Exhibit 99.1
    
 
 
Live audio Web
broadcast of the
Bank’s analysts’
conference call.
See page 81 for
details.
  
 
Quarterly Report
to Shareholders
 
 
Scotiabank reports first quarter results
 
TORONTO, February
 28, 2023 –
Scotiabank reported first quarter net income of $1,772 million compared to $2,740 million in the same period last year. Diluted earnings per share (EPS) were $1.36, compared to $2.14 in the same period a year ago.
 
Adjusted net income
(1)
for the first quarter was $2,366 million and EPS was $1.85, down from $2.15 last year. Adjusted return on equity was 13.4% compared to 15.9% a year ago.
 
“I am honoured and privileged to have this opportunity to work with our 90,000 Scotiabankers across our footprint as we look to deliver for every future together for our customers, employees, shareholders and communities,” said Scott Thomson, President and CEO of Scotiabank. “The Bank’s performance in the first quarter of 2023 reflects both the merits of a diversified platform, and also the continued relative pressure on our profitability given our funding profile. As we look ahead, our efforts on culture, capital allocation discipline and operational excellence will drive a renewed strategic agenda focused on delivering value for our stakeholders.”
 
Canadian Banking delivered adjusted earnings
(1)
of $1,088 million this quarter benefitting from margin expansion, and strong asset and deposit growth, specifically in business lending and personal deposits. Results were negatively impacted by higher provision for credit losses and higher expenses.
 
International Banking generated adjusted earnings
(1)
of $661 million, up 20% driven by higher net interest income as loans grew 19% and strong non-interest revenues. This combined with continued expense management and lower income taxes more than offset higher provision for credit losses.
 
Global Wealth Management adjusted earnings
(1)
were $392 million, down 6%. Challenging market conditions drove declines in assets under management, impacting fee income, partly offset by strong growth in the advisory business. Operating leverage remained positive as prudent expense management offset the lower revenue trends.
 
Global Banking and Markets delivered another strong quarter, with earnings of $519 million. Net interest income grew a strong 22% benefitting from a 33% growth in loans. Strong performance from the Capital Markets business was offset by lower advisory revenues.
 
The Bank remained well capitalized with a Common Equity Tier 1 capital ratio
(2)
unchanged at 11.5%, despite the impact of the Canada Recovery Dividend. With a continued focus on prudent capital management the Bank’s CET1 ratio is expected to continue to strengthen over the year.
 
(1)
      Refer to
Non-GAAP
Measures section on page 4.
(2)
     This measure has been disclosed in this document in accordance with OSFI Guideline – Capital Adequacy Requirements (November 2018).
 
  
 
Table of Contents
Enhanced Disclosure Task Force (EDTF) Recommendations
Below is the index of EDTF recommendations to facilitate easy reference in the Bank’s public disclosure documents available on www.scotiabank.com/investorrelations.
 
Reference Table for EDTF
  
    Q1 2023           2022 Annual Report  
Type of risk   Number      Disclosure   Quarterly
Report		     Supplementary
Regulatory Capital
Disclosures		            MD&A    
Financial
Statements
  
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.     40, 44-48    
 
 
 
  
 
 
 
    
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.     44-45       3        
54-57
       206  
    10      a) Regulatory capital components.     44-45, 72      
18-21
         58    
     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.     44-45       70        
59-60
    
    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.  
 
    
5, 34, 36-47, 55-57,

61, 73, 79		  
 		      
63-67,
79, 123		       176, 229  
    14      Analysis of the capital requirements for each Basel asset class.  
 
    
13-14, 34-48, 54-57,

61,
66-69
  
 		      
63-67
      
 176,
223-229
  
 
    15      Tabulate credit risk in the Banking Book.     75      
13-14, 34-48, 66-69
        
63-67
       224  
    16      Flow statements reconciling the movements in risk-weighted assets for each risk-weighted asset type.  
 
     49, 60, 72        
63-67
    
 
     17      Discussion of Basel III Back-testing requirement including credit risk model performance and validation.  
 
 
 
     77    
 
 
 
    
64-66
    
 
 
 
Liquidity Funding     18      Analysis of the Bank’s liquid assets.     35-38          
97-102
    
    19      Encumbered and unencumbered assets analyzed by balance sheet category.     35-38           99    
    20      Consolidated total assets, liabilities and
off-balance
sheet commitments analyzed by remaining contractual maturity at the balance sheet date.		     42-43          
103-105
    
    21      Analysis of the Bank’s sources of funding and a description of the Bank’s funding strategy.     40-41    
 
 
 
  
 
 
 
    
102-103
    
 
 
 
Market Risk     22      Linkage of market risk measures for trading and
non-trading
portfolios and the balance sheet.		     34-35           96    
    23      Discussion of significant trading and
non-trading
market risk factors.		     76          
92-97
      
228-229
  
    24      Discussion of changes in period on period VaR results as well as VaR assumptions, limitations, backtesting and validation.     33, 76          
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.  
 
     5, 34,
36-47,
55-57
        
85-91, 117-123
      
186-187,

225-227
  
 
    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.     62       31, 32        
 88,
117-118,

120, 121		  
 		     187  
    29      Analysis of counterparty credit risk that arises from derivative transactions.     46, 75       78        
83-84
      
174-177
  
 
     30      Discussion of credit risk mitigation, including collateral held for all sources of credit risk.     75    
 
 
 
  
 
 
 
    
83-84,
89		    
 
 
 
Other risks
     31      Quantified measures of the management of operational risk.  
 
         67, 106    
    32      Discussion of publicly known risk items.     46           71    
 
2    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
MANAGEMENT’S DISCUSSION & ANALYSIS
The 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 period ended January 31, 2023. The MD&A should be read in conjunction with the Bank’s unaudited Condensed Interim Consolidated Financial Statements included in this Report to Shareholders, and the Bank’s 2022 Annual Report. This MD&A is dated February 28, 2023.
Additional information relating to the Bank, including the Bank’s 2022 Annual Report, is 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 SEDAR at www.sedar.com and on the EDGAR section of the SEC’s website at www.sec.gov.
 
Contents
 
 
Management’s Discussion and Analysis
4
   Non-GAAP Measures
12
   Financial Highlights
13
   Overview of Performance
15
   Group Financial Performance
17
   Business Segment Review
27
   Geographic Highlights
28
   Quarterly Financial Highlights
29
   Financial Position
29
   Risk Management
44
   Capital Management
46
   Financial Instruments
46
   Off-Balance Sheet Arrangements
47
   Regulatory Developments
48
   Accounting Policies and Controls
49
   Share Data
50
   Glossary
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 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 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.
 
Scotiabank First Quarter Report 2023
    3
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
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 diluted earnings per share
The following tables present 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:
Adjustments impacting current and prior periods:
 
1.
Amortization of acquisition-related intangible assets:
These costs relate to the amortization of intangibles recognized upon the acquisition of businesses, excluding software, and are recorded in the Canadian Banking, International Banking and Global Wealth Management operating segments.
 
2.
Canada Recovery Dividend:
This quarter the Bank recognized an additional income tax expense of $579 million reflecting the present value of the amount payable for the Canada Recovery Dividend (CRD). The CRD is a Canadian federal tax measure which requires the Bank to pay a
one-time
tax of 15% on taxable income in excess of $1 billion, based on the average taxable income for the 2020 and 2021 taxation years. The CRD is payable in equal amounts over five years, however, the present value of these payments must be recognized as a liability in the current quarter. The charge was recorded in the Other operating segment.
 
 Adjustments impacting Q4, 2022 only:
 
 1.
Restructuring provision:
The Bank recorded a restructuring charge of $66 million ($85 million
pre-tax)
related to the realignment of the Global Banking and Markets businesses in Asia Pacific and reductions in technology employees, driven by ongoing technology modernization and digital transformation. This charge was recorded in the Other operating segment.
 
 2.
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 the Other operating segment.
 
 3.
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, in the 2022 Annual Report to Shareholders.
 
4    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
T1 Reconciliation of reported and adjusted results and diluted earnings per share
 
      For the three months ended  
($ millions)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Reported Results
         
Net interest income
   
$
4,569
 
    $ 4,622      $ 4,344  
Non-interest
income
   
 
3,411
 
      3,004        3,705  
Total revenue
   
 
7,980
 
      7,626        8,049  
Provision for credit losses
   
 
638
 
      529        222  
Non-interest
expenses
   
 
4,464
 
      4,529        4,223  
Income before taxes
   
 
2,878
 
      2,568        3,604  
Income tax expense
   
 
1,106
 
      475        864  
Net income
   
$
1,772
 
    $ 2,093      $ 2,740  
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
   
 
40
 
      38        88  
Net income attributable to equity holders
   
 
1,732
 
      2,055        2,652  
Net income attributable to preferred shareholders and other equity instrument holders
   
 
101
 
      106        44  
Net income attributable to common shareholders
   
$
1,631
 
    $ 1,949      $ 2,608  
Diluted earnings per share
(in dollars)
   
$
1.36
 
    $ 1.63      $ 2.14  
Weighted average number of diluted common shares outstanding
(millions)
   
 
1,199
 
      1,199        1,230  
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
   
 
21
 
      24        25  
Restructuring provision
   
 
–
 
      85        –  
Support costs for the Scene+ loyalty program
   
 
–
 
      133        –  
Total
non-interest
expense adjusting items
(Pre-tax)
   
 
21
 
      242        25  
Total impact of adjusting items on net income before taxes
   
 
21
 
      603        25  
Impact of adjusting items on income tax expense
         
Canada recovery dividend
   
 
579
 
      –        –  
Net loss on divestitures and wind-down of operations
   
 
–
 
      (21 )       –  
Amortization of acquisition-related intangible assets
   
 
(6
) 
      (6 )       (7 ) 
Restructuring provision
   
 
–
 
      (19 )       –  
Support costs for the Scene+ loyalty program
   
 
–
 
      (35 )       –  
Total impact of adjusting items on income tax expense
   
 
573
 
      (81 )       (7 ) 
Total impact of adjusting items on net income
   
$
594
 
    $ 522      $ 18  
Impact of adjusting items on NCI relating to restructuring and other provisions
   
 
–
 
      (1 )       –  
Total impact of adjusting items on net income attributable to equity holders and common shareholders
   
$
594
 
    $ 521      $ 18  
Adjusted Results
         
Net interest income
   
$
4,569
 
    $ 4,622      $ 4,344  
Non-interest
income
   
 
3,411
 
      3,365        3,705  
Total revenue
   
 
7,980
 
      7,987        8,049  
Provision for credit losses
   
 
638
 
      529        222  
Non-interest
expenses
   
 
4,443
 
      4,287        4,198  
Income before taxes
   
 
2,899
 
      3,171        3,629  
Income tax expense
   
 
533
 
      556        871  
Net income
   
$
2,366
 
    $ 2,615      $ 2,758  
Net income attributable to NCI
   
 
40
 
      39        88  
Net income attributable to equity holders
   
 
2,326
 
      2,576        2,670  
Net income attributable to preferred shareholders and other equity instrument holders
   
 
101
 
      106        44  
Net income attributable to common shareholders
   
$
2,225
 
    $ 2,470      $ 2,626  
Diluted earnings per share
(in dollars)
   
$
1.85
 
    $ 2.06      $ 2.15  
Impact of adjustments on diluted earnings per share
(in dollars)
   
$
0.49
 
    $ 0.43      $ 0.01  
Weighted average number of diluted common shares outstanding
(millions)
   
 
1,210
 
      1,199        1,230  
 
Scotiabank First Quarter Report 2023
    5
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
T1A Reconciliation of reported and adjusted results by business line
 
   
For the three months ended January 31, 2023
(1)
  
($ millions)
  
Canadian
Banking
    
International
Banking
    
Global
Wealth
Management
    
Global
Banking
and Markets
    
Other
    
Total
  
Reported net income (loss)
  
$
1,087
 
  
$
692
 
  
$
387
 
  
$
519
 
  
$
(913
) 
  
$
1,772
 
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
  
 
–
 
  
 
38
 
  
 
2
 
  
 
–
 
  
 
–
 
  
 
40
 
Reported net income attributable to equity holders
  
 
1,087
 
  
 
654
 
  
 
385
 
  
 
519
 
  
 
(913
) 
  
 
1,732
 
Reported net income attributable to preferred shareholders and other equity instrument holders
  
 
1
 
  
 
1
 
  
 
–
 
  
 
1
 
  
 
98
 
  
 
101
 
Reported net income attributable to common shareholders
  
$
1,086
 
  
$
653
 
  
$
385
 
  
$
518
 
  
$
(1,011
) 
  
$
1,631
 
Adjustments
            
Adjusting items impacting
non-interest
expenses
(Pre-tax)
            
Amortization of acquisition-related intangible assets
  
 
2
 
  
 
10
 
  
 
9
 
  
 
–
 
  
 
–
 
  
 
21
 
Total
non-interest
expenses adjustments
(Pre-tax)
  
 
2
 
  
 
10
 
  
 
9
 
  
 
–
 
  
 
–
 
  
 
21
 
Total impact of adjusting items on net income before taxes
  
 
2
 
  
 
10
 
  
 
9
 
  
 
–
 
  
 
–
 
  
 
21
 
Impact of adjusting items on income tax expense
            
Canada recovery dividend
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
579
 
  
 
579
 
Impact of other adjusting items on income tax expense
  
 
(1
) 
  
 
(3
) 
  
 
(2
) 
  
 
–
 
  
 
–
 
  
 
(6
) 
Total impact of adjusting items on income tax expense
  
 
(1
) 
  
 
(3
) 
  
 
(2
) 
  
 
–
 
  
 
579
 
  
 
573
 
Total impact of adjusting items on net income
  
 
1
 
  
 
7
 
  
 
7
 
  
 
–
 
  
 
579
 
  
 
594
 
Total Impact of adjusting items on net income attributable to equity holders and common shareholders
  
 
1
 
  
 
7
 
  
 
7
 
  
 
–
 
  
 
579
 
  
 
594
 
Adjusted net income (loss)
  
$
1,088
 
  
$
699
 
  
$
394
 
  
$
519
 
  
$
(334
) 
  
$
2,366
 
Adjusted net income attributable to equity holders
  
$
1,088
 
  
$
661
 
  
$
392
 
  
$
519
 
  
$
(334
) 
  
$
2,326
 
Adjusted net income attributable to common shareholders
  
$
1,087
 
  
$
660
 
  
$
392
 
  
$
518
 
  
$
(432
) 
  
$
2,225
 
(1)
Refer to Business Line Overview on page 17.
 
    For the three months ended October 31, 2022
(1)
  
($ millions)
   Canadian
Banking		     International
Banking		     Global
Wealth
Management		     Global
Banking
and Markets		     Other     Total  
Reported net income (loss)
   $ 1,170     $ 679     $ 363     $ 484     $ (603 )    $ 2,093  
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
     –       36       2       –       –       38  
Reported net income attributable to equity holders
     1,170       643       361       484       (603 )      2,055  
Reported net income attributable to preferred shareholders and other equity instrument holders
     1       1       –       –       104       106  
Reported net income attributable to common shareholders
   $ 1,169     $ 642     $ 361     $ 484     $ (707 )    $ 1,949  
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
     6       9       9       –       –       24  
Restructuring provision
     –       –       –       –       85       85  
Support costs for the Scene+ loyalty program
     –       –       –       –       133       133  
Total
non-interest
expenses adjustments
(Pre-tax)
     6       9       9       –       218       242  
Total impact of adjusting items on net income before taxes
     6       9       9       –       579       603  
Total impact of adjusting items on income tax expense
     (2 )      (2 )      (2 )      –       (75 )      (81 ) 
Total impact of adjusting items on net income
     4       7       7       –       504       522  
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
     4       7       7       –       503       521  
Adjusted net income (loss)
   $ 1,174     $ 686     $ 370     $ 484     $ (99 )    $ 2,615  
Adjusted net income attributable to equity holders
   $ 1,174     $ 650     $ 368     $ 484     $ (100 )    $ 2,576  
Adjusted net income attributable to common shareholders
   $ 1,173     $ 649     $ 368     $ 484     $ (204 )    $ 2,470  
(1)
Refer to Business Line Overview on page 17.
 
6    
Scotiabank First Quarter Report 2023
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
    For the three months ended January 31, 2022
(1)
  
($ millions)
   Canadian
Banking		     International
Banking		     Global
Wealth
Management		     Global
Banking
and Markets		     Other     Total  
Reported net income (loss)
   $ 1,201     $ 630     $ 415     $ 561     $ (67 )    $ 2,740  
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
     –       85       3       –       –       88  
Reported net income attributable to equity holders
     1,201       545       412       561       (67 )      2,652  
Reported net income attributable to preferred shareholders and other equity instrument holders
     3       3       2       2       34       44  
Reported net income attributable to common shareholders
   $ 1,198     $ 542     $ 410     $ 559     $ (101 )    $ 2,608  
Adjustments
            
Adjusting items impacting
non-interest
expenses
(Pre-tax)
Amortization of acquisition-related intangible assets
     6       10       9       –       –       25  
Total
non-interest
expenses adjustments
(Pre-tax)
     6       10       9       –       –       25  
Total impact of adjusting items on net income before taxes
     6       10       9       –       –       25  
Total impact of adjusting items on income tax expense
     (2 )      (3 )      (2 )      –       –       (7 ) 
Total impact of adjusting items on net income
     4       7       7       –       –       18  
Total Impact of adjusting items on net income attributable to equity holders and common shareholders
     4       7       7       –       –       18  
Adjusted net income (loss)
   $ 1,205     $ 637     $ 422     $ 561     $ (67 )    $ 2,758  
Adjusted net income attributable to equity holders
   $ 1,205     $ 552     $ 419     $ 561     $ (67 )    $ 2,670  
Adjusted net income attributable to common shareholders
   $ 1,202     $ 549     $ 417     $ 559     $ (101 )    $ 2,626  
(1)
Refer to Business Line Overview on page 17.
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 14.
T2 Reconciliation of International Banking’s reported and adjusted results and constant dollar results
 
Reported Results
    For the three months ended  
($ millions)
    October 31, 2022      January 31, 2022  
(Taxable equivalent basis)
    Reported
Results		      Foreign
exchange		      Constant
dollar		      Reported
Results		      Foreign
exchange		      Constant
dollar		  
Net interest income
    $ 1,806      $ (60 )     $ 1,866      $ 1,648      $ (108 )     $ 1,756  
Non-interest
income
      698        2        696        749        14        735  
Total revenue
      2,504        (58 )       2,562        2,397        (94 )       2,491  
Provision for credit losses
      355        (11 )       366        274        (17 )       291  
Non-interest
expenses
      1,364        (34 )       1,398        1,285        (65 )       1,350  
Income before taxes
      785        (13 )       798        838        (12 )       850  
Income tax expense
      106        –        106        208        –        208  
Net income
    $ 679      $ (13 )     $ 692      $ 630      $ (12 )     $ 642  
Net income attributable to
non-controlling
interest in subsidiaries (NCI)
    $ 36      $ (1 )     $ 37      $ 85      $ (2 )     $ 87  
Net income attributable to equity holders of the Bank
    $ 643      $ (12 )     $ 655      $ 545      $ (10 )     $ 555  
Other measures
                  
Average assets
($ billions)
    $ 217      $ (8 )     $ 225      $ 196      $ (12 )     $ 208  
Average liabilities
($ billions)
    $ 160      $ (6 )     $ 166      $ 144      $ (8 )     $ 152  
 
Scotiabank First Quarter Report 2023
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Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Adjusted Results
    For the three months ended  
($ millions)
    October 31, 2022      January 31, 2022  
(Taxable equivalent basis)
    Adjusted
Results		      Foreign
exchange		     
Constant
dollar
adjusted
      Adjusted
Results		      Foreign
exchange		     
Constant
dollar
adjusted
  
Net interest income
    $ 1,806      $ (60 )     $ 1,866      $ 1,648      $ (108 )     $ 1,756  
Non-interest
income
      698        2        696        749        14        735  
Total revenue
      2,504        (58 )       2,562        2,397        (94 )       2,491  
Provision for credit losses
      355        (11 )       366        274        (17 )       291  
Non-interest
expenses
      1,355        (33 )       1,388        1,275        (65 )       1,340  
Income before taxes
      794        (14 )       808        848        (12 )       860  
Income tax expense
      108        (1 )       109        211        1        210  
Net income
    $ 686      $ (13 )     $ 699      $ 637      $ (13 )     $ 650  
Net income attributable to NCI
    $ 36      $ (1 )     $ 37      $ 85      $ (3 )     $ 88  
Net income attributable to equity holders of the Bank
    $ 650      $ (12 )     $ 662      $ 552      $ (10 )     $ 562  
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 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 (annualized) for the business line divided by average core earning assets. Net interest margin is a
non-GAAP
ratio.
 
