial liabilities
	Deposits⁽¹⁾		−	26,190			307,355	307,553	333,545	333,743

	Other
	Obligations related to securities sold short		10,873	−			−	−	10,873	10,873

	Obligations related to securities sold under
		repurchase agreements and
		securities loaned	−	−			38,177	38,177	38,177	38,177
	Derivative financial instruments		15,760	−			−	−	15,760	15,760
	Liabilities related to transferred receivables		−	11,034			17,343	17,011	28,377	28,045
	Other liabilities		−	−			4,114	4,114	4,114	4,114

	Subordinated debt		−	−			1,258	1,296	1,258	1,296

(1) Includes embedded derivative financial instruments.

								As at October 31, 2023⁽¹⁾
			Carrying value and fair value				Carrying value	Fair value	Total carrying value	Total fair value
			Financial instruments classified as at fair value through profit or loss	Financial instruments designated at fair value through profit or loss	Debt securities classified as at fair value through other comprehensive income	Equity securities designated at fair value through other comprehensive income	Financial instruments at amortized cost, net	Financial instruments at amortized cost, net	Total carrying value	Total fair value
Financial assets
	Cash and deposits with financial
		institutions	−	−	−	−	35,234	35,234	35,234	35,234

	Securities		99,236	758	8,583	659	12,582	12,097	121,818	121,333

	Securities purchased under reverse
		repurchase agreements and
		securities borrowed	−	−	−	−	11,260	11,260	11,260	11,260

	Loans and acceptances, net of allowances		13,124	−	−	−	212,319	210,088	225,443	223,212

	Other
	Derivative financial instruments		17,516	−	−	−	−	−	17,516	17,516
	Other assets		73	−	−	−	4,285	4,285	4,358	4,358
Financial liabilities
	Deposits⁽²⁾		−	18,275			269,898	269,490	288,173	287,765

	Other
	Acceptances		−	−			6,627	6,627	6,627	6,627
	Obligations related to securities sold short		13,660	−			−	−	13,660	13,660
	Obligations related to securities sold under
		repurchase agreements and
		securities loaned	−	−			38,347	38,347	38,347	38,347
	Derivative financial instruments		19,888	−			−	−	19,888	19,888
	Liabilities related to transferred receivables		−	9,952			15,082	14,255	25,034	24,207
	Other liabilities		−	−			3,497	3,494	3,497	3,494

	Subordinated debt		−	−			748	727	748	727

(1) Certain amounts have been adjusted to reflect accounting policy changes arising from the adoption of IFRS 17. For additional information, see Note 2 to these Consolidated Financial Statements.

(2) Includes embedded derivative financial instruments.

Establishing Fair Value

Unadjusted quoted prices in active markets provide the best evidence of fair value. When there is no quoted price in an active market, the Bank applies other valuation techniques that maximize the use of relevant observable inputs and that minimize the use of unobservable inputs. Such valuation techniques include the following: using information available from recent market transactions, referring to the current fair value of a comparable financial instrument, applying discounted cash flow analysis, applying option pricing models, or relying on any other valuation technique that is commonly used by market participants and has proven to yield reliable estimates. Judgment is required when applying many of the valuation techniques. The Bank's valuation was based on its assessment of the conditions prevailing as at October 31, 2024 and may change in the future. Furthermore, there may be measurement uncertainty resulting from the choice of valuation model used.

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

Valuation Governance

Fair value is established in accordance with a rigorous control framework. The Bank has policies and procedures that govern the process for determining fair value. These policies are documented and periodically reviewed by the Risk Management Group. All valuation models are validated, and controls have been implemented to ensure that they are applied.

The fair value of existing or new products is determined and validated by functions independent of the risk-taking team. Complex fair value matters are reviewed by valuation committees made up of experts from various specialized functions.

For financial instruments classified in Level 3 of the fair value hierarchy, the Bank has documented the hierarchy classification policies, and controls are in place to ensure that fair value is measured appropriately, reliably, and consistently. Valuation methods and the underlying assumptions are regularly reviewed.

Valuation Methods and Assumptions

Financial Instruments Whose Fair Value Equals Carrying Value

The carrying value of the following financial instruments is a reasonable approximation of fair value:

· cash and deposits with financial institutions;

· securities purchased under reverse repurchase agreements and securities borrowed;

· obligations related to securities sold under repurchase agreements and securities loaned;

· customers' liability under acceptances;

· acceptances;

· certain items of other assets and other liabilities.

Securities and Obligations Related to Securities Sold Short

These financial instruments, except for securities at amortized cost, are recognized at fair value in the Consolidated Balance Sheet. Their fair value is based on quoted prices in active markets, i.e., bid prices for financial assets and offered prices for financial liabilities. If there are no quoted prices in an active market, fair value is estimated using prices for securities that are substantially the same. If such prices are not available, fair value is determined using valuation techniques that incorporate assumptions based primarily on observable market inputs such as current market prices, the contractual prices of the underlying instruments, the time value of money, credit risk, interest rate yield curves, and currency rates.

When one or more significant inputs are not observable in the markets, fair value is established primarily using internal estimates and data that consider the valuation policies in effect at the Bank, economic conditions, the characteristics specific to the financial asset or liability, and other relevant factors.

Securities Issued or Guaranteed by Governments

Securities issued or guaranteed by governments include debt securities of the governments of Canada (federal, provincial and municipal) as well as debt securities of the U.S. government (U.S. Treasury), of other U.S. agencies, and of other foreign governments. Securities whose fair value is based on unadjusted quoted prices in active markets are classified in Level 1. For those classified in Level 2, quoted prices for identical or similar instruments in active markets are used to determine fair value. In the absence of an observable market, a valuation technique such as the discounted cash flow method could be used, incorporating assumptions on benchmark yields and the risk spreads of similar securities.

Equity Securities and Other Debt Securities

The fair value of equity securities is determined primarily by using quoted prices in active markets. For equity securities and other debt securities classified in Level 2, a valuation technique based on quoted prices of identical and similar instruments in an active market is used to determine fair value. In the absence of observable inputs, a valuation technique such as the discounted cash flow method could be used, incorporating assumptions on benchmark yields and the risk spreads of similar securities. For those classified in Level 3, fair value can be determined based on net asset value, which represents the estimated value of a security based on valuations received from investment or fund managers or the general partners of limited partnerships. Fair value can also be determined using internal valuation techniques adjusted to reflect financial instrument risk factors and economic conditions.

Derivative Financial Instruments

Derivative financial instruments are recorded at fair value in the Consolidated Balance Sheet. For exchange-traded derivative financial instruments, fair value is based on quoted prices in an active market.

For over-the-counter (OTC) derivative financial instruments, fair value is determined using well established valuation techniques that incorporate assumptions based primarily on observable market inputs such as current market prices and the contractual prices of the underlying instruments, the time value of money, interest rate yield curves, credit curves, currency rates as well as price and rate volatility factors. In establishing the fair value of OTC derivative financial instruments, the Bank also incorporates the following factors:

Credit Valuation Adjustment (CVA)

The CVA is a valuation adjustment applied to derivative financial instruments to reflect the credit risk of the counterparty. For each counterparty, the CVA is based on the expected positive exposure and probabilities of default through time. The exposures are determined by using relevant factors such as current and potential future market values, master netting agreements, collateral agreements, and expected recovery rates. The default probabilities are inferred using credit default swap (CDS) spreads. When such information is unavailable, relevant proxies are used. While the general methodology currently assumes independence between expected positive exposures and probabilities of default, adjustments are applied to certain types of transactions where there is a direct link between the exposure at default and the default probabilities.

Funding Valuation Adjustment (FVA)

The FVA is a valuation adjustment applied to derivative financial instruments to reflect the market-implied cost or benefits of funding collateral for uncollateralized or partly collateralized transactions. The expected exposures are determined using methodologies consistent with the CVA framework. The funding level used to determine the FVA is based on the average funding level of relevant market participants.

When the valuation techniques incorporate one or more significant inputs that are not observable in the markets, the fair value of OTC derivative financial instruments is established primarily on the basis of internal estimates and data that consider the valuation policies in effect at the Bank, economic conditions, the characteristics specific to the financial asset or financial liability, and other relevant factors.

Loans

The fair value of fixed-rate mortgage loans is determined by discounting expected future contractual cash flows, adjusted for several factors, including prepayment options, current market interest rates for similar loans, and other relevant variables where applicable. The fair value of variable-rate mortgage loans is deemed to equal carrying value.

The fair value of other fixed-rate loans is determined by discounting expected future contractual cash flows using current market interest rates charged for similar new loans. The fair value of other variable-rate loans is deemed to equal carrying value.

Deposits

The fair value of fixed-term deposits is determined primarily by discounting expected future contractual cash flows and considering several factors such as redemption options and market interest rates currently offered for financial instruments with similar conditions. For certain term funding instruments, fair value is determined using market prices for similar instruments. The fair value of demand deposits and notice deposits is deemed to equal carrying value.

The fair value of structured deposit notes is established using valuation models that maximize the use of observable inputs when available, such as benchmark indices, and also incorporates the Bank's own credit risk. In calculating the Bank's own credit risk, the market implied spreads of the Bank are used to infer its probabilities of default. Lastly, when fair value is determined using option pricing models, the valuation techniques are similar to those described for derivative financial instruments.

Liabilities Related to Transferred Receivables

These liabilities arise from sale transactions to Canada Housing Trust (CHT) of securities backed by insured residential mortgages and other securities under the Canada Mortgage Bond (CMB) program. These transactions do not qualify for derecognition. They are recorded as guaranteed borrowings, which results in the recording of liabilities in the Consolidated Balance Sheet. The fair value of these liabilities is established using valuation techniques based on observable market inputs such as Canada Mortgage Bond prices.

