Exhibit 99.1

 

2022 ANNUAL REPORT Scotiabank

L E A D I N G B A N K What’s inside I N T H E A M E R I C A S WHO WE ARE 1 CEO’s Message to Shareholders Guided by our purpose - “for every future” - we help our customers, 7 Chair’s Message their families and their communities achieve success through a broad to Shareholders range of advice, products, and services, including personal and commercial banking, wealth management and private banking, 8 Our Leadership Team corporate and investment banking, and capital markets. 9 Board of Directors REASONS TO INVEST 10 Environment, Social & Governance Leading Bank in the Americas with over 90% of earnings from six diversified markets of Canada, the United States, and the Pacific 13 Management’s Discussion Alliance - Mexico, Peru, Chile, and Colombia and Analysis Highlights High quality earnings with strong growth and ROE potential 14 Management’s Discussion Strong balance sheet, capital, and liquidity ratios supported by and Analysis prudent risk management culture 137 Consolidated Financial Attractive dividend yield with a 20-year CAGR of 9% Statements Investment in technology to support digital banking strategy to increase digital sales and adoption EARNINGS PER DIVIDEND STRONG CAPITAL SHARE GROWTH GROWTH POSITION Diluted, dollars per share Dollars per share CET1 Capital Ratio % Adjusted Reported $8.50 $8.02 $4.06 Adjusted 5Y CAGR = 5.4% 12.3 SNAPSHOT 4.0 11.8 11.5 11.5 Reported 5Y CAGR = 4.3% 11.1 11.1 8.5 8.0 3.5 7.5 7.0 5Y CAGR = 6% 6.5 3.0 6.0 5.5 PERFORMANCE 5.0 17 18 19 20 21 22 2.5 17 18 19 20 21 22 17 18 19 20 21 22 Adjusted Reported

Brian J. Porter President and Chief Executive Officer CEO’S MESSAGE TO SHAREHOLDERS Dear fellow shareholders, This year’s letter is particularly meaningful, as it is my last as President and CEO of Scotiabank. After more than four decades as a Scotiabanker, I will be retiring from the Bank at the end of January 2023. It has truly been the honour of my life to serve this 190-year-old institution as President and CEO for the past 10 years. I want to use this opportunity to sincerely thank you, our shareholders, for your ongoing trust in the Bank’s leadership team and in our strategy. Ten years ago, the Bank looked very different than it does today, by every measure. Change is never easy, and the changes we made were not only necessary to give our customers an outstanding banking experience, strengthen the foundation of the Bank, and meet rapidly shifting regulatory obligations, they were also the right decisions for our Bank and have positioned us for a very bright future. As I look back over the past 10 years, I am filled with gratitude and pride in what our team of more than 90,000 Scotiabankers has accomplished together. Our present strength and success would not have been possible without their commitment and dedication to our customers. Because of our winning team, today we are a Leading Bank in the Americas. RETURN ON EQUITY Adjusted 15.6% Reported 14.8% Adjusted 15.0% Reported 14.7% 2021 2022 VS REPORTED EARNINGS BY MARKET Net income attributable to equity holders $0.4$0.4$0.8$2.1$6.2$9.9 BILLION ● Canada 62% ● Pacific Alliance 22% ● U.S. 8% ● Caribbean & Central America 4% ● Other International 4% 2022 Scotiabank Annual Report | 1

OUR 2022 RESULTS In a year marked by ongoing economic volatility, geopolitical conflict, and the lingering effects of the global pandemic, your Bank’s results this year demonstrate the enduring strength of our long-term strategy. Despite a challenging operating environment, the Bank demonstrated resilience and performed above its medium-term objectives on earnings per share growth and return on equity, with 8% and 15.6% respectively on an adjusted basis (4% and 14.8% respectively on a reported basis). The Canadian Banking business delivered solid results this year, growing earnings by 15%, which was driven by strong growth in residential mortgages and strong performance in Business Banking and Tangerine. Our market-sensitive businesses of Global Wealth Management (GWM) and Global Banking and Markets (GBM) remained resilient in this challenging environment. GWM reported adjusted earnings this year of $1,583 million ($1,556 million on a reported basis), in line with the prior year as our diversified asset management and wealth management business mix helped mitigate less favourable market conditions, with strong earnings growth in the Pacific Alliance countries, and record results across Private Banking, Private Investment Counsel, and ScotiaMcLeod. GBM delivered earnings this year of $1,911 million, down 8% from weaker capital markets due to challenging market conditions, partly offset by strong business banking results. Our International Banking business delivered a strong rebound this year with adjusted earnings of $2,446 million ($2,418 million on a reported basis)—an increase of 32% (33% on a reported basis) with strong commercial and residential mortgage loan growth, prudent expense management, and lower provision for credit losses. Our diversified business model and the significant investments made in our business and our people have contributed to our ability to deliver this year. The economic uncertainty that has defined the past several years has only intensified our focus on delivering value and advice to our customers, as we rolled out new services, products, and tools to help them manage through this challenging period. This includes the launch of Scene+, which has transformed the loyalty landscape in Canada, providing more than 11 million members with the flexibility to earn and redeem points on banking, groceries, travel, movies, entertainment, dining, and more. With the addition of Empire Company Limited as co-owner, and their range of brands, including Sobeys, joining the program, Scene+ continues to expand with more than one million new members signing up since launching in grocery stores in August. At the same time, we have built new digital tools and platforms that make it easier for our customers to do business with us, and for our employees to serve our customers, including Scotia Smart Investor and Scotia Smart Money by Advice+ for our Canadian Retail customers; a new generation of our iTRADE mobile app for our Wealth customers; Scotia TranXact for our business payments clients; the expansion of ScotiaRED, our state-of-the-art electronic trading tools that enable the next generation of multi-asset electronic trading; and more innovations across our footprint including ScotiaZero in Chile, which is the first free, 100% digital chequing account in the market. We take our role as a global corporate citizen seriously. This year we released our inaugural ScotiaRISE Impact Report, highlighting the support we provided to people during 358,000 critical moments in time across ScotiaRISE’s key focus areas—including education, employment, and newcomer support—in the program’s first year. We stand by our team members and stand up for what is right in this world. Most recently, in the wake of the unprecedented humanitarian crisis caused by Russia’s war against Ukraine, we committed more than $1 million in Ukrainian aid to support humanitarian and resettlement efforts in Eastern Europe, and made it easier for our customers to get financial support to their families back home. Scotiabankers also came together to make a positive difference in our communities. Our most recent Employee Giving Campaign raised more than $10.8 million, which is a new record for our annual giving drive in Canada. We have continued to make progress against our climate commitments. This year, we released our inaugural Net-Zero Pathways Report, which includes 2 | 2022 Scotiabank Annual Report

sector-specific decarbonization baselines and targets. We have made significant progress in achieving our climate-related financing target, having mobilized a total of $96 billion in climate-related finance, up from $58 billion last year. The Scotiabank Women Initiative continues to grow, providing unbiased access to capital and tailored solutions, specialized education, advisory services, and mentorship to more women across the Americas—helping them to succeed in business, in their careers, and in managing their wealth. This year we increased our commitment to deploy capital to women-owned and women-led businesses in Canada to $10 billion by 2025, and have deployed over $5.6 billion to date. The program also expanded internationally this year, including into Chile, with plans to expand across most of our footprint by 2025. In downtown Toronto, we have started welcoming employees into our new Scotiabank North tower, which will serve as our global head office. We firmly believe that in-person experiences remain vitally important to building a diverse and inclusive culture, fostering collaboration, and delivering best-in-class service for our clients. Scotiabank North represents our renewed commitment to the vibrancy of Toronto’s financial hub, and is a symbol of the important role that we play in the social and economic fabric of the cities where we operate. All of our efforts are resonating. In 2022, your Bank won a number of prestigious awards, including Bank of the Year for Canada for the third year in a row from The Banker magazine, Investment Bank of the Year for the Americas from The Banker, Canada’s Best Bank from Euromoney magazine, and many others including for our sustainable finance efforts and world-class culture. EMPLOYER OF CHOICE • Employee Engagement (Pulse): At the all-Bank level, employee engagement continues to be strong at 87%, well above the Financial Services average, with 89% of employees feeling they belong at the Bank, and 94% feeling the Bank is committed to building an inclusive workplace. • Scotiabank introduced a new goal to increase representation in Canada of employees who identify as lesbian, gay, bisexual, or another diverse sexual orientation to 7% or greater by 2025. • Scotiabank was recognized with the Gold Standard Award from Excellence Canada for creating a psychologically safe environment. The Bank has made significant progress on mental health services under the Canadian Benefits Plan. Employees and eligible dependents in Canada now have $10,000 in mental wellbeing services as part of their core coverage. • Scotiabank implemented a new global standard for parental leave and fertility coverage: – Includes eight fully paid weeks for all parents with a new child and eight additional fully paid weeks for parents who have given birth across our global footprint. – New coverage provided as part of the 2022 Canadian Benefits Plan for fertility treatment, adoption, and surrogacy benefits with a lifetime maximum of $10,000 each. • Scotiabank was named one of the Best Places to Work for LGBTQ+ Equality by the Human Rights Campaign (HRC) Foundation: – Scotiabank U.S. achieved a perfect 100% score on the HRC’s most recent Corporate Equality Index (CEI), a benchmarking report on corporate policies and practices in support of lesbian, gay, bisexual, transgender, and queer (LGBTQ+) workplace equality. Scotiabank Mexico and Scotiabank Chile also received a 100% score from HRC. 2022 Scotiabank Annual Report | 3