8    
Scotiabank First Quarter Report 2023
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
T3 Reconciliation of average total assets, average earning assets, average core earning assets and net interest margin by business line
Consolidated Bank
 
      For the three months ended  
($ millions)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Average total assets – Reported
(1)
   
$
1,380,008
 
    $ 1,332,897      $ 1,238,616  
Less:
Non-earning
assets
   
 
118,465
 
      126,213        94,165  
Average total earning assets
(1)
   
$
1,261,543
 
    $ 1,206,684      $ 1,144,451  
Less:
         
Trading assets
   
 
119,974
 
      117,807        162,885  
Securities purchased under resale agreements and securities borrowed
   
 
174,942
 
      157,438        131,102  
Other deductions
   
 
70,779
 
      69,343        58,030  
Average core earning assets
(1)
   
$
895,848
 
    $ 862,096      $ 792,434  
Net Interest Income – Reported
   
$
4,569
 
    $ 4,622      $ 4,344  
Less:
Non-core
net interest income
   
 
(205
) 
      (122 )       23  
Core net interest income
   
$
4,774
 
    $ 4,744      $ 4,321  
Net interest margin
   
 
2.11
% 
      2.18 %       2.16 % 
(1)
Average balances represent the average of daily balances for the period.
Canadian Banking
 
      For the three months ended  
($ millions)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Average total assets – Reported
(1)
   
$
450,040
 
    $ 445,670      $ 411,748  
Less:
Non-earning
assets
   
 
4,035
 
      4,112        4,129  
Average total earning assets
(1)
   
$
446,005
 
    $ 441,558      $ 407,619  
Less:
         
Other deductions
   
 
27,284
 
      26,191        20,580  
Average core earning assets
(1)
   
$
418,721
 
    $ 415,367      $ 387,039  
Net Interest Income – Reported
   
$
2,386
 
    $ 2,363      $ 2,133  
Less:
Non-core
net interest income
   
 
–
 
      –        –  
Core net interest income
   
$
2,386
 
    $ 2,363      $ 2,133  
Net interest margin
   
 
2.26
% 
      2.26 %       2.19 % 
(1)
Average balances represent the average of daily balances for the period.
International Banking
 
      For the three months ended  
($ millions)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Average total assets – Reported
(1)
   
$
228,374
 
    $ 217,061      $ 196,100  
Less:
Non-earning
assets
   
 
19,103
 
      19,358        16,039  
Average total earning assets
(1)
   
$
209,271
 
    $ 197,703      $ 180,061  
Less:
         
Trading assets
   
 
5,132
 
      5,369        5,287  
Securities purchased under resale agreements and securities borrowed
   
 
3,033
 
      2,433        200  
Other deductions
   
 
7,565
 
      7,087        6,715
(2)
 
Average core earning assets
(1)
   
$
193,541
 
    $ 182,814      $ 167,859  
Net Interest Income – Reported
   
$
1,899
 
    $ 1,806      $ 1,648  
Less:
Non-core
net interest income
   
 
(54
) 
      (73 )       12  
Core net interest income
   
$
1,953
 
    $ 1,879      $ 1,636  
Net interest margin
   
 
4.00
% 
      4.08 %       3.87 % 
(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.
 
Scotiabank First Quarter Report 2023
    9
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Return on equity
Return on equity is a profitability measure that presents the net income attributable to common shareholders (annualized) as a percentage of average common shareholders’ equity.
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 (annualized) 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 (annualized) as a percentage of average common shareholders’ equity.
Return on equity by operating segment
T4 Return on equity by operating segment
 
     
For the three months ended January 31, 2023
  
($ millions)
   
Canadian
Banking
    
International
Banking
     
Global
Wealth
Management
     
Global
Banking
and Markets
    
Other
     
Total
  
Reported
                
Net income attributable to common shareholders
   
$
1,086
 
  
$
653
 
   
$
385
 
   
$
518
 
  
$
(1,011
) 
   
$
1,631
 
Total average common equity
(1)
   
 
18,753
 
  
 
19,302
 
   
 
9,835
 
   
 
15,535
 
  
 
2,206
 
   
 
65,631
 
Return on equity
   
 
23.0
% 
  
 
13.4
% 
   
 
15.5
% 
   
 
13.2
% 
  
 
nm
(2)
 
   
 
9.9
% 
Adjusted
(3)
                
Net income attributable to common shareholders
   
$
1,087
 
  
$
660
 
   
$
392
 
   
$
518
 
  
$
(432
) 
   
$
2,225
 
Return on equity
   
 
23.0
% 
  
 
13.6
% 
   
 
15.8
% 
   
 
13.2
% 
  
 
nm
(2)
 
   
 
13.4
% 
(1)
Average amounts calculated using methods intended to approximate the daily average balances for the period.
(2)
Not meaningful.
(3)
Refer to Tables on page 5.
 
     For the three months ended October 31, 2022     For the three months ended January 31, 2022  
($ millions)
   Canadian
Banking		     International
Banking		     Global
Wealth
Management		     Global
Banking
and Markets		     Other     Total     Canadian
Banking		     International
Banking		     Global
Wealth
Management		     Global
Banking
and Markets		     Other     Total  
Reported
            
 
            
Net income attributable to common shareholders
   $ 1,169     $ 642     $ 361     $ 484     $ (707 )    $ 1,949     $ 1,198     $ 542     $ 410     $ 559     $ (101 )    $ 2,608  
Total average common equity
(1)
     18,757       19,501       9,701       14,260       2,877       65,096       17,373       17,569       9,443       12,717       8,359       65,461  
Return on equity
     24.7 %      13.1 %      14.8 %      13.4 %      nm
(2)
 		     11.9 %      27.4 %      12.2 %      17.2 %      17.4 %      nm
(2)
 		     15.8 % 
Adjusted
(3)
            
 
            
Net income attributable to common shareholders
   $ 1,173     $ 649     $ 368     $ 484     $ (204 )    $ 2,470     $ 1,202     $ 549     $ 417     $ 559     $ (101 )    $ 2,626  
Return on equity
     24.8 %      13.2 %      15.0 %      13.4 %      nm
(2)
 		     15.0 %      27.5 %      12.4 %      17.5 %      17.4 %      nm
(2)
 		     15.9 % 
 
(1)
Average amounts calculated using methods intended to approximate the daily average balances for the period.
(2)
Not meaningful.
(3)
Refer to Tables on page 5.
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 (annualized), 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 average tangible common equity. This is a
non-GAAP
ratio.
 
10    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
T5 Return on tangible common equity
 
     For the three months ended  
(Unaudited)
  
January 31
2023
      October 31
2022		      January 31
2022		  
Reported
        
Average common equity – Reported
(1)
  
$
65,631
 
    $ 65,096      $ 65,461  
Average goodwill
(1)(2)
  
 
(9,334
) 
      (9,140 )       (9,234 ) 
Average acquisition-related intangibles (net of deferred tax)
(1)
  
 
(3,760
) 
      (3,773 )       (3,833 ) 
Average tangible common equity
(1)
  
$
52,537
 
    $ 52,183      $ 52,394  
Net income attributable to common shareholders – reported
  
$
1,631
 
    $ 1,949      $ 2,608  
Amortization of acquisition-related intangible assets (after tax)
(3)
  
 
15
 
      18        18  
Net income attributable to common shareholders adjusted for amortization of
acquisition-related intangible assets (after tax)
  
$
1,646
 
    $ 1,967      $ 2,626  
Return on tangible common equity
(4)
  
 
12.4
% 
      15.0 %       19.9 % 
Adjusted
(3)
        
Adjusted net income attributable to common shareholders
  
$
2,225
 
    $ 2,470      $ 2,626  
Return on tangible common equity – adjusted
(4)(5)
  
 
16.8
% 
      18.8 %       19.9 % 
(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 Table on page 5.
(4)
Calculated on full dollar amounts.
(5)
Prior period amounts have been restated to align with current period calculation.
Adjusted productivity ratio
Adjusted productivity ratio represents adjusted
non-interest
expenses as a percentage of adjusted total revenue. This is a non-GAAP ratio.
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. This is a
non-GAAP
ratio.
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. This is a non-GAAP measure.
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. This is a
non-GAAP
ratio.
 
Scotiabank First Quarter Report 2023
    11
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Financial Highlights
T6 Financial highlights
 
      As at and for the three months ended  
(Unaudited)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Operating results
($ millions)
         
Net interest income
   
 
4,569
 
      4,622        4,344  
Non-interest
income
   
 
3,411
 
      3,004        3,705  
Total revenue
   
 
7,980
 
      7,626        8,049  
Provision for credit losses
   
 
638
 
      529        222  
Non-interest
expenses
   
 
4,464
 
      4,529        4,223  
Income tax expense
   
 
1,106
 
      475        864  
Net income
   
 
1,772
 
      2,093        2,740  
Net income attributable to common shareholders
   
 
1,631
 
      1,949        2,608  
Operating performance
         
Basic earnings per share
($)
   
 
1.37
 
      1.64        2.15  
Diluted earnings per share
 ($)
   
 
1.36
 
      1.63        2.14  
Return on equity
(%)
(1)
   
 
9.9
 
      11.9        15.8  
Return on tangible common equity
(%)
(2)
   
 
12.4
 
      15.0        19.9  
Productivity ratio
(%)
(1)
   
 
55.9
 
      59.4        52.5  
Net interest margin
(%)
(2)
   
 
2.11
 
      2.18        2.16  
Financial position information
($ millions)
        
Cash and deposits with financial institutions
   
 
81,386
 
      65,895        99,053  
Trading assets
   
 
116,346
 
      113,154        152,947  
Loans
   
 
755,157
 
      744,987        667,338  
Total assets
   
 
1,374,438
 
      1,349,418        1,245,474  
Deposits
   
 
949,887
 
      916,181        851,045  
Common equity
   
 
66,112
 
      65,150        66,172  
Preferred shares and other equity instruments
   
 
8,075
 
      8,075        5,552  
Assets under administration
(1)
   
 
664,683
 
      641,636        651,200  
Assets under management
(1)
   
 
322,423
 
      311,099        345,339  
Capital and liquidity measures
         
Common Equity Tier 1 (CET1) capital ratio
(%)
(3)
   
 
11.5
 
      11.5        12.0  
Tier 1 capital ratio
(%)
(3)
   
 
13.2
 
      13.2        13.4  
Total capital ratio
(%)
(3)
   
 
15.2
 
      15.3        15.1  
Total loss absorbing capacity (TLAC) ratio
(%)
(4)
   
 
27.9
 
      27.4        28.3  
Leverage ratio
(%)
(5)
   
 
4.2
 
      4.2        4.4  
TLAC Leverage ratio
(%)
(4)
   
 
8.9
 
      8.8        9.4  
Risk-weighted assets
($ millions)
(3)
   
 
471,528
 
      462,448        433,682  
Liquidity coverage ratio (LCR)
(%)
(6)
   
 
122
 
      119        123  
Net stable funding ratio (NSFR)
(%)
(7)
   
 
109
 
      111        108  
Credit quality
         
Net impaired loans
($ millions)
   
 
3,450
 
      3,151        2,812  
Allowance for credit losses
($ millions)
(8)
   
 
5,668
 
      5,499        5,583  
Gross impaired loans as a % of loans and acceptances
(1)
   
 
0.65
 
      0.62        0.64  
Net impaired loans as a % of loans and acceptances
(1)
   
 
0.44
 
      0.41        0.41  
Provision for credit losses as a % of average net loans and acceptances (annualized)
(1)(9)
   
 
0.33
 
      0.28        0.13  
Provision for credit losses on impaired loans as a % of average net loans and acceptances (annualized)
(1)(9)
   
 
0.29
 
      0.26        0.24  
Net write-offs as a % of average net loans and acceptances (annualized)
(1)
   
 
0.29
 
      0.24        0.27  
Adjusted results
(2)
         
Adjusted net income
($ millions)
   
 
2,366
 
      2,615        2,758  
Adjusted diluted earnings per share
($)
   
 
1.85
 
      2.06        2.15  
Adjusted return on equity
(%)
   
 
13.4
 
      15.0        15.9  
Adjusted return on tangible common equity
(%)
(10)
   
 
16.8
 
      18.8        19.9  
Adjusted productivity ratio
(%)
   
 
55.7
 
      53.7        52.2  
Common share information
         
Closing share price
($)
 (TSX)
   
 
72.03
 
      65.85        91.56  
Shares outstanding
(millions)
         
Average – Basic
   
 
1,192
 
      1,192        1,211  
Average – Diluted
   
 
1,199
 
      1,199        1,230  
End of period
   
 
1,192
 
      1,191        1,204  
Dividends paid per share
($)
   
 
1.03
 
      1.03        1.00  
Dividend yield
(%)
(1)
   
 
6.1
 
      5.7        4.6  
Market capitalization
($ millions)
(TSX)
   
 
85,842
 
      78,452        110,274  
Book value per common share
($)
(1)
   
 
55.47
 
      54.68        54.94  
Market value to book value multiple
(1)
   
 
1.3
 
      1.2        1.7  
Price to earnings multiple (trailing 4 quarters)
(1)
   
 
9.9
 
      8.2        11.4  
Other information
         
Employees (full-time equivalent)
   
 
91,264
 
      90,979        89,782  
Branches and offices
   
 
2,356
 
      2,384        2,424  
(1)
Refer to Glossary on page 50 for the description of the measure.
(2)
Refer to page 4 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.
(10)
Prior period amounts have been restated to align with current period calculation.
 
12    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Overview of Performance
Financial performance summary
The Bank’s reported net income this quarter was $1,772 million, compared to $2,740 million in the same period last year, and $2,093 million last quarter. Diluted earnings per share were $1.36 compared to $2.14 in the same period last year and $1.63 last quarter. Return on equity was 9.9%, compared to 15.8% in the same period last year and 11.9% last quarter.
The current quarter has adjusting items of $594 million
after-tax
($21 million
pre-tax),
which includes income tax expense of $579 million reflecting the present value of the amount payable for the Canada Recovery Dividend (CRD). The net impact of the adjustments on diluted earnings per share was $0.49 and on Basel III Common Equity Tier 1 (CET1) ratio was approximately 12 basis points. Adjustments in Q4, 2022 were $522 million after-tax ($603 million pre-tax), or $0.43 impact on diluted earnings per share. Adjustments in Q1, 2022 were $18 million after-tax ($25 million pre-tax). Refer to Non-GAAP Measures starting on page 4 for details of adjustments.
Adjusted net income was $2,366 million compared to $2,758 million last year, a decrease of 14%. Adjusted diluted earnings per share were $1.85 compared to $2.15 last year. Adjusted return on equity was 13.4% compared to 15.9% a year ago. The decrease in net income was due mainly to higher provision for credit losses and
non-interest
expenses, partly offset by lower provision for income taxes.
Adjusted net income was $2,366 million this quarter compared to $2,615 million last quarter. Adjusted diluted earnings per share were $1.85, compared to $2.06 last quarter, and adjusted return on equity was 13.4% compared to 15.0% last quarter. The decrease in net income was due mainly to higher provision for credit losses and
non-interest
expenses, partly offset by lower provision for income taxes.
Economic summary and outlook
Though there remains much uncertainty about the future path, the global economy is proving to be more resilient to higher commodity prices, inflation and interest rates than earlier considered. Central bankers have been trying to engineer a slowing in economic activity through higher interest rates as they try to return inflation to target. The resulting hikes have been substantial and should have already led to a notable slowdown in economic activity, yet firms and households across many countries have not curtailed activity as much as had been expected. This is generally leading to an upward revision in forecasts for global economic activity in 2023. Moreover, there are increasing signs that inflation, though still well above acceptable levels, is on a downward path in many large economies owing to the decline in a broad basket of input prices. A meaningful slowdown is still required and expected as we forecast a recession in major economies in mid-2023.
In Canada, the Bank of Canada is likely at the end of the tightening phase. As is the case elsewhere, the economy is more robust than previously anticipated. This is most clearly seen in the labour market, where firms have been adding workers at a strong pace late last year and so far in 2023. While there are signs of a slowdown in consumer spending, business confidence is starting to improve from low levels. A mild recession is expected in the middle quarters of this year that should generate a modest increase in unemployment. Inflation looks increasingly to be on a very gradual path to 2% in 2024, allowing the Bank of Canada to leave its policy rate at current levels before beginning a process of gradual cuts later this year.
A similar dynamic is at play in the United States. Inflation appears to be on a gradual downward path though it remains very high. The labour market is characterized by strong job growth and high vacancies, and indicators of economic activity for late 2022 and early 2023 point to stronger than expected growth. A recession continues to be expected despite these developments, given the sharp rise in interest rates over the last year. The Federal Reserve is expected to raise interest rates by another 50 basis points and leave rates at 5.25% through the remainder of this year before beginning a series of gradual cuts in early 2024.
Economic data has also generally been more resilient in the Pacific Alliance Countries, though inflation is not slowing as much as in advanced economies. This has prompted more tightening than expected in these countries, with expectations of modest additional increases to come. This will lead to lower growth. The political situation in Peru remains a concern and will temper growth prospects though the economic impacts have so far been relatively modest. The upward revisions to global growth, China’s reopening and the realization that current copper production and supply is insufficient to ensure the green transition have led to a large increase in copper prices, which should have a positive impact in the region.
 