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

Other Liabilities and Subordinated Debt

The fair value of these financial liabilities is based on quoted market prices in an active market. If there is no active market, fair value is determined by discounting contractual cash flows using the current market interest rates offered for similar financial instruments that have the same term to maturity.

Hierarchy of Fair Value Measurements

Determining the Levels of the Fair Value Measurement Hierarchy

IFRS Accounting Standards establish a fair value measurement hierarchy that classifies the inputs used in financial instrument fair value measurement techniques according to three levels. This fair value hierarchy requires observable market inputs to be used whenever such inputs exist. According to the hierarchy, the highest level of inputs are unadjusted quoted prices in active markets for identical instruments and the lowest level of inputs are unobservable inputs. In some cases, the inputs used to measure the fair value of a financial instrument might be categorized within different levels of the fair value hierarchy. In those cases, the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The fair value measurement hierarchy has the following levels:

Level 1

Inputs corresponding to unadjusted quoted prices in active markets for identical assets and liabilities and accessible to the Bank at the measurement date. These instruments consist primarily of equity securities, derivative financial instruments traded in active markets, and certain highly liquid debt securities actively traded in over-the-counter markets.

Level 2

Valuation techniques based on inputs, other than the quoted prices included in Level 1 inputs, that are directly or indirectly observable in the market for the asset or liability. These inputs are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived principally from or corroborated by observable market inputs by correlation or other means. These instruments consist primarily of certain loans, certain deposits, derivative financial instruments traded in over-the-counter markets, certain debt securities, certain equity securities whose value is not directly observable in an active market, certain other assets, liabilities related to transferred receivables, and certain other liabilities.

Level 3

Valuation techniques based on one or more significant inputs that are not observable in the market for the asset or liability. The Bank classifies financial instruments in Level 3 when the valuation technique is based on at least one significant input that is not observable in the markets. The valuation technique may also be partly based on observable market inputs.

Financial instruments whose fair values are classified in Level 3 consist of the following:

· financial instruments measured at fair value through profit or loss: investments in hedge funds for which there are certain restrictions on unit or security redemptions, equity securities and debt securities of private companies, as well as certain derivative financial instruments whose fair value is established using internal valuation models that are based on significant unobservable market inputs;

· securities at fair value through other comprehensive income: equity and debt securities of private companies;

· certain loans and certain deposits (structured deposit notes) whose fair value is established using internal valuation models that are based on significant unobservable market inputs;

· certain other assets (receivables) for which fair value is established using internal valuation models that are based on significant unobservable market inputs.

Transfers Between the Fair Value Hierarchy Levels

Transfers of financial instruments between Levels 1 and 2 and transfers to (or from) Level 3 are deemed to have taken place at the beginning of the quarter in which the transfer occurred. Significant transfers can occur between the fair value hierarchy levels due to new information on inputs used to determine fair value and the observable nature of those inputs.

During fiscal 2024, securities classified as at fair value through profit or loss of $20 million and obligations related to securities sold short of $1 million were transferred from Level 2 to Level 1 as a result of changing market conditions (securities classified as at fair value through profit or loss of $17 million and obligations related to securities sold short of $3 million in fiscal 2023). In addition, during fiscal 2024, securities classified as at fair value through profit or loss of $17 million and obligations related to securities sold short of $1 million were transferred from Level 1 to Level 2 as a result of changing market conditions (securities classified as at fair value through profit or loss of $15 million and obligations related to securities sold short of $3 million in fiscal 2023).

During fiscal 2024 and 2023, financial instruments were transferred to (or from) Level 3 due to changes in the availability of observable market inputs as a result of changing market conditions.

Financial Instruments Recorded at Fair Value in the Consolidated Balance Sheet

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

						As at October 31, 2024
					Level 1	Level 2	Level 3	Total financial assets/liabilities at fair value
Financial assets
	Securities
		At fair value through profit or loss
			Securities issued or guaranteed by
				Canadian government	4,150	10,330	−	14,480
				Canadian provincial and municipal governments	−	8,473	−	8,473
				U.S. Treasury, other U.S. agencies and other foreign governments	1,169	1,046	−	2,215
			Other debt securities		−	3,030	60	3,090
			Equity securities		85,414	1,655	608	87,677
					90,733	24,534	668	115,935
		At fair value through other comprehensive income
			Securities issued or guaranteed by
				Canadian government	170	5,048	−	5,218
				Canadian provincial and municipal governments	−	2,900	−	2,900
				U.S. Treasury, other U.S. agencies and other foreign governments	4,805	186	−	4,991
			Other debt securities		−	847	−	847
			Equity securities		−	359	307	666
					4,975	9,340	307	14,622
	Loans				−	14,767	205	14,972
	Other
		Derivative financial instruments			1,139	11,073	97	12,309
		Other assets - Other items			−	1,976	83	2,059
					96,847	61,690	1,360	159,897
Financial liabilities
	Deposits⁽¹⁾				−	30,434	−	30,434
	Other
		Obligations related to securities sold short			6,052	4,821	−	10,873
		Derivative financial instruments			1,976	13,758	26	15,760
		Liabilities related to transferred receivables			−	11,034	−	11,034
					8,028	60,047	26	68,101

(1) The amounts include the fair value of embedded derivative financial instruments in deposits.

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

						As at October 31, 2023
					Level 1	Level 2	Level 3	Total financial assets/liabilities at fair value
Financial assets
	Securities
		At fair value through profit or loss
			Securities issued or guaranteed by
				Canadian government	6,403	10,872	−	17,275
				Canadian provincial and municipal governments	−	8,260	−	8,260
				U.S. Treasury, other U.S. agencies and other foreign governments	2,781	2,105	−	4,886
			Other debt securities		−	3,450	65	3,515
			Equity securities		65,018	554	486	66,058
					74,202	25,241	551	99,994
		At fair value through other comprehensive income
			Securities issued or guaranteed by
				Canadian government	73	4,124	−	4,197
				Canadian provincial and municipal governments	−	1,938	−	1,938
				U.S. Treasury, other U.S. agencies and other foreign governments	904	254	−	1,158
			Other debt securities		−	1,290	−	1,290
			Equity securities		−	281	378	659
					977	7,887	378	9,242
	Loans				−	12,907	217	13,124
	Other
		Derivative financial instruments			285	17,224	7	17,516
		Other assets - Other items			−	−	73	73
					75,464	63,259	1,226	139,949
Financial liabilities
	Deposits⁽¹⁾				−	18,134	−	18,134
	Other
		Obligations related to securities sold short			8,335	5,325	−	13,660
		Derivative financial instruments			467	19,399	22	19,888
		Liabilities related to transferred receivables			−	9,952	−	9,952
					8,802	52,810	22	61,634

(1) The amounts include the fair value of embedded derivative financial instruments in deposits.

Financial Instruments Classified in Level 3

The Bank classifies financial instruments in Level 3 when the valuation technique is based on at least one significant input that is not observable in the markets. The valuation technique may also be based, in part, on observable market inputs. The table on the following page shows the significant unobservable inputs used for the fair value measurements of financial instruments classified in Level 3 of the hierarchy.

							As at October 31, 2024
				Fair value	Primary valuation techniques	Significant unobservable inputs	Range of input values
				Fair value	Primary valuation techniques	Significant unobservable inputs	Low		High
Financial assets
	Securities

		Equity securities and other debt securities		975	Net asset value	Net asset value	100	%	100	%
					Market comparable	EV/EBITDA⁽¹⁾ multiple	13	x	17	x
					Discounted cash flows	Discount rate	5.50	%	13.20	%
	Loans
		Loans at fair value through profit or loss		205	Discounted cash flows	Discount rate	7.31	%	14.50	%
					Discounted cash flows	Liquidity premium	3.53	%	10.62	%
	Other
		Derivative financial instruments
			Equity contracts	96	Option pricing model	Long-term volatility	14	%	58	%
						Market correlation	(48)	%	100	%
						Liquidity premium	8	%	12	%
			Credit derivative contracts	1	Discounted cash flows	Credit spread	21	Bps⁽²⁾	60	Bps⁽²⁾
		Other assets - Other items		83	Discounted cash flows	Discount rate	13	%	13	%
				1,360
Financial liabilities
	Other
		Derivative financial instruments
			Interest rate contracts	1	Discounted cash flows	Discount rate	2.20	%	2.20	%
			Equity contracts	22	Option pricing model	Long-term volatility	13	%	49	%
						Market correlation	(88)	%	98	%
			Credit derivative contracts	3	Discounted cash flows	Credit spread	21	Bps⁽²⁾	60	Bps⁽²⁾
				26


							As at October 31, 2023
				Fair value	Primary valuation techniques	Significant unobservable inputs	Range of input values
				Fair value	Primary valuation techniques	Significant unobservable inputs	Low		High
Financial assets
	Securities

		Equity securities and other debt securities		929	Net asset value	Net asset value	100	%	100	%
					Market comparable	EV/EBITDA⁽¹⁾ multiple	11	x	14	x
					Discounted cash flows	Discount rate	6.50	%	15.10	%
Loans
		Loans at fair value through profit or loss		217	Discounted cash flows	Discount rate	8.08	%	15.99	%
					Discounted cash flows	Liquidity premium	3.57	%	11.32	%
	Other
		Derivative financial instruments
			Equity contracts	5	Option pricing model	Long-term volatility	7	%	58	%
						Market correlation	15	%	94	%
			Credit derivative contracts	2	Discounted cash flows	Credit spread	22	Bps⁽²⁾	91	Bps⁽²⁾
		Other assets - Other items		73	Discounted cash flows	Discount rate	13	%	13	%
				1,226
Financial liabilities
	Other
		Derivative financial instruments
			Interest rate contracts	5	Discounted cash flows	Discount rate	2.20	%	2.20	%
			Equity contracts	16	Option pricing model	Long-term volatility	7	%	58	%
						Market correlation	(9)	%	94	%
			Credit derivative contracts	1	Discounted cash flows	Credit spread	22	Bps⁽²⁾	91	Bps⁽²⁾
				22

(1) EV/EBITDA means Enterprise Value/Earnings Before Interest, Taxes, Depreciation and Amortization.