A DECADE OF IMPACT After a decade marked by significant change, technological advancement, and extreme volatility of every kind, two things have never been more true: first, as I will outline below, our Bank looks very different today than it did 10 years ago; and second, the steps we have taken to reposition and strengthen the foundation of the Bank have brought stability and resilience that will serve us for years to come. Bold change requires bold decisions, and such decisions are rarely easy. Yet, as the Bank moves into the next chapter of its history under a new leader, our team should feel an enormous sense of pride in everything that we have achieved together, and what we can continue to achieve going forward. I would like to share the five accomplishments from my time as CEO that I think have been the most consequential for the Bank—and for which I am most proud. WE STRENGTHENED THE FOUNDATIONS OF THE BANK through strategic investments in people, processes, technology, and products. Over the past decade, the Bank has transformed the way that our customers can interact with us by investing significantly in our digital offering. That includes new tools and services for our retail customers, such as our industry-leading mobile banking app, and Advice+, which has ensured that advice is now the cornerstone of our business. Today digital sales account for 50% of retail banking sales, and over 90% of all banking transactions are self-serve transactions. Beyond our digital capabilities, we have also invested significantly in our technology backbone, as well as our compliance and anti-money laundering (AML) functions. In 2022, 13% of our revenue was invested back into technology, up from 8% a decade prior. These behind-the-scenes investments are not always obvious to the customer, but they have been necessary—both to meet increasing regulatory and business requirements, and to set the Bank up for the future. As a result, today we are a safer, stronger bank across the board. WE REPOSITIONED THE BANK BY SHARPENING OUR GEOGRAPHIC FOOTPRINT, focusing our investments on higher-quality assets, which has substantially reduced operational risk and strengthened our earnings quality. Ten years ago, the Bank operated in more than 50 countries. Today we operate in fewer than 30. In that time, we have redeployed and reinvested approximately $13 billion in our core businesses and geographies through on-strategy, focused acquisitions. Throughout the decade we have continued to grow in key markets across our Americas footprint, and today, over 90% of the Bank’s earnings come from six core markets – Canada, the United States, and the four Pacific Alliance countries. Our market share has increased in several of our core markets—most notably Chile, where we went from the seventh to the third largest private bank. We are also the third largest bank in Canada and Peru, the fifth largest in Mexico, and the sixth largest in Colombia by loans, and a top-10 foreign bank in the United States by assets. Today, we truly are a Leading Bank in the Americas. WE INVESTED TO STRENGTHEN OUR GLOBAL WEALTH MANAGEMENT BUSINESS TO DRIVE GROWTH. We have made investments to win in strategic areas across our business and footprint. Today, Scotiabank is the third largest global wealth management firm in Canada, with the largest Private Investment Council and Trust businesses. We are also ranked second by assets in the Canadian investment fund industry. With the successful integration of our Jarislowsky Fraser and MD Financial Management acquisitions, we have bolstered our competitive scale to accelerate momentum and drive new growth in our investment management and advisory businesses – delivering even more value to our clients. Just this year, Scotiabank and MD Financial Management launched the Medicus Pension Plan—a truly unique offering as the first multi-employer pension plan designed specifically for Canadian incorporated physicians. 4 | 2022 Scotiabank Annual Report

WE HAVE ENSURED THAT THE BANK IS AN IMPORTANT PART OF THE ECONOMIC AND SOCIAL FABRIC OF THE COMMUNITIES WHERE SCOTIABANKERS LIVE AND WORK. Over the past 10 years, the Bank has contributed more than $800 million in community investment across its footprint, with a particular focus on investing in young people, promoting economic inclusion, and advancing financial literacy. In 2021, the Bank launched ScotiaRISE – a $500 million commitment to promote economic resilience. Since launch, we have partnered with more than 200 community organizations and made investments of more than $60 million over the past two years, which have created opportunity for hundreds of thousands of people in our communities. We have built a leading Sustainable Finance business, which is actively supporting our corporate and commercial clients across the Americas in their transitions towards a more sustainable future. The culmination of years of effort to grow that business led to Scotiabank being awarded North America’s Best Bank for Sustainable Finance by Euromoney in 2022. The Bank was also recognized as a Global Leader by Global Finance’s Sustainable Finance Awards, with six wins including Best Bank in Canada. WE HAVE BUILT A WORLD-CLASS CULTURE AND A WINNING TEAM that is high-performing, supportive, and inclusive, and is focused on delivering for our customers. Since I first started as CEO, we have brought customer focus to the top of our team’s list of priorities. Today, during our most recent employee check-in, 90% of employees agree that the Bank’s decisions demonstrate that Scotiabank puts customers first, and 94% of our employees understand how their role contributes to the Bank’s strategic framework. Employee engagement continues to be strong at 87%—well above the financial services average—with 89% of employees feeling they belong at the Bank, and 94% feeling the Bank is committed to building an inclusive workplace. This year Scotiabank was ranked 16th on the list of the top 25 World’s Best Workplaces by Great Place to Work®—the only Canadian-headquartered company to make the list, and the only Bank. For this recognition, I am extremely proud. The proportion of women vice presidents and above in Canada increased from 30% in 2012 to 42% in 2022, and globally from 24% to 38%. As of our last employee survey, approximately 40% of our employees in Canada identify as a person of colour, up from 26% in 2012. As a result of our efforts, for five consecutive years, the Bank has been recognized in the top 50 companies on the Refinitiv Global Diversity & Inclusion Index. The Bank has also been included in Bloomberg’s Gender-Equality Index for five consecutive years. • Scotiabank was recognized for executive gender diversity on The Globe and Mail’s Women Lead Here list for the second consecutive year. • Scotiabank was recognized as one of the Best Workplaces™ in Canada for the third consecutive year. • Scotiabank hosted an employee Allyship Summit for Change to support a culture of inclusion and belonging representing the highest attended virtual event the Bank has held to date. The Summit marked the launch of the Bank’s overarching diversity, equality, and inclusion strategy focused on encouraging Allyship across its global footprint to better serve our customers, support our communities, and enable our colleagues to succeed. • Scotiabank and Elevate Canada announced a fully-funded Customer Care training program. The program aims to help eliminate employment and opportunity barriers for underrepresented communities across Canada. Scotiabank expects to hire participants across the Greater Toronto Area, with plans to expand to various contact centre locations in Canada over three years. More than 900 participants are expected to go through the program during this time. 2022 Scotiabank Annual Report | 5

LOOKING TO THE FUTURE Today, how we bank, who we bank, and where we bank are all reflections of the strategic plan that our team has worked diligently to implement over the past decade. Taken together, the considerable investments and strategic decisions that we have made have positioned your Bank exceedingly well to deliver consistent, long-term growth and strong shareholder returns for years to come. It now gives me great pride to hand the Bank over to the next generation of leaders, and in particular, to our incoming President and CEO Scott Thomson. Scott is the right person with the right skillset and background to lead your Bank, today and into the future. Scott is a seasoned CEO, having run a public company with global operations. He has a track record of delivering results across multiple industries and geographies—including Canada, the Americas, and other international markets. He is a proven leader with impeccable integrity and strong values that align seamlessly with the culture of Scotiabank, and he has a track record of building trust and strong teams that deliver results. The Bank is in good hands under Scott’s leadership. In closing, let me once again express my immense gratitude to our customers and to you, our shareholders, for your support and engagement over these many years. Most of all, my sincere thanks goes out to our team of more than 90,000 Scotiabankers for their tireless efforts. In communities across our footprint—despite economic downturns, natural disasters, and a global pandemic—Scotiabankers have persevered through good times and bad. They have remained unwavering in their commitment to deliver for our customers and our shareholders, and it has been an enormous privilege to serve alongside this winning team. Together, we have truly built an enduring institution with its best days ahead. 2022 TECHNOLOGY HIGHLIGHTS • Scotiabank Launches Next-Gen Algorithmic Trading Platform: ScotiaRED Made available to Canadian clients through a strategic agreement with BestEx Research, our state-of-the-art electronic trading tools enable the next generation of multi-asset electronic trading. • Scotiabank Launches Scotia TranXact™ Our new digital payments platform provides business banking clients with on-demand access to Scotiabank’s payments and cash management Application Programming Interfaces (APIs). With Scotia TranXact, business banking clients now have the ability to move money instantly, request payment for invoices, and obtain their bank account balance and transaction details on-demand via APIs. • Scotia iTRADE launches enhanced online trading application Scotiabank’s online brokerage has unveiled the newest generation of its mobile trading app. Part of Scotia iTRADE’s substantial investment in its people, tools, and technology, the new app combines a powerful engine with an intuitive interface tailored to investors of all experience levels. • Scotiabank Chile named Digital Bank of the Year in Latin America and the Caribbean by LatinFinance. 6 | 2022 Scotiabank Annual Report

CHAIR’S MESSAGE TO SHAREHOLDERS Dear fellow shareholders, This year, the Bank has demonstrated its ongoing strength and resilience with a solid performance in 2022 despite the challenging operating environment. Global economic uncertainty may persist, but we remain confident in the Bank’s diversified franchise and our ability to deliver long-term results for our shareholders. STRENGTH & RESILIENCE Our strength and resilience are a direct result of our sharpened focus on businesses and geographies where we can achieve greater size and scale and deliver the highest value for our customers. For nearly a decade, we have made great progress in expanding our Wealth Management offering, solidifying our position across key markets in the Americas, and redeploying our capital to generate high quality earnings. Your Board recognizes the importance and influence of Brian Porter’s leadership in shaping this winning strategy. Brian has been instrumental in strengthening the foundation of our franchise and building a diverse, high-performing, and inclusive team. Throughout his impressive career, Brian has guided the Bank through a period of true transformation, always with an eye on the future. On behalf of all of us at Scotiabank, we thank Brian for his leadership and contributions to the Bank and wish him all the best in his well-deserved retirement. FUTURE LEADERSHIP We look forward to officially welcoming Scott Thomson to our executive leadership team first as President on December 1, 2022 and then as CEO effective February 1, 2023. Scott is a seasoned CEO with a proven track record of delivering exceptional results and crafting winning teams across key markets in our Americas footprint. As a member of your Board since 2016, Scott has extensive knowledge of our strategy, operations, and culture. He is the ideal leader to build on our strong foundation, galvanize our management team, and grow our business and earnings. FOCUS ON GOVERNANCE This year, my fellow directors and I have continued to engage with numerous shareholders and other stakeholders to discuss pivotal governance matters and to understand their priorities and concerns. We have had extensive discussions on our CEO selection process, recognizing the selection of our Bank’s CEO is one of, if not the most, critical decision our Board will make. As directors, our responsibility is to consider the best interests of the Bank over the long term, assess the criteria required by the Office of the CEO to lead this Bank in the years ahead, and prioritize those criteria. We are confident in our next CEO, and in our senior leadership team, to lead the Bank through its next chapter. We were also pleased to welcome W. Dave Dowrich as our newest Board member this year, who has experience and expertise in finance and risk management developed throughout his global career in financial services. We continue to make meaningful progress in our Environment, Social, and Governance (ESG) commitments, as demonstrated by our enhanced climate commitments, our inaugural Net-Zero Pathways Report, and our social impact program, ScotiaRISE. And within our Board itself, we are also making progress on our inclusion and representation goals. On behalf of your Board, I would like to thank the leadership team, and the more than 90,000 employees across the Bank’s footprint, for their hard work and commitment this year. We can always count on our teams to provide the expert advice and dedicated service our customers need to achieve their goals despite these uncertain times. I also want to thank you, our shareholders, for your continued confidence and engagement as we build a better Bank, for every future. Aaron W. Regent Chair of Scotiabank’s Board of Directors 2022 Scotiabank Annual Report | 7