Scotiabank First Quarter Report 2023
    13
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Impact of foreign currency translation
The table below reflects the estimated impact of foreign currency translation on key income statement items and is computed on a basis that is different than the “
Constant dollar
” table in
Non-GAAP
Measures on page 7.
T7 Impact of foreign currency translation
 
     Average exchange rate     % Change  
For the three months ended  
January 31, 2023
     October 31, 2022     January 31, 2022     January 31, 2023
vs. October 31, 2022		     January 31, 2023
vs. January 31, 2022		  
U.S dollar/Canadian dollar
  
 
0.742
 
     0.752       0.789       (1.3 )%      (6.0 )% 
Mexican Peso/Canadian dollar
  
 
14.342
 
     15.072       16.383       (4.8 )%      (12.5 )% 
Peruvian Sol/Canadian dollar
  
 
2.853
 
     2.942       3.143       (3.0 )%      (9.2 )% 
Colombian Peso/Canadian dollar
  
 
3,567.606
 
     3,381.348       3,128.422       5.5 %      14.0 % 
Chilean Peso/Canadian dollar
  
 
646.312
 
     696.481       653.988       (7.2 )%      (1.2 )% 
Impact on net income
(1)
($ millions except EPS)
                        January 31, 2023
vs. October 31, 2022		     January 31, 2023
vs. January 31, 2022		  
Net interest income
         $ 66     $ 132  
Non-interest
income
(2)
           (123 )      (83 ) 
Non-interest
expenses
           (46 )      (97 ) 
Other items (net of tax)
  
 
 
 
  
 
 
 
  
 
 
 
     33       7  
Net income
  
 
 
 
  
 
 
 
  
 
 
 
   $ (70 )    $ (41 ) 
Earnings per share (diluted)
  
 
 
 
  
 
 
 
  
 
 
 
   $ (0.06 )    $ (0.03 ) 
Impact by business line
($ millions)
          
Canadian Banking
         $ –     $ 2  
International Banking
(2)
           (41 )      (25 ) 
Global Wealth Management
           4       7  
Global Banking and Markets
           5       24  
Other
(2)
  
 
 
 
  
 
 
 
  
 
 
 
     (38 )      (49 ) 
Net income
  
 
 
 
  
 
 
 
  
 
 
 
   $ (70 )    $ (41 ) 
(1)
Includes the impact of all currencies.
(2)
Includes the impact of foreign currency hedges.
 
14    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Group Financial Performance
Net income
Q1 2023 vs Q1 2022
Net income was $1,772 million compared to $2,740 million, a decrease of 35%. The decrease was due mainly to higher provision for credit losses,
non-interest
expenses and provision for income taxes due to the Canada Recovery Dividend (CRD). Adjusted net income was $2,366 million compared to $2,758 million, a decrease of 14% due mainly to higher provision for credit losses and
non-interest
expenses, partly offset by lower provision for income taxes.
Q1 2023 vs Q4 2022
Net income was $1,772 million compared to $2,093 million, a decrease of 15%. The decrease was due mainly to higher provision for credit losses and income taxes, partly offset by higher
non-interest
income. Adjusted net income was $2,366 million compared to $2,615 million, a decrease of 10%, due mainly to higher provision for credit losses and higher
non-interest
expenses.
Total revenue
Q1 2023 vs Q1 2022
Revenues were $7,980 million compared to $8,049 million, a decrease of 1% due mainly to lower
non-interest
income, partly offset by higher net interest income.
Q1 2023 vs Q4 2022
Revenues were $7,980 million compared to $7,626 million, an increase of 5% due mainly to higher
non-interest
income. Adjusted revenues were $7,980 million compared to $7,987 million, in line with the prior quarter as the decline in net interest income was largely offset by an increase in
non-interest
income.
Net interest income
Q1 2023 vs Q1 2022
Net interest income was $4,569 million, an increase of $225 million or 5%. The increase reflects strong asset growth across all business lines and the positive impact of foreign currency translation, partly offset by a lower net interest margin.
The net interest margin was down five basis points to 2.11%, driven primarily by a lower contribution from asset/liability management activities related to higher funding costs and increased levels of high quality, lower-margin liquid assets. This was partly offset by higher Canadian Banking and International Banking margins which benefited from central bank rate increases.
Q1 2023 vs Q4 2022
Net interest income decreased $53 million or 1%. Loan growth across all business lines was more than offset by a lower net interest margin.
The net interest margin was down seven basis points driven by a lower contribution from asset/liability management activities and increased levels of high quality, lower-margin liquid assets, as well as lower margins in International Banking and Global Banking and Markets.
Non-interest
income
Q1 2023 vs Q1 2022
Non-interest
income was $3,411 million, down $294 million or 8%. The decrease was due mainly to lower wealth management revenues, underwriting and advisory fees and income from associated corporations, the negative impact of foreign currency translation and unrealized losses on
non-trading
derivatives. Partly offsetting were higher banking revenues and investment gains.
Q1 2023 vs Q4 2022
Non-interest
income was up $407 million or 14%. Adjusted
non-interest
income was up $46 million or 1%, due primarily to higher trading, banking and wealth management revenues, partly offset by lower underwriting and advisory fees, income from associated corporations and investment gains, and the negative impact of foreign currency translation.
Provision for credit losses
Q1 2023 vs Q1 2022
The provision for credit losses was $638 million, compared to $222 million, an increase of $416 million. The provision for credit losses ratio increased 20 basis points to 33 basis points.
The provision for credit losses on performing loans was $76 million, compared to a net reversal of $183 million. The provision this period was driven by portfolio growth in International Banking and the less favorable macroeconomic forecast primarily related to corporate and commercial portfolios. Provision reversals last year were due mainly to favourable portfolio credit quality and macroeconomic outlook.
The provision for credit losses on impaired loans was $562 million, compared to $405 million, an increase of $157 million or 39%, due primarily to higher retail provisions driven by higher formations in the International Banking and Canadian portfolios. The provision for credit losses ratio on impaired loans was 29 basis points, an increase of five basis points.
 
Scotiabank First Quarter Report 2023
    15
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Q1 2023 vs Q4 2022
The provision for credit losses was $638 million, compared to $529 million, an increase of $109 million or 21%. The provision for credit losses ratio increased five basis points to 33 basis points.
The provision for credit losses on performing loans was $76 million, compared to $35 million last quarter, an increase of $41 million related primarily to portfolio growth in International Banking and higher corporate and commercial provisions due to the less favourable macroeconomic outlook.
The provision for credit losses on impaired loans was $562 million, compared to $494 million, an increase of $68 million or 14% due primarily to higher retail provisions driven by higher formations in International Banking and Canadian portfolios. The provision for credit losses ratio on impaired loans was 29 basis points, an increase of three basis points.
Non-interest expenses
Q1 2023 vs Q1 2022
Non-interest
expenses were $4,464 million, up $241 million or 6%. Adjusted
non-interest
expenses were $4,443 million, up $245 million or 6%, driven by higher personnel costs from increased staffing levels and inflationary adjustments, higher advertising and technology-related costs and the unfavourable impact of foreign currency translation. Partly offsetting were lower performance and share-based compensation, and professional fees.
The productivity ratio was 55.9% compared to 52.5%. The adjusted productivity ratio was 55.7% compared to 52.2%. Operating leverage was negative 6.6% on a reported basis and negative 6.7% on an adjusted basis.
Q1 2023 vs Q4 2022
Non-interest
expenses were down $65 million or 1%. Adjusted
non-interest
expenses were up $156 million or 4%. The increase was driven by higher personnel costs from inflationary adjustments, higher share-based compensation and business and capital taxes, and the unfavourable impact of foreign currency translation, partly offset by lower professional fees.
The productivity ratio was 55.9% compared to 59.4%. The adjusted productivity ratio was 55.7% compared to 53.7%.
Taxes
Q1 2023 vs Q1 2022
The effective tax rate was 38.4% compared to 24.0% due primarily to the recognition of additional income tax expense of $579 million, reflecting the CRD. On an adjusted basis, the effective rate was 18.4% compared to 24.0%. Higher income from lower tax rate jurisdictions and higher tax-exempt income, more than offset the impact of the higher Canadian statutory tax rate (refer to Regulatory Developments on page 47).
Q1 2023 vs Q4 2022
The effective tax rate was 38.4% compared to 18.5% due primarily to the impact of the CRD. On an adjusted basis, the effective tax rate was 18.4% compared to 17.6% due primarily to lower inflationary adjustments in Mexico and Chile, and the higher Canadian statutory tax rate.
 
16    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Business Segment Review
Business segment results are presented on a taxable equivalent basis, adjusted for the following:
 
  •  
The Bank analyzes revenues on a taxable equivalent basis (TEB) for business lines. This methodology grosses up
tax-exempt
income earned on certain securities reported in either net interest income or
non-interest
income to an equivalent before tax basis. A corresponding increase is made to the provision for income taxes; hence, there is no impact on net income. Management believes that this basis for measurement 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 may also use TEB, their methodology may not be comparable to the Bank’s methodology. A segment’s revenue and provision for income taxes are grossed up by the taxable equivalent amount. The elimination of the TEB
gross-up
is recorded in the Other segment.
 
  •  
For business line performance assessment and reporting, net income from associated corporations, which is an after tax number, is adjusted to normalize for income taxes. The tax normalization adjustment grosses up the amount of net income from associated corporations and normalizes the effective tax rate in the business lines to better present the contribution of the associated corporations to the business line results.
 
Canadian Banking
                     
T8 Canadian Banking financial performance
                     
      For the three months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Reported Results
         
Net interest income
   
$
2,386
 
    $ 2,363      $ 2,133  
Non-interest
income
(1)
   
 
778
 
      771        741  
Total revenue
   
 
3,164
 
      3,134        2,874  
Provision for credit losses
   
 
218
 
      163        (35 ) 
Non-interest
expenses
   
 
1,449
 
      1,397        1,282  
Income tax expense
   
 
410
 
      404        426  
Net income
   
$
1,087
 
    $ 1,170      $ 1,201  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –  
Net income attributable to equity holders of the Bank
   
$
1,087
 
    $ 1,170      $ 1,201  
Other financial data and measures
         
Return on equity
(2)
   
 
23.0
% 
      24.7 %       27.4 % 
Net interest margin
(2)
   
 
2.26
% 
      2.26 %       2.19 % 
Provision for credit losses – performing (Stage 1 and 2)
   
$
31
 
    $ 10      $ (160 ) 
Provision for credit losses – impaired (Stage 3)
   
$
187
 
    $ 153      $ 125  
Provision for credit losses as a percentage of average net loans and acceptances (annualized)
(3)
   
 
0.19
% 
      0.15 %       (0.03 )% 
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)
(3)
   
 
0.17
% 
      0.14 %       0.12 % 
Net write-offs as a percentage of average net loans and acceptances (annualized)
(3)
   
 
0.16
% 
      0.14 %       0.14 % 
Average assets
($ billions)
   
$
450
 
    $ 446      $ 412  
Average liabilities
($ billions)
   
$
357
 
    $ 347      $ 320  
(1)
Includes income (on a taxable equivalent basis) from investments in associated corporations of $15 (October 31, 2022 – $23; January 31, 2022 – $8).
(2)
Refer to
Non-GAAP
Measures on page 4 for the description of the measure.
(3)
Refer to Glossary on page 50 for the description of the measure.
 
T8A Adjusted Canadian Banking financial performance
       
      For the three months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Adjusted Results
(1)
         
Net interest income
   
$
2,386
 
    $ 2,363      $ 2,133  
Non-interest
income
   
 
778
 
      771        741  
Total revenue
   
 
3,164
 
      3,134        2,874  
Provision for credit losses
   
 
218
 
      163        (35 ) 
Non-interest
expenses
(2)
   
 
1,447
 
      1,391        1,276  
Income tax expense
   
 
411
 
      406        428  
Net income
   
$
1,088
 
    $ 1,174      $ 1,205  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –  
Net income attributable to equity holders of the Bank
   
$
1,088
 
    $ 1,174      $ 1,205  
(1)
Refer to
Non-GAAP
Measures on page 4 for adjusted results.
(2)
Includes adjustment for amortization of acquisition-related intangible assets, excluding software of $2 (October 31, 2022 – $6; January 31, 2022 – $6).
Net income
Q1 2023 vs Q1 2022
Net income attributable to equity holders was $1,087 million, compared to $1,201 million. Adjusted net income attributable to equity holders was $1,088 million, down $117 million or 10%. The decline was due primarily to higher provision for credit losses and non-interest expenses, partly offset by higher revenue.
 
Scotiabank First Quarter Report 2023
    17
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Q1 2023 vs Q4 2022
Net income attributable to equity holders declined $83 million or 7%. Adjusted net income attributable to equity holders declined $86 million or 7%. The decline was due primarily to higher provision for credit losses and
non-interest
expenses, partly offset by higher revenue.
Average assets
Q1 2023 vs Q1 2022
Average assets were $450 billion, an increase of $38 billion or 9%. The growth included $18 billion or 7% in residential mortgages, $15 billion or 22% in business loans and acceptances, $4 billion or 5% in personal loans, and $1 billion or 12% in credit cards.
Q1 2023 vs Q4 2022
Average assets increased $4 billion or 1%. The growth included $3 billion or 3% in business loans and acceptances, and $1 billion or 1% in personal loans.
Average liabilities
Q1 2023 vs Q1 2022
Average liabilities were $357 billion, an increase of $37 billion or 11%. The growth included $24 billion or 13% in personal deposits, primarily in term products, and $5 billion or 4% in
non-personal
deposits.
Q1 2023 vs Q4 2022
Average liabilities increased $10 billion or 3%. The increase was driven largely by growth in personal deposits, primarily in term products.
Total revenue
Q1 2023 vs Q1 2022
Revenues were $3,164 million, up $290 million or 10%, due to higher net interest income and
non-interest
income.
Q1 2023 vs Q4 2022
Revenues increased $30 million or 1%, due to higher net interest income and
non-interest
income.
Net interest income
Q1 2023 vs Q1 2022
Net interest income of $2,386 million increased $253 million or 12%, due primarily to strong loan and deposit growth, as well as margin expansion. The net interest margin increased seven basis points to 2.26%, due mainly to higher deposit margins and the impact of the Bank of Canada rate increases, partly offset by lower loan margins.
Q1 2023 vs Q4 2022
Net interest income increased $23 million or 1%, due primarily to solid loan and deposit growth. The net interest margin was in line with the prior quarter as higher loan margins were offset by lower deposit margins.
Non-interest
income
Q1 2023 vs Q1 2022
Non-interest
income of $778 million increased $37 million or 5%. The increase was due primarily to elevated private equity gains and higher banking revenue, partly offset by lower mutual fund distribution fees.
Q1 2023 vs Q4 2022
Non-interest
income increased $7 million or 1%. The increase was due primarily to elevated private equity gains partly offset by lower income from associated corporations and lower insurance income.
Provision for credit losses
Q1 2023 vs Q1 2022
The provision for credit losses was $218 million, compared to a net reversal of $35 million. The provision for credit losses ratio increased 22 basis points to 19 basis points.
Provision for credit losses on performing loans was $31 million, compared to a net reversal of $160 million. The provision this period was driven primarily by commercial provisions due to less favourable macroeconomic outlook, and retail provisions driven primarily by residential mortgages and auto loans. Provision reversals last year were due mainly to favourable portfolio credit quality and macroeconomic outlook.
Provision for credit losses on impaired loans was $187 million, compared to $125 million, an increase of $62 million or 50% due primarily to higher retail provisions driven by higher formations on unsecured loans. The provision for credit losses ratio on impaired loans was 17 basis points, an increase of five basis points.
 
18    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Q1 2023 vs Q4 2022
The provision for credit losses was $218 million, compared to $163 million, an increase of $55 million or 34%. The provision for credit losses ratio increased four basis points to 19 basis points.
Provision for credit losses on performing loans was $31 million, compared to $10 million. The increase was driven primarily by commercial provisions due to less favourable macroeconomic outlook, and retail provisions driven primarily by residential mortgages and auto loans.
Provision for credit losses on impaired loans was $187 million, compared to $153 million, an increase of $34 million or 22% due primarily to higher retail provisions driven by higher formations on unsecured loans. The provision for credit losses ratio on impaired loans was 17 basis points, an increase of three basis points.
Non-interest
expenses
Q1 2023 vs Q1 2022
Non-interest
expenses were $1,449 million compared to $1,282 million, up 13%. Adjusted non-interest expenses were $1,447 million, up $171 million or 13%, due primarily to higher personnel costs from increased staffing levels and inflationary adjustments, higher technology, advertising, and business development costs to support business growth.
Q1 2023 vs Q4 2022
Non-interest
expenses were up $52 million or 4%. Adjusted non-interest expenses were up $56 million or 4%, due primarily to higher personnel costs from increased staffing levels and inflationary adjustments, and higher technology costs to support business growth.
Taxes
The effective tax rate was 27.4% compared to 26.2% in the prior year and 25.7% in the prior quarter. The increase this quarter was driven mainly by the higher Canadian statutory tax rate.
 
International Banking
                     
T9 International Banking financial performance
                     
      For the three months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Reported Results
         
Net interest income
   
$
1,899
 
    $ 1,806      $ 1,648  
Non-interest
income
(1)
   
 
802
 
      698        749  
Total revenue
   
 
2,701
 
      2,504        2,397  
Provision for credit losses
   
 
404
 
      355        274  
Non-interest
expenses
   
 
1,436
 
      1,364        1,285  
Income tax expense
   
 
169
 
      106        208  
Net income
   
$
692
 
    $ 679      $ 630  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
38
 
    $ 36      $ 85  
Net income attributable to equity holders of the Bank
   
$
654
 
    $ 643      $ 545  
Other financial data and measures
         
Return on equity
(2)
   
 
13.4
% 
      13.1 %       12.2 % 
Net interest margin
(2)
   
 
4.00
% 
      4.08 %       3.87 % 
Provision for credit losses – performing (Stage 1 and 2)
   
$
29
 
    $ 35      $ (12 ) 
Provision for credit losses – impaired (Stage 3)
   
$
375
 
    $ 320      $ 286  
Provision for credit losses as a percentage of average net loans and acceptances (annualized)
(3)
   
 
0.96
% 
      0.89 %       0.77 % 
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)
(3)
   
 
0.89
% 
      0.81 %       0.81 % 
Net write-offs as a percentage of average net loans and acceptances (annualized)
(3)
   
 
0.88
% 
      0.76 %       0.88 % 
Average assets
($ billions)
   
$
228
 
    $ 217      $ 196  
Average liabilities
($ billions)
   
$
169
 
    $ 160      $ 144  
(1)
Includes income (on a taxable equivalent basis) from investments in associated corporations of $63 (October 31, 2022 – $51; January 31, 2022 – $68).
(2)
Refer to
Non-GAAP
Measures on page 4 for the description of the measure.
(3)
Refer to Glossary on page 50 for the description of the measure.
 