(2) Bps or basis point is a unit of measure equal to 0.01%.

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

Significant Unobservable Inputs Used for Fair Value Measurements of Financial Instruments Classified in Level 3

Net Asset Value

Net asset value is the estimated value of a security based on valuations received from the investment or fund managers, the administrators of the conduits, or the general partners of limited partnerships. The net asset value of a fund is the total fair value of assets less liabilities.

EV/EBITDA (Enterprise Value/Earnings Before Interest, Taxes, Depreciation and Amortization) Multiple and Price Equivalent

Private equity valuation inputs include earnings multiples, which are determined based on comparable companies, and a higher multiple will translate into a higher fair value. Price equivalent is a percentage of the market price based on the liquidity of the security.

Discount Rate

The discount rate is the input used to bring future cash flows to their present value. A higher discount rate will translate into a lower fair value.

Liquidity Premium

A liquidity premium may be applied when few or no transactions exist to support the valuations. A higher liquidity premium will result in a lower value.

Long-Term Volatility

Volatility is a measure of the expected future variability of market prices. Volatility is generally observable in the market through options prices. However, the long-term volatility of options with a longer maturity might not be observable. An increase (decrease) in long-term volatility is generally associated with an increase (decrease) in long-term correlation. Higher long-term volatility may increase or decrease an instrument's fair value depending on its terms.

Market Correlation

Correlation is a measure of the inter-relationship between two different variables. A positive correlation means that the variables tend to move in the same direction; a negative correlation means that the variables tend to move in opposite directions. Correlation is used to measure financial instruments whose future returns depend on several variables. Changes in correlation will either increase or decrease a financial instrument's fair value depending on the terms of its contractual payout.

Credit Spread

A credit spread (yield) is the difference between the instrument's yield and a benchmark yield. Benchmark instruments have high credit quality ratings with similar maturities. The credit spread therefore represents the discount rate used to determine the present value of future cash flows of an asset to reflect the market return required for credit quality in the estimated cash flows. A higher credit spread will result in a lower value.

Sensitivity Analysis of Financial Instruments Classified in Level 3

The Bank performs sensitivity analyses for the fair value measurements of Level 3 financial instruments, substituting unobservable inputs with one or more reasonably possible alternative assumptions.

For equity securities and other debt securities, the Bank varies significant unobservable inputs such as net asset values, EV/EBITDA multiples, or price equivalents and establishes a reasonable fair value range that could result in a $169 million increase or decrease in the fair value recorded as at October 31, 2024 (a $155 million increase or decrease as at October 31, 2023).

For loans, the Bank varies unobservable inputs such as a liquidity premium and establishes a reasonable fair value range that could result in a $26 million increase or decrease in the fair value recorded as at October 31, 2024 (a $25 million increase or decrease as at October 31, 2023).

For derivative financial instruments, the Bank varies long-term volatility, market correlation inputs, and credit spread and establishes a reasonable fair value range. As at October 31, 2024, for derivative financial instruments, the net fair value recorded could result in a $54 million increase or decrease (a $16 million increase or decrease as at October 31, 2023).

For other assets, the Bank varies unobservable inputs such as discount rates and establishes a reasonable fair value range that could result in a $3 million increase or decrease in the fair value recorded as at October 31, 2024 (a $9 million increase or decrease as at October 31, 2023).

For all Level 3 financial instruments, the reasonable fair value ranges could result in a 7% increase or decrease in net income as at October 31, 2024 (a 6% increase or decrease in net income as at October 31, 2023).

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

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

Year ended October 31, 2024

Securities

at fair value

through profit

or loss

Securities

at fair value

through other

comprehensive

income

Loans and

other assets

Derivative

financial

instruments⁽¹⁾

Deposits⁽²⁾

Fair value as at October 31, 2023

551

378

290

(15)

−

Total realized and unrealized gains (losses) included in Net income ⁽³⁾

103

−

(107)

−

Total realized and unrealized gains (losses) included in

Other comprehensive income

−

Purchases

135

−

Sales

(121)

(72)

(5)

−

Issuances

−

Settlements and other

−

(29)

191

−

Financial instruments transferred into Level 3

−

(3)

−

Financial instruments transferred out of Level 3

−

Fair value as at October 31, 2024

668

307

288

−

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

to financial assets and financial liabilities held as at October 31, 2024⁽⁴⁾

−

(107)

−

Year ended October 31, 2023

Securities

at fair value

through profit

or loss

Securities

at fair value

through other

comprehensive

income

Loans and

other assets

Derivative

financial

instruments⁽¹⁾

Deposits⁽²⁾

Fair value as at October 31, 2022

476

320

331

(17)

(8)

Total realized and unrealized gains (losses) included in Net income ⁽⁵⁾

−

(4)

(15)

−

Total realized and unrealized gains (losses) included in

Other comprehensive income

−

Purchases

−

Sales

(21)

−

(9)

−

Issuances

−

Settlements and other

−

(57)

−

Financial instruments transferred into Level 3

−

Financial instruments transferred out of Level 3

−

Fair value as at October 31, 2023

551

378

290

(15)

−

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

to financial assets and financial liabilities held as at October 31, 2023⁽⁶⁾

−

(4)

(15)

−

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

(2) The amounts include the fair value of embedded derivative financial instruments in deposits.

(3) Total gains (losses) included in Non-interest income was a gain of $5 million.

(4) Total unrealized gains (losses) included in Non-interest income was an unrealized loss of $8 million.

(5) Total gains (losses) included in Non-interest income was a gain of $14 million.

(6) Total unrealized gains (losses) included in Non-interest income was an unrealized gain of $43 million.

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

Financial Instruments Not Recorded at Fair Value in the Consolidated Balance Sheet

The following tables show the financial instruments that have not been recorded at fair value in the Consolidated Balance Sheet according to the fair value hierarchy, except for those whose carrying value is a reasonable approximation of fair value.

As at October 31, 2024

Level 1

Level 2

Level 3

Total

Financial assets

Securities at amortized cost

Securities issued or guaranteed by

Canadian government

−

9,217

−

9,217

Canadian provincial and municipal governments

−

2,400

−

2,400

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

506

178

−

684

Other debt securities

−

2,250

−

2,250

506

14,045

−

14,551

Loans, net of allowances

−

100,618

128,996

229,614

Financial liabilities

Deposits

−

307,553

−

307,553

Other

Liabilities related to transferred receivables

−

17,011

−

17,011

Other liabilities

−

Subordinated debt

−

1,296

−

1,296

−

325,909

−

325,909

As at October 31, 2023

Level 1

Level 2

Level 3

Total

Financial assets

Securities at amortized cost

Securities issued or guaranteed by

Canadian government

−

5,935

−

5,935

Canadian provincial and municipal governments

−

1,772

−

1,772

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

−

593

−

593

Other debt securities

−

3,797

−

3,797

−

12,097

−

12,097

Loans, net of allowances

−

86,887

116,627

203,514

Financial liabilities

Deposits

−

269,490

−

269,490

Other

Liabilities related to transferred receivables

−

14,255

−

14,255

Other liabilities

−

Subordinated debt

−

727

−

727

−

284,518

−

284,518

Note 5 - Financial Instruments Designated at Fair Value Through Profit or Loss

The Bank chose to designate certain financial instruments at fair value through profit or loss according to the criteria presented in Note 1 to these Consolidated Financial Statements. Consistent with its risk management strategy and in accordance with the fair value option, which permits the designation if it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring financial assets and liabilities or recognizing the gains and losses thereon on different bases, the Bank designated certain securities and certain liabilities related to transferred receivables at fair value through profit or loss. The fair value of liabilities related to transferred receivables does not include credit risk, as the holders of these liabilities are not exposed to the Bank's credit risk. The Bank also designated certain deposits that include embedded derivative financial instruments at fair value through profit or loss.

To determine a change in fair value arising from a change in the credit risk of deposits designated at fair value through profit or loss, the Bank calculates, at the beginning of the period, the present value of the instrument's contractual cash flows using the following rates: first, an observed discount rate for similar securities that reflects the Bank's credit spread and, then, a rate that excludes the Bank's credit spread. The difference obtained between the two values is then compared to the difference obtained using the same rates at the end of the period.

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

		Carrying value as at October 31, 2024	Unrealized gains (losses) for the year ended October 31, 2024	Unrealized gains (losses) since the initial recognition of the instrument
Financial assets designated at fair value through profit or loss
	Securities	357	13	8
Financial liabilities designated at fair value through profit or loss
	Deposits⁽¹⁾⁽²⁾	26,190	(2,526)	1,212
	Liabilities related to transferred receivables	11,034	(213)	136
		37,224	(2,739)	1,348

		Carrying value as at October 31, 2023	Unrealized gains (losses) for the year ended October 31, 2023	Unrealized gains (losses) since the initial recognition of the instrument
Financial assets designated at fair value through profit or loss
	Securities	758	(5)	(12)
Financial liabilities designated at fair value through profit or loss
	Deposits⁽¹⁾⁽²⁾	18,275	493	3,546
	Liabilities related to transferred receivables	9,952	80	562
		28,227	573	4,108

(1) For the year ended October 31, 2024, the change in the fair value of deposits designated at fair value through profit or loss attributable to credit risk, and recorded in Other comprehensive income, resulted in a loss of $485 million (loss of $226 million for the year ended October 31, 2023).

(2) The amount at maturity that the Bank will be contractually required to pay to the holders of these deposits varies and will differ from the reporting date fair value.

