QUARTERLY FINANCIAL DYNAMIC. ENGAGED. 2020 REPORT TRUSTED. September , , Unaudited Contents Context of the Quarterly Financial Report . 3 COVID-19: what the Bank is doing . 3 Managing the balance sheet . 3 Assets . 4 Liabilities . 6 Equity . 8 Results of operations . 9 Income . 9 Expenses . 11 Other comprehensive income . 12 Surplus for the Receiver General for Canada . 13 Looking ahead . 13 Operational highlights and changes . 14 Governing Council and Board of Directors . 14 Operations and programs . 15 Risk analysis . 15 Condensed interim financial statements . 16 QUARTERLY FINANCIAL REPORT 3 BANK OF CANADA • September 30, 2020 Context of the Quarterly Financial Report The Bank of Canada is the nation’s central bank . The Bank Management is responsible for the preparation of Bank’s mandate under the Bank of Canada Act is to this report, which was approved by the Audit and Finance promote the economic and financial welfare of Canada . Its Committee of the Board of Directors on November 4, 2020 . activities and operations are undertaken in support of this This Quarterly Financial Report should be read in mandate and not with the objective of generating revenue conjunction with the condensed interim financial statements or profit . The Bank is committed to keeping Canadians included in this report and with the Bank’s Annual Report informed about its policies, activities and operations . for 2019 . The Annual Report includes a Management This discussion has been prepared in accordance with Discussion and Analysis (MD&A) for the year ended section 131 1. of the Financial Administration Act and December 31, 2019 . Disclosures and information in the follows the guidance outlined in the Standard on Quarterly 2019 Annual Report and the MD&A apply to the current Financial Reports for Crown Corporations issued by the quarter unless otherwise updated in this quarterly report . Treasury Board of Canada Secretariat . COVID-19: what the Bank is doing During the third quarter of 2020, the Bank maintained the (SRO) to provide primary dealers with a temporary source measures that were established in the first two quarters of of Government of Canada nominal bonds and treasury bills the year to support the economy and financial system . It to support liquidity in the securities financing market1 . also introduced the Securities Repo Operations program Managing the balance sheet Financial position (in millions of Canadian dollars) As at September 30, 2020 December 31, 2019 September 30, 2019 Assets Cash and foreign deposits 6 .8 6 .4 5 .4 Loans and receivables 170,106 .0 15,521 .9 11,612 .1 Investments 362,203 .3 103,346 .9 104,366 .7 Capital assets 691 .9 700 .9 700 .1 Other assets 32 .9 66 .7 43 .1 Total assets 533,040 .9 119,642.8 116,727.4 Liabilities and equity Bank notes in circulation 102,984 .1 93,094 .3 89,791 .6 Deposits 427,351 .1 25,243 .3 25,695 .9 Securities sold under repurchase agreements 532 .1 - - Derivatives—Indemnity agreements with the Government of Canada 415 .8 - - Other liabilities 1,160 .3 774 .9 703 .4 Equity 597 .5 530 .3 536 .5 Total liabilities and equity 533,040.9 119,642.8 116,727.4 1 Refer to COVID-19: Actions to Support the Economy and Financial System and to Note 3 in the condensed interim financial statements for more details on all the Bank’s measures . QUARTERLY FINANCIAL REPORT 4 BANK OF CANADA • September 30, 2020 The Bank’s holdings of financial assets have typically scaled back as financial conditions normalized . At the been driven by its role as the exclusive issuer of Canadian same time, purchases under the Government of Canada bank notes, where issuing bank notes creates a liability for Bond Purchase Program (GBPP) continued as a tool of the Bank . However, changes to the Bank’s balance sheet monetary policy . On the asset side, the Bank expanded the during the first nine months of 2020 resulted largely from range of instruments it acquires as well as their aggregate activities undertaken as part of the Bank’s financial system amount . On the liability side, these purchases resulted in and monetary policy functions . Starting in March 2020, a significant increase in deposits by the Government of the Bank implemented several measures to support key Canada and by financial institutions . financial markets and to provide liquidity for individual The Bank manages its balance sheet to support its core financial institutions . These measures caused a significant functions . Cash flows are not a primary focus of the Bank’s increase in the balance sheet . During the second and financial management framework . third quarter of 2020, many of these operations were Assets Summary of assets (in millions of Canadian dollars) Variance As at September 30, 2020 December 31, 2019 $ % Cash