OUR LEADERSHIP TEAM Brian J. Porter President and Chief Executive Officer Ignacio “Nacho” Deschamps Group Head, International Banking & Digital Transformation Glen Gowland Group Head, Global Wealth Management Jake Lawrence CEO & Group Head, Global Banking and Markets Barbara Mason Group Head & Chief Human Resources Officer James Neate President & Group Head, Corporate & Investment Banking Dan Rees Group Head, Canadian Banking Raj Viswanathan Group Head & Chief Financial Officer Michael Zerbs Group Head, Technology & Operations Ian Arellano Executive Vice President & General Counsel Paul Baroni Executive Vice President & Chief Auditor Nicole Frew Executive Vice President & Chief Compliance Officer Phil Thomas Chief Risk Officer Anique Asher Executive Vice President, Finance & Strategy Stephen Bagnarol Executive Vice President, Canadian Business Banking Alex Besharat Executive Vice President, Canadian Wealth Management Tracy Bryan Executive Vice President, Global Operations Stuart Davis Executive Vice President, Financial Crimes Risk Management and Group Chief Anti-Money Laundering Officer John Doig Executive Vice President, Retail Sales Loretta Marcoccia Executive Vice President & Chief Operating Officer, Global Banking and Markets Diego Masola Executive Vice President & Country Head, Chile Gillian Riley Executive Vice President, President & CEO, Tangerine Shawn Rose Executive Vice President & Chief Technology Officer Adrián Otero Rosiles Executive Vice President & Country Head, Mexico Francisco Sardón Executive Vice President & Country Head, Peru Anya M. Schnoor Executive Vice President, Caribbean, Central America & Uruguay (CCAU) Kevin Teslyk Executive Vice President & Chief Operating Officer, Canadian Banking Maria Theofilaktidis Executive Vice President, Finance Martin Weeks Executive Vice President & Group Treasurer Terri-Lee Weeks Executive Vice President, Retail Customer 8 | 2022 Scotiabank Annual Report

BOARD OF DIRECTORS Aaron W. Regent • Chair of the Board • Founder, Chairman and Chief Executive Officer of Magris Performance Materials Inc. • Scotiabank director since April 9, 2013 COMMITTEE CHAIRS Nora A. Aufreiter • Human Capital and Compensation Committee Chair • Corporate director • Scotiabank director since August 25, 2014 Guillermo E. Babatz • Risk Committee Chair • Managing Partner of Atik Capital, S.C. • Scotiabank director since January 28, 2014 Una M. Power • Audit and Conduct Review Committee Chair • Corporate director • Scotiabank director since April 12, 2016 Calin Rovinescu • Corporate Governance Committee Chair • Corporate director • Scotiabank director since November 1, 2020 BOARD OF DIRECTORS Scott B. Bonham • Corporate director and co-founder of Intentional Capital • Scotiabank director since January 25, 2016 Daniel (Don) H. Callahan • Corporate director and Non-Executive Chairman of TIME USA LLC • Scotiabank director since June 15, 2021 W. Dave Dowrich • Senior Executive Vice President and Chief Financial Officer of Teachers Insurance and Annuity Association of America - College Retirement Equities Fund (TIAA) • Scotiabank director since June 1, 2022 Lynn K. Patterson • Corporate director • Scotiabank director since September 1, 2020 Michael D. Penner • Corporate director and an Operating Partner of Partners Group AG • Scotiabank director since June 26, 2017 Brian J. Porter • President and Chief Executive Officer of Scotiabank • Scotiabank director since April 9, 2013 Susan L. Segal • President and Chief Executive Officer of the Americas Society and Council of the Americas • Scotiabank director since December 2, 2011 L. Scott Thomson* * Scott Thomson has been appointed incoming President for Scotiabank effective December 1, 2022 and will assume the role of President and CEO for Scotiabank on February 1, 2023. • Former President and Chief Executive Officer of Finning International Inc. • Scotiabank director since April 12, 2016 Benita M. Warmbold • Corporate director • Scotiabank director since October 29, 2018 2022 Scotiabank Annual Report | 9

ENVIRONMENT, SOCIAL & GOVERNANCE ESG SCOTIABANK’S APPROACH TO ESG FOCUSES ON FOUR STRATEGIC PILLARS: Governance & Leadership, Economic Resilience, Environmental Action, and Inclusive Society. We develop, implement and invest in initiatives across these areas in order to maximize impact on our operations, our customers and the world around us, for every future. Key ESG Highlights ENVIRONMENT • Established Bank-wide, quantitative, time-bound targets for reducing greenhouse gas emissions associated with both our financing activities and our own operations in our inaugural Net-Zero Pathways Report. • Released our Sustainable Bonds report, covering the green and social use of proceeds for our Sustainable Bond issuances, including Scotiabank’s USD 1 billion 3-year sustainability bond. • Secured a long-term Power Purchase Agreement for solar energy in Alberta to progress towards our goal of 100% non-emitting energy in Canada by 2025. • Committed to providing $25 million in community investment over 10 years to support non-profit and charitable partnerships that enable climate-related systems change and sector decarbonization, including $10 million towards our Net Zero Research Fund. This year, we selected 10 projects that advance research and leadership in support of global decarbonization efforts in Canada and Latin America. • Participated as a member of the United Nations-convened Net-Zero Banking Alliance (NZBA) and the Partnership for Carbon Accounting Financials (PCAF). GOVERNANCE • Scored in the top 5% of participating financial institutions from around the world according to the S&P Global Corporate Sustainability Assessment, which is used to determine inclusion in the Dow Jones Sustainability Index (DJSI). Scotiabank has been included in the DJSI North America since 2018. • Launched Ethics Assistant to further enhance the Bank’s investments in data and analytics related to new AI and machine learning projects to derive customer insights that are more accurate, personalized, and free of bias. • Appointed our first Head of Inclusion and Resilience Economics with a mandate to provide thought leadership on how inclusive economic growth can drive stronger, more durable, and more adaptable economies. • A bank-wide, multi-disciplinary team of executives makes up Scotiabank’s Corporate ESG Committee. Their expertise and influence on ESG matters enable them to champion the integration of ESG priorities into the Bank’s business activities and operations. • Became the first Canadian bank to join the Financial Taskforce of United for Wildlife. Scotiabank is participating in the taskforce to curb the illegal wildlife trade and prevent illegal financial transactions. 10 | 2022 Scotiabank Annual Report

SOCIAL Community Sponsorships • Scotiabank launched the flagship soccer platform Scotiabank FC in Canada providing opportunities for youth development through sport. • Scotiabank and Jarislowsky Fraser committed $1 million to the Montreal Museum of Fine Art over three years to create a Curator of Indigenous Art position at the Museum. Physician Support • MD Financial Management Inc. and Scotiabank teamed up with the Indigenous Physicians Association of Canada to support the Indigenous medical community. Disaster Relief • Supported urgent relief efforts in Eastern Canada with a donation to the Canadian Red Cross following Hurricane Fiona. • Committed over $1 million in Ukrainian aid to support humanitarian and resettlement efforts. Customer Programs • Supported Black-Led Businesses with a new financing program committed to providing $100 million in capital. • Increased our commitment to $10 billion to women-owned and women-led businesses in Canada, and expanded internationally to Chile, Costa Rica, and Jamaica. • Strengthened Seniors’ Financial Literacy with new Let’s Talk Money initiative in partnership with the Canadian Foundation for Economic Education. Business Practices • Became a member of the Inclusive Workplace & Supply Council of Canada (IWSCC) to strengthen procurement ties with businesses owned by Veterans and People with Disabilities and to advance supplier diversity. • Hosted workshops with teams from across the Bank to build awareness of the UN Guiding Principles on Business and Human Rights (UNGPs) and support teams to embed these principles into their business areas. ScotiaRISE • Released our inaugural ScotiaRISE Impact Report highlighting first-year results from our 10-year, $500 million community investment commitment. • Welcomed approximately 200 ScotiaRISE community partners to the first ScotiaRISE Summit focused on measuring outcomes in community investment. Since the launch of ScotiaRISE, we have invested more than $60 million in communities across our footprint. • ScotiaRISE and Pathways to Education announced $900,000 partnership to help newcomer youth living in low-income communities stay in school. • Scotiabank and YMCA announced $2.15 million partnership to help increase school graduation among vulnerable youth. Scotiabank also partnered with YWCA NWT to help women and families in Northwest Territories find long-lasting employment. • Scotiabank announced a donation of $900,000 to Habitat for Humanity Canada’s Every Youth Initiative, a national program that provides work experience to youth. 2022 Scotiabank Annual Report | 11