Note 6 - Offsetting Financial Assets and Financial Liabilities

Generally, over-the-counter derivative financial instruments subject to master netting agreements of the International Swaps & Derivatives Association, Inc. or other similar agreements do not meet the offsetting criteria in the Consolidated Balance Sheet, because the right of set-off is legally enforceable only in the event of default, insolvency, or bankruptcy.

Generally, securities purchased under reverse repurchase agreements and securities borrowed as well as obligations related to securities sold under repurchase agreements and securities loaned, subject to master agreements, do not meet the offsetting criteria if they confer only a right of set-off that is enforceable only in the event of default, insolvency, or bankruptcy.

However, the above-mentioned transactions may be subject to contractual netting agreements concluded with clearing houses. If the offsetting criteria are met, these transactions are netted in the Consolidated Balance Sheet. In addition, as part of these transactions, the Bank may pledge or receive cash or other financial instruments used as collateral.

The following tables present information on financial assets and financial liabilities that are netted in the Consolidated Balance Sheet, because they meet the offsetting criteria as well as information on those that are not netted and are subject to an enforceable master netting agreement or similar agreement.

							As at October 31, 2024
			Gross amounts recognized	Amounts set off in the Consolidated Balance Sheet⁽¹⁾	Net amounts reported in the Consolidated Balance Sheet	Associated amounts not set off in the Consolidated Balance Sheet
			Gross amounts recognized	Amounts set off in the Consolidated Balance Sheet⁽¹⁾	Net amounts reported in the Consolidated Balance Sheet	Financial instruments⁽²⁾	Financial assets received/pledged as collateral⁽³⁾	Net amounts
Financial assets
	Securities purchased under reverse repurchase
		agreements and securities borrowed	34,247	17,982	16,265	3,815	12,378	72
	Derivative financial instruments		12,309	−	12,309	6,410	2,701	3,198
			46,556	17,982	28,574	10,225	15,079	3,270
Financial liabilities
	Obligations related to securities sold under
		repurchase agreements and securities loaned	56,159	17,982	38,177	3,815	34,309	53
	Derivative financial instruments		15,760	−	15,760	6,410	5,256	4,094
			71,919	17,982	53,937	10,225	39,565	4,147

							As at October 31, 2023
			Gross amounts recognized	Amounts set off in the Consolidated Balance Sheet⁽¹⁾	Net amounts reported in the Consolidated Balance Sheet	Associated amounts not set off in the Consolidated Balance Sheet
			Gross amounts recognized	Amounts set off in the Consolidated Balance Sheet⁽¹⁾	Net amounts reported in the Consolidated Balance Sheet	Financial instruments⁽²⁾	Financial assets received/pledged as collateral⁽³⁾	Net amounts
Financial assets
	Securities purchased under reverse repurchase
		agreements and securities borrowed	20,344	9,084	11,260	2,538	8,649	73
	Derivative financial instruments		35,404	17,888	17,516	8,032	7,065	2,419
			55,748	26,972	28,776	10,570	15,714	2,492
Financial liabilities
	Obligations related to securities sold under
		repurchase agreements and securities loaned	47,431	9,084	38,347	2,538	35,679	130
	Derivative financial instruments		37,776	17,888	19,888	8,032	5,703	6,153
			85,207	26,972	58,235	10,570	41,382	6,283

(1) Comprises amounts that qualify for offsetting. Effective in fiscal 2024, certain derivative financial instruments cleared through a central counterparty were considered settled-to-market and not collaterized-to-market. Derivative financial instruments that are settled-to-market are settled on a daily basis, resulting in derecognition, rather than offsetting, of the related amounts.

(2) Carrying amount of financial instruments that are subject to an enforceable master netting agreement or similar agreement but that do not satisfy offsetting criteria.

(3) Excludes collateral in the form of non-financial instruments.

Note 7 - Securities

Residual Contractual Maturities of Securities

As at October 31			2024					2023
			1 year or less	Over 1 year to 5 years	Over 5 years	No specified maturity	Total	Total
Securities at fair value through profit or loss
Securities issued or guaranteed by
	Canadian government		2,541	9,442	2,497	−	14,480	17,275
	Canadian provincial and municipal governments		762	2,476	5,235	−	8,473	8,260
	U.S. Treasury, other U.S. agencies
		and other foreign governments	203	845	1,167	−	2,215	4,886
Other debt securities			384	1,675	1,031	−	3,090	3,515
Equity securities			−	−	−	87,677	87,677	66,058
			3,890	14,438	9,930	87,677	115,935	99,994
Securities at fair value through other comprehensive income
Securities issued or guaranteed by
	Canadian government		308	2,723	2,187	−	5,218	4,197
	Canadian provincial and municipal governments		−	519	2,381	−	2,900	1,938
	U.S. Treasury, other U.S. agencies
		and other foreign governments	−	4,951	40	−	4,991	1,158
Other debt securities			133	358	356	−	847	1,290
Equity securities			−	−	−	666	666	659
			441	8,551	4,964	666	14,622	9,242
Securities at amortized cost⁽¹⁾
Securities issued or guaranteed by
	Canadian government		1,139	8,055	−	−	9,194	6,172
	Canadian provincial and municipal governments		371	595	1,492	−	2,458	1,932
	U.S. Treasury, other U.S. agencies
		and other foreign governments	540	147	−	−	687	604
Other debt securities			1,043	1,121	105	−	2,269	3,874
			3,093	9,918	1,597	−	14,608	12,582

(1) As at October 31, 2024, securities at amortized cost are presented net of allowances for credit losses of $6 million ($4 million as at October 31, 2023).

Credit Quality

As at October 31, 2024 and 2023, securities at fair value through other comprehensive income and securities at amortized cost were mainly classified in Stage 1, with their credit quality falling mostly in the "Excellent" category according to the Bank's internal risk-rating categories. For additional information on the reconciliation of allowances for credit losses, see Note 8 to these Consolidated Financial Statements.

Note 7 - Securities (cont.)

Unrealized Gross Gains (Losses) on Securities at Fair Value Through

Other Comprehensive Income⁽¹⁾

		As at October 31, 2024
		Amortized cost	Gross unrealized gains	Gross unrealized losses	Carrying value⁽²⁾
Securities issued or guaranteed by
	Canadian government	5,166	96	(44)	5,218
	Canadian provincial and municipal governments	2,894	45	(39)	2,900
	U.S. Treasury, other U.S. agencies and other foreign governments	4,986	37	(32)	4,991
Other debt securities		888	3	(44)	847
Equity securities		591	77	(2)	666
		14,525	258	(161)	14,622

		As at October 31, 2023
		Amortized cost	Gross unrealized gains	Gross unrealized losses	Carrying value⁽²⁾
Securities issued or guaranteed by
	Canadian government	4,406	1	(210)	4,197
	Canadian provincial and municipal governments	2,110	−	(172)	1,938
	U.S. Treasury, other U.S. agencies and other foreign governments	1,227	−	(69)	1,158
Other debt securities		1,423	−	(133)	1,290
Equity securities		616	66	(23)	659
		9,782	67	(607)	9,242

(1) Excludes the impact of hedging.

(2) The allowances for credit losses on securities at fair value through other comprehensive income (excluding equity securities), representing $3 million as at October 31, 2024 ($3 million as at October 31, 2023), are reported under Other comprehensive income. For additional information, see Note 8 to these Consolidated Financial Statements.

Equity Securities Designated at Fair Value Through Other Comprehensive Income

The Bank designated certain equity securities, the main business objective of which is to generate dividend income, at fair value through other comprehensive income without subsequent reclassification of gains and losses to net income. During the year ended October 31, 2024, a dividend income amount of $41 million was recognized for these investments ($33 million for the year ended October 31, 2023), including amounts of $7 million for investments that were sold during the year ended October 31, 2024 ($2 million for investments that were sold during the year ended October 31, 2023).

			Year ended October 31, 2024			Year ended October 31, 2023
			Equity securities of private companies	Equity securities of public companies	Total	Equity securities of private companies	Equity securities of public companies	Total
Fair value at beginning			378	281	659	320	236	556
	Change in fair value		1	58	59	58	(5)	53
	Designated at fair value through other
		comprehensive income⁽¹⁾	−	253	253	−	314	314
	Sales⁽²⁾		(72)	(233)	(305)	−	(264)	(264)
Fair value at end			307	359	666	378	281	659

(1) On May 2, 2023, the Bank had concluded that it had lost significant influence over TMX Group Limited (TMX) and therefore, as of this date, ceased using the equity method to account for this investment. The Bank had designated its investment in TMX as a financial asset measured at fair value through other comprehensive income in an amount of $191 million.

(2) The Bank disposed of private and public company equity securities for economic reasons.

Gains (Losses) on Disposals of Securities at Amortized Cost

During the years ended October 31, 2024 and 2023, the Bank disposed of certain debt securities measured at amortized cost. The carrying value of these securities upon disposal was $1,419 million for the year ended October 31, 2024 ($821 million for the year ended October 31, 2023), and the Bank recognized gains of $6 million for the year ended October 31, 2024 (negligible amount for the year ended October 31, 2023) under Non-interest income - Gains (losses) on non‑trading securities, net in the Consolidated Statement of Income.

Note 8 - Loans and Allowances for Credit Losses

Loans are recognized either at fair value through profit or loss or at amortized cost using the financial asset classification criteria defined in IFRS 9.

Determining and Measuring Expected Credit Losses (ECL)

Determining Expected Credit Losses

Expected credit losses are determined using a three-stage impairment approach that is based on the change in the credit quality of financial assets since initial recognition.

Non-impaired loans

Stage 1

Financial assets that have experienced no significant increase in credit risk between initial recognition and the reporting date, and for which 12‑month expected credit losses are recorded at the reporting date, are classified in Stage 1.