T9A Adjusted International Banking financial performance
       
      For the three months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Adjusted Results
(1)
         
Net interest income
   
$
1,899
 
    $ 1,806      $ 1,648  
Non-interest
income
   
 
802
 
      698        749  
Total revenue
   
 
2,701
 
      2,504        2,397  
Provision for credit losses
   
 
404
 
      355        274  
Non-interest
expenses
(2)
   
 
1,426
 
      1,355        1,275  
Income tax expense
   
 
172
 
      108        211  
Net income
   
$
699
 
    $ 686      $ 637  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
38
 
    $ 36      $ 85  
Net income attributable to equity holders of the Bank
   
$
661
 
    $ 650      $ 552  
(1)
Refer to
Non-GAAP
Measures on page 4 for adjusted results.
(2)
Includes adjustment for amortization of acquisition-related intangible assets, excluding software of $10 (October 31, 2022 – $9; January 31, 2022 – $10).
 
Scotiabank First Quarter Report 2023
    19
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Net income
Q1 2023 vs Q1 2022
Net income attributable to equity holders was $654 million, an increase from $545 million. Adjusted net income attributable to equity holders was $661 million, an increase from $552 million. The increase was driven by higher net interest income and
non-interest
income and lower provision for income taxes, partly offset by higher
non-interest
expenses and provision for credit losses.
Q1 2023 vs Q4 2022
Net income attributable to equity holders increased by $11 million or 2% from $643 million. Adjusted net income attributable to equity holders increased by $11 million or 2%, from $650 million. This increase was driven by higher
non-interest
income and net interest income, partly offset by higher
non-interest
expenses, provision for income taxes, and provision for credit losses.
Financial Performance on a Constant Dollar Basis
The discussion below on the results of operations is on a constant dollar basis. Under the constant dollar basis, prior period amounts are recalculated using current period average foreign currency rates, which is a
non-GAAP
financial measure (refer to
Non-GAAP
Measures on page 7). The Bank believes that constant dollar is useful for readers in assessing ongoing business performance without the impact of foreign currency translation and is used by management to assess the performance of the business segment. Ratios are on a reported basis.
 
T10 International Banking financial performance on reported and constant dollar basis
                     
      For the three months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Constant dollars – Reported
(1)
         
Net interest income
   
$
1,899
 
    $ 1,866      $ 1,756  
Non-interest
income
(2)
   
 
802
 
      696        735  
Total revenue
   
 
2,701
 
      2,562        2,491  
Provision for credit losses
   
 
404
 
      366        291  
Non-interest
expenses
   
 
1,436
 
      1,398        1,350  
Income tax expense
   
 
169
 
      106        208  
Net income
   
$
692
 
    $ 692      $ 642  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
38
 
    $ 37      $ 87  
Net income attributable to equity holders of the Bank
   
$
654
 
    $ 655      $ 555  
Other financial data and measures
         
Average assets
($ billions)
   
$
228
 
    $ 225      $ 208  
Average liabilities
($ billions)
   
$
169
 
    $ 166      $ 152  
(1)
Refer to
Non-GAAP
Measures on page 4.
(2)
Includes income (on a taxable equivalent basis) from investments in associated corporations of $63 (October 31, 2022 – $53; January 31, 2022 – $69).
 
T10A International Banking financial performance on adjusted and constant dollar basis
                     
      For the three months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Constant dollars – Adjusted
(1)
         
Net interest income
   
$
1,899
 
    $ 1,866      $ 1,756  
Non-interest
income
   
 
802
 
      696        735  
Total revenue
   
 
2,701
 
      2,562        2,491  
Provision for credit losses
   
 
404
 
      366        291  
Non-interest
expenses
   
 
1,426
 
      1,388        1,340  
Income tax expense
   
 
172
 
      109        210  
Net income
   
$
699
 
    $ 699      $ 650  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
38
 
    $ 37      $ 88  
Net income attributable to equity holders of the Bank
   
$
661
 
    $ 662      $ 562  
Other financial data and measures
         
Average assets
($ billions)
   
$
228
 
    $ 225      $ 208  
Average liabilities
($ billions)
   
$
169
 
    $ 166      $ 152  
(1)
Refer to
Non-GAAP
Measures on page 4.
 
20    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Net income
Q1 2023 vs Q1 2022
Net income attributable to equity holders was $654 million, an increase from $555 million. Adjusted net income attributable to equity holders was $661 million, an increase of $99 million or 18%. This increase was driven by higher net interest income and
non-interest
income, and lower provision for income taxes, partly offset by higher provision for credit losses and
non-interest
expenses.
Q1 2023 vs Q4 2022
Net income attributable to equity holders decreased by $1 million to $654 million as higher
non-interest
income and net interest income were offset by higher provision for income taxes,
non-interest
expenses and provision for credit losses.
Average assets
Q1 2023 vs Q1 2022
Average assets were $228 billion, an increase of $20 billion. Total loan growth of 13% was driven mainly by Chile, Mexico and Brazil. Residential mortgages increased by 14%, business loans increased by 13%, and personal loans and credit cards increased by 9%.
Q1 2023 vs Q4 2022
Average assets increased by $3 billion. Loan growth was 3%, driven mainly by Mexico and Chile. Business loans and residential mortgages increased by 3% and personal loans and credit cards increased by 2%.
Average liabilities
Q1 2023 vs Q1 2022
Average liabilities of $169 billion were up $17 billion. Total deposits increased by 11% driven mainly by Mexico and Chile.
Non-personal
deposits increased by 15% and personal deposits increased by 4%. Term deposits increased by 31% while non-term deposits decreased by 4%.
Q1 2023 vs Q4 2022
Average liabilities were up $3 billion. Total deposits increased by 3% driven mainly by Mexico.
Non-personal
deposits increased by 3% and personal deposits increased by 2%. Term deposits increased by 6% while non-term deposits decreased by 1%.
Total revenue
Q1 2023 vs Q1 2022
Revenues were $2,701 million, an increase of $210 million or 8%, driven by higher net interest income and
non-interest
income.
Q1 2023 vs Q4 2022
Revenues increased by $139 million, or 5%, driven by higher
non-interest
income and net interest income.
Net interest income
Q1 2023 vs Q1 2022
Net interest income of $1,899 million was up 8%, driven by growth in business loans, residential mortgages, personal loans and credit cards, as well as margin expansion. Net interest margin increased by 13 basis points to 4.00%, due to changes in asset mix, and higher spreads from loans in Brazil and Caribbean, partly offset by lower inflationary adjustments mainly in Chile.
Q1 2023 vs Q4 2022
Net interest income increased by $33 million, or 2%, driven by growth in business loans, residential mortgages, personal loans and credit cards. Net interest margin decreased by 8 basis points to 4.00%, due to lower inflationary adjustments mainly in Chile.
Non-interest
income
Q1 2023 vs Q1 2022
Non-interest
income was $802 million, compared to $735 million, an increase of $67 million driven mainly by higher net fees and commissions, capital market revenues and investment gains.
Q1 2023 vs Q4 2022
Non-interest
income increased by $106 million or 15%, driven by higher net fees and commissions, capital market revenues and investment gains.
 
Scotiabank First Quarter Report 2023
    21
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Provision for credit losses
Q1 2023 vs Q1 2022
The provision for credit losses was $404 million, compared to $291 million, an increase of $113 million or 39%. The provision for credit losses ratio increased 19 basis points to 96 basis points.
Provision for credit losses on performing loans was $29 million, compared to a reversal of $10 million. The provision this period related to higher retail and commercial provisions primarily in Colombia and Chile, due mainly to portfolio growth and a less favourable macroeconomic outlook.
Provision for credit losses on impaired loans was $375 million, compared to $301 million, an increase of $74 million or 25%. This was due to higher retail provisions driven by higher formations, primarily in Chile. The provision for credit losses ratio on impaired loans was 89 basis points, an increase of eight basis points.
Q1 2023 vs Q4 2022
The provision for credit losses was $404 million, compared to $366 million, an increase of $38 million or 10%. The provision for credit losses ratio increased by seven basis points to 96 basis points.
Provision for credit losses on performing loans was $29 million, compared to $37 million, a decrease of $8 million primarily in the retail portfolio.
Provision for credit losses on impaired loans was $375 million compared to $329 million, an increase of $46 million or 14% due partly to higher retail provisions driven by higher formations, primarily in Chile. The provision for credit losses ratio on impaired loans increased by eight basis points to 89 basis points.
Non-interest
expenses
Q1 2023 vs Q1 2022
Non-interest
expenses were $1,436 million, up 6%. Adjusted
non-interest
expenses were $1,426 million, up 6%, driven by higher business taxes and inflationary impacts.
Q1 2023 vs Q4 2022
Non-interest
expenses were $1,436 million compared to $1,398 million, an increase of 3%. Adjusted
non-interest
expenses increased by $38 million or 3% from $1,388 million last quarter, driven by higher salaries and employee benefits due primarily to performance-based compensation, and seasonally higher business taxes in the Caribbean.
Taxes
Q1 2023 vs Q1 2022
The effective tax rate was 19.6%, compared to 24.8%. On an adjusted basis, the effective tax rate was 19.7% compared to 24.9%, due primarily to higher inflationary adjustments in Chile and Mexico, and changes in earnings mix across jurisdictions.
Q1 2023 vs Q4 2022
The effective tax rate was 19.6%, compared to 13.5%. On an adjusted basis, the effective tax rate was 19.7% compared to 13.6% due primarily to lower inflationary adjustments in Mexico and Chile.
 
 
Global Wealth Management
                     
T11 Global Wealth Management financial performance
                     
      For the three months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Reported Results
         
Net interest income
   
$
213
 
    $ 206      $ 174  
Non-interest
income
   
 
1,110
 
      1,083        1,248  
Total revenue
   
 
1,323
 
      1,289        1,422  
Provision for credit losses
   
 
1
 
      1        (1 ) 
Non-interest
expenses
   
 
802
 
      798        862  
Income tax expense
   
 
133
 
      127        146  
Net income
   
$
387
 
    $ 363      $ 415  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
2
 
    $ 2      $ 3  
Net income attributable to equity holders of the Bank
   
$
385
 
    $ 361      $ 412  
Other financial data and measures
         
Return on equity
(1)
   
 
15.5
% 
      14.8 %       17.2 % 
Assets under administration
($ billions)
(2)
   
$
607
 
    $ 580      $ 601  
Assets under management
($ billions
)
(2)
   
$
322
 
    $ 311      $ 345  
Average assets
($ billions)
   
$
34
 
    $ 34      $ 31  
Average liabilities
($ billions)
   
$
42
 
    $ 44      $ 47  
(1)
Refer to
Non-GAAP
Measures on page 4 for the description of the measure.
(2)
Refer to Glossary on page 50 for the description of the measure.
 
22    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
T11A Adjusted Global Wealth Management financial performance
       
      For the three months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Adjusted Results
(1)
         
Net interest income
   
$
213
 
    $ 206      $ 174  
Non-interest
income
   
 
1,110
 
      1,083        1,248  
Total revenue
   
 
1,323
 
      1,289        1,422  
Provision for credit losses
   
 
1
 
      1        (1 ) 
Non-interest
expenses
(2)
   
 
793
 
      789        853  
Income tax expense
   
 
135
 
      129        148  
Net income
   
$
394
 
    $ 370      $ 422  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
2
 
    $ 2      $ 3  
Net income attributable to equity holders of the Bank
   
$
392
 
    $ 368      $ 419  
(1)
Refer to
Non-GAAP
Measures on page 4 for adjusted results.
(2)
Includes adjustment for Amortization of acquisition-related intangible assets, excluding software of $9 (October 31, 2022 – $9; January 31, 2022 – $9).
Net income
Q1 2023 vs Q1 2022
Net income attributable to equity holders was $385 million, a decrease of $27 million or 7%, due primarily to lower fee income and the impact of elevated seasonal performance fees in the prior year, partly offset by higher net interest income and lower
non-interest
expenses.
Q1 2023 vs Q4 2022
Net income attributable to equity holders increased $24 million or 6%. The increase was due primarily to higher fee revenue and net interest income, partly offset by volume-driven expense growth.
Assets under management (AUM) and assets under administration (AUA)
Q1 2023 vs Q1 2022
Assets under management of $322 billion decreased $23 billion or 7% driven by market depreciation and net redemptions. Assets under administration of $607 billion increased $6 billion or 1% due primarily to higher net sales partly offset by market depreciation.
Q1 2023 vs Q4 2022
Assets under management increased $11 billion or 4% due primarily to market appreciation. Assets under administration increased $27 billion or 5% due primarily to market appreciation and higher net sales.
Total revenue
Q1 2023 vs Q1 2022
Revenues were $1,323 million, down $99 million or 7% due primarily to lower fee income driven by lower AUM and client trading volumes, and the impact of elevated seasonal performance fees in the prior year, partly offset by higher net interest income driven by strong loan growth and improved margins.
Q1 2023 vs Q4 2022
Revenues were up $34 million or 3% due primarily to higher fee revenue driven by AUM growth from market appreciation, and higher net interest income from loan growth and improved margins.
Provision for credit losses
Q1 2023 vs Q1 2022
The provision for credit losses was $1 million, an increase of $2 million. The provision for credit losses ratio increased two basis points to one basis point.
Q1 2023 vs Q4 2022
The provision for credit losses was $1 million, unchanged from last quarter. The provision for credit losses ratio decreased from two basis points to one basis point.
Non-interest
expenses
Q1 2023 vs Q1 2022
Non-interest
expenses of $802 million were down $60 million or 7%, driven largely by lower volume-related expenses and the impact of elevated seasonal performance fees in the prior year.
Q1 2023 vs Q4 2022
Non-interest
expenses were up $4 million or 1%, driven largely by higher volume-related expenses.
Taxes
The effective tax rate was 25.6% compared to 26.1% in the prior year and 25.8% in the prior quarter.
 
Scotiabank First Quarter Report 2023
    23
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Global Banking and Markets
T12 Global Banking and Markets financial performance
 
      For the three months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Reported Results
         
Net interest income
   
$
454
 
    $ 492      $ 373  
Non-interest
income
   
 
1,049
 
      862        1,031  
Total revenue
   
 
1,503
 
      1,354        1,404  
Provision for credit losses
   
 
15
 
      11        (16 ) 
Non-interest
expenses
   
 
773
 
      696        670  
Income tax expense
   
 
196
 
      163        189  
Net income
   
$
519
 
    $ 484      $ 561  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –  
Net income attributable to equity holders of the Bank
   
$
519
 
    $ 484      $ 561  
Other financial data and measures
         
Return on equity
(1)
   
 
13.2
% 
      13.4 %       17.4 % 
Provision for credit losses – performing (Stage 1 and 2)
   
$
13
 
    $ (11 )     $ (8 ) 
Provision for credit losses – impaired (Stage 3)
   
$
2
 
    $ 22      $ (8 ) 
Provision for credit losses as a percentage of average net loans and acceptances (annualized)
(2)
   
 
0.04
% 
      0.03 %       (0.06 )% 
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)
(2)
   
 
–
% 
      0.06 %       (0.03 )% 
Net write-offs as a percentage of average net loans and acceptances
(2)
   
 
0.02
% 
      0.01 %       0.01 % 
Average assets
($ billions)
   
$
481
 
    $ 461      $ 444  
Average liabilities
($ billions)
   
$
455
 
    $ 430      $ 407  
(1)
Refer to
Non-GAAP
Measures on page 4 for the description of the measure.
(2)
Refer to Glossary on page 50 for the description of the measure.
Net income
Q1 2023 vs Q1 2022
Net income attributable to equity holders was $519 million, a decrease of $42 million or 7%, due mainly to higher
non-interest
expenses and provision for credit losses, partly offset by higher net interest income,
non-interest
income, and the positive impact of foreign currency translation.
Q1 2023 vs Q4 2022
Net income attributable to equity holders increased by $35 million or 7%. This was due to higher
non-interest
income, partly offset by higher
non-interest
expense, lower net interest income and higher provision for credit losses.
Average assets
Q1 2023 vs Q1 2022
Average assets were $481 billion, an increase of $37 billion or 8% due mainly to increases in business loans, securities purchased under resale agreements, and the impact of foreign currency translation, partly offset by lower trading securities. Business loans increased 33%, primarily in Canada and the U.S.
Q1 2023 vs Q4 2022
Average assets increased $20 billion or 4% due mainly to increases in securities purchased under resale agreements, business loans, and the impact of foreign currency translation.
Average liabilities
Q1 2023 vs Q1 2022
Average liabilities were $455 billion, an increase of $48 billion or 12% due mainly to increases in deposits, securities sold under repurchase agreements, derivative-related liabilities, and the impact of foreign currency translation.
Q1 2023 vs Q4 2022
Average liabilities increased $25 billion or 6% due mainly to increases in securities sold under repurchase agreements and the impact of foreign currency translation.
Total revenue
Q1 2023 vs Q1 2022
Revenues were $1,503 million, an increase of $99 million or 7% due to higher net interest income,
non-interest
income and the positive impact of foreign currency translation.
 
24    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Q1 2023 vs Q4 2022
Revenues increased by $149 million or 11% due to higher
non-interest
income, partly offset by lower
net-interest
income.
Net interest income
Q1 2023 vs Q1 2022
Net interest income was $454 million, an increase of $81 million or 22% due to growth in business loans and deposits, increased deposit margins, higher loan fees and the positive impact of foreign currency translation, partly offset by higher trading-related funding costs. Business loans increased 33% primarily in Canada and US.
Q1 2023 vs Q4 2022
Net interest income decreased by $38 million or 8% due to lower deposit margins, partly offset by growth in business loans and deposits, loan fees and the positive impact of foreign currency translation.
Non-interest
income
Q1 2023 vs Q1 2022
Non-interest
income was $1,049 million, an increase of $18 million or 2% due to higher trading revenues, banking fees and the positive impact of foreign currency translation, partly offset by lower underwriting and advisory fees.
Q1 2023 vs Q4 2022
Non-interest
income increased by $187 million or 22%, due mainly to higher trading revenues in the fixed income and equities businesses, partly offset by lower underwriting and advisory fees.
Provision for credit losses
Q1 2023 vs Q1 2022
The provision for credit losses was $15 million, compared to a net reversal of $16 million. The provision for credit losses ratio was four basis points, an increase of ten basis points.
Provision for credit losses on performing loans was $13 million, compared to a net reversal of $8 million. The increase in provision was due primarily to the less favourable macroeconomic outlook.
Provision for credit losses on impaired loans was $2 million, compared to a net reversal of $8 million as prior period included a recovery on one account. The provision for credit losses ratio on impaired loans was nil.
Q1 2023 vs Q4 2022
The provision for credit losses was $15 million, compared to $11 million, an increase of $4 million. The provision for credit losses ratio was four basis points, an increase of one basis point.
Provision for credit losses on performing loans was $13 million, compared to a net reversal of $11 million last quarter due primarily to a less favourable macroeconomic outlook.
Provision for credit losses on impaired loans was $2 million, a decrease of $20 million due primarily to lower provisions driven by lower formations in the period. The provision for credit losses ratio on impaired loans decreased six basis points to nil.
Non-interest
expenses
Q1 2023 vs Q1 2022
Non-interest
expenses of $773 million, were up $103 million or 15%, due mainly to higher personnel and technology costs to support business growth, and the negative impact of foreign currency translation.
Q1 2023 vs Q4 2022
Non-interest
expenses increased $77 million or 11% due mainly to increases in personnel and technology costs to support business growth, seasonally higher shared-based compensation, and the negative impact of foreign currency translation.
Taxes
The effective tax rate was 27.5% compared to 25.2% in the prior year and prior quarter. The increase was driven mainly by an increase in the Canadian statutory tax rate, higher
non-deductible
expenses and change in earnings mix across jurisdictions.
 