and foreign deposits 6.8 6.4 0.4 6 Loans and receivables Securities purchased under resale agreements 169,950 .8 15,516 .5 154,434 .3 995 Advances to members of Payments Canada 150 .3 - 150 .3 - Other receivables 4 .9 5 .4 (0.5) (9) 170,106.0 15,521.9 154,584.1 996 Investments Government of Canada treasury bills 93,268 .6 2 3,367 .4 69,901 .2 299 Government of Canada bonds—carried at amortized cost 94,196 .1 79,030 .5 15,165 .6 19 Government of Canada bonds—carried at fair 147,493 .3 - 147,493 .3 - value through profi t and loss Canada Mortgage Bonds 9,133 .3 510 .7 8,622 .6 1,688 Other bonds* 9,537 .7 - 9,537 .7 - Securities lent or sold under repurchase agreements 1,032 .7 - 1,032 .7 - Other securities† 7,036 .1 - 7,036 .1 - Shares in the Bank for International Settlements 505 .5 438 .3 67 .2 15 362,203.3 103,346.9 258,856.4 250 Capital assets‡ 691.9 700.9 (9.0) (1) Other assets 32.9 66.7 (33.8) (51) Total assets 533,040.9 119,642.8 413,398.1 346 * Includes Provincial bonds and Corporate bonds † Includes Provincial money market securities ‡ Includes Property and equipment, Intangible assets and Right-of-use leased assets QUARTERLY FINANCIAL REPORT 5 BANK OF CANADA • September 30, 2020 The Bank’s total assets more than quadrupled over the During the second quarter of 2020, the Bank started first nine months of 2020 to $533,040 .9 million as at purchasing corporate bonds and provincial bonds September 30, 2020 . This significant increase reflects as part of the Corporate Bond Purchase Program the impact of the Bank’s interventions to respond to (CBPP) and the Provincial Bond Purchase Program the financial and economic turmoil associated with the (PBPP) . The launch of these programs resulted in an COVID-19 pandemic and to provide monetary policy increase of $9,537 .7 million to the Bank’s assets as at support during the subsequent recovery . September 30, 2020 . Loans and receivables is composed primarily of The Bank began operating a securities-lending securities purchased under resale agreements (SPRAs) program to support the liquidity of provincial bonds in totalling $169,950 .8 million as at September 30, 2020 the securities financing markets by lending securities ($15,516 .5 million as at December 31, 2019) . SPRAs are purchased under the PBPP . During the third quarter high-quality assets temporarily acquired through the repo of 2020, the Bank also started conducting SROs to market, in line with the Bank’s framework for market foster a well-functioning Government of Canada operations and liquidity provision . These operations are securities market . As at September 30, 2020, the Bank’s normally conducted to manage the Bank’s balance sheet, investments included $1,032 .7 million of securities that promote the orderly functioning of Canadian financial were either lent or sold under repurchase agreements . markets and offset seasonal fluctuations in the demand for The Bank also started acquiring bankers’ acceptances, bank notes . Beginning in March 2020, the Bank increased provincial money market securities and commercial SPRAs by extending terms, by expanding the size and the paper as part of the Bankers’ Acceptance Purchase frequency of the transactions and by expanding eligible Facility (BAPF), the Provincial Money Market Purchase collateral as a measure to increase liquidity in the Canadian Program and the Commercial Paper Purchase Program financial system . in 2020 . The BAPF was discontinued in October Investments more than tripled to $362,203 .3 million as 2020 . As at September 30, 2020, the Bank held at September 30, 2020 . This increase was a result of the $7,036 1 million. solely in provincial money market following movements within the Bank’s holdings: securities in its portfolio . Government of Canada treasury bills increased The value of the Bank’s investment in shares of the by $69,901 .2 million to $93,268 6. million as at Bank for International Settlements (BIS) increased by September 30, 2020 . Purchases of Government of 15 percent to $505 .5 million as at September 30, 2020 . Canada treasury bills are typically based on the Bank’s The growth in BIS equity resulted in an increase of balance sheet needs . The increase also reflects the $48 0. million, while fluctuations in the Special Drawing growth in Government of Canada issuances and the Rights exchange rate resulted in a further increase of Bank’s increased purchases .2 $19 .2 million . Government of Canada bonds (carried at amortized Capital assets decreased slightly by $9 0. million to cost and at fair value through profit and loss $691 .9 million as at September 30, 2020 . This change combined) more than tripled to $241,689 4. million as at resulted mainly from $45 .8 million of amortization and September 30, 2020 .