Stage 2

Financial assets that have experienced a significant increase in credit risk between initial recognition and the reporting date, and for which lifetime expected credit losses are recorded at the reporting date, are classified in Stage 2.

Impaired loans

Stage 3

Financial assets for which there is objective evidence of impairment, for which one or more events have had a detrimental impact on the estimated future cash flows of these financial assets at the reporting date, and for which lifetime expected credit losses are recorded, are classified in Stage 3.

POCI

Financial assets that are credit-impaired when purchased or originated (POCI) are classified in the POCI category.

Impairment Governance

A rigorous control framework is applied to the determination of expected credit losses. The Bank has policies and procedures that govern impairments arising from credit risk. These policies are documented and periodically reviewed by the Risk Management Group. All models used to calculate expected credit losses are validated, and controls are in place to ensure they are applied.

These models are validated by groups that are independent of the team that prepares the calculations. Complex questions on measurement methodologies and assumptions are reviewed by a group of experts from various functions. Furthermore, the inputs and assumptions used to determine expected credit losses are regularly reviewed.

Measurement of Expected Credit Losses (ECL)

Expected credit losses are estimated using three main variables: (1) probability of default (PD), (2) loss given default (LGD) and (3) exposure at default (EAD). For accounting purposes, 12-month PD and lifetime PD are the probabilities of a default occurring over the next 12 months or over the life of a financial instrument, respectively, based on conditions existing at the balance sheet date and on future economic conditions that have, or will have, an impact on credit risk. LGD reflects the losses expected should default occur and considers such factors as the mitigating effects of collateral, the realizable value thereof, and the time value of money. EAD is the expected balance owing at default and considers such factors as repayments of principal and interest between the balance sheet date and the time of default as well as any amounts expected to be drawn on a committed facility. Twelve-month expected credit losses are estimated by multiplying 12-month PD by LGD and by EAD. Lifetime expected credit losses are estimated using the lifetime PD.

For most financial instruments, expected credit losses are measured on an individual basis. Financial instruments that have credit losses measured on a collective basis are grouped according to similar credit risk characteristics such as type of instrument, geographic location, comparable risk level, and business sector or industry.

Inputs, Assumptions and Estimation Techniques

The Bank's approach to calculating expected credit losses consists essentially of leveraging existing regulatory models and then adjusting their parameters for IFRS 9 purposes. These models have the advantage of having been thoroughly tested and validated. In addition, using the same base models, regardless of the purpose, provides consistency across risk assessments. These models use inputs, assumptions and estimation techniques that require a high degree of management judgment. The main factors that contribute to changes in ECL that are subject to significant judgment include the following:

· calibration of regulatory parameters in order to obtain point-in-time and forward-looking parameters;

· forecasts of macroeconomic variables for multiple scenarios and the probability weighting of the scenarios;

· determination of the significant increases in credit risk (SICR) of a loan.

Note 8 - Loans and Allowances for Credit Losses (cont.)

Main Parameters

PD Estimates

Since the objective of the regulatory calibration of PD is to align historical data to the long-run default rate, adjustments are required to obtain a point-in-time, forward-looking PD, as required by IFRS 9. The Bank performs the following: (1) A point-in-time calibration, where the PD of the portfolio is aligned with the appropriate default rate. The resulting PD estimate generally equals the prior-year default rate. The prior-year default rate is selected for the calibration performed at this stage, as it often reflects one of the most accurate and appropriate estimates of the current-year default rate; (2) Forward-looking adjustments are incorporated through, among other measures, a calibration factor based on forecasts produced by the stress testing team's analyses. The team considers three macroeconomic scenarios, and, for each scenario, produces a forward-looking assessment covering the three upcoming years.

LGD Estimates

The LGD estimation method consists of using, for each of the three macroeconomic scenarios, expected LGD based on the LGD values observed using backtesting, the economic LGD estimated and used to calculate economic capital, and lastly, the estimated downturn LGD used to calculate regulatory capital.

EAD Estimates

For term loans, the Bank uses expected EAD, which is the outstanding balance anticipated at each point in time. Expected EAD decreases over time according to contractual repayments and to prepayments. For revolving loans, the EAD percentage is based on the percentage estimated by the corresponding regulatory model and, thereafter, is converted to dollars according to the authorized balance.

Expected Life

For most financial instruments, the expected life used when measuring expected credit losses is the remaining contractual life. For revolving financial instruments where there is no contractual maturity, such as credit cards or lines of credit, the expected life is based on the behavioural life of clients who have defaulted or closed their account.

Incorporation of Forward-Looking Information

The Bank's Economy and Strategy Group is responsible for developing three macroeconomic scenarios and for recommending probability weights for each scenario. Macroeconomic scenarios are not developed for specific portfolios, as the Economy and Strategy Group provides a set of variables for each of the defined scenarios for the next three years. The PDs are also adjusted to incorporate economic assumptions (interest rates, unemployment rates, GDP forecasts, oil prices, housing price indices, etc.) that can be statistically tied to PD changes that will have an impact beyond the next 12 months. These statistical relationships are determined using the processes developed for stress testing. In addition, the group considers other relevant factors that may not be adequately reflected in the information used to calculate the PDs (including late payments and whether the financial asset is subject to additional monitoring within the watchlist process for business and government loan portfolios).

Determination of a Significant Increase in the Credit Risk of a Financial Instrument

At each reporting period, the Bank determines whether credit risk has increased significantly since initial recognition by examining the change in the risk of default occurring over the remaining life of the financial instrument. First, the Bank compares the point-in-time forward-looking remaining lifetime PD at the reporting date with the expected point-in-time forward-looking remaining lifetime PD established at initial recognition. Based on this comparison, the Bank determines whether the loan has deteriorated when compared to the initial conditions. Because the comparison includes an adjustment based on origination‑date forward-looking information and reporting-date forward-looking information, the deterioration may be caused by the following factors: (i) deterioration of the economic outlook used in the forward-looking assessment; (ii) deterioration of the borrower's conditions (payment defaults, worsening financial ratios, etc.); or (iii) a combination of both factors. The quantitative criteria used to determine a significant increase in credit risk are a series of relative and absolute thresholds, and a backstop is also applied. All financial instruments that are over 30 days past due but below 90 days past due are migrated to Stage 2, even if the other criteria do not indicate a significant increase in credit risk.

Credit Quality of Loans

The following tables present the gross carrying amounts of loans as at October 31, 2024 and 2023, according to credit quality and ECL impairment stage of each loan category at amortized cost, and according to credit quality for loans at fair value through profit or loss. For additional information on credit quality according to the Internal Ratings-Based (IRB) categories, see the Internal Default Risk Ratings table on page 81 in the Credit Risk section of the MD&A for the year ended October 31, 2024.

				As at October 31, 2024
	Non-impaired loans		Impaired loans		Loans at fair value through profit or loss⁽¹⁾	Total
	Stage 1	Stage 2	Stage 3	POCI	Loans at fair value through profit or loss⁽¹⁾	Total
Residential mortgage
Excellent	33,651	16	−	−	−	33,667
Good	17,063	241	−	−	−	17,304
Satisfactory	12,634	4,209	−	−	−	16,843
Special mention	358	800	−	−	−	1,158
Substandard	70	300	−	−	−	370
Default	−	−	118	−	−	118
IRB Approach	63,776	5,566	118	−	−	69,460
Standardized Approach	11,350	266	494	247	13,192	25,549
Gross carrying amount	75,126	5,832	612	247	13,192	95,009
Allowances for credit losses⁽²⁾	62	85	137	(87)	−	197
Carrying amount	75,064	5,747	475	334	13,192	94,812
Personal
Excellent	21,702	274	−	−	−	21,976
Good	6,686	1,618	−	−	−	8,304
Satisfactory	6,959	2,247	−	−	−	9,206
Special mention	2,111	845	−	−	−	2,956
Substandard	53	279	−	−	−	332
Default	−	−	226	−	−	226
IRB Approach	37,511	5,263	226	−	−	43,000
Standardized Approach	3,580	84	101	118	−	3,883
Gross carrying amount	41,091	5,347	327	118	−	46,883
Allowances for credit losses⁽²⁾	102	123	146	(11)	−	360
Carrying amount	40,989	5,224	181	129	−	46,523
Credit card
Excellent	551	−	−	−	−	551
Good	399	−	−	−	−	399
Satisfactory	729	28	−	−	−	757
Special mention	484	211	−	−	−	695
Substandard	69	149	−	−	−	218
Default	−	−	−	−	−	−
IRB Approach	2,232	388	−	−	−	2,620
Standardized Approach	141	−	−	−	−	141
Gross carrying amount	2,373	388	−	−	−	2,761
Allowances for credit losses⁽²⁾	42	114	−	−	−	156
Carrying amount	2,331	274	−	−	−	2,605
Business and government
Excellent	7,743	−	−	−	1,486	9,229
Good	27,950	7	−	−	53	28,010
Satisfactory	34,626	11,381	−	−	147	46,154
Special mention	255	1,770	−	−	−	2,025
Substandard	2	481	−	2	−	485
Default	−	−	555	10	−	565
IRB Approach	70,576	13,639	555	12	1,686	86,468
Standardized Approach	12,879	107	158	14	94	13,252
Gross carrying amount	83,455	13,746	713	26	1,780	99,720
Allowances for credit losses⁽²⁾	218	181	225	4	−	628
Carrying amount	83,237	13,565	488	22	1,780	99,092
Total loans
Gross carrying amount	202,045	25,313	1,652	391	14,972	244,373
Allowances for credit losses⁽²⁾	424	503	508	(94)	−	1,341
Carrying amount	201,621	24,810	1,144	485	14,972	243,032

(1) Not subject to expected credit losses.

(2) The allowances for credit losses do not include the amounts related to undrawn commitments reported under Other liabilities in the Consolidated Balance Sheet.