Scotiabank First Quarter Report 2023
    25
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Other
(1)
T13 Other financial performance
 
      For the three months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Reported Results
         
Net interest income
(2)
   
$
(383
) 
    $ (245 )     $ 16  
Non-interest
income
(2)(3)
   
 
(328
) 
      (410 )       (64 ) 
Total revenue
   
 
(711
) 
      (655 )       (48 ) 
Provision for credit losses
   
 
–
 
      (1 )       –  
Non-interest
expenses
   
 
4
 
      274        124  
Income tax expense
(2)
   
 
198
 
      (325 )       (105 ) 
Net income
   
$
(913
) 
    $ (603 )     $ (67 ) 
Net income attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –  
Net income attributable to equity holders
   
$
(913
) 
    $ (603 )     $ (67 ) 
Other measures
         
Average assets
($ billions)
   
$
187
 
    $ 175      $ 156  
Average liabilities
($ billions)
   
$
282
 
    $ 278      $ 245  
(1)
Includes all other smaller operating segments and corporate adjustments, such as the elimination of the
tax-exempt
income
gross-up
reported in net interest income,
non-interest
income and provision for income taxes and differences in the actual amount of costs incurred and charged to the operating segments.
(2)
Includes the elimination of the
tax-exempt
income
gross-up
reported in net interest income,
non-interest
income and provision for income taxes of $120 (October 31, 2022–$99; January 31, 2022–$92) to arrive at the amounts reported in the Consolidated Statement of Income.
(3)
Income (on a taxable equivalent basis) from investments in associated corporations and the provision for income taxes in each period include the tax normalization adjustments related to the
gross-up
of income from associated companies of $(65) (October 31, 2022 – $(30); January 31, 2022 – $14).
T13A Adjusted Other financial performance
 
      For the three months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
January 31
2023
      October 31
2022		      January 31
2022		  
Adjusted Results
(1)
         
Net interest income
   
$
(383
) 
    $ (245 )     $ 16  
Non-interest
income
(2)
   
 
(328
) 
      (49 )       (64 ) 
Total revenue
   
 
(711
) 
      (294 )       (48 ) 
Provision for credit losses
   
 
–
 
      (1 )       –  
Non-interest
expenses
(3)
   
 
4
 
      56        124  
Income tax expense
(4)
   
 
(381
) 
      (250 )       (105 ) 
Net income
   
$
(334
) 
    $ (99 )     $ (67 ) 
Net income attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ 1      $ –  
Net income attributable to equity holders
   
$
(334
) 
    $ (100 )     $ (67 ) 
(1)
Refer to
Non-GAAP
Measures on page 4 for adjusted results.
(2)
Includes adjustment for net loss on divestitures and wind-down of operations of $361 in Q4, 2022.
(3)
Includes adjustments for support costs for Scene+ loyalty program of $133 and restructuring and other provisions of $85 in Q4, 2022.
(4)
Includes adjustment for the Canada Recovery Dividend of $579 in Q1, 2023.
The Other segment includes Group Treasury, smaller operating segments and corporate items which are not allocated to a business line. Group Treasury is primarily responsible for Balance Sheet, Liquidity and Interest Rate Risk management, which includes the Bank’s wholesale funding activities.
Net interest income,
non-interest
income, and the provision for income taxes in each period include the elimination of
tax-exempt
income
gross-up.
This amount is included in the operating segments, which are reported on a taxable equivalent basis.
Net income from associated corporations and the provision for income taxes in each period include the tax normalization adjustments related to the
gross-up
of income from associated companies. This adjustment normalizes the effective tax rate in the divisions to better present the contribution of the associated companies to the divisional results.
Q1 2023 vs Q1 2022
Net income attributable to equity holders was a net loss of $913 million, which included $579 million of income tax expense related to the Canada Recovery Dividend. Adjusted net income attributable to equity holders was a net loss of $334 million compared to a net loss of $67 million in the prior year. The decrease of $267 million was due mainly to lower revenues of $663 million, partly offset by lower expenses and income taxes. Approximately three quarters of the lower revenue relates to treasury activities due mainly to higher term funding costs and lower income from hedges reflecting the Bank’s interest rate position to benefit from declining rates, which were partly offset by higher income from liquid assets. Also contributing to the lower revenue was lower income from associated corporations, and lower investment gains.
Q1 2023 vs Q4 2022
Net income attributable to equity holders decreased $310 million from the prior quarter. On an adjusted basis, net income attributable to equity holders decreased $234 million, due mainly to lower revenues of $417 million, partly offset by lower expenses and income taxes. Approximately half of the lower revenue relates to treasury activities due mainly to higher term funding costs, and lower income from hedges reflecting the Bank’s interest rate position to benefit from declining rates, which were partly offset by higher income from liquid assets. Also contributing to the revenue decrease was lower investment gains, and lower income from associated corporations.
 
26    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Geographic Highlights
T14 Geographic highlights
 
     
For the three months ended January 31, 2023
  
(Unaudited) ($millions)
   
Canada
     
U.S.
     
Mexico
     
Peru
     
Chile
     
Colombia
     
Caribbean
and Central
America
     
Other
     
Total
  
Reported results
                           
Net interest income
   
$
2,232
 
   
$
296
 
   
$
514
 
   
$
331
 
   
$
379
 
   
$
134
 
   
$
428
 
   
$
255
 
   
$
4,569
 
Non-interest
income
   
 
2,005
 
   
 
310
 
   
 
205
 
   
 
134
 
   
 
207
 
   
 
96
 
   
 
201
 
   
 
253
 
   
 
3,411
 
Total revenue
   
 
4,237
 
   
 
606
 
   
 
719
 
   
 
465
 
   
 
586
 
   
 
230
 
   
 
629
 
   
 
508
 
   
 
7,980
 
Provision for credit losses
   
 
228
 
   
 
3
 
   
 
56
 
   
 
98
 
   
 
122
 
   
 
74
 
   
 
36
 
   
 
21
 
   
 
638
 
Non-interest
expenses
   
 
2,469
 
   
 
313
 
   
 
351
 
   
 
178
 
   
 
240
 
   
 
156
 
   
 
361
 
   
 
396
 
   
 
4,464
 
Income tax expense
   
 
811
 
   
 
82
 
   
 
67
 
   
 
45
 
   
 
33
 
   
 
3
 
   
 
49
 
   
 
16
 
   
 
1,106
 
Net income
   
 
729
 
   
 
208
 
   
 
245
 
   
 
144
 
   
 
191
 
   
 
(3
) 
   
 
183
 
   
 
75
 
   
 
1,772
 
Net income attributable to
non-controlling
interests in subsidiaries
   
 
–
 
   
 
–
 
   
 
5
 
   
 
1
 
   
 
11
 
   
 
(4
) 
   
 
27
 
   
 
–
 
   
 
40
 
Net income attributable to equity holders of the Bank
   
$
729
 
   
$
208
 
   
$
240
 
   
$
143
 
   
$
180
 
   
$
1
 
   
$
156
 
   
$
75
 
   
$
1,732
 
Adjusted results
(1)
                           
Adjustments
   
 
586
 
   
 
–
 
   
 
–
 
   
 
1
 
   
 
5
 
   
 
–
 
   
 
1
 
   
 
1
 
   
 
594
 
Adjusted net income (loss) attributable to equity holders of the Bank
   
$
1,315
 
   
$
208
 
   
$
240
 
   
$
144
 
   
$
185
 
   
$
1
 
   
$
157
 
   
$
76
 
   
$
2,326
 
Average Assets
($billions)
   
$
834
 
   
$
212
 
   
$
54
 
   
$
28
 
   
$
59
 
   
$
13
 
   
$
34
 
   
$
146
 
   
$
1,380
 
 
      For the three months ended October 31, 2022  
(Unaudited) ($millions)
    Canada      U.S.      Mexico      Peru      Chile      Colombia      Caribbean
and Central
America		      Other      Total  
Reported results
                           
Net interest income
    $ 2,390      $ 301      $ 474      $ 293      $ 374      $ 143      $ 415      $ 232      $ 4,622  
Non-interest
income
      1,690        336        188        114        152        92        158        274        3,004  
Total revenue
      4,080        637        662        407        526        235        573        506        7,626  
Provision for credit losses
      188        (14 )       61        86        95        57        43        13        529  
Non-interest
expenses
      2,616        272        333        170        213        176        349        400        4,529  
Income tax expense
      242        95        45        40        –        (6 )       35        24        475  
Net income
      1,034        284        223        111        218        8        146        69        2,093  
Net income attributable to
non-controlling
interests in subsidiaries
      2        –        5        –        4        2        25        –        38  
Net income attributable to equity holders of the Bank
    $ 1,032      $ 284      $ 218      $ 111      $ 214      $ 6      $ 121      $ 69      $ 2,055  
Adjusted results
(1)
                           
Adjustments
      482        –        1        2        6        1        1        28        521  
Adjusted net income (loss) attributable to equity holders of the Bank
    $ 1,514      $ 284      $ 219      $ 113      $ 220      $ 7      $ 122      $ 97      $ 2,576  
Average Assets
($billions)
    $ 816      $ 200      $ 49      $ 27      $ 54      $ 13      $ 33      $ 141      $ 1,333  
 
      For the three months ended January 31, 2022  
(Unaudited) ($millions)
    Canada      U.S.      Mexico      Peru      Chile      Colombia      Caribbean
and Central
America		      Other      Total  
Reported results
                           
Net interest income
    $ 2,386      $ 201      $ 421      $ 279      $ 405      $ 162      $ 325      $ 165      $ 4,344  
Non-interest
income
      2,312        278        173        119        139        103        183        398        3,705  
Total revenue
      4,698        479        594        398        544        265        508        563        8,049  
Provision for credit losses
      (37 )       (6 )       60        75        39        46        40        5        222  
Non-interest
expenses
      2,462        255        289        149        224        175        334        335        4,223  
Income tax expense
      540        59        60        48        52        18        34        53        864  
Net income
      1,733        171        185        126        229        26        100        170        2,740  
Net income attributable to
non-controlling
interests in subsidiaries
      –        –        4        2        50        11        21        –        88  
Net income attributable to equity holders of the Bank
    $ 1,733      $ 171      $ 181      $ 124      $ 179      $ 15      $ 79      $ 170      $ 2,652  
Adjusted results
(1)
                           
Adjustments
      10        –        –        1        5        –        1        1        18  
Adjusted net income (loss) attributable to equity holders of the Bank
    $ 1,743      $ 171      $ 181      $ 125      $ 184      $ 15      $ 80      $ 171      $ 2,670  
Average Assets
($billions)
    $ 721      $ 213      $ 43      $ 25      $ 52      $ 13      $ 30      $ 142      $ 1,239  
(1)
Refer to
Non-GAAP
Measures on page 4 for adjusted results.
 
Scotiabank First Quarter Report 2023
    27
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Quarterly Financial Highlights
T15 Quarterly financial highlights
 
        For the three months ended  
(Unaudited) ($ millions)
     
January 31
2023
     October 31
2022		      July 31
2022		      April 30
2022		      January 31
2022		      October 31
2021		      July 31
2021		      April 30
2021		  
Reported results
                         
Net interest income
     
$
4,569
 
   $ 4,622      $ 4,676      $ 4,473      $ 4,344      $ 4,217      $ 4,217      $ 4,176  
Non-interest
income
     
 
3,411
 
     3,004        3,123        3,469        3,705        3,470        3,540        3,560  
Total revenue
     
$
7,980
 
   $ 7,626      $ 7,799      $ 7,942      $ 8,049      $ 7,687      $ 7,757      $ 7,736  
Provision for credit losses
     
 
638
 
     529        412        219        222        168        380        496  
Non-interest
expenses
     
 
4,464
 
     4,529        4,191        4,159        4,223        4,271        4,097        4,042  
Income tax expense
     
 
1,106
 
     475        602        817        864        689        738        742  
Net income
     
$
1,772
 
   $ 2,093      $ 2,594      $ 2,747      $ 2,740      $ 2,559      $ 2,542      $ 2,456  
Basic earnings per share
($)
     
 
1.37
 
     1.64        2.10        2.16        2.15        1.98        2.00        1.89  
Diluted earnings per share
($)
     
 
1.36
 
     1.63        2.09        2.16        2.14        1.97        1.99        1.88  
Net interest margin
(%)
(1)
     
 
2.11
 
     2.18        2.22        2.23        2.16        2.17        2.23        2.26  
Effective tax rate
(%)
(2)
     
 
38.4
 
     18.5        18.8        22.9        24.0        21.2        22.5        23.2  
Adjusted results
(1)
                         
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
     
 
21
 
     24        24        24        25        25        24        26  
Restructuring and other provisions
     
 
–
 
     85        –        –        –        188
(3)
 		      –        –  
Support costs for the Scene+ loyalty program
     
 
–
 
     133        –        –        –        –        –        –  
Total
non-interest
expenses adjustments
(Pre-tax)
     
 
21
 
     242        24        24        25        213        24        26  
Total impact of adjusting items on net income before taxes
     
 
21
 
     603        24        24        25        213        24        26  
Impact of adjusting items on income tax expense:
                         
Canada recovery dividend
     
 
579
 
     –        –        –        –        –        –        –  
Impact of other adjusting items on income tax expense
     
 
(6
) 
     (81 )       (7 )       (6 )       (7 )       (56 )       (6 )       (7 ) 
Total impact of adjusting items on net income
     
 
594
 
     522        17        18        18        157        18        19  
Adjusted net income
     
$
2,366
 
   $ 2,615      $ 2,611      $ 2,765      $ 2,758      $ 2,716      $ 2,560      $ 2,475  
Adjusted diluted earnings per share
($)
     
 
1.85
 
     2.06        2.10        2.18        2.15        2.10        2.01        1.90  
(1)
Refer to page 4 for a discussion of
Non-GAAP
Measures.
(2)
Refer to Glossary on page 50 for the description of the measure.
(3)
The Bank recorded restructuring and other provisions of $139 ($188 pre-tax) in the Other operating segment in Q4, 2021. The restructuring charge of $93 ($126 pre-tax) was substantially related to International Banking. The settlement and litigation provisions of $46 ($62 pre-tax) was in connection with the Bank’s former metals business.
Trending analysis
Earnings over the period were driven by generally higher net interest income from steady loan and deposit growth and prudent expense management, partly offset by a rising trend in provision for credit losses.
Total revenue
Canadian Banking net interest income over the period has increased driven by strong loan and deposit growth. Recent quarters have benefitted from Bank of Canada rate increases. International Banking net interest income has trended upward driven by growth in residential mortgages and commercial loans. Global Wealth Management non-interest income growth over the period has been impacted by adverse market conditions resulting in lower
fee-based
assets and revenues. Global Banking and Markets revenues are affected by market conditions that impact client activity in the capital markets and corporate and investment banking businesses. Revenues in the Other segment were impacted by higher term funding costs and other treasury activities.
 
28    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Provision for credit losses
Provision for credit losses trended upward during the period driven by lower reversals of provisions for credit losses on performing loans, a less favourable macroeconomic forecast, portfolio growth and higher impaired loan provisions due to credit migration.
Non-interest
expenses
Non-interest
expenses reflect the Bank’s ongoing focus on expense management and efficiency initiatives, while continuing to invest in personnel and technology to support business growth. Seasonality, adjusting items and the impact of foreign currency translation have also contributed to fluctuations over the period.
Provision for income taxes
The effective tax rate was 38.4% this quarter due mainly to the impact of the Canada Recovery Dividend. The effective tax rate average was 23.7% over the period and was impacted by divestitures, varying levels of provision for credit losses and net income earned in foreign jurisdictions, as well as the variability of
tax-exempt
dividend income and inflationary benefits.
Financial Position
T16 Condensed statement of financial position
 
       As at                          
(Unaudited) ($ billions)
   
January 31
2023
      October 31
2022		      Change      Volume
Change		      FX
Change		  
Assets
               
Cash, deposits with financial institutions and precious metals
   
$
82.1
 
    $ 66.4        23.6 %       24.4 %       (0.8 )% 
Trading assets
   
 
116.3
 
      113.2        2.8        2.8        –  
Securities purchased under resale agreements and securities borrowed
   
 
178.7
 
      175.3        1.9        2.1        (0.2 ) 
Investment securities
   
 
111.0
 
      110.0        0.9        0.9        –  
Loans
   
 
755.2
 
      745.0        1.4        0.8        0.6  
Other
   
 
131.1
 
      139.5        (6.0 )       (6.1 )       0.1  
Total assets
   
$
1,374.4
 
    $ 1,349.4        1.9 %       1.6 %       0.3 % 
Liabilities
               
Deposits
   
$
949.9
 
    $ 916.2        3.7 %       3.6 %       0.1 % 
Obligations related to securities sold under repurchase agreements and securities lent
   
 
132.2
 
      139.0        (4.9 )       (5.0 )       0.1  
Other liabilities
   
 
207.9
 
      211.0        (1.5 )       (2.6 )       1.1  
Subordinated debentures
   
 
8.7
 
      8.5        2.9        3.7        (0.8 ) 
Total liabilities
   
$
1,298.7
 
    $ 1,274.7        1.9 %       1.7 %       0.2 % 
Equity
               
Common equity
(1)
   
$
66.1
 
    $ 65.1        1.5 %       0.9 %       0.6 % 
Preferred shares and other equity instruments
   
 
8.1
 
      8.1        –        –        –  
Non-controlling
interests in subsidiaries
   
 
1.5
 
      1.5        2.6        1.0        1.6  
Total equity
   
$
75.7
 
    $ 74.7        1.3        0.8        0.5  
Total liabilities and equity
   
$
1,374.4
 
    $ 1,349.4        1.9 %       1.6 %       0.3 % 
(1)
Includes net impact of foreign currency translation, primarily change in spot rates on the translation of assets and liabilities from functional currency to Canadian dollar equivalent.
The Bank’s total assets were $1,374 billion as at January 31, 2023, up $25 billion or 2% from October 31, 2022. Cash and deposits with financial institutions increased $15 billion due primarily to higher balances with central banks. Trading securities increased $3 billion due mainly to higher client activity. Loans increased $10 billion. Residential mortgages increased $4 billion, mainly in Chile and Mexico. Personal loans and credit cards increased $3 billion reflecting increased consumer spending. Business and government loans increased $4 billion, mainly in Chile, Mexico, and Colombia. Securities purchased under resale agreements and securities borrowed increased $3 billion due to higher client demand. Derivative instrument assets decreased by $11 billion due to changes in foreign exchange rates, interest rates and lower activity.
Total liabilities were $1,299 billion as at January 31, 2023, up $24 billion or 2% from October 31, 2022. Total deposits increased $34 billion. Personal deposits of $275 billion increased $9 billion due primarily to growth in the term deposits portfolio in Canada. Business and government deposits grew by $24 billion mainly in Canada. Deposits by financial institutions increased $1 billion. Obligations related to securities sold short increased by $3 billion due mainly to higher client activity. Obligations related to securities sold under repurchase agreements and securities lent decreased by $7 billion. Derivative instrument liabilities decreased $13 billion due to changes in interest rates, foreign exchange rates and lower hedging activity and client demand.
Total shareholders’ equity was $76 billion, an increase of $1 billion from October 31, 2022. Equity was higher due to current year earnings of $1,772 million and other comprehensive income of $549 million. Partly offsetting these items were dividends paid of $1,329 million.
Risk Management
The Bank’s risk management policies and practices have not substantially changed from those outlined in the Bank’s 2022 Annual Report. For a complete discussion of the risk management policies and practices and additional information on risk factors, refer to the “Risk Management” section in the 2022 Annual Report.
 