Our Climate Commitments: Net-Zero Emissions by 2050 Scotiabank’s Climate Commitments form the Bank’s enterprise-wide climate strategy addressing climate risks and opportunities for our customers, shareholders, employees, other stakeholders, and our business and operations. 2022 HIGHLIGHTS 1. Increased our target to mobilize capital to address the impacts of climate change from $100 billion to $350 billion by 2030. As of November 2022, we have mobilized $96 billion and grown our green and social lending and underwriting business. 2. Strengthened climate-related governance and transparency with the release of our inaugural Net-Zero Pathways Report in March 2022. 3. Set our bank-wide time-bound targets for reducing greenhouse gas (GHG) emissions in our lending activities: • Reduce Scope 1 and 2 emissions intensity of our Oil & Gas portfolio by 30%, and reduce Scope 3 emissions intensity by approximately 15%-25% by 2030. • Reduce Scope 1 and 2 emissions intensity for our Power & Utilities portfolio by 55%-60% by 2030. • As a member of the Net-Zero Banking Alliance, Scotiabank will be setting additional decarbonization targets over time and annually reporting on progress towards our commitments. 4. Further enhanced integration of climate risk assessments in our lending, financing, and investing activities with established standardized processes for performing climate change risk assessments, which are embedded in internal tracking systems at the borrower-level. These assessments include physical, transition, and management’s awareness of climate risk. We provide related training for banking and credit officers. 5. Achieved a 25% reduction of Scope 1 and 2 GHG emissions (from 2016 levels) four years ahead of our 2025 target. We are progressing towards securing 100% electricity from non-emitting sources across our global operations by 2030. 6. Committed $25 million in community investment by 2030 to support non-profit and charitable partnerships that enable climate-related systems change and sector decarbonization. Within this program, our $10 million Net Zero Research Fund has provided grants to 21 projects in North and Latin America. 12 | 2022 Scotiabank Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS HIGHLIGHTS Results at a glance Total Assets Loans MEDIUM-TERM FINANCIAL OBJECTIVES $1,349 $745 Billion Billion 3-Year 2022 Y/Y Adjusted Reported Key Metrics Performance Performance Revenue Revenue Earnings Per Share Growth: 7%+ $31.8 $31.4 Adjusted 6.0%1 8.0% Billion Billion Reported 6.3%1 4.2% Adjusted Reported Return on Equity: 14%+ Net Income Net Income Adjusted 13.7%2 15.6% $10.7 $10.2 Reported 13.3%2 14.8% Achieve Positive Operating Leverage Billion Billion Deposits Total Taxes* Adjusted -0.1%1 -1.1% Reported -0.3%1 -2.4% $916 $4.2 Maintain Strong Capital Ratios Strong Levels Strong Levels Billion Billion 1 Reflects 3-year CAGR, 2 Reflects 3-year average *Includes income and other taxes COMMON EQUIT Y AVERAGE ASSETS EARNINGS BY TIER 1 CAPITAL RATIO % BY MARKET % BUSINESS LINE %* 11 18 11.1 11.8 12.3 11.5 2 10.0 9.0 10.5 10.5 16 60 44 Regulatory 15 minimum 11 2019 2020 2021 2022 23 Canada Caribbean & Canadian Banking Global Wealth Management Pacific Alliance Central America International Banking Global Banking and Markets U.S. Other International *Net income attributable to equity holders. For more information, please refer to page 57 For more information, please refer to page 218 Excludes corporate segment. 350 Share price appreciation plus dividends TOTAL RETURN 300 reinvested, 2012 = 100 TO COMMON SHAREHOLDERS 250 200 Scotiabank 150 S&P/TSX Banks Total Return Index S&P/TSX Composite Total Return Index 100 12 13 14 15 16 17 18 19 20 21 22 2022 Scotiabank Annual Report | 13

ENHANCED DISCLOSURE TASK FORCE (EDTF) RECOMMENDATIONS

The Enhanced Disclosure Task Force (EDTF) was established by the Financial Stability Board in May 2012 with the goal of developing fundamental disclosure principles. On October 29, 2012 the EDTF published its report, “Enhancing the Risk Disclosures of Banks”, which sets forth recommendations around improving risk disclosures and identifies existing leading practice risk disclosures.

Below is the index of all these recommendations to facilitate easy reference in the Bank’s annual report and other public disclosure documents available on www.scotiabank.com/investorrelations.

 

		Reference Table for EDTF
								Pages
		Type of risk		Number		Disclosure		MD&A				Financial Statements				Supplementary Regulatory Capital Disclosures
		General		1		The index of risks to which the business is exposed.			14
				2		The Bank’s risk to terminology, measures and key parameters.			74-78
				3		Top and emerging risks, and the changes during the reporting period.			80-81, 85-91
				4		Discussion on the regulatory development and plans to meet new regulatory ratios.			54-57, 99-102, 114-116
		Risk governance, risk management and business model		5		The Bank’s Risk Governance structure.			72-74
				6		Description of risk culture and procedures applied to support the culture.			74-78
				7		Description of key risks from the Bank’s business model.			79
				8		Stress testing use within the Bank’s risk governance and capital management.			75-76
		Capital Adequacy and risk-weighted assets		9		Pillar 1 capital requirements, and the impact for global systemically important banks.			54-57				206				3
				10		a) Regulatory capital components.			58								18-21
						b) Reconciliation of the accounting balance sheet to the regulatory balance sheet.											15-16
				11		Flow statement of the movements in regulatory capital since the previous reporting period, including changes in common equity tier 1, additional tier 1 and tier 2 capital.			59-60								74
				12		Discussion of targeted level of capital, and the plans on how to establish this.			54-57
				13		Analysis of risk-weighted assets by risk type, business, and market risk RWAs.			63-67, 79, 123				176, 229				5, 34, 36-47, 59-61, 65, 77, 83
				14		Analysis of the capital requirements for each Basel asset class.			63-67				176, 223-229				13-14, 34-48, 58-61, 65, 70-73
				15		Tabulate credit risk in the Banking Book.			63-67				224				13-14, 34-48, 70-73
				16		Flow statements reconciling the movements in risk-weighted assets for each risk-weighted asset type.			63-67								49, 64, 76
				17		Discussion of Basel III Back-testing requirement including credit risk model performance and validation.			64-66								50-53, 81
		Liquidity Funding		18		Analysis of the Bank’s liquid assets.			97-102
				19		Encumbered and unencumbered assets analyzed by balance sheet category.			99
				20		Consolidated total assets, liabilities and off-balance sheet commitments analyzed by remaining contractual maturity at the balance sheet date.			103-105
				21		Analysis of the Bank’s sources of funding and a description of the Bank’s funding strategy.			102-103
		Market Risk		22		Linkage of market risk measures for trading and non-trading portfolios and the balance sheet.			96
				23		Discussion of significant trading and non-trading market risk factors.			92-97				228-229
				24		Discussion of changes in period on period VaR results as well as VaR assumptions, limitations, backtesting and validation.			92-97				228-229
				25		Other risk management techniques e.g. stress tests, stressed VaR, tail risk and market liquidity horizon.			92-97				229
		Credit Risk		26		Analysis of the aggregate credit risk exposures, including details of both personal and wholesale lending.			85-91, 117-123				186-187, 225-227				5, 34, 36-47, 59-61
				27		Discussion of the policies for identifying impaired loans, defining impairments and renegotiated loans, and explaining loan forbearance policies.							155-157, 187
				28		Reconciliations of the opening and closing balances of impaired loans and impairment allowances during the year.			88, 117-118, 120, 121				187				31-32
				29		Analysis of counterparty credit risk that arises from derivative transactions.			83-84				174-177				82
				30		Discussion of credit risk mitigation, including collateral held for all sources of credit risk.			83-84, 89
		Other risks		31		Quantified measures of the management of operational risk.			67, 106
				32		Discussion of publicly known risk items.			71

 

14  |  2022 Scotiabank Annual Report

Management’s Discussion and Analysis

 

Table of Contents

 

 

2022 Scotiabank Annual Report  |  15

Management’s Discussion and Analysis

 

FORWARD LOOKING STATEMENTS

From time to time, our public communications include oral or written forward-looking statements. Statements of this type are included in this document, and may be included in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission (SEC), or in other communications. In addition, representatives of the Bank may include forward-looking statements orally to analysts, investors, the media and others. All such statements are made pursuant to the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. Forward-looking statements may include, but are not limited to, statements made in this document, the Management’s Discussion and Analysis in the Bank’s 2022 Annual Report under the headings “Outlook” and in other statements regarding the Bank’s objectives, strategies to achieve those objectives, the regulatory environment in which the Bank operates, anticipated financial results, and the outlook for the Bank’s businesses and for the Canadian, U.S. and global economies. Such statements are typically identified by words or phrases such as “believe,” “expect,” “foresee,” “forecast,” “anticipate,” “intend,” “estimate,” “plan,” “goal,” “target,” “project,” “commit,” “objective,” and similar expressions of future or conditional verbs, such as “will,” “may,” “should,” “would,” “might,” “can” and “could” and positive and negative variations thereof.

By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that our predictions, forecasts, projections, expectations or conclusions will not prove to be accurate, that our assumptions may not be correct and that our financial performance objectives, vision and strategic goals will not be achieved.

We caution readers not to place undue reliance on these statements as a number of risk factors, many of which are beyond our control and effects of which can be difficult to predict, could cause our actual results to differ materially from the expectations, targets, estimates or intentions expressed in such forward-looking statements.

The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: general economic and market conditions in the countries in which we operate; changes in currency and interest rates; increased funding costs and market volatility due to market illiquidity and competition for funding; the failure of third parties to comply with their obligations to the Bank and its affiliates; changes in monetary, fiscal, or economic policy and tax legislation and interpretation; changes in laws and regulations or in supervisory expectations or requirements, including capital, interest rate and liquidity requirements and guidance, and the effect of such changes on funding costs; changes to our credit ratings; the possible effects on our business of war or terrorist actions and unforeseen consequences arising from such actions; operational and infrastructure risks; reputational risks; the accuracy and completeness of information the Bank receives on customers and counterparties; the timely development and introduction of new products and services, and the extent to which products or services previously sold by the Bank require the Bank to incur liabilities or absorb losses not contemplated at their origination; our ability to execute our strategic plans, including the successful completion of acquisitions and dispositions, including obtaining regulatory approvals; critical accounting estimates and the effect of changes to accounting standards, rules and interpretations on these estimates; global capital markets activity; the Bank’s ability to attract, develop and retain key executives; the evolution of various types of fraud or other criminal behaviour to which the Bank is exposed; disruptions in or attacks (including cyber-attacks) on the Bank’s information technology, internet, network access, or other voice or data communications systems or services; increased competition in the geographic and in business areas in which we operate, including through internet and mobile banking and non-traditional competitors; exposure related to significant litigation and regulatory matters; climate change and other environmental and social risks, including sustainability that may arise, including from the Bank’s business activities; the occurrence of natural and unnatural catastrophic events and claims resulting from such events; inflationary pressures; Canadian housing and household indebtedness; the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic and its impact on the global economy, financial market conditions and the Bank’s business, results of operations, financial condition and prospects; and the Bank’s anticipation of and success in managing the risks implied by the foregoing. A substantial amount of the Bank’s business involves making loans or otherwise committing resources to specific companies, industries or countries. Unforeseen events affecting such borrowers, industries or countries could have a material adverse effect on the Bank’s financial results, businesses, financial condition or liquidity. These and other factors may cause the Bank’s actual performance to differ materially from that contemplated by forward-looking statements. The Bank cautions that the preceding list is not exhaustive of all possible risk factors and other factors could also adversely affect the Bank’s results, for more information, please see the “Risk Management” section of the Bank’s 2022 Annual Report, as may be updated by quarterly reports.

Material economic assumptions underlying the forward-looking statements contained in this document are set out in the 2022 Annual Report under the headings “Outlook”, as updated by quarterly reports. The “Outlook” and “2023 Priorities” sections are based on the Bank’s views and the actual outcome is uncertain. Readers should consider the above-noted factors when reviewing these sections. When relying on forward-looking statements to make decisions with respect to the Bank and its securities, investors and others should carefully consider the preceding factors, other uncertainties and potential events.