Note 8 - Loans and Allowances for Credit Losses (cont.)

				As at October 31, 2023
	Non-impaired loans		Impaired loans		Loans at fair value through profit or loss⁽¹⁾	Total
	Stage 1	Stage 2	Stage 3	POCI	Loans at fair value through profit or loss⁽¹⁾	Total
Residential mortgage
Excellent	30,075	13	−	−	−	30,088
Good	17,008	247	−	−	−	17,255
Satisfactory	11,795	4,118	−	−	−	15,913
Special mention	318	773	−	−	−	1,091
Substandard	61	252	−	−	−	313
Default	−	−	66	−	−	66
IRB Approach	59,257	5,403	66	−	−	64,726
Standardized Approach	9,540	218	287	304	11,772	22,121
Gross carrying amount	68,797	5,621	353	304	11,772	86,847
Allowances for credit losses⁽²⁾	69	93	87	(95)	−	154
Carrying amount	68,728	5,528	266	399	11,772	86,693
Personal
Excellent	21,338	120	−	−	−	21,458
Good	7,360	1,665	−	−	−	9,025
Satisfactory	6,497	2,240	−	−	−	8,737
Special mention	1,849	810	−	−	−	2,659
Substandard	29	224	−	−	−	253
Default	−	−	156	−	−	156
IRB Approach	37,073	5,059	156	−	−	42,288
Standardized Approach	3,713	79	71	207	−	4,070
Gross carrying amount	40,786	5,138	227	207	−	46,358
Allowances for credit losses⁽²⁾	91	108	87	(15)	−	271
Carrying amount	40,695	5,030	140	222	−	46,087
Credit card
Excellent	641	−	−	−	−	641
Good	380	1	−	−	−	381
Satisfactory	752	68	−	−	−	820
Special mention	304	210	−	−	−	514
Substandard	37	86	−	−	−	123
Default	−	−	−	−	−	−
IRB Approach	2,114	365	−	−	−	2,479
Standardized Approach	124	−	−	−	−	124
Gross carrying amount	2,238	365	−	−	−	2,603
Allowances for credit losses⁽²⁾	33	106	−	−	−	139
Carrying amount	2,205	259	−	−	−	2,464
Business and government⁽³⁾
Excellent	7,785	−	−	−	1,113	8,898
Good	28,525	16	−	−	53	28,594
Satisfactory	32,095	8,400	−	2	140	40,637
Special mention	215	1,790	−	−	−	2,005
Substandard	27	290	−	−	−	317
Default	−	−	397	−	−	397
IRB Approach	68,647	10,496	397	2	1,306	80,848
Standardized Approach	9,774	57	47	47	46	9,971
Gross carrying amount	78,421	10,553	444	49	1,352	90,819
Allowances for credit losses⁽²⁾	182	194	244	−	−	620
Carrying amount	78,239	10,359	200	49	1,352	90,199
Total loans and acceptances
Gross carrying amount	190,242	21,677	1,024	560	13,124	226,627
Allowances for credit losses⁽²⁾	375	501	418	(110)	−	1,184
Carrying amount	189,867	21,176	606	670	13,124	225,443

(1) Not subject to expected credit losses.

(2) The allowances for credit losses do not include the amounts related to undrawn commitments reported under Other liabilities in the Consolidated Balance Sheet.

(3) Includes customers' liability under acceptances.

The following table presents the credit risk exposures of off-balance-sheet commitments as at October 31, 2024 and 2023 according to credit quality and ECL impairment stage.

As at October 31		2024				2023
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
Off-balance-sheet commitments⁽¹⁾
Retail
Excellent	16,159	113	−	16,272	16,648	67	−	16,715
Good	3,492	415	−	3,907	3,485	467	−	3,952
Satisfactory	1,095	249	−	1,344	1,268	285	−	1,553
Special mention	381	112	−	493	239	93	−	332
Substandard	30	35	−	65	17	15	−	32
Default	−	−	1	1	−	−	2	2
Non-retail
Excellent	13,071	−	−	13,071	14,117	−	−	14,117
Good	22,547	−	−	22,547	21,082	−	−	21,082
Satisfactory	15,513	6,351	−	21,864	12,258	4,354	−	16,612
Special mention	24	278	−	302	17	248	−	265
Substandard	2	52	−	54	19	33	−	52
Default	−	−	27	27	−	−	10	10
IRB Approach	72,314	7,605	28	79,947	69,150	5,562	12	74,724
Standardized Approach	18,968	−	−	18,968	18,172	−	−	18,172
Total exposure	91,282	7,605	28	98,915	87,322	5,562	12	92,896
Allowances for credit losses	142	72	−	214	116	60	−	176
Total exposure, net of allowances	91,140	7,533	28	98,701	87,206	5,502	12	92,720

(1) Represent letters of guarantee and documentary letters of credit, undrawn commitments, and backstop liquidity and credit enhancement facilities.

Loans Past Due But Not Impaired⁽¹⁾

As at October 31		2024						2023
		Residential mortgage	Personal	Credit card	Business and government	Residential mortgage	Personal	Credit card	Business and government⁽²⁾
Past due but not impaired
	31 to 60 days	179	121	30	76	139	102	27	38
	61 to 90 days	82	48	14	33	58	65	14	21
	Over 90 days⁽³⁾	−	−	35	−	−	−	30	−
		261	169	79	109	197	167	71	59

(1) Loans less than 31 days past due are not presented as they are not considered past due from an administrative standpoint.

(2) Includes customers' liability under acceptances.

(3) All loans more than 90 days past due, except for credit card receivables, are considered impaired (Stage 3).

Note 8 - Loans and Allowances for Credit Losses (cont.)

Impaired Loans

As at October 31			2024		2023
		Gross	Allowances for credit losses	Net	Gross	Allowances for credit losses	Net
Loans - Stage 3
	Residential mortgage	612	137	475	353	87	266
	Personal	327	146	181	227	87	140
	Credit card⁽¹⁾	−	−	−	−	−	−
	Business and government⁽²⁾	713	225	488	444	244	200
		1,652	508	1,144	1,024	418	606
Loans - POCI		391	(94)	485	560	(110)	670
		2,043	414	1,629	1,584	308	1,276

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

(2) Includes customers' liability under acceptances.

Maximum Exposure to Credit Risk of Impaired Loans

The following table presents the maximum exposure to credit risk of impaired loans, the percentage of exposure covered by guarantees, and the main types of collateral and guarantees held for each loan category.

As at October 31			2024		2023
		Gross impaired loans	Percentage covered by guarantees⁽¹⁾	Gross impaired loans	Percentage covered by guarantees⁽¹⁾	Types of collateral and guarantees
Loans - Stage 3
	Residential mortgage	612	95 %	353	97 %	Residential buildings
	Personal	327	52 %	227	59 %	Buildings, land and automobiles
	Business and government⁽²⁾	713	75 %	444	51 %	Buildings, land, equipment,
						government and bank guarantees
Loans - POCI		391	41 %	560	36 %	Buildings and automobiles

(1) For gross impaired loans, the ratio is calculated on a weighted average basis using the estimated value of the collateral and guarantees held for each loan category presented. The value of the collateral and guarantees held for a specific loan may exceed the balance of the loan; when this is the case, the ratio presented is capped at 100%.

(2) Includes customers' liability under acceptances.

Allowances for Credit Losses

The following tables present a reconciliation of the allowances for credit losses by Consolidated Balance Sheet item and by type of off-balance-sheet commitment.

						Year ended October 31, 2024
		Allowances for credit losses as at October 31, 2023	Provisions for credit losses	Write-offs⁽¹⁾	Disposals	Recoveries and other	Allowances for credit losses as at October 31, 2024
Balance sheet
Cash and deposits with financial institutions⁽²⁾⁽³⁾		10	(1)	−	−	−	9
Securities⁽³⁾
	At fair value through other comprehensive income⁽⁴⁾	3	−	−	−	−	3
	At amortized cost⁽²⁾	4	2	−	−	−	6
Securities purchased under reverse repurchase
	agreements and securities borrowed⁽²⁾⁽³⁾	−	−	−	−	−	−
Loans⁽⁵⁾
	Residential mortgage	154	46	(4)	(2)	3	197
	Personal	271	198	(121)	−	12	360
	Credit card	139	113	(111)	−	15	156
	Business and government	567	226	(185)	−	20	628
	Customers' liability under acceptances	53	(53)	−	−	−	−
		1,184	530	(421)	(2)	50	1,341
Other assets⁽²⁾⁽³⁾		−	−	−	−	−	−
Off-balance-sheet commitments⁽⁶⁾
Letters of guarantee and documentary letters of credit		16	5	−	−	−	21
Undrawn commitments		152	36	−	−	−	188
Backstop liquidity and credit enhancement facilities		8	(3)	−	−	−	5
		176	38	−	−	−	214
		1,377	569	(421)	(2)	50	1,573

						Year ended October 31, 2023
		Allowances for credit losses as at October 31, 2022	Provisions for credit losses	Write-offs⁽¹⁾	Disposals	Recoveries and other	Allowances for credit losses as at October 31, 2023
Balance sheet
Cash and deposits with financial institutions⁽²⁾⁽³⁾		5	5	−	−	−	10
Securities⁽³⁾
	At fair value through other comprehensive income⁽⁴⁾	2	1	−	−	−	3
	At amortized cost⁽²⁾	7	(3)	−	−	−	4
Securities purchased under reverse repurchase
	agreements and securities borrowed⁽²⁾⁽³⁾	−	−	−	−	−	−
Loans⁽⁵⁾
	Residential mortgage	118	36	(3)	−	3	154
	Personal	239	114	(101)	−	19	271
	Credit card	126	81	(83)	−	15	139
	Business and government	418	150	(12)	−	11	567
	Customers' liability under acceptances	54	(1)	−	−	−	53
		955	380	(199)	−	48	1,184
Other assets⁽²⁾⁽³⁾		−	−	−	−	−	−
Off-balance-sheet commitments⁽⁶⁾
Letters of guarantee and documentary letters of credit		13	3	−	−	−	16
Undrawn commitments		143	9	−	−	−	152
Backstop liquidity and credit enhancement facilities		6	2	−	−	−	8
		162	14	−	−	−	176
		1,131	397	(199)	−	48	1,377

(1) The contractual amount outstanding on financial assets that were written off during the year ended October 31, 2024 and that are still subject to enforcement activity was $172 million ($118 million for the year ended October 31, 2023).