Scotiabank First Quarter Report 2023
    29
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Significant developments that took place during this quarter are as follows:
Credit risk
Allowance for credit losses
IFRS 9
Financial Instruments
, requires the consideration of past events, current conditions and reasonable and supportable forward-looking information over the life of the exposure to measure expected credit losses. Furthermore, to assess significant increases in credit risk, IFRS 9 requires that entities assess changes in the risk of a default occurring over the expected life of a financial instrument when determining staging. Consistent with the requirements of IFRS 9, the Bank considers both quantitative and qualitative information in the assessment of a significant increase in risk.
The Bank’s models are calibrated to consider past performance and macroeconomic forward-looking variables as inputs, as further described below. Expert credit judgement may be made in circumstances where, in the Bank’s view, the inputs, assumptions, and/or modelling techniques do not capture all relevant risk factors, including the emergence of economic or political events of the market up to the date of the financial statements. Expert credit judgement continues to be applied in the assessment of underlying credit deterioration and migration of balances to progressive stages.
The Bank has no direct credit exposure to Russia or Ukraine but does have credit exposure to businesses that are impacted either directly or indirectly by higher energy costs or commodity prices, or potential disruption within their supply chains. The Bank monitors both the internal and external indicators for signs of contagion risk and any second or third order risks that may arise from the war in Ukraine above and beyond those captured in the macroeconomic outlook. Such impacts are not significant and are appropriately mitigated.
The Bank has generated a forward-looking base case scenario and three alternate forward-looking scenarios (one optimistic and two pessimistic) as key inputs into the expected credit loss provisioning models. The base case is less favourable this quarter as stronger observed inflation pressures – and the U.S Federal Reserve’s stronger tone – will bring monetary policy rates to higher than previously forecasted levels. The optimistic scenario features somewhat stronger economic activity relative to the base case.
The two pessimistic scenarios were updated this quarter to reflect the potential risk of stagflation and recession and are built around alternative assumptions on the source, duration and impact of stagflation shocks. These pessimistic scenarios are less severe than last quarter as they reflect less uncertainty in regard to the impact of the Russia/Ukraine war, and a portion of the previously assumed risk of strong inflation has materialized and is now captured in the base case.
The updated pessimistic scenarios both feature a protracted period of elevated financial market uncertainty and a further disruption to supply chains, with these being more severe in the very pessimistic scenario. The pessimistic scenario also adds high commodity prices as a source for stagflation shock, while these are simply reacting (negatively) to the weaker global economy in the very pessimistic scenario. Consequently, these scenarios feature much higher inflation compared to the base case scenario. Central banks respond by increasing rates more aggressively in the pessimistic scenarios, pushing rates across the yield curve higher compared to the base case scenario and resulting in a rapid deceleration of growth. In the pessimistic scenario, stagflation is short-lived, while in the very pessimistic scenario, the stagflation shock is stronger and persists for a longer period of time.
The table below shows a comparison of projections for the next 12 months, as at January 31, 2023, and October 31, 2022, of select macroeconomic variables used to calculate the modelled estimate for the allowance for credit losses (see page 64 for all key variables). Further changes in these variables up to the date of the financial statements is incorporated through expert credit judgment:
T17 Select macroeconomic variable projections
 
     Base Case Scenario     Alternative Scenario -
Optimistic		     Alternative Scenario -
Pessimistic		     Alternative Scenario -
Very Pessimistic		  
Next 12 months
  
As at
January 31
2023
     As at
October 31
2022		    
As at
January 31
2023
     As at
October 31
2022		    
As at
January 31
2023
     As at
October 31
2022		    
As at
January 31
2023
     As at
October 31
2022		  
Canada
                
Real GDP growth, y/y % change
  
 
0.8
 
     1.2    
 
1.7
 
     2.4    
 
-2.2
 
     -4.8    
 
-3.2
 
     -5.9  
Consumer price index, y/y %
  
 
4.1
 
     4.9    
 
4.3
 
     5.2    
 
6.3
 
     9.3    
 
7.0
 
     12.5  
Bank of Canada overnight rate target, average %
  
 
4.2
 
     3.8    
 
4.5
 
     4.2    
 
4.8
 
     5.1    
 
5.1
 
     5.1  
Unemployment rate, average %
  
 
5.8
 
     5.7    
 
5.4
 
     5.1    
 
7.8
 
     9.7    
 
8.6
 
     10.2  
US
                
Real GDP growth, y/y % change
  
 
0.6
 
     0.6    
 
1.3
 
     1.3    
 
-2.3
 
     -5.1    
 
-3.2
 
     -6.5  
Consumer price index, y/y %
  
 
5.0
 
     5.4    
 
5.2
 
     5.8    
 
7.3
 
     10.0    
 
8.1
 
     13.2  
Target federal funds rate, average %
  
 
4.9
 
     3.5    
 
5.2
 
     4.7    
 
5.6
 
     4.8    
 
5.8
 
     4.8  
Unemployment rate, average %
  
 
4.2
 
     4.3    
 
4.0
 
     4.2    
 
6.0
 
     7.9    
 
6.7
 
     8.3  
Global
                
WTI oil price, average USD/bbl
  
 
94
 
     89    
 
99
 
     95    
 
108
 
     116    
 
80
 
     125  
The table below shows a quarterly breakdown of the projections for the above macroeconomic variables, as at January 31, 2023 and October 31, 2022, under the base case scenario:
 
Next 12 months
   Base Case Scenario  
 
Calendar Quarters
    
Average

January 31
2023
     Calendar Quarters     Average
October 31
2022		  
 
Q1
2023
    
Q2
2023
    
Q3
2023
    
Q4
2023
     Q4
2022		     Q1
2023		     Q2
2023		     Q3
2023		  
Canada
                    
Real GDP growth, y/y % change
  
 
1.7
 
  
 
0.9
 
  
 
0.2
 
  
 
0.3
 
  
 
0.8
 
     1.9       1.2       0.6       1.0       1.2  
Consumer price index, y/y %
  
 
5.9
 
  
 
4.2
 
  
 
3.6
 
  
 
2.9
 
  
 
4.1
 
     6.9       5.1       4.0       3.6       4.9  
Bank of Canada overnight rate target, %
  
 
4.3
 
  
 
4.3
 
  
 
4.3
 
  
 
4.0
 
  
 
4.2
 
     3.8       3.8       3.8       3.8       3.8  
Unemployment rate, average %
  
 
5.4
 
  
 
5.7
 
  
 
6.0
 
  
 
6.1
 
  
 
5.8
 
     5.4       5.6       5.8       5.9       5.7  
U.S.
                    
Real GDP growth, y/y % change
  
 
0.8
 
  
 
0.8
 
  
 
0.4
 
  
 
0.4
 
  
 
0.6
 
     0.1       0.6       1.0       0.8       0.6  
Consumer price index, y/y %
  
 
6.5
 
  
 
5.3
 
  
 
4.5
 
  
 
3.8
 
  
 
5.0
 
     7.2       5.8       4.6       4.0       5.4  
Target federal funds rate, upper limit, %
  
 
5.0
 
  
 
5.0
 
  
 
5.0
 
  
 
4.8
 
  
 
4.9
 
     3.5       3.5       3.5       3.5       3.5  
Unemployment rate, average %
  
 
3.9
 
  
 
4.1
 
  
 
4.3
 
  
 
4.5
 
  
 
4.2
 
     3.8       4.1       4.4       4.8       4.3  
Global
                    
WTI oil price, average USD/bbl
  
 
93
 
  
 
97
 
  
 
96
 
  
 
90
 
  
 
94
 
     90       89       89       88       89  
 
30    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
The total allowance for credit losses as at January 31, 2023 was $5,668 million compared to $5,499 million last quarter. The allowance for credit losses ratio was 72 basis points, an increase of one basis point. The allowance for credit losses on loans was $5,513 million, up $165 million from the prior quarter. The increase was due primarily to the impact of foreign currency translation, as well as the impact of a less favourable macroeconomic outlook on the corporate and commercial portfolios, higher provisions in retail banking, mainly in Chile, and residential mortgage and auto loan portfolios in Canada.
The allowance against performing loans was higher at $3,859 million compared to $3,713 million as at October 31, 2022. The allowance for performing loans ratio was 51 basis points, an increase of one basis point. The increase was due primarily to the impact of a less favourable macroeconomic outlook on the corporate and commercial portfolios and higher provisions in the residential mortgage and auto loan portfolios in Canada.
The allowance on impaired loans increased to $1,654 million from $1,635 million last quarter. The allowance for impaired loans ratio was 21 basis points, unchanged from the prior quarter.
Impaired loans
Gross impaired loans increased to $5,104 million as at January 31, 2023, from $4,786 million last quarter. The increase was due primarily to the impact of foreign currency translation and new formations in retail and Canadian commercial portfolios. The gross impaired loan ratio was 65 basis points as at January 31, 2023, an increase of three basis points from last quarter.
Net impaired loans in Canadian Banking were $667 million as at January 31, 2023, an increase of $165 million from last quarter, due primarily to higher retail and commercial formations. International Banking’s net impaired loans were $2,650 million as at January 31, 2023, an increase of $140 million from last quarter, due primarily to the impact of foreign currency translation and net formations in retail portfolio. In Global Banking and Markets, net impaired loans were $120 million as at January 31, 2023, a decrease of $8 million from last quarter, due primarily to lower formations. In Global Wealth Management, net impaired loans were $13 million as at January 31, 2023, an increase of $2 million from last quarter. Net impaired loans as a percentage of loans and acceptances were 0.44% as at January 31, 2023, an increase of three basis point from 0.41% last quarter.
Overview of loan portfolio
The Bank has a well-diversified portfolio by product, business, and geography. Details of certain portfolios of current focus are highlighted below.
Real estate secured lending
A large portion of the Bank’s lending portfolio is comprised of residential mortgages and consumer loans, which are well diversified by borrower. As at January 31, 2023, these loans amounted to $470 billion or 60% of the Bank’s total loans and acceptances outstanding (October 31, 2022 – $463 billion or 60%). Of these, $376 billion or 80% are real estate secured loans (October 31, 2022 – $371 billion or 80%). The tables below provide more details by portfolios.
Insured and uninsured mortgages and home equity lines of credit
(1)
The following table presents amounts of insured and uninsured residential mortgages and home equity lines of credit (HELOCs), by geographic areas.
T18 Insured and uninsured residential mortgages and HELOCs, by geographic areas
 
    
As at January 31, 2023
  
    
Residential mortgages
    
Home equity lines of credit
  
    
Insured
(2)
    
Uninsured
    
Total
    
Insured
(2)
    
Uninsured
    
Total
  
($ millions)
  
Amount
    
%
    
Amount
    
%
    
Amount
    
%
    
Amount
    
%
    
Amount
    
%
    
Amount
    
%
  
Canada:
(3)
                        
Atlantic provinces
  
$
5,140
 
  
 
1.7
% 
  
$
6,560
 
  
 
2.2
% 
  
$
11,700
 
  
 
3.9
% 
  
$
–
 
  
 
–
% 
  
$
1,043
 
  
 
4.7
% 
  
$
1,043
 
  
 
4.7
% 
Quebec
  
 
8,206
 
  
 
2.6
 
  
 
12,113
 
  
 
4.0
 
  
 
20,319
 
  
 
6.6
 
  
 
–
 
  
 
–
 
  
 
1,091
 
  
 
4.9
 
  
 
1,091
 
  
 
4.9
 
Ontario
  
 
33,881
 
  
 
11.2
 
  
 
133,259
 
  
 
44.1
 
  
 
167,140
 
  
 
55.3
 
  
 
–
 
  
 
–
 
  
 
12,866
 
  
 
58.3
 
  
 
12,866
 
  
 
58.3
 
Manitoba & Saskatchewan
  
 
5,603
 
  
 
1.9
 
  
 
4,706
 
  
 
1.5
 
  
 
10,309
 
  
 
3.4
 
  
 
–
 
  
 
–
 
  
 
634
 
  
 
2.9
 
  
 
634
 
  
 
2.9
 
Alberta
  
 
17,103
 
  
 
5.7
 
  
 
15,487
 
  
 
5.1
 
  
 
32,590
 
  
 
10.8
 
  
 
–
 
  
 
–
 
  
 
2,343
 
  
 
10.6
 
  
 
2,343
 
  
 
10.6
 
British Columbia & Territories
  
 
11,689
 
  
 
3.9
 
  
 
48,560
 
  
 
16.1
 
  
 
60,249
 
  
 
20.0
 
  
 
–
 
  
 
–
 
  
 
4,110
 
  
 
18.6
 
  
 
4,110
 
  
 
18.6
 
Canada
(4)(5)
  
$
81,622
 
  
 
27.0
% 
  
$
220,685
 
  
 
73.0
% 
  
$
302,307
 
  
 
100
% 
  
$
–
 
  
 
–
% 
  
$
22,087
 
  
 
100
% 
  
$
22,087
 
  
 
100
% 
International
  
 
–
 
  
 
–
 
  
 
51,220
 
  
 
100
 
  
 
51,220
 
  
 
100
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
Total
  
$
81,622
 
  
 
23.1
% 
  
$
271,905
 
  
 
76.9
% 
  
$
353,527
 
  
 
100
% 
  
$
–
 
  
 
–
% 
  
$
22,087
 
  
 
100
% 
  
$
22,087
 
  
 
100
% 
     As at October 31, 2022  
Canada
(4)(5)
   $ 83,514       27.6 %    $ 218,972       72.4 %    $ 302,486       100 %    $ –       – %    $ 22,178       100 %    $ 22,178       100 % 
International
     –       –       46,793       100       46,793       100       –       –       –       –       –       –  
Total
   $ 83,514       23.9 %    $ 265,765       76.1 %    $ 349,279       100 %    $ –       – %    $ 22,178       100 %    $ 22,178       100 % 
(1)
The measures in this section have been disclosed in this document in accordance with OSFI Guideline – B20 – Residential Mortgage Underwriting Practices and Procedures (January 2018).
(2)
Default insurance is contractual coverage for the life of eligible facilities whereby the Bank’s exposure to real estate secured lending is protected against potential shortfalls caused by borrower default. This insurance is provided by either government-backed entities or private mortgage insurers.
(3)
The province represents the location of the property in Canada.
(4)
Includes multi-residential dwellings (4+ units) of $3,737 (October 31, 2022 – $3,782) of which $2,512 are insured (October 31, 2022 – $2,524).
(5)
Variable rate mortgages account for 37% (October 31, 2022 – 37%) of the Bank’s total Canadian residential mortgage portfolio.
 
Scotiabank First Quarter Report 2023
    31
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Amortization period ranges for residential mortgages
(1)
The following table presents the distribution of residential mortgages by remaining amortization periods, and by geographic areas.
T19 Distribution of residential mortgages by amortization periods, and by geographic areas
 
     
As at January 31, 2023
  
     
Residential mortgages by amortization period
  
     
Less than
20 years
    
20-24

years
     
25-29

years
     
30-34

years
    
35 years
and
greater
     
Total
residential
mortgages
  
Canada
   
 
30.7
% 
  
 
39.4
% 
   
 
28.4
% 
   
 
1.3
% 
  
 
0.2
% 
   
 
100
% 
International
   
 
61.2
% 
  
 
17.1
% 
   
 
18.3
% 
   
 
3.4
% 
  
 
0.0
% 
   
 
100
% 
      As at October 31, 2022  
Canada
      29.2 %      40.5 %       28.5 %       1.6 %      0.2 %       100 % 
International
      62.8 %      16.9 %       17.5 %       2.8 %      0.0 %       100 % 
(1)
The measures in this section have been disclosed in this document in accordance with OSFI Guideline – B20 – Residential Mortgage Underwriting Practices and Procedures (January 2018).
Loan to value ratios
(1)
The Canadian residential mortgage portfolio is 73% uninsured (October 31, 2022 – 72%). The average
loan-to-value
(LTV) ratio of the uninsured portfolio is 52% (October 31, 2022 – 49%).
The following table presents the weighted average LTV ratio for total newly-originated uninsured residential mortgages and home equity lines of credit, which include mortgages for purchases, refinances with a request for additional funds and transfers from other financial institutions, by geographic areas in the current quarter.
T20 Loan to value ratios
 
     
Uninsured LTV ratios
  
     
For the three months ended January 31, 2023
  
     
Residential
mortgages
    
Home equity lines of
credit
(2)
  
     
LTV%
    
LTV%
  
Canada
(3)
     
Atlantic provinces
      60.3 %      63.5 % 
Quebec
      62.4       67.5  
Ontario
      62.6       63.6  
Manitoba & Saskatchewan
      65.7       62.3  
Alberta
      65.3       67.8  
British Columbia & Territories
      61.5       63.3  
Canada
(3)
   
 
62.5
% 
  
 
64.0
% 
International
   
 
73.2
% 
  
 
n/a
 
      For the three months ended October 31, 2022  
Canada
(3)
      62.8 %      63.1 % 
International
      72.4 %      n/a  
(1)
The measures in this section have been disclosed in this document in accordance with OSFI Guideline – B20 – Residential Mortgage Underwriting Practices and Procedures (January 2018).
(2)
Includes all home equity lines of credit (HELOC). For Scotia Total Equity Plan HELOCs, LTV is calculated based on the sum of residential mortgages and the authorized limit for related HELOCs, divided by the value of the related residential property, and presented on a weighted average basis for newly originated mortgages and HELOCs.
(3)
The province represents the location of the property in Canada.
Potential impact on residential mortgages and real estate home equity lines of credit in the event of an economic downturn
As part of its stress testing program, the Bank analyzes the impact of various combinations of home price declines and unemployment increases on the Bank’s residential mortgage portfolios. Those results continue to show that credit losses and impacts on capital ratios are within a level the Bank considers manageable. In addition, the Bank has undertaken extensive
all-Bank
scenario analyses to assess the impact to the enterprise of different scenarios and is confident that it has the financial resources to withstand even a very negative outlook.
Regional
non-retail
exposures
The Bank’s exposures outside Canada and the U.S. are diversified by region and product and are sized appropriately relative to the credit worthiness of the counterparties (65% of the exposures are to investment grade counterparties based on a combination of internal and external ratings). The Bank’s exposures are carried at amortized cost or fair value using observable inputs, with negligible amounts valued using models with unobservable inputs (Level 3). There were no significant events in the quarter that have materially impacted the Bank’s exposures.
The Bank has no direct exposure to Russia or Ukraine. While some customers may be negatively impacted by the conflict in the region and by trade restrictions as a result of sanctions, the impact to the Bank, to date, is immaterial and appropriately mitigated.
The Bank’s exposures to sovereigns was $69.5 billion as at January 31, 2023 (October 31, 2022 – $60.5 billion), $13.2 billion to banks (October 31, 2022 – $16.3 billion) and $131.5 billion to corporates (October 31, 2022 – $128.2 billion).
 