Any forward-looking statements contained in this document represent the views of management only as of the date hereof and are presented for the purpose of assisting the Bank’s shareholders and analysts in understanding the Bank’s financial position, objectives and priorities, and anticipated financial performance as at and for the periods ended on the dates presented, and may not be appropriate for other purposes. Except as required by law, the Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by or on its behalf.

Additional information relating to the Bank, including the Bank’s Annual Information Form, can be located on the SEDAR website at www.sedar.com and on the EDGAR section of the SEC’s website at www.sec.gov.

November 29, 2022

 

16  |  2022 Scotiabank Annual Report

MANAGEMENT’S DISCUSSION & ANALYSIS

Management’s Discussion and Analysis (MD&A) is provided to enable readers to assess the Bank’s financial condition and results of operations as at and for the year ended October 31, 2022. The MD&A should be read in conjunction with the Bank’s 2022 Consolidated Financial Statements, including the Notes. This MD&A is dated November 29, 2022.

Additional information relating to the Bank, including the Bank’s 2022 Annual Report, are available on the Bank’s website at www.scotiabank.com. As well, the Bank’s 2022 Annual Report and Annual Information Form are available on the SEDAR website at www.sedar.com and on the EDGAR section of the SEC’s website at www.sec.gov.

Non-GAAP Measures

The Bank uses a number of financial measures and ratios to assess its performance, as well as the performance of its operating segments. Some of these financial measures and ratios are presented on a non-GAAP basis and are not calculated in accordance with Generally Accepted Accounting Principles (GAAP), which are based on International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), are not defined by GAAP and do not have standardized meanings and therefore might not be comparable to similar financial measures and ratios disclosed by other issuers. The Bank believes that non-GAAP measures and ratios are useful as they provide readers with a better understanding of how management assesses performance. These non-GAAP measures and ratios are used throughout this report and defined below.

Adjusted results and adjusted diluted earnings per share

The following table presents a reconciliation of GAAP reported financial results to non-GAAP adjusted financial results. Management considers both reported and adjusted results and measures useful in assessing underlying ongoing business performance. Adjusted results and measures remove certain specified items from revenue, non-interest expenses, income taxes and non-controlling interest. Presenting results on both a reported basis and adjusted basis allows readers to assess the impact of certain items on results for the periods presented, and to better assess results and trends excluding those items that may not be reflective of ongoing business performance. Net income and diluted earnings per share have been adjusted for the following:

 

1.

Amortization of acquisition-related intangible assets:

Costs of $71 million ($97 million pre-tax) (October 31, 2021 – $75 million ($103 million pre-tax)) relate to the amortization of intangible assets recognized upon the acquisition of businesses, excluding software, and are recorded in the Canadian Banking, International Banking and Global Wealth Management operating segments.

 

2.

Restructuring and other provisions:

In Q4 2022, the Bank recorded a restructuring charge of $66 million ($85 million pre-tax) primarily related to the strategic decision to realign the Global Banking and Markets businesses in Asia Pacific to focus on select banking and capital markets activities in the region. The charge also included reductions in Canadian and international technology employees, driven by ongoing technology modernization and digital transformation.

In the prior year, the Bank recorded a restructuring charge of $93 million ($126 million pre-tax), substantially related to International Banking for the cost of reducing branches and full-time employees, driven by the accelerated customer adoption of digital channels and process automation. The Bank also recorded settlement and litigation provisions in the amount of $46 million ($62 million pre-tax) in connection with the Bank’s former metals business.

These charges were recorded in the Other operating segment.

 

3.

Support costs for the Scene+ loyalty program:

The Bank recorded costs of $98 million ($133 million pre-tax) to support the expansion of the Scene+ loyalty program to include Empire Company Limited as a partner. These committed costs relate to operational support, transition marketing and technology initiatives and were recognized as an expense in Q4 2022 in the Other operating segment.

 

4.

Net loss on divestitures and wind-down of operations:

In Q4 2022, the Bank sold its investments in associates in Venezuela and Thailand. Additionally, the Bank wound down its operations in India and Malaysia in relation to its realignment of the business in the Asia Pacific region. Collectively, the sale and wind-down of these entities resulted in a net loss of $340 million ($361 million pre-tax), of which $294 million ($315 million pre-tax) related to the reclassification of cumulative foreign currency translation losses net of hedges, from accumulated other comprehensive income to non-interest income in the Consolidated Statement of Income. This net loss was recorded in the Other operating segment. For further details on these transactions, please refer to Note 36 of the consolidated financial statements.

 

2022 Scotiabank Annual Report  |  17

Management’s Discussion and Analysis

 

T1  Reconciliation of reported and adjusted results and diluted earnings per share

 

As at October 31 ($ millions)		2022				2021
Reported Results
Net interest income		$	18,115			$	16,961
Non-interest income			13,301				14,291
Total revenue			31,416				31,252
Provision for credit losses			1,382				1,808
Non-interest expenses			17,102				16,618
Income before taxes			12,932				12,826
Income tax expense			2,758				2,871
Net income		$	10,174			$	9,955
Net income attributable to non-controlling interests in subsidiaries (NCI)			258				331
Net income attributable to equity holders			9,916				9,624
Net income attributable to preferred shareholders and other equity instrument holders			260				233
Net income attributable to common shareholders			9,656				9,391
Diluted earnings per share (in dollars)		$	8.02			$	7.70
Adjustments
Adjusting items impacting non-interest income and total revenue (Pre-tax)
Net loss on divestitures and wind-down of operations		$	361			$	–
Adjusting items impacting non-interest expenses (Pre-tax)
Amortization of acquisition-related intangible assets			97				103
Restructuring and other provisions			85				188
Support costs for the Scene+ loyalty program			133				–
Total non-interest expense adjusting items (Pre-tax)		$	315			$	291
Total impact of adjusting items on net income before taxes			676				291
Impact of adjusting items on income tax expense
Net loss on divestitures and wind-down of operations			(21	)			–
Amortization of acquisition-related intangible assets			(26	)			(28	)
Restructuring and other provisions			(19	)			(49	)
Support costs for the Scene+ loyalty program			(35	)			–
Total impact of adjusting items on income tax expense			(101	)			(77	)
Total impact of adjusting items on net income			575				214
Impact of adjusting items on NCI related to restructuring and other provisions			(1	)			(10	)
Total impact of adjusting items on net income attributable to equity holders and common shareholders		$	574			$	204
Adjusted Results
Net interest income		$	18,115			$	16,961
Non-interest income			13,662				14,291
Total revenue			31,777				31,252
Provision for credit losses			1,382				1,808
Non-interest expenses			16,787				16,327
Income before taxes			13,608				13,117
Income tax expense			2,859				2,948
Net income		$	10,749			$	10,169
Net income attributable to NCI			259				341
Net income attributable to equity holders			10,490				9,828
Net income attributable to preferred shareholders and other equity instrument holders			260				233
Net income attributable to common shareholders		$	10,230			$	9,595
Diluted earnings per share (in dollars)		$	8.50			$	7.87
Impact of adjustments on diluted earnings per share (in dollars)		$	0.48			$	0.17

 

18  |  2022 Scotiabank Annual Report

T1A  Reconciliation of reported and adjusted results by business line

 

		For the year ended October 31, 2022(1)
($ millions)		Canadian Banking				International Banking				Global Wealth Management				Global Banking and Markets				Other				Total
Reported net income (loss)		$	4,763			$	2,667			$	1,565			$	1,911			$	(732	)		$	10,174
Net income attributable to non-controlling interests in subsidiaries (NCI)			–				249				9				–				–				258
Reported net income attributable to equity holders			4,763				2,418				1,556				1,911				(732	)		$	9,916
Reported net income attributable to preferred shareholders and other equity instrument holders			6				6				3				4				241			$	260
Reported net income attributable to common shareholders		$	4,757			$	2,412			$	1,553			$	1,907			$	(973	)		$	9,656
Adjustments
Adjusting items impacting non-interest income and total revenue (Pre-tax)
Net loss on divestitures and wind-down of operations		$	–			$	–			$	–			$	–			$	361			$	361
Adjusting items impacting non-interest expenses (Pre-tax)
Amortization of acquisition-related intangible assets			22				39				36				–				–				97
Restructuring and other provisions			–				–				–				–				85				85
Support costs for the Scene+ loyalty program			–				–				–				–				133				133
Total non-interest expenses adjustments (Pre-tax)			22				39				36				–				218				315
Total impact of adjusting items on net income before taxes			22				39				36				–				579				676
Total impact of adjusting items on income tax expense			(6	)			(11	)			(9	)			–				(75	)			(101	)
Total impact of adjusting items on net income			16				28				27				–				504				575
Impact of adjusting items on NCI related to restructuring and other provisions			–				–				–				–				(1	)			(1	)
Total impact of adjusting items on net income attributable to equity holders and common shareholders			16				28				27				–				503				574
Adjusted net income (loss)		$	4,779			$	2,695			$	1,592			$	1,911			$	(228	)		$	10,749
Adjusted net income attributable to equity holders		$	4,779			$	2,446			$	1,583			$	1,911			$	(229	)		$	10,490
Adjusted net income attributable to common shareholders		$	4,773			$	2,440			$	1,580			$	1,907			$	(470	)		$	10,230

 

(1)	Refer to Business Line Overview on page 37.

 

		For the year ended October 31, 2021(1)
($ millions)		Canadian Banking				International Banking				Global Wealth Management				Global Banking and Markets				Other				Total
Reported net income (loss)		$	4,155			$	2,155			$	1,574			$	2,075			$	(4	)		$	9,955
Net income attributable to non-controlling interests in subsidiaries (NCI)			–				332				9				–				(10	)			331
Reported net income attributable to equity holders			4,155				1,823				1,565				2,075				6				9,624
Reported net income attributable to preferred shareholders and other equity instrument holders			20				21				11				15				166				233
Reported net income attributable to common shareholders		$	4,135			$	1,802			$	1,554			$	2,060			$	(160	)		$	9,391
Adjustments
Adjusting items impacting non-interest expenses (Pre-tax)
Amortization of acquisition-related intangible assets		$	22			$	45			$	36			$	–			$	–			$	103
Restructuring and other provisions			–				–				–				–				188				188
Total non-interest expenses adjustments (Pre-tax)			22				45				36				–				188				291
Total impact of adjusting items on net income before taxes			22				45				36				–				188				291
Total impact of adjusting items on income tax expense			(6	)			(13	)			(9	)			–				(49	)			(77	)
Total impact of adjusting items on net income			16				32				27				–				139				214
Impact of adjusting items on NCI related to restructuring and other provisions			–				–				–				–				(10	)			(10	)
Total impact of adjusting items on net income attributable to equity holders and common shareholders			16				32				27				–				129				204
Adjusted net income (loss)		$	4,171			$	2,187			$	1,601			$	2,075			$	135			$	10,169
Adjusted net income attributable to equity holders		$	4,171			$	1,855			$	1,592			$	2,075			$	135			$	9,828
Adjusted net income attributable to common shareholders		$	4,151			$	1,834			$	1,581			$	2,060			$	(31	)		$	9,595

 

(1)	Refer to Business Line Overview on page 37.