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

(3) As at October 31, 2024 and 2023, these financial assets were mainly classified in Stage 1 and their credit quality fell mostly within the Excellent category.

(4) The allowances for credit losses are reported under Accumulated other comprehensive income in the Consolidated Balance Sheet.

(5) The allowances for credit losses are reported under Allowances for credit losses in the Consolidated Balance Sheet.

(6) The allowances for credit losses are reported under Other liabilities in the Consolidated Balance Sheet.

Note 8 - Loans and Allowances for Credit Losses (cont.)

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

Year ended October 31					2024					2023
			Allowances for credit losses on non-impaired loans		Allowances for credit losses on impaired loans		Total	Allowances for credit losses on non-impaired loans		Allowances for credit losses on impaired loans		Total
			Stage 1	Stage 2	Stage 3	POCI⁽¹⁾	Total	Stage 1	Stage 2	Stage 3	POCI⁽¹⁾	Total
Residential mortgage
Balance at beginning			69	93	87	(95)	154	53	80	61	(76)	118
	Originations or purchases		13	−	−	−	13	18	−	−	−	18
	Transfers⁽²⁾:
		to Stage 1	58	(50)	(8)	−	−	52	(48)	(4)	−	−
		to Stage 2	(9)	28	(19)	−	−	(12)	30	(18)	−	−
		to Stage 3	(1)	(26)	27	−	−	(2)	(33)	35	−	−
	Net remeasurement of loss allowances⁽³⁾		(57)	59	54	8	64	(29)	65	21	(17)	40
	Derecognitions⁽⁴⁾		(7)	(7)	(11)	−	(25)	(7)	(9)	(8)	−	(24)
	Changes to models		(2)	(12)	8	−	(6)	(5)	7	−	−	2
Provisions for credit losses			(5)	(8)	51	8	46	15	12	26	(17)	36
Write-offs			−	−	(4)	−	(4)	−	−	(3)	−	(3)
Disposals			(2)	−	−	−	(2)	−	−	−	−	−
Recoveries			−	−	3	−	3	−	−	2	−	2
Foreign exchange movements and other			−	−	−	−	−	1	1	1	(2)	1
Balance at end			62	85	137	(87)	197	69	93	87	(95)	154
Includes:
	Amounts drawn		62	85	137	(87)	197	69	93	87	(95)	154
	Undrawn commitments⁽⁵⁾		−	−	−	−	−	−	−	−	−	−
Personal
Balance at beginning			95	114	87	(15)	281	70	117	75	(16)	246
	Originations or purchases		36	−	−	−	36	47	−	−	−	47
	Transfers⁽²⁾:
		to Stage 1	106	(96)	(10)	−	−	91	(82)	(9)	−	−
		to Stage 2	(26)	33	(7)	−	−	(25)	30	(5)	−	−
		to Stage 3	(1)	(74)	75	−	−	(2)	(88)	90	−	−
	Net remeasurement of loss allowances⁽³⁾		(94)	165	113	4	188	(77)	152	23	1	99
	Derecognitions⁽⁴⁾		(10)	(14)	(5)	−	(29)	(11)	(18)	(4)	−	(33)
	Changes to models		−	(1)	3	−	2	1	3	−	−	4
Provisions for credit losses			11	13	169	4	197	24	(3)	95	1	117
Write-offs			−	−	(121)	−	(121)	−	−	(101)	−	(101)
Disposals			−	−	−	−	−	−	−	−	−	−
Recoveries			−	−	15	−	15	−	−	20	−	20
Foreign exchange movements and other			1	−	(4)	−	(3)	1	−	(2)	−	(1)
Balance at end			107	127	146	(11)	369	95	114	87	(15)	281
Includes:
	Amounts drawn		102	123	146	(11)	360	91	108	87	(15)	271
	Undrawn commitments⁽⁵⁾		5	4	−	−	9	4	6	−	−	10

(1) No POCI loans were acquired during the year ended October 31, 2024 (the total amount of undiscounted initially expected credit losses on the POCI loans acquired during the year ended on October 31, 2023 was $93 million). The expected credit losses reflected in the purchase price have been discounted.

(2) Represent stage transfers deemed to have taken place at the beginning of the quarter in which the transfer occurred.

(3) Includes the net remeasurement of loss allowances (after transfers) attributable mainly to changes in volumes and in the credit quality of existing loans as well as to changes in risk parameters.

(4) Represent reversals to loss allowances arising from full loan repayments (excluding write-offs and disposals).

(5) The allowances for credit losses on undrawn commitments are reported under Other liabilities in the Consolidated Balance Sheet.

Year ended October 31					2024					2023
			Allowances for credit losses on non-impaired loans		Allowances for credit losses on impaired loans		Total	Allowances for credit losses on non-impaired loans		Allowances for credit losses on impaired loans		Total
			Stage 1	Stage 2	Stage 3	POCI⁽¹⁾	Total	Stage 1	Stage 2	Stage 3	POCI⁽¹⁾	Total
Credit card
Balance at beginning			59	127	−	−	186	53	112	−	−	165
	Originations or purchases		12	−	−	−	12	11	−	−	−	11
	Transfers⁽²⁾:
		to Stage 1	110	(110)	−	−	−	100	(100)	−	−	−
		to Stage 2	(20)	20	−	−	−	(19)	19	−	−	−
		to Stage 3	(1)	(46)	47	−	−	−	(35)	35	−	−
	Net remeasurement of loss allowances⁽³⁾		(90)	147	49	−	106	(83)	133	33	−	83
	Derecognitions⁽⁴⁾		(2)	(1)	−	−	(3)	(3)	(2)	−	−	(5)
	Changes to models		2	4	−	−	6	−	−	−	−	−
Provisions for credit losses			11	14	96	−	121	6	15	68	−	89
Write-offs			−	−	(111)	−	(111)	−	−	(83)	−	(83)
Disposals			−	−	−	−	−	−	−	−	−	−
Recoveries			−	−	15	−	15	−	−	15	−	15
Foreign exchange movements and other			−	−	−	−	−	−	−	−	−	−
Balance at end			70	141	−	−	211	59	127	−	−	186
Includes:
	Amounts drawn		42	114	−	−	156	33	106	−	−	139
	Undrawn commitments⁽⁵⁾		28	27	−	−	55	26	21	−	−	47
Business and government⁽⁶⁾
Balance at beginning			251	220	244	−	715	177	195	197	−	569
	Originations or purchases		135	−	−	−	135	93	−	−	−	93
	Transfers⁽²⁾:
		to Stage 1	54	(52)	(2)	−	−	54	(54)	−	−	−
		to Stage 2	(52)	60	(8)	−	−	(28)	36	(8)	−	−
		to Stage 3	(1)	(10)	11	−	−	(1)	(6)	7	−	−
	Net remeasurement of loss allowances⁽³⁾		(39)	28	168	(14)	143	(24)	79	61	(7)	109
	Derecognitions⁽⁴⁾		(40)	(26)	(6)	−	(72)	(19)	(29)	(4)	−	(52)
	Changes to models		−	(5)	1	−	(4)	(2)	(1)	−	−	(3)
Provisions for credit losses			57	(5)	164	(14)	202	73	25	56	(7)	147
Write-offs			−	−	(185)	−	(185)	−	−	(12)	−	(12)
Disposals			−	−	−	−	−	−	−	−	−	−
Recoveries			−	−	5	18	23	−	−	3	7	10
Foreign exchange movements and other			−	−	(3)	−	(3)	1	−	−	−	1
Balance at end			308	215	225	4	752	251	220	244	−	715
Includes:
	Amounts drawn		218	181	225	4	628	182	194	244	−	620
	Undrawn commitments⁽⁵⁾		90	34	−	−	124	69	26	−	−	95
Total allowances for credit losses at end⁽⁷⁾			547	568	508	(94)	1,529	474	554	418	(110)	1,336
Includes:
	Amounts drawn		424	503	508	(94)	1,341	375	501	418	(110)	1,184
	Undrawn commitments⁽⁵⁾		123	65	−	−	188	99	53	−	−	152

(2) Represent stage transfers deemed to have taken place at the beginning of the quarter in which the transfer occurred.

(3) Includes the net remeasurement of loss allowances (after transfers) attributable mainly to changes in volumes and in the credit quality of existing loans as well as to changes in risk parameters.

(4) Represent reversals to loss allowances arising from full loan repayments (excluding write-offs and disposals).

(5) The allowances for credit losses on undrawn commitments are reported under Other liabilities in the Consolidated Balance Sheet.

(6) Includes customers' liability under acceptances.

(7) Excludes allowances for credit losses on other financial assets at amortized cost and on off-balance-sheet commitments other than undrawn commitments.

Note 8 - Loans and Allowances for Credit Losses (cont.)