32
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
In addition to exposures detailed in the table below, the Bank had indirect exposures consisting of securities exposures to
non-European
entities whose parent company is domiciled in Europe of $0.4 billion as at January 31, 2023 (October 31, 2022 – $0.4 billion).
T21 Bank’s regional credit exposures distribution
 
     As at         
    
January 31, 2023
     October 31,
2022		  
($ millions)
   Loans and
loan
equivalents
(1)
     Deposits
with
financial
institutions		     Securities
(2)
     SFT and
derivatives
(3)
     Funded
total		     Undrawn
commitments
(4)
    
Total
     Total  
Latin America
(5)
   $ 94,098     $ 10,556     $ 28,948     $ 2,809     $ 136,411     $ 10,174    
$
146,585
 
   $ 130,858  
Caribbean and Central America
     12,500       3,566       3,971       25       20,062       3,491    
 
23,553
 
     24,186  
Europe, excluding U.K.
     7,941       1,592       3,277       1,906       14,716       9,030    
 
23,746
 
     24,298  
U.K.
     8,337       3,040       981       1,964       14,322       6,776    
 
21,098
 
     24,370  
Asia
     12,457       911       12,791       1,334       27,493       9,600    
 
37,093
 
     37,210  
Other
(6)
     480       3       279       182       944       284    
 
1,228
 
     1,499  
Total
   $ 135,813     $ 19,668     $ 50,247     $ 8,220     $ 213,948     $ 39,355    
$
253,303
 
   $ 242,421  
(1)
Individual allowances for credit losses are $505. Letters of credit and guarantees are included as funded exposure as they have been issued. Included in loans and loans equivalent are letters of credit and guarantees which total $16,151 as at January 31, 2023 (October 31, 2022 – $15,462).
(2)
Exposures for securities are calculated taking into account derivative positions where the security is the underlying reference asset and short trading positions, with net short positions in brackets.
(3)
SFT comprise of securities purchased under resale agreements, obligations related to securities sold under repurchase agreements and securities lending and borrowing transactions. Gross and net funded exposures represent all net positive positions after taking into account collateral. Collateral held against derivatives was $3,893 and collateral held against SFT was $121,230.
(4)
Undrawn commitments represent an estimate of the contractual amount that may be drawn upon by the obligor and include commitments to issue letters of credit on behalf of other banks in a syndicated bank lending arrangement.
(5)
Includes countries in the Pacific Alliance plus Brazil, Uruguay, Venezuela, Ecuador and Argentina.
(6)
Includes Middle East and Africa.
Market risk
Value at Risk (VaR) is a key measure of market risk in the Bank’s trading activities. VaR includes both general market risk and debt specific risk components. The Bank also calculates a Stressed VaR measure.
T22 Market Risk Measures
 
      Average for the three months ended  
Risk factor
($ millions)
   
January 31
2023
      October 31
2022		  
Credit spread plus interest rate
   
$
13.8
 
    $ 12.6  
Credit spread
   
 
7.5
 
      6.6  
Interest rate
   
 
13.1
 
      11.3  
Equities
   
 
3.5
 
      3.6  
Foreign exchange
   
 
2.1
 
      1.9  
Commodities
   
 
4.6
 
      3.6  
Debt specific
   
 
3.8
 
      2.8  
Diversification effect
   
 
(12.7
) 
      (10.3 ) 
Total VaR
   
$
15.1
 
    $ 14.2  
Total Stressed VaR
   
$
45.1
 
    $ 28.7  
In the first quarter of 2023, the average
one-day
Total VaR increased to $15.1 million, due primarily to increased interest rate risk.
In Q1 2023, the 2019/2020 COVID period was used to generate the Stressed VaR; resulting in an increase to Stressed VaR to $45.1 million. Last quarter, the Stressed VaR was calculated using the 2008/2009 credit crisis period.
There were no trading loss days this quarter. The quality and accuracy of the VaR models is validated by backtesting, which compares daily actual and theoretical profit and loss with the daily output of the VaR model.
Interest rate risk
Interest rate risk is the risk of loss due to the following: changes in the level, slope and curvature of the yield curve; the volatility of interest rates and changes in customer preferences (e.g. mortgage prepayment rates).
Non-trading
interest rate sensitivity
The following table shows the
pro-forma
pre-tax
impact on the Bank’s net interest income over the next twelve months and economic value of equity of an immediate and sustained 100 basis points increase and decrease in interest rate across major currencies as defined by the Bank. Corresponding with the current interest rate environment, starting in Q3 2022, the net interest income and economic value for a down shock scenario are measured using 100 basis points decline. These calculations are based on models that consider a number of inputs and are on a constant balance sheet and make no assumptions for management actions to mitigate the risk.
 
Scotiabank First Quarter Report 2023
33
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
T23 Structural interest sensitivity
 
     As at  
    
January 31, 2023
            October 31, 2022     January 31, 2022  
    
Net interest income
    
Economic value of equity
                                     
($ millions)
  
Canadian
dollar
    
Other
currencies
    
Total
    
Canadian
dollar
    
Other
currencies
    
Total
    
Net
interest
income
     Economic
value of
equity		           
Net
interest
income
     Economic
value of
equity		  
+100 bps
  
$
(80
) 
  
$
(224
) 
  
$
(304
) 
  
$
(621
) 
  
$
(1,068
) 
  
$
(1,689
) 
   $ (340 )    $ (2,021 )      +100 bps     $ 245     $ (1,041 ) 
-100 bps
  
 
40
 
  
 
193
 
  
 
233
 
  
 
319
 
  
 
887
 
  
 
1,206
 
     326       1,659       -25 bps       (75 )      177  
During the first quarter of 2023, both interest rate sensitivities remained within the Bank’s approved consolidated limits.
The Bank’s Asset/Liability Committee provides strategic direction for the management of structural interest rate risk within the risk appetite framework authorized by the Board of Directors. The asset/liability management strategy is executed by Group Treasury with the objective of protecting and enhancing net interest income within established risk tolerances.
The Bank supplements the immediate rate change impact analysis described above with more sophisticated analyses and tools for actual risk management purposes.
Market risk linkage to Consolidated Statement of Financial Position
Trading assets and liabilities are marked to market daily and included in trading risk measures such as VaR. Derivatives captured under trading risk measures are related to the activities of Global Banking and Markets, while derivatives captured under
non-trading
risk measures comprise those used in asset/liability management and designated in a hedge relationship. A comparison of Consolidated Statement of Financial Position items which are covered under the trading and
non-trading
risk measures is provided in the table below.
T24 Market risk linkage to Consolidated Statement of Financial Position of the Bank
 
As at January 31, 2023
  
Market risk measure
  
($ millions)
  
Consolidated
Statement of
Financial Position
    
Trading risk
    
Non-trading

risk
    
Not subject to
market risk
    
Primary risk sensitivity of
non-trading
risk
  
Precious metals
  
$
725
 
  
$
725
 
  
$
–
 
  
$
–
 
  
 
n/a
 
Trading assets
  
 
116,346
 
  
 
116,171
 
  
 
175
 
  
 
–
 
  
 
Interest rate, FX
 
Derivative financial instruments
  
 
44,820
 
  
 
33,582
 
  
 
11,238
 
  
 
–
 
  
 
Interest rate, FX, equity
 
Investment securities
  
 
111,004
 
  
 
–
 
  
 
111,004
 
  
 
–
 
  
 
Interest rate, FX, equity
 
Loans
  
 
755,157
 
  
 
–
 
  
 
755,157
 
  
 
–
 
  
 
Interest rate, FX
 
Assets not subject to market risk
(1)
  
 
346,386
 
  
 
–
 
  
 
–
 
  
 
346,386
 
  
 
n/a
 
Total assets
  
$
1,374,438
 
  
$
150,478
 
  
$
877,574
 
  
$
346,386
 
  
 
 
 
Deposits
  
$
949,887
 
  
$
–
 
  
$
903,924
 
  
$
45,963
 
  
 
Interest rate, FX, equity
 
Financial instruments designated at fair value through profit or loss
  
 
26,583
 
  
 
–
 
  
 
26,583
 
  
 
–
 
  
 
Interest rate, equity
 
Obligations related to securities sold short
  
 
43,439
 
  
 
43,439
 
  
 
–
 
  
 
–
 
  
 
n/a
 
Derivative financial instruments
  
 
52,746
 
  
 
31,971
 
  
 
20,775
 
  
 
–
 
  
 
Interest rate, FX, equity
 
Trading liabilities
(2)
  
 
426
 
  
 
426
 
  
 
–
 
  
 
–
 
  
 
n/a
 
Pension and other benefit liabilities
  
 
1,632
 
  
 
–
 
  
 
1,632
 
  
 
–
 
  
 
Interest rate, credit spread, equity
 
Liabilities not subject to market risk
(3)
 
 
223,974
 
  
 
–
 
  
 
–
 
  
 
223,974
 
  
 
n/a
 
Total liabilities
  
$
1,298,687
 
  
$
75,836
 
  
$
952,914
 
  
$
269,937
 
  
 
 
 
(1)
Includes goodwill, intangibles, other assets and securities purchased under resale agreements and securities borrowed.
(2)
Gold and silver certificates and bullion included in other liabilities.
(3)
Includes obligations related to securities sold under repurchase agreements and securities lent and other liabilities.
 
34
Scotiabank First Quarter Report 2023
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
As at October 31, 2022   Market risk measure  
($ millions)
   Consolidated
Statement of
Financial Position		     Trading risk    
Non-trading

risk		     Not subject to
market risk		    
Primary risk sensitivity of
non-trading
risk
  
Precious metals
   $ 543     $ 543     $ –     $ –       n/a  
Trading assets
     113,154       113,117       37       –       Interest rate, FX  
Derivative financial instruments
     55,699       43,436       12,263       –       Interest rate, FX, equity  
Investment securities
     110,008       –       110,008       –       Interest rate, FX, equity  
Loans
     744,987       –       744,987       –       Interest rate, FX  
Assets not subject to market risk
(1)
     325,027       –       –       325,027       n/a  
Total assets
   $ 1,349,418     $ 157,096     $ 867,295     $ 325,027    
 
 
 
Deposits
   $ 916,181     $ –     $ 869,219     $ 46,962       Interest rate, FX, equity  
Financial instruments designated at fair value through profit or loss
     22,421       –       22,421       –       Interest rate, equity  
Obligations related to securities sold short
     40,449       40,449       –       –       n/a  
Derivative financial instruments
     65,900       40,685       25,215       –       Interest rate, FX, equity  
Trading liabilities
(2)
     372       372       –       –       n/a  
Pension and other benefit liabilities
     1,557       –       1,557       –       Interest rate, credit spread, equity  
Liabilities not subject to market risk
(3)
    227,789       –       –       227,789       n/a  
Total liabilities
   $ 1,274,669     $ 81,506     $ 918,412     $ 274,751    
 
 
 
(1)
Includes goodwill, intangibles, other assets and securities purchased under resale agreements and securities borrowed.
(2)
Gold and silver certificates and bullion included in other liabilities.
(3)
Includes obligations related to securities sold under repurchase agreements and securities lent and other liabilities.
Liquidity risk
Effective liquidity risk management is essential to maintain the confidence of depositors and counterparties, manage the Bank’s cost of funds and to support core business activities, even under adverse circumstances.
Liquidity risk is managed within a framework of policies and limits that are approved by the Board of Directors, as outlined in Note 18 to the Condensed Interim Consolidated Financial Statements and in Note 35 to the Consolidated Financial Statements in the Bank’s 2022 Annual Report.
Liquid assets are a key component of this framework. The determination of the appropriate levels for liquid asset portfolios is based on the amount of liquidity the Bank might need to fund expected cash flows in the normal course of business, as well as what might be required in periods of stress to meet cash outflows. Stress events include periods when there are disruptions in the capital markets or events which may impair the Bank’s access to funding markets or liquidity. The Bank uses stress testing to assess the impact of stress events and to assess the amount of liquid assets that would be required in various stress scenarios.
Liquid assets
Liquid assets are a key component of liquidity management and the Bank holds these types of assets in sufficient quantity to meet potential needs.
Liquid assets can be used to generate cash either through sale, repurchase transactions or other transactions where these assets can be used as collateral to generate cash, or by allowing the asset to mature. Liquid assets include unrestricted deposits with central banks, deposits with financial institutions, call and other short-term loans, marketable securities, precious metals and securities received as collateral from securities financing and derivative transactions.
Marketable securities are securities traded in active markets, which can be converted to cash within a timeframe that is in accordance with the Bank’s liquidity management framework. Assets are assessed considering a number of factors, including the expected time it would take to convert them to cash.
Marketable securities included in liquid assets are comprised of securities specifically held as a liquidity buffer or for asset/liability management purposes, trading securities primarily held by Global Banking and Markets, and collateral received from securities financing and derivative transactions.
The Bank maintains large holdings of unencumbered liquid assets to support its operations. These assets generally can be sold or pledged to meet the Bank’s obligations. As at January 31, 2023, unencumbered liquid assets were $287 billion (October 31, 2022 – $260 billion). Securities including National Housing Act (NHA) mortgage-backed securities, comprised 73% of liquid assets (October 31, 2022 – 77%). Other unencumbered liquid assets, comprising cash and deposits with central banks, deposits with financial institutions and precious metals were 27% (October 31, 2022 – 23%). The increase in total unencumbered liquid assets was mainly attributable to an increase in cash and deposits with central banks, foreign and Canadian government securities and NHA mortgage-backed securities, partly offset by a decrease in other liquid securities and deposits with financial institutions.
The carrying values outlined in the liquid asset table are consistent with the carrying values in the Bank’s Consolidated Statement of Financial Position as at January 31, 2023. The liquidity value of the portfolio will vary under different stress events as different assumptions are used for the stress scenarios.
 
Scotiabank First Quarter Report 2023
35
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
The Bank’s liquid asset pool is summarized in the following table:
T25 Liquid asset pool
 
     
As at January 31, 2023
  
    
Bank-owned
liquid assets
     
Securities received
as collateral from
securities financing
and derivative
transactions
     
Total liquid
assets
     
Encumbered
liquid assets
     
Unencumbered
liquid assets
  
($ millions)
   
Pledged as
collateral
     
Other
(1)
     
Available as
collateral
     
Other
  
Cash and deposits with central banks
   
$
74,150
 
   
$
–
 
   
$
74,150
 
   
$
–
 
   
$
5,289
 
   
$
68,861
 
   
$
–
 
Deposits with financial institutions
   
 
7,236
 
   
 
–
 
   
 
7,236
 
   
 
–
 
   
 
94
 
   
 
7,142
 
   
 
–
 
Precious metals
   
 
725
 
   
 
–
 
   
 
725
 
   
 
–
 
   
 
–
 
   
 
725
 
   
 
–
 
Securities:
                     
Canadian government obligations
   
 
51,288
 
   
 
31,106
 
   
 
82,394
 
   
 
37,424
 
   
 
–
 
   
 
44,970
 
   
 
–
 
Foreign government obligations
   
 
100,163
 
   
 
114,406
 
   
 
214,569
 
   
 
100,495
 
   
 
–
 
   
 
114,074
 
   
 
–
 
Other securities
   
 
63,279
 
   
 
96,951
 
   
 
160,230
 
   
 
131,771
 
   
 
–
 
   
 
28,459
 
   
 
–
 
Loans:
                     
NHA mortgage-backed securities
   
 
31,258
 
   
 
–
 
   
 
31,258
 
   
 
8,049
 
   
 
–
 
   
 
23,209
 
   
 
–
 
Total
   
$
328,099
 
   
$
242,463
 
   
$
570,562
 
   
$
277,739
 
   
$
5,383
 
   
$
287,440
 
   
$
–
 
      As at October 31, 2022  
    
Bank-owned
liquid assets
      Securities received
as collateral from
securities financing
and derivative
transactions		      Total liquid
assets		     
Encumbered
liquid assets
     
Unencumbered
liquid assets
  
($ millions)
    Pledged as
collateral		      Other
(1)
      Available as
collateral		      Other  
Cash and deposits with central banks
    $ 56,720      $ –      $ 56,720      $ –      $ 5,254      $ 51,466      $ –  
Deposits with financial institutions
      9,175        –        9,175        –        400        8,775        –  
Precious metals
      543        –        543        –        –        543        –  
Securities:
                     
Canadian government obligations
      51,114        29,484        80,598        40,290        –        40,308        –  
Foreign government obligations
      98,673        108,134        206,807        104,052        –        102,755        –  
Other securities
      60,783        90,675        151,458        115,995        –        35,463        –  
Loans:
                     
NHA mortgage-backed securities
      29,409        –        29,409        8,571        –        20,838        –  
Total
    $ 306,417      $ 228,293      $ 534,710      $ 268,908      $ 5,654      $ 260,148      $ –  
(1)
Assets which are restricted from being used to secure funding for legal or other reasons.
A summary of total unencumbered liquid assets held by the parent bank and its branches, and domestic and foreign subsidiaries, is presented below:
T26 Total unencumbered liquid assets held by the parent bank and its branches, and domestic and foreign subsidiaries
 
      As at    
($ millions)
   
January 31
2023
      October 31
2022		  
The Bank of Nova Scotia (Parent)
   
$
216,625
 
    $ 184,848  
Bank domestic subsidiaries
   
 
28,636
 
      26,912  
Bank foreign subsidiaries
   
 
42,179
 
      48,388  
Total
   
$
287,440
 
    $ 260,148  
The Bank’s liquidity pool is held across major currencies, mostly comprised of Canadian and U.S. dollar holdings. As shown above, the vast majority (85%) of liquid assets are held by the Bank’s corporate office, branches of the Bank, and Canadian subsidiaries of the Bank. To the extent a liquidity reserve held in a foreign subsidiary of the Bank is required for regulatory purposes, it is assumed to be unavailable to the rest of the Group. Other liquid assets held by a foreign subsidiary are assumed to be available only in limited circumstances. The Bank monitors and ensures compliance in relation to minimum levels of liquidity required and assets held within each entity, and/or jurisdiction.
 