 

2022 Scotiabank Annual Report  |  19

Management’s Discussion and Analysis

 

Constant Dollar

International Banking business segment results are analyzed on a constant dollar basis which is a non-GAAP measure. Under the constant dollar basis, prior period amounts are recalculated using current period average foreign currency rates. The following table presents the reconciliation between reported, adjusted and constant dollar results for International Banking for prior periods. The Bank believes that constant dollar is useful for readers to understand business performance without the impact of foreign currency translation and is used by management to assess the performance of the business segment. The tables below are computed on a basis that is different than the table “Impact of foreign currency translation” in Overview of Performance on page 26.

T2  Reconciliation of International Banking’s reported and adjusted results and constant dollar results

 

For the year ended October 31 ($ millions)		2021
(Taxable equivalent basis)		Reported results				Foreign exchange				Constant dollar results
Net interest income		$	6,625			$	147			$	6,478
Non-interest income			2,993				119				2,874
Total revenue			9,618				266				9,352
Provision for credit losses			1,574				40				1,534
Non-interest expenses			5,254				105				5,149
Income tax expense			635				30				605
Net Income		$	2,155			$	91			$	2,064
Net income attributable to non-controlling interest in subsidiaries		$	332			$	24			$	308
Net income attributable to equity holders of the Bank		$	1,823			$	67			$	1,756
Other measures
Average assets ($ billions)		$	194			$	4			$	190
Average liabilities ($ billions)		$	149			$	5			$	144

 

For the year ended October 31 ($ millions)		2021
(Taxable equivalent basis)		Adjusted results				Foreign exchange				Constant dollar adjusted results
Net interest income		$	6,625			$	147			$	6,478
Non-interest income			2,993				119				2,874
Total revenue			9,618				266				9,352
Provision for credit losses			1,574				40				1,534
Non-interest expenses			5,209				102				5,107
Income tax expense			648				32				616
Net Income		$	2,187			$	92			$	2,095
Net income attributable to non-controlling interest in subsidiaries		$	332			$	23			$	309
Net income attributable to equity holders of the Bank		$	1,855			$	69			$	1,786

Reconciliation of average total assets, core earning assets and core net interest income

Earning assets

Earning assets are defined as income generating assets which include deposits with financial institutions, trading assets, investment securities, investments in associates, securities borrowed or purchased under resale agreements, loans net of allowances, and customers’ liability under acceptances.

Non-earning assets

Non-earning assets are defined as cash, precious metals, derivative financial instruments, property and equipment, goodwill and other intangible assets, deferred tax assets and other assets.

Core earning assets

Core earning assets are defined as interest-bearing deposits with financial institutions, investment securities and loans net of allowances. This is a non-GAAP measure. The Bank believes that this measure is useful for readers as it presents the main interest-generating assets of the personal and commercial businesses, and eliminates the impact of trading businesses.

Core net interest income

Core net interest income is defined as net interest income earned from core earning assets. This is a non-GAAP measure.

Net interest margin

Net interest margin is calculated as core net interest income for the business line divided by average core earning assets. Net interest margin is a non-GAAP ratio.

 

20  |  2022 Scotiabank Annual Report

T3  Reconciliation of average total assets, average earning assets, average core earning assets and net interest margin by business line

Consolidated Bank

 

For the year ended October 31 (Unaudited) ($ millions)		2022				2021
Average total assets - Reported(1)		$	1,281,708			$	1,157,213
Less: Non-earning assets			107,536				94,908
Average total earning assets(1)		$	1,174,172			$	1,062,305
Less:
Trading assets			138,390				142,033
Securities purchased under resale agreements
and securities borrowed			140,557				116,829
Other deductions			62,531				51,750
Average core earning assets(1)		$	832,694			$	751,693
Net Interest Income - Reported		$	18,115			$	16,961
Less: Non-core net interest income			(185	)			190
Core net interest income		$	18,300			$	16,771
Net interest margin			2.20	%			2.23	%

 

(1)	Average balances represent the average of daily balances for the period.

Canadian Banking

 

For the year ended October 31 (Unaudited) ($ millions)		2022				2021
Average total assets - Reported(1)		$	429,528			$	380,772
Less: Non-earning assets			4,092				4,102
Average total earning assets(1)		$	425,436			$	376,670
Less:
Other deductions			23,482				17,382
Average core earning assets(1)		$	401,954			$	359,288
Net Interest Income - Reported		$	9,001			$	8,030
Less: Non-core net interest income			–				–
Core net interest income		$	9,001			$	8,030
Net interest margin			2.24	%			2.23	%

 

(1)	Average balances represent the average of daily balances for the period.

International Banking

 

For the year ended October 31 (Unaudited) ($ millions)		2022				2021
Average total assets - Reported(1)		$	206,550			$	194,124
Less: Non-earning assets			17,808				15,218
Average total earning assets(1)		$	188,742			$	178,906
Less:
Trading assets			4,978				5,812
Securities purchased under resale agreements
and securities borrowed			1,265				–
Other deductions			6,781				6,581	(2)
Average core earning assets(1)		$	175,718			$	166,513
Net Interest Income - Reported		$	6,900			$	6,625
Less: Non-core net interest income			(66	)			50
Core net interest income		$	6,966			$	6,575
Net interest margin			3.96	%			3.95	%(2)

 

(1)	Average balances represent the average of daily balances for the period.

(2)	Prior period has been restated to reflect the deduction of non-interest bearing deposits with financial institutions, to align with the Bank’s definition.

Return on equity

Return on equity is a profitability measure that presents the net income attributable to common shareholders as a percentage of average common shareholders’ equity.

 

2022 Scotiabank Annual Report  |  21

Management’s Discussion and Analysis

 

The Bank attributes capital to its business lines on a basis that approximates 10.5% of Basel III common equity capital requirements which includes credit, market and operational risks and leverage inherent within each business segment.

Return on equity for the business segments is calculated as a ratio of net income attributable to common shareholders of the business segment and the capital attributed.

Adjusted return on equity is a non-GAAP ratio which represents adjusted net income attributable to common shareholders as a percentage of adjusted average common shareholders’ equity.

Return on equity by operating segment

T4  Return on equity by operating segment

 

For the year ended October 31, 2022 ($ millions)		Canadian Banking				International Banking				Global Wealth Management				Global Banking and Markets				Other				Total
Reported
Net income (loss) attributable to common shareholders		$	4,757			$	2,412			$	1,553			$	1,907			$	(973	)		$	9,656
Total average common equity(1)			18,105				18,739				9,576				13,328				5,442				65,190
Return on equity			26.3	%			12.9	%			16.2	%			14.3	%			nm	(2)			14.8	%
Adjusted(3)
Net income (loss) attributable to common shareholders			4,773				2,440				1,580				1,907				(470	)			10,230
Total average common equity(1)			18,105				18,739				9,576				13,328				5,619				65,367
Return on equity			26.4	%			13.0	%			16.5	%			14.3	%			nm	(2)			15.6	%

 

(1)	Average amounts calculated using methods intended to approximate the daily average balances for the period.

(2)	Not meaningful.

(3)	Refer to Tables on pages 18 and 19.

 

For the year ended October 31, 2021 ($ millions)		Canadian Banking				International Banking				Global Wealth Management				Global Banking and Markets				Other				Total
Reported
Net income (loss) attributable to common shareholders		$	4,135			$	1,802			$	1,554			$	2,060			$	(160	)		$	9,391
Total average common equity(1)			16,388				17,377				9,301				12,450				8,311				63,827
Return on equity			25.2	%			10.4	%			16.7	%			16.5	%			nm	(2)			14.7	%
Adjusted(3)
Net income (loss) attributable to common shareholders			4,151				1,834				1,581				2,060				(31	)			9,595
Total average common equity(1)			16,388				17,377				9,301				12,450				8,385				63,901
Return on equity			25.3	%			10.6	%			17.0	%			16.5	%			nm	(2)			15.0	%

 

(1)	Average amounts calculated using methods intended to approximate the daily average balances for the period.

(2)	Not meaningful.

(3)	Refer to Tables on pages 18 and 19.

Return on tangible common equity

Return on tangible common equity is a profitability measure that is calculated by dividing the net income attributable to common shareholders, adjusted for the amortization of intangibles (excluding software), by average tangible common equity. Tangible common equity is defined as common shareholders’ equity adjusted for goodwill and intangible assets (excluding software), net of deferred taxes. This is a non-GAAP ratio.

Adjusted return on tangible common equity represents adjusted net income attributable to common shareholders as a percentage of adjusted average tangible common equity. This is a non-GAAP ratio.

T5  Return on tangible common equity

 

For the years ended October 31 ($ millions)		2022				2021
Reported
Average common equity – Reported(1)		$	65,190			$	63,827
Average goodwill(1)(2)			(9,197	)			(9,424	)
Average acquisition-related intangibles (net of deferred tax)(1)			(3,803	)			(3,895	)
Average tangible common equity(1)		$	52,190			$	50,508
Net income attributable to common shareholders – Reported		$	9,656			$	9,391
Amortization of acquisition-related intangible assets (after tax)(3)			71				75
Net income attributable to common shareholders adjusted for amortization of acquisition-related intangible assets (after tax)		$	9,727			$	9,466
Return on tangible common equity(4)			18.6	%			18.7	%
Adjusted(3)
Adjusted net income attributable to common shareholders		$	10,230			$	9,595
Average tangible common equity – adjusted(1)		$	52,367			$	50,582
Return on tangible common equity – adjusted(4)			19.5	%			19.0	%

 

(1)	Average amounts calculated using methods intended to approximate the daily average balances for the period.

(2)	Includes imputed goodwill from investments in associates.

(3)	Refer to Tables on pages 18 and 19.

(4)	Calculated on full dollar amounts.

 

22  |  2022 Scotiabank Annual Report

Adjusted productivity ratio

Adjusted productivity ratio represents adjusted non-interest expenses as a percentage of adjusted total revenue.