Distribution of Gross and Impaired Loans by Borrower Category

Under the Basel Asset Classes

						2024					2023
		As at October 31			Year ended October 31		As at October 31			Year ended October 31
		Gross loans	Impaired loans	Allowances for credit losses on impaired loans⁽¹⁾	Provisions for credit losses	Write-offs	Gross loans⁽²⁾	Impaired loans⁽²⁾	Allowances for credit losses on impaired loans⁽¹⁾⁽²⁾	Provisions for credit losses	Write-offs
Retail
	Residential mortgage⁽³⁾	104,665	647	138	47	3	99,910	405	91	28	2
	Qualifying revolving retail⁽⁴⁾	4,148	27	21	115	130	4,000	24	18	82	96
	Other retail⁽⁵⁾	17,919	336	140	167	103	16,696	157	67	81	88
		126,732	1,010	299	329	236	120,606	586	176	191	186
Non-retail
	Agriculture	9,192	84	16	12	−	8,545	67	4	2	−
	Oil and gas	1,913	−	−	−	−	1,826	−	−	(7)	−
	Mining	2,062	38	17	17	−	1,245	−	−	(4)	−
	Utilities	12,528	−	−	−	−	12,427	−	−	(35)	−
	Non-real-estate construction⁽⁶⁾	1,864	38	31	−	−	1,739	38	31	−	−
	Manufacturing	8,064	93	45	32	37	7,047	76	51	41	−
	Wholesale	3,145	48	17	42	64	3,208	51	40	15	−
	Retail	4,229	13	6	−	13	3,801	29	18	(1)	−
	Transportation	3,253	71	6	4	7	2,631	14	9	3	1
	Communications	2,542	7	6	1	9	2,556	17	14	5	2
	Financial services	12,775	66	16	11	−	11,693	22	5	6	2
	Real estate services and real estate construction⁽⁷⁾	30,848	113	26	23	2	25,967	19	5	−	3
	Professional services	3,871	10	3	2	2	3,973	8	3	(1)	2
	Education and health care	3,487	49	13	6	50	3,700	83	55	31	1
	Other services	7,356	11	7	1	1	6,898	13	7	−	2
	Government	1,853	−	−	−	−	1,727	−	−	−	−
	Other	8,268	1	−	−	−	6,478	1	−	(1)	−
		117,250	642	209	151	185	105,461	438	242	54	13
Excluding POCI loans		243,982	1,652	508	480	421	226,067	1,024	418	245	199
POCI		391	391	(94)	(2)	−	560	560	(110)	(23)	−
		244,373	2,043	414	478	421	226,627	1,584	308	222	199
Stages 1 and 2⁽⁸⁾					91					175
					569	421				397	199

(1) Allowances for credit losses on drawn amounts.

(2) Includes customers' liability under acceptances.

(3) Includes residential mortgages on one-to-four-unit dwellings (Basel definition) and home equity lines of credit.

(4) Includes lines of credit and credit card receivables.

(5) Includes consumer loans and other retail loans but excludes SME loans.

(6) Includes civil engineering loans, public-private partnership loans, and project finance loans.

(7) Includes residential mortgages on dwellings of five or more units and SME loans.

(8) Includes provisions for credit losses on other financial assets at amortized cost and on off-balance-sheet commitments.

Main Macroeconomic Factors

The following tables show the main macroeconomic factors used to estimate the allowances for credit losses on loans. For each scenario, namely, the base scenario, upside scenario, and downside scenario, the average values of the macroeconomic factors over the next 12 months (used for Stage 1 credit loss calculations) and over the remaining forecast period (used for Stage 2 credit loss calculations) are presented.

										As at October 31, 2024
		Base scenario				Upside scenario					Downside scenario
		Next 12 months		Remaining forecast period		Next 12 months		Remaining forecast period			Next 12 months		Remaining forecast period
Macroeconomic factors⁽¹⁾
	GDP growth⁽²⁾	1.2	%	2.0	%	1.9	%	2.1	%		(5.2)	%	2.7	%
	Unemployment rate	7.3	%	6.7	%	6.5	%	5.8	%		8.7	%	7.9	%
	Housing price index growth⁽²⁾	4.1	%	2.6	%	7.7	%	2.4	%		(13.9)	%	0.3	%
	BBB spread⁽³⁾	2.2	%	1.9	%	1.7	%	1.6	%		3.4	%	2.6	%
	S&P/TSX growth⁽²⁾⁽⁴⁾	(3.8)	%	2.7	%	4.0	%	3.0	%		(25.6)	%	5.5	%
	WTI oil price⁽⁵⁾ (US$ per barrel)	71		75		89		84			45		55

										As at July 31, 2024
		Base scenario				Upside scenario					Downside scenario
		Next 12 months		Remaining forecast period		Next 12 months		Remaining forecast period			Next 12 months		Remaining forecast period
Macroeconomic factors⁽¹⁾
	GDP growth⁽²⁾	0.9	%	1.8	%	1.4	%	2.0	%		(5.1)	%	2.6	%
	Unemployment rate	6.8	%	6.5	%	6.5	%	5.8	%		8.4	%	7.7	%
	Housing price index growth⁽²⁾	2.1	%	2.6	%	7.7	%	2.4	%		(13.9)	%	0.3	%
	BBB spread⁽³⁾	2.0	%	1.6	%	1.4	%	1.4	%		3.1	%	2.3	%
	S&P/TSX growth⁽²⁾⁽⁴⁾	(8.3)	%	2.9	%	4.0	%	3.0	%		(25.6)	%	5.5	%
	WTI oil price⁽⁵⁾ (US$ per barrel)	76		80		94		89			47		58

										As at October 31, 2023
		Base scenario				Upside scenario					Downside scenario
		Next 12 months		Remaining forecast period		Next 12 months		Remaining forecast period			Next 12 months		Remaining forecast period
Macroeconomic factors⁽¹⁾
	GDP growth⁽²⁾	−	%	1.7	%	0.4	%	1.9	%		(4.9)	%	2.6	%
	Unemployment rate	6.3	%	6.5	%	5.9	%	5.9	%		7.7	%	7.2	%
	Housing price index growth⁽²⁾	(1.1)	%	1.9	%	2.5	%	2.4	%		(13.9)	%	0.3	%
	BBB spread⁽³⁾	2.4	%	2.1	%	1.9	%	1.8	%		3.1	%	2.3	%
	S&P/TSX growth⁽²⁾⁽⁴⁾	(10.0)	%	3.7	%	4.0	%	3.0	%		(25.6)	%	5.5	%
	WTI oil price⁽⁵⁾ (US$ per barrel)	77		80		91		86			46		56

(1) All macroeconomic factors are based on the Canadian economy unless otherwise indicated.

(2) Growth rate is annualized.

(3) Yield on corporate BBB bonds less yield on Canadian federal government bonds with a 10-year maturity.

(4) Main stock index in Canada.

(5) The West Texas Intermediate (WTI) index is commonly used as a benchmark for the price of oil.

The main macroeconomic factors used for the personal credit portfolio are unemployment rate and growth in the housing price index, based on the economy of Canada or Quebec. The main macroeconomic factors used for the business and government credit portfolio are unemployment rate, spread on corporate BBB bonds, S&P/TSX growth, and WTI oil price.

An increase in unemployment rate or BBB spread will generally lead to higher allowances for credit losses, whereas an increase in the other macroeconomic factors (GDP, S&P/TSX, housing price index, and WTI oil price) will generally lead to lower allowances for credit losses.

Note 8 - Loans and Allowances for Credit Losses (cont.)

During the year ended October 31, 2024, the macroeconomic outlook remained essentially unchanged and uncertainty remains high.

Data further confirm that inflation is contained in Canada, in an environment where economic growth has been below the pace of potential GDP since 2022. The labour market remains fragile, with a continuous decline in the employment rate, in particular for people aged 25 to 54. Hiring intentions and job vacancy rates do not suggest any stabilization in the coming months, as the business climate is weakened by a monetary policy that remains restrictive. Considering that inflation is back to the Bank of Canada's target, it seems risky to maintain such a policy because this could have side effects. We anticipate an additional 225-basis point reduction in the policy interest rate over the next four quarters, with economic growth of only 1.0% in 2024 and 1.3% in 2025, which would lead to an unemployment rate ranging from 7.0% to 7.5% by mid-2025. The U.S. economy continues to be robust as a result of sustained government and consumer spending. However, the labour market has started to show signs of vulnerability. Consequently, the U.S. Federal Reserve began a monetary policy easing cycle, but it is hard to believe that inflation will be permanently curbed without any economic slowdown. In the base scenario, the unemployment rate stands at 7.3% after 12 months in Canada, up 0.8 percentage point. Despite the slight deterioration in the labour market, real estate prices continue to increase slightly due to the housing shortage exacerbated by the demographic boom and the increase in maximum amortization for insured loans from 25 to 30 years for first-time homebuyers. As a result, house prices are up 4.1% year over year. The S&P/TSX sits at 22,067 points after one year, and the price of oil hovers around US$73.

In the upside scenario, an easing of geopolitical tensions boosts confidence. Inflation continues to subside, as central banks managed to curb it without causing significant damages to the economy. The Canadian and U.S. governments continue to expand spending, offsetting the effects of the restrictive monetary policies. With the labour market holding up, consumer spending remains relatively resilient. House prices rise at a moderate pace against a backdrop of strong demographic growth. After one year, the unemployment rate in this scenario is more favourable than in the base scenario (nine-tenths lower). House prices rise 7.7%, the S&P/TSX is at 23,849 points after one year, and the price of oil hovers around US$89.

In the downside scenario, central banks did not ease their monetary policies quickly enough, and the global economy sinks into a recession as falling demand translates into reduced investment by businesses, which also lay off a large number of workers. Given budgetary constraints, governments are unable to support households and businesses as they did during the pandemic. The geopolitical situation continues to cause concern, with the risk of conflicts escalating. After 12 months, economic contraction pushes unemployment to 9.5%. House prices fall sharply (-13.9%). The S&P/TSX sits at 17,063 points after one year, and the price of oil hovers around US$39.

Given uncertainty surrounding the key inputs used to measure credit losses, the Bank has applied expert credit judgment to adjust the modelled ECL results.

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