36
Scotiabank First Quarter Report 2023
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Encumbered assets
In the course of the Bank’s
day-to-day
activities, securities and other assets are pledged to secure an obligation, participate in clearing or settlement systems, or operate in a foreign jurisdiction. Securities are also pledged under repurchase agreements. A summary of encumbered and unencumbered assets is presented below:
T27 Asset Encumbrance
 
    
As at January 31, 2023
  
   
Bank-owned
assets
    
Securities received as
collateral from
securities financing and
derivative transactions
    
Total assets
    
Encumbered assets
    
Unencumbered assets
  
($ millions)
  
Pledged as
collateral
    
Other
(1)
    
Available as
collateral
(2)
     
Other
(3)
  
Cash and deposits with central banks
  
$
74,150
 
  
$
–
 
  
$
74,150
 
  
$
–
 
  
$
5,289
 
  
$
68,861
 
   
$
–
 
Deposits with financial institutions
  
 
7,236
 
  
 
–
 
  
 
7,236
 
  
 
–
 
  
 
94
 
  
 
7,142
 
   
 
–
 
Precious metals
  
 
725
 
  
 
–
 
  
 
725
 
  
 
–
 
  
 
–
 
  
 
725
 
   
 
–
 
Liquid securities:
               
Canadian government obligations
  
 
51,288
 
  
 
31,106
 
  
 
82,394
 
  
 
37,424
 
  
 
–
 
  
 
44,970
 
   
 
–
 
Foreign government obligations
  
 
100,163
 
  
 
114,406
 
  
 
214,569
 
  
 
100,495
 
  
 
–
 
  
 
114,074
 
   
 
–
 
Other liquid securities
  
 
63,279
 
  
 
96,951
 
  
 
160,230
 
  
 
131,771
 
  
 
–
 
  
 
28,459
 
   
 
–
 
Other securities
  
 
3,009
 
  
 
9,116
 
  
 
12,125
 
  
 
4,627
 
  
 
–
 
  
 
–
 
   
 
7,498
 
Loans classified as liquid assets:
               
NHA mortgage-backed securities
  
 
31,258
 
  
 
–
 
  
 
31,258
 
  
 
8,049
 
  
 
–
 
  
 
23,209
 
   
 
–
 
Other loans
  
 
731,541
 
  
 
–
 
  
 
731,541
 
  
 
3,723
 
  
 
79,569
 
  
 
11,107
 
   
 
637,142
 
Other financial assets
(4)
  
 
250,035
 
  
 
(162,536
) 
  
 
87,499
 
  
 
14,426
 
  
 
–
 
  
 
–
 
   
 
73,073
 
Non-financial
assets
  
 
61,754
 
  
 
–
 
  
 
61,754
 
  
 
–
 
  
 
–
 
  
 
–
 
   
 
61,754
 
Total
  
$
1,374,438
 
  
$
89,043
 
  
$
1,463,481
 
  
$
300,515
 
  
$
84,952
 
  
$
298,547
 
   
$
779,467
 
     As at October 31, 2022  
   
Bank-owned
assets
     Securities received as
collateral from
securities financing and
derivative transactions		     Total assets     Encumbered assets     Unencumbered assets  
($ millions)
   Pledged as
collateral		     Other
(1)
     Available as
collateral
(2)
      Other
(3)
  
Cash and deposits with central banks
   $ 56,720     $ –     $ 56,720     $ –     $ 5,254     $ 51,466      $ –  
Deposits with financial institutions
     9,175       –       9,175       –       400       8,775        –  
Precious metals
     543       –       543       –       –       543        –  
Liquid securities:
               
Canadian government obligations
     51,114       29,484       80,598       40,290       –       40,308        –  
Foreign government obligations
     98,673       108,134       206,807       104,052       –       102,755        –  
Other liquid securities
     60,783       90,675       151,458       115,995       –       35,463        –  
Other securities
     2,985       11,376       14,361       3,611       –       –        10,750  
Loans classified as liquid assets:
               
NHA mortgage-backed securities
     29,409       –       29,409       8,571       –       20,838        –  
Other loans
     723,389       –       723,389       3,658       77,122       11,657        630,952  
Other financial assets
(4)
     254,935       (160,410 )      94,525       18,450       –       –        76,075  
Non-financial
assets
     61,692       –       61,692       –       –       –        61,692  
Total
   $ 1,349,418     $ 79,259     $ 1,428,677     $ 294,627     $ 82,776     $ 271,805      $ 779,469  
(1)
Assets which are restricted from being used to secure funding for legal or other reasons.
(2)
Assets that are readily available in the normal course of business to secure funding or meet collateral needs including central bank borrowing immediately available.
(3)
Other unencumbered assets are not subject to any restrictions on their use to secure funding or as collateral but the Bank would not consider them to be readily available. These include loans, a portion of which may be used to access central bank facilities outside of the normal course or to raise secured funding through the Bank’s secured funding programs.
(4)
Securities received as collateral against other financial assets are included within liquid securities and other securities.
As at January 31, 2023, total encumbered assets of the Bank were $385 billion (October 31, 2022 – $377 billion). Of the remaining $1,078 billion (October 31, 2022 – $1,051 billion) of unencumbered assets, $299 billion (October 31, 2022 – $272 billion) are considered readily available in the normal course of business to secure funding or meet collateral needs as detailed above.
In some
over-the-counter
derivative contracts, the Bank would be required to post additional collateral or receive less collateral in the event its credit rating was downgraded. The Bank maintains access to sufficient collateral to meet these obligations in the event of a downgrade of its ratings by one or more of the rating agencies. As at January 31, 2023, the potential adverse impact on derivatives collateral that would result from a
one-notch
or
two-notch
downgrade of the Bank’s rating below its lowest current rating was $38 million or $346 million, respectively.
Encumbered liquid assets are not considered to be available for liquidity management purposes. Liquid assets which are used to hedge derivative positions in trading books or for hedging purposes are considered to be available for liquidity management provided they meet the criteria discussed in liquid assets above.
Liquidity coverage ratio
The Liquidity Coverage Ratio (LCR) measure is based on a
30-day
liquidity stress scenario, with assumptions defined in the Liquidity Adequacy Requirements (LAR) Guideline issued by the Office of the Superintendent of Financial Institutions (OSFI). The LCR is calculated as the ratio of high quality liquid assets (HQLA) to net cash outflows. The Bank is subject to a regulatory minimum LCR of 100%.
HQLA are defined in the LAR Guideline and are grouped into three main categories with varying haircuts applied to arrive at the amount included in the total weighted value in the table that follows.
The total weighted values for net cash outflows for the next 30 days are derived by applying the assumptions specified in the LAR Guideline to specific items, including loans, deposits, maturing debt, derivative transactions and commitments to extend credit.
 
Scotiabank First Quarter Report 2023
37
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
The following table presents the Bank’s LCR for the quarter ended January 31, 2023, based on the average daily positions in the quarter:
T28 Bank’s average LCR
(1)
 
For the quarter ended January
 31, 2023
($ millions)
(2)
   
Total
unweighted
value
(Average)
(3)
     
Total
weighted
value
(Average)
(4)
  
High-quality liquid assets
      
Total high-quality liquid assets (HQLA)
   
 
*
 
   
$
230,287
 
Cash outflows
      
Retail deposits and deposits from small business customers, of which:
    $ 233,556      $ 20,853  
Stable deposits
      89,993        2,904  
Less stable deposits
      143,563        17,949  
Unsecured wholesale funding, of which:
      311,286        142,111  
Operational deposits (all counterparties) and deposits in networks of cooperative banks
      103,592        24,915  
Non-operational
deposits (all counterparties)
      178,100        87,602  
Unsecured debt
      29,594        29,594  
Secured wholesale funding
   
 
*
 
      48,594  
Additional requirements, of which:
      279,914        54,237  
Outflows related to derivative exposures and other collateral requirements
      46,724        22,737  
Outflows related to loss of funding on debt products
      6,022        6,022  
Credit and liquidity facilities
      227,168        25,478  
Other contractual funding obligations
      5,505        5,424  
Other contingent funding obligations
(5)
      566,334        7,018  
Total cash outflows
   
 
*
 
   
$
278,237
 
Cash inflows
      
Secured lending (e.g. reverse repos)
    $ 225,582      $ 47,007  
Inflows from fully performing exposures
      34,328        21,567  
Other cash inflows
      21,493        21,493  
Total cash inflows
   
$
281,403
 
   
$
90,067
 
              Total
adjusted
value
(6)
  
Total HQLA
   
 
*
 
   
$
230,287
 
Total net cash outflows
   
 
*
 
   
$
188,170
 
Liquidity coverage ratio (%)
   
 
*
 
   
 
122
% 
For the quarter ended October 31, 2022
($ millions)
            Total
adjusted
value
(6)
  
Total HQLA
      *      $ 213,156  
Total net cash outflows
      *      $ 179,274  
Liquidity coverage ratio (%)
      *        119 % 
*
Disclosure is not required under regulatory guideline.
(1)
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).
(2)
Based on the average of daily positions of the 62 business days in the quarter.
(3)
Unweighted values represent outstanding balances maturing or callable within the next 30 days.
(4)
Weighted values represent balances calculated after the application of HQLA haircuts or inflow and outflow rates, as prescribed by the OSFI LAR Guideline.
(5)
Total unweighted value includes uncommitted credit and liquidity facilities, guarantees and letters of credit, outstanding debt securities with remaining maturity greater than 30 days, and other contractual cash outflows.
(6)
Total adjusted value represents balances calculated after the application of both haircuts and inflow and outflow rates and any applicable caps.
HQLA is substantially comprised of Level 1 assets (as defined in the LAR Guideline), such as cash, deposits with central banks available to the Bank in times of stress, and highly rated securities issued or guaranteed by governments, central banks and supranational entities.
The increase in the Bank’s average LCR for the quarter ended January 31, 2023 versus the average of the previous quarter was attributable to growth in deposits and wholesale funding, partly offset by growth in loans and securities. The Bank monitors its significant currency exposures, Canadian and U.S. dollars, in accordance with its liquidity risk management framework and risk appetite.
Net stable funding ratio
The Net Stable Funding Ratio (NSFR) requires institutions to maintain a stable funding profile in relation to the composition of their assets and
off-balance
sheet exposures. It is calculated as the ratio of available stable funding (ASF) to required stable funding (RSF), with assumptions defined in the OSFI LAR Guideline. The Bank is subject to a regulatory minimum NSFR of 100%.
ASF is defined as the portion of capital and liabilities expected to be reliable over the time horizons considered by the NSFR. RSF is a function of the liquidity characteristics and residual maturities of the various assets held by the Bank as well as those of its
off-balance
sheet exposures.
The total weighted values for ASF and RSF included in the table that follows are derived by applying the assumptions specified in the LAR Guideline to balance sheet items, including capital instruments, wholesale funding, deposits, loans and mortgages, securities, derivatives and commitments to extend credit.
 
38
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
The following table presents the Bank’s NSFR as at January 31, 2023:
T29 Bank’s NSFR
(1)
 
     Unweighted Value by Residual Maturity     Weighted
value
(3)
  
As at January 31, 2023
($ millions)
   No maturity
(2)
     < 6 months    
6-12 months
    
≥
 1 year		  
Available Stable Funding (ASF) Item
 
Capital:   $ 85,450     $ –     $ –     $ –     $ 85,450  
Regulatory capital
     85,450       –       –       –       85,450  
Other capital instruments
     –       –       –       –       –  
Retail deposits and deposits from small business customers:     198,408       64,050       28,878       42,439       306,348  
Stable deposits
     83,785       17,911       9,393       10,268       115,803  
Less stable deposits
     114,623       46,139       19,485       32,171       190,545  
Wholesale funding:     192,312       334,206       61,991       127,181       314,307  
Operational deposits
     105,120       5,716       50       8       55,451  
Other wholesale funding
     87,192       328,490       61,941       127,173       258,856  
Liabilities with matching interdependent assets
(4)
     –       1,854       3,510       17,738       –  
Other liabilities:     64,062       95,738       24,015  
NSFR derivative liabilities
       9,392    
All other liabilities and equity not included in the above categories
     64,062       60,661       3,340       22,345       24,015  
Total ASF
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
$
730,120
 
Required Stable Funding (RSF) Item
 
Total NSFR high-quality liquid assets (HQLA)           $ 14,140  
Deposits held at other financial institutions for operational purposes   $ 570     $ –     $ –     $ 256     $ 541  
Performing loans and securities:     101,620       206,240       52,899       534,917       576,792  
Performing loans to financial institutions secured by Level 1 HQLA
     66       56,619       386       –       3,303  
Performing loans to financial institutions secured by
non-Level
1 HQLA and unsecured performing loans to financial institutions
     3,001       64,621       12,151       12,944       29,435  
Performing loans to
non-financial
corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and PSEs, of which:
     55,506       70,965       27,536       237,040       292,624  
With a risk weight of less than or equal to 35% under the Basel II standardised approach for credit risk
     –       514       900       2,129       2,090  
Performing residential mortgages, of which:
     21,726       12,921       12,182       278,393       226,869  
With a risk weight of less than or equal to 35% under the Basel II standardised approach for credit risk
     21,726       12,694       12,002       264,562       214,909  
Securities that are not in default and do not qualify as HQLA, including exchange-traded equities
     21,321       1,114       644       6,540       24,561  
Assets with matching interdependent liabilities
(4)
     –       1,854       3,510       17,738       –  
Other assets:     2,693    
 
151,995
 
     58,506  
Physical traded commodities, including gold
     2,693             2,289  
Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs
       10,189       8,661  
NSFR derivative assets
       6,154       –  
NSFR derivative liabilities before deduction of variation margin posted
       27,389       1,369  
All other assets not included in the above categories
     –       62,278       –       45,985       46,187  
Off-balance
sheet items		  
 
 
 
     481,268       18,660  
Total RSF
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
$
668,639
 
Net Stable Funding Ratio (%)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
109
% 
As at October 31, 2022
($ millions)
   Weighted
value
(3)
  
Total ASF
   $ 720,082  
Total RSF
     649,927  
Net stable funding ratio (%)
     111 % 
(1)
This measure has been disclosed in this document in accordance with OSFI Guideline – Net Stable Funding Ratio Disclosure Requirements (January 2021).
(2)
Items in the “no maturity” time bucket do not have a stated maturity. These may include, but are not limited to, items such as capital with perpetual maturity,
non-maturity
deposits, short positions, open maturity positions,
non-HQLA
equities, and physical traded commodities.
(3)
Weighted values represent balances calculated after the application of ASF and RSF rates, as prescribed by the OSFI LAR Guideline.
(4)
Interdependent assets and liabilities are primarily comprised of transactions related to the Canada Mortgage Bond program.
Available stable funding is primarily provided by the Bank’s large pool of retail, small business and corporate customer deposits; secured and unsecured wholesale funding and capital. Required stable funding primarily originates from the Bank’s loan and mortgage portfolio, securities holdings,
off-balance
sheet items and other assets.
The decline in the Bank’s NSFR as at January 31, 2023 versus the previous quarter was attributable to higher RSF for loans and securities, partly offset by higher ASF from deposits.
 
Scotiabank First Quarter Report 2023
    39
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Regulatory liquidity developments
OSFI’s changes to the LAR Guideline will be effective April 2023 and primarily comprise of enhancements to the Net Cumulative Cash Flow supervisory tool. Modifications are focused on the introduction of cash outflow factors for undrawn loan commitments and changes to cash inflow and outflow factors for certain loan and deposit products.
Funding
The Bank ensures that its funding sources are well diversified. Funding concentrations are regularly monitored and analyzed by type. The sources of funding are capital, deposits from retail and commercial clients sourced through the Canadian and international branch network, deposits from financial institutions as well as wholesale debt issuances.
Capital and personal deposits are key components of the Bank’s core funding and these amounted to $360 billion as at January 31, 2023 (October 31, 2022 – $350 billion). The increase since October 31, 2022 is due primarily to growth in personal deposits and common equity. A portion of commercial deposits, particularly those of an operating or relationship nature, are also considered part of the Bank’s core funding. Furthermore, core funding is augmented by longer-term wholesale debt issuances (original maturity of 1 year or more) of $217 billion (October 31, 2022 – $204 billion). Longer-term wholesale debt issuances include senior notes, mortgage securitizations, asset-backed securities and covered bonds.
The Bank operates in many different currencies and countries. From a funding perspective, the most significant currencies are Canadian and U.S. dollars. With respect to the Bank’s operations outside Canada, there are different funding strategies depending on the nature of the activities in each country. For those countries where the Bank operates a branch banking subsidiary, the strategy is for the subsidiary to be substantially self-funding in its local market. For other subsidiaries or branches outside Canada where local deposit gathering capability is not sufficient, funding is provided through the wholesale funding activities of the Bank.
From an overall funding perspective, the Bank’s objective is to achieve an appropriate balance between the cost and the stability of funding. Diversification of funding sources is a key element of the funding strategy.
The Bank’s wholesale debt diversification strategy is primarily executed via the Bank’s main wholesale funding centres, located in Toronto, New York, London and Singapore. The majority of these funds are sourced in Canadian and U.S. dollars. Where required, these funds are swapped to fund assets in different currencies. The funding strategy deployed by wholesale funding centres and the management of associated risks, such as geographic and currency risk, are managed centrally within the framework of policies and limits that are approved by the Board of Directors.
In the normal course, the Bank uses a mix of unsecured and secured wholesale funding instruments across a variety of markets. The choice of instruments and markets is based on a number of factors, including relative cost, market capacity and diversification of funding. Market conditions can change over time, impacting cost and capacity in particular markets or instruments. Changing market conditions can include periods of stress where the availability of funding in particular markets or instruments is constrained. In these circumstances, the Bank would increase its focus on sources of funding in functioning markets and secured funding instruments. Should a period of extreme stress exist such that all wholesale funding sources are constrained, the Bank