Management uses the productivity ratio as a measure of the Bank’s efficiency. A lower ratio indicates improved productivity.

Adjusted operating leverage

This financial metric measures the rate of growth in adjusted total revenue less the rate of growth in adjusted non-interest expenses.

Management uses operating leverage as a way to assess the degree to which the bank can increase operating income by increasing revenue.

Trading-related revenue (Taxable equivalent basis)

Trading-related revenue consists of net interest income and non-interest income. Included are unrealized gains and losses on security positions held, realized gains and losses from the purchase and sale of securities, fees and commissions from securities borrowing and lending activities, and gains and losses on trading derivatives. Underwriting and other advisory fees, which are shown separately in the Consolidated Statement of Income, are excluded. Trading related revenue includes certain net interest income and non-interest income items on a taxable equivalent basis (TEB). This methodology grosses up tax-exempt income earned on certain securities to an equivalent before tax basis.

Management believes that this basis for measurement of trading-related revenue provides a uniform comparability of net interest income and non-interest income arising from both taxable and non-taxable sources and facilitates a consistent basis of measurement. While other banks also use TEB, their methodology may not be comparable to the Bank’s methodology.

Adjusted effective tax rate

The adjusted effective tax rate is calculated by dividing adjusted income tax expense by adjusted income before taxes.

 

2022 Scotiabank Annual Report  |  23

Management’s Discussion and Analysis

 

T6  Financial highlights

 

As at and for the years ended October 31		2022				2021
Operating results ($ millions)
Net interest income			18,115				16,961
Non-interest income			13,301				14,291
Total revenue			31,416				31,252
Provision for credit losses			1,382				1,808
Non-interest expenses			17,102				16,618
Income tax expense			2,758				2,871
Net income			10,174				9,955
Net income attributable to common shareholders			9,656				9,391
Operating performance
Basic earnings per share ($)			8.05				7.74
Diluted earnings per share ($)			8.02				7.70
Return on equity (%)(1)			14.8				14.7
Return on tangible common equity (%)(2)			18.6				18.7
Productivity ratio (%)(1)			54.4				53.2
Operating leverage (%)(1)			(2.4	)			1.1
Net interest margin (%)(2)			2.20				2.23
Financial position information ($ millions)
Cash and deposits with financial institutions			65,895				86,323
Trading assets			113,154				146,312
Loans			744,987				636,986
Total assets			1,349,418				1,184,844
Deposits			916,181				797,259
Common equity			65,150				64,750
Preferred shares and other equity instruments			8,075				6,052
Assets under administration(1)			641,636				652,924
Assets under management(1)			311,099				345,762
Capital and liquidity measures
Common Equity Tier 1 (CET1) capital ratio (%)(3)			11.5				12.3
Tier 1 capital ratio (%)(3)			13.2				13.9
Total capital ratio (%)(3)			15.3				15.9
Total loss absorbing capacity (TLAC) ratio (%)(4)			27.4				27.8
Leverage ratio (%)(5)			4.2				4.8
TLAC Leverage ratio (%)(4)			8.8				9.6
Risk-weighted assets ($ millions)(3)			462,448				416,105
Liquidity coverage ratio (LCR) (%)(6)			119				124
Net stable funding ratio (NSFR) (%)(7)			111				110
Credit quality
Net impaired loans ($ millions)			3,151				2,801
Allowance for credit losses ($ millions)(8)			5,499				5,731
Gross impaired loans as a % of loans and acceptances(1)			0.62				0.67
Net impaired loans as a % of loans and acceptances(1)			0.41				0.42
Provision for credit losses as a % of average net loans and acceptances(1)(9)			0.19				0.29
Provision for credit losses on impaired loans as a % of average net loans and acceptances(1)(9)			0.24				0.53
Net write-offs as a % of average net loans and acceptances(1)			0.24				0.54
Adjusted results(2)
Adjusted net income ($ millions)			10,749				10,169
Adjusted diluted earnings per share ($)			8.50				7.87
Adjusted return on equity (%)			15.6				15.0
Adjusted return on tangible common equity (%)			19.5				19.0
Adjusted productivity ratio (%)			52.8				52.2
Adjusted operating leverage (%)			(1.1	)			1.5
Common share information
Closing share price ($) (TSX)			65.85				81.14
Shares outstanding (millions)
Average – Basic			1,199				1,214
Average – Diluted			1,208				1,225
End of period			1,191				1,215
Dividends paid per share ($)			4.06				3.60
Dividend yield (%)(1)			5.1				5.2
Market capitalization ($ millions) (TSX)			78,452				98,612
Book value per common share ($)(1)			54.68				53.28
Market value to book value multiple(1)			1.2				1.5
Price to earnings multiple (trailing 4 quarters)(1)			8.2				10.5
Other information
Employees (full-time equivalent)			90,979				89,488
Branches and offices			2,384				2,518

 

(1)	Refer to Glossary on page 133 for the description of the measure.

(2)	Refer to page 17 for a discussion of Non-GAAP measures.

(3)	This measure has been disclosed in this document in accordance with OSFI Guideline – Capital Adequacy Requirements (November 2018).

(4)	This measure has been disclosed in this document in accordance with OSFI Guideline – Total Loss Absorbing Capacity (September 2018).

(5)	This measure has been disclosed in this document in accordance with OSFI Guideline – Leverage Requirements (November 2018).

(6)	This measure has been disclosed in this document in accordance with OSFI Guideline – Public Disclosure Requirements for Domestic Systemically Important Banks on Liquidity Coverage Ratio (April 2015).

(7)	This measure has been disclosed in this document in accordance with OSFI Guideline – Net Stable Funding Ratio Disclosure Requirements (January 2021).

(8)	Includes allowance for credit losses on all financial assets – loans, acceptances, off-balance sheet exposures, debt securities, and deposits with financial institutions.

(9)	Includes provision for credit losses on certain financial assets – loans, acceptances, and off-balance sheet exposures.

 

24  |  2022 Scotiabank Annual Report

Management’s Discussion and Analysis    |    Overview of Performance

 

OVERVIEW OF PERFORMANCE

Financial Results: 2022 vs 2021

Net income was $10,174 million in 2022, up 2% from $9,955 million in 2021, due primarily to higher net interest income and lower provision for credit losses and lower provision for income taxes, partly offset by higher non-interest expenses. Diluted earnings per share (EPS) were $8.02 compared to $7.70. Return on equity was 14.8% compared to 14.7%.

Adjusting items impacting net income in the current year were $575 million after-tax ($676 million pre-tax) [refer to Non-GAAP Measures starting on page 17]. The Bank recorded a net loss of $340 million ($361 million pre-tax) in relation to the divesture of investments in associates in Venezuela and Thailand, and the wind-down of operations in India and Malaysia, mostly relating to the reclassification of cumulative foreign currency translation losses net of hedges, from accumulated other comprehensive income to non-interest income in the Consolidated Statement of Income. The Bank recognized costs of $98 million ($133 million pre-tax) to support the expansion of the Scene+ loyalty program to include Empire Company Limited as a partner. The Bank recorded a restructuring charge of $66 million ($85 million pre-tax) primarily related to the strategic decision to realign the Global Banking and Markets business in Asia Pacific to focus on select banking and capital markets activities in the region. The charge also included reductions in Canadian and international technology employees, driven by ongoing technology modernization and digital transformation. Other adjusting items in the current year included amortization of acquisition-related intangible assets of $71 million ($97 million pre-tax). Net impact of the adjustments on diluted earnings per share was $0.48 and on Basel III Common Equity Tier 1 (CET1) ratio was two basis points.

The adjustments in the prior year were $214 million after-tax ($291 million pre-tax) which included restructuring and other provisions of $139 million after-tax ($188 million pre-tax), and amortization of acquisition-related intangible assets of $75 million ($103 million pre-tax).

Adjusted net income was $10,749 million, up 6% from $10,169 million. The increase in adjusted net income was due primarily to higher net interest income, lower provision for credit losses and lower income taxes, partly offset by higher non-interest expenses. Adjusted diluted EPS were $8.50 compared to $7.87 and adjusted return on equity was 15.6% compared to 15.0%.

Net interest income was $18,115 million, an increase of $1,154 million or 7%. The increase was driven by strong loan growth and higher margins across all business lines, partly offset by a lower contribution from asset/liability management activities related to higher funding costs and the negative impact of foreign currency translation. Net interest margin was down three basis points to 2.20%, driven primarily by a lower contribution from asset/liability management activities related to higher funding costs.

Non-interest income of $13,301 million was down $990 million or 7%, including adjusting items of $361 million [refer to Non-GAAP Measures starting on page 17]. Adjusted non-interest income decreased $629 million or 4%, due primarily to lower trading revenues, investment gains, underwriting and advisory fees, income from associated corporations, unrealized losses on non-trading derivatives, mutual fund fees and the negative impact of foreign currency translation. These were partly offset by higher banking revenues, brokerage fees and non-trading foreign exchange fees.

The provision for credit losses was $1,382 million compared to $1,808 million last year, a decrease of $426 million or 24% due mainly to lower provision for credit losses on impaired loans, partly offset by higher provision for credit losses on performing loans, across all business lines. The provision for credit losses ratio decreased 10 basis points to 19 basis points.

Non-interest expenses were $17,102 million, an increase of $484 million or 3%, including adjusting items of $315 million this year compared to $291 million last year [refer to Non-GAAP Measures starting on page 17]. Adjusted non-interest expenses also increased 3%. Higher personnel costs, share-based payments, professional fees, advertising, technology-related costs, and business and capital taxes were partly offset by the positive impact of foreign currency translation. The prior year’s expenses were impacted by higher performance-based compensation and the increased investment in the SCENE loyalty program. The productivity ratio was 54.4% compared to 53.2%. On an adjusted basis, the productivity ratio was 52.8% compared to 52.2%. Operating leverage was negative 2.4%. On an adjusted basis, operating leverage was negative 1.1%.

The provision for income taxes was $2,758 million compared to $2,871 million last year. The effective tax rate was 21.3% compared to 22.4% in the prior year. The adjusted effective tax rate was 21.0% compared to 22.5% due primarily to higher inflation-related benefits in Chile and Mexico and higher tax-exempt income during the year.

The Basel III Common Equity Tier 1 (CET1) ratio was 11.5% as at October 31, 2022, compared to 12.3% last year.

Medium-term financial objectives

The following table provides a summary of our 2022 performance against our medium-term financial performance objectives:

 

		2022 Results
						Reported				Adjusted(1)
Diluted earnings per share growth of 7%+							4.2	%			8.0%
Return on equity of 14%+							14.8	%			15.6%
Achieve positive operating leverage							Negative 2.4	%			Negative 1.1%
Maintain strong capital ratios							CET1 capital ratio of 11.5	%			N/A

 

(1)	Refer to Non-GAAP Measures on page 17.

 

Shareholder Returns   In fiscal 2022, the total shareholder return on the Bank’s shares was negative 14.5%, compared to the total return of the S&P/TSX Composite Index of negative 4.8%. The total compound annual shareholder return on the Bank’s shares over the past five years was 0.3%, and 6.7% over the past 10 years. This is below the total annual return of the S&P/TSX Composite Index over the past five years and ten years of 7.2% and 7.8%, respectively.   Dividends per share totaled $4.06 for the year, up 13% from 2021. The Bank’s target payout range is 40-50%. The dividend payout ratio for the year was 50.3%. The Board of Directors approved a quarterly dividend of $1.03 per common share, at its meeting on November 28, 2022. This quarterly dividend applies to shareholders of record at the close of business on January 4, 2023, and is payable January 27, 2023.				C1  Closing common share price as at October 31

 

2022 Scotiabank Annual Report  |  25

Management’s Discussion and Analysis

 

Economic Summary and Outlook

The global economic outlook has deteriorated over the last year owing to the combined impacts of central bank efforts to tame inflation, the consequences of Russia’s war on Ukraine, pandemic management in China and the impact of higher energy prices. Concerns about potential slowdown and high inflation have led to very volatile financial markets, which have clouded the outlook further.

In Canada, as in the United States, economic fundamentals suggest the reduction in economic activity will be minor and more like a stall in growth. Firm and household balance sheets remain in solid shape despite the rise in interest rates and fall in asset values. Labour markets in both countries continue to show historic strength suggesting that firms are unlikely to resort to dramatic cuts in their workforce as growth slows. In Canada, still relatively high commodity prices continue to provide a boost to economic activity, in contrast to the effect seen in commodity importing countries. Inflation is expected to decline gradually over coming quarters as the impact of higher interest rates is felt through economies. A broad number of upstream indicators of inflation suggest that the factors that have boosted inflation will soon have the opposite impact on inflation. The speed at which inflation will decline owing to these factors will be mitigated by the impact of rising wages and their impact on service sector prices. Despite this assessment, the inflation outlook remains clouded. Inflation has defied expectations for most of the last 2 years and we have yet to observe tangible impacts of the observed decline in the factors underlying the rise in prices seen during that time.

The Bank of Canada and Federal Reserve are nearing the end of their monetary policy tightening cycles. We expect that the Bank of Canada’s policy rate peaks at 4.25% by the end of the year and that the Federal Reserve stops raising its target rate when it reaches 5% early next year.

Central banks in the Pacific Alliance Countries have also been raising policy rates aggressively to counter inflationary pressures. This process is also nearing its end as the pace of economic expansion moderates. Political uncertainty, along with extreme volatility in international capital markets have been headwinds to the region over the last year, but economies and capital flows have been remarkably resilient considering these challenges. Growth will decelerate further given the rising in funding costs, the decline in commodity prices associated with global economic weakness, and the reduction in demand emanating from the drop in European and Chinese economic activity. Despite these developments, growth in the Pacific Alliance Countries is likely to outstrip that in most advanced nations through 2023.

Outlook

After a period of sustained economic growth driven in part by fiscal and monetary stimulus and the impact of higher commodity prices, the Bank expects economic growth to moderate in its major markets through much of 2023. The Bank’s earnings in 2023 are expected to benefit from higher interest income and non-interest revenue but be negatively impacted by higher funding costs, higher expenses that are expected to grow inline with inflation, normalizing provision for credit losses related to the end of performing allowance releases, and a higher tax rate in Canada and certain international countries. Once rates stabilize, the Bank is expected to benefit from asset repricing, resulting in net interest margin expansion. The Bank’s capital and liquidity position is expected to remain strong in 2023.

Impact of Foreign Currency Translation

The impact of foreign currency translation on net income is shown in the table below.

T8  Impact of foreign currency translation

 

		2022								2021
For the fiscal years		Average exchange rate				% Change				Average exchange rate				% Change
U.S. Dollar/Canadian Dollar			0.777				(2.3	)%			0.795				6.9	%
Mexican Peso/Canadian Dollar			15.799				(1.5	)%			16.035				1.3	%
Peruvian Sol/Canadian Dollar			3.002				(1.0	)%			3.032				18.0	%
Colombian Peso/Canadian Dollar			3,187				8.8	%			2,929				7.6	%
Chilean Peso/Canadian Dollar			669.905				12.9	%			593.123				0.2	%

 

26  |  2022 Scotiabank Annual Report

Management’s Discussion and Analysis    |    Overview of Performance

 

T8  Impact of foreign currency translation (Cont’d)

 

Impact on net income(1) ($ millions except EPS)		2022 vs. 2021				2021 vs. 2020
Net interest income		$	(158	)		$	(512	)
Non-interest income(2)			(109	)			(276	)
Non-interest expenses			92				408
Other items (net of tax)			72				203
Net income		$	(103	)		$	(177	)
Earnings per share (diluted)		$	(0.09	)		$	(0.14	)
Impact by business line ($ millions)
Canadian Banking		$	3			$	(6	)
International Banking(2)			(97	)			(130	)
Global Wealth Management			–				(15	)
Global Banking and Markets			27				(79	)
Other(2)			(36	)			53
		$	(103	)		$	(177	)

 

(1)	Includes impact of all currencies.

(2)	Includes the impact of foreign currency hedges.

 

2022 Scotiabank Annual Report  |  27

Management’s Discussion and Analysis

 

GROUP FINANCIAL PERFORMANCE

Net Income

Net income was $10,174 million in 2022, up 2% from $9,955 million in 2021, due primarily to higher net interest income, lower provision for credit losses and lower provision for income taxes, partly offset by higher non-interest expenses.

Adjusting items during the current year were $575 million (refer to Table T1). These included a net loss on divestitures and wind-down of operations of $340 million, support costs related to the Scene+ loyalty program of $98 million, and restructuring and other provisions of $66 million (October 31, 2021 – $139 million). Adjusting items during the current year also included amortization of acquisition-related intangible assets of $71 million (October 31, 2021 – $75 million).

Adjusted net income was $10,749 million, up 6% from $10,169 million. The increase in adjusted net income was due primarily to higher net interest income, lower provision for credit losses and lower provision for income taxes, partly offset by higher non-interest expenses.

Net Interest Income

Net interest income was $18,115 million, an increase of $1,154 million or 7%. The increase was driven by strong loan growth and higher margins across all business lines, partly offset by a lower contribution from asset/liability management activities related to higher funding costs and the negative impact of foreign currency translation.

In Canadian Banking, net interest income increased $971 million or 12% due to strong loan and deposit growth, as well as a higher net interest margin from the impact of Bank of Canada rate increases. International Banking net interest income increased $275 million or 4%, driven primarily by higher commercial loans and residential mortgages. Net interest income increased $136 million or 22% in Global Wealth Management driven by higher deposit margins and strong loan growth. Global Banking and Markets net interest income increased $194 million or 14%, due mainly to higher deposit margins and loan growth. In the Other segment net interest income decreased $422 million due mainly to higher funding costs resulting from higher interest rates and asset/liability management activities.

Core earning assets (refer to Non-GAAP Measures on page 17) increased $81 billion or 11% to $833 billion driven by strong growth in residential mortgages, commercial and corporate loans, as well as higher treasury assets.

Net interest margin was down three basis points to 2.20%, driven primarily by a lower contribution from asset/liability management activities related to higher funding costs.

 

28  |  2022 Scotiabank Annual Report

Management’s Discussion and Analysis    |    Group Financial Performance

 

T9  Average balance sheet⁽¹⁾ and net interest income

 

		2022												2021
For the fiscal years ($ billions)		Average balance				Interest				Average rate				Average balance				Interest				Average rate
Assets
Deposits with financial institutions		$	81.9			$	0.8				1.02	%		$	75.6			$	0.2				0.24	%
Trading assets			138.6				0.8				0.57	%			142.9				0.3				0.22	%
Securities purchased under resale agreements and securities borrowed			141.7				0.5				0.32	%			119.8				0.2				0.15	%
Investment securities			97.3				2.1				2.14	%			92.2				1.1				1.25	%
Loans:
Residential mortgages			337.7				11.1				3.29	%			299.7				9.3				3.09	%
Personal loans			95.5				5.8				6.07	%			92.0				5.1				5.56	%
Credit cards			13.6				2.3				16.74	%			13.3				2.3				17.11	%
Business and government			253.3				10.2				4.03	%			217.2				6.5				3.00	%
Allowance for credit losses			(5.4	)											(6.8	)
Total loans		$	694.7			$	29.4				4.23	%		$	615.4			$	23.2				3.76	%
Customers’ liability under acceptances			20.0												16.4
Total average earning assets		$	1,174.2			$	33.6				2.86	%		$	1,062.3			$	25.0				2.35	%
Other assets			107.5												94.9
Total average assets		$	1,281.7			$	33.6				2.62	%		$	1,157.2			$	25.0				2.16	%
Liabilities and equity
Deposits:
Personal		$	252.9			$	3.0				1.19	%		$	245.4			$	2.0				0.81	%
Business and government			572.6				9.3				1.63	%			489.7				4.2				0.85	%
Financial institutions			51.8				0.5				0.88	%			44.4				0.3				0.72	%
Total deposits		$	877.3			$	12.8				1.46	%		$	779.5			$	6.5				0.83	%
Obligations related to securities sold under repurchase agreements and securities lent			117.6				0.3				0.26	%			116.5				0.1				0.12	%
Subordinated debentures			7.8				0.3				3.47	%			6.6				0.2				2.74	%
Other interest-bearing liabilities			81.5				2.1				2.55	%			78.3				1.2				1.58	%
Total interest-bearing liabilities		$	1,084.2			$	15.5				1.42	%		$	980.9			$	8.0				0.82	%
Financial instruments designated at fair value through profit or loss			22.8												21.1
Other liabilities including acceptances			101.3												83.3
Equity(2)			73.4												71.9
Total liabilities and equity		$	1,281.7			$	15.5				1.20	%		$	1,157.2			$	8.0				0.69	%
Net interest income						$	18.1											$	17.0

 

(1)	Average of daily balances.

(2)	Includes non-controlling interest of $1.7 (2021 – $2.3).

 

2022 Scotiabank Annual Report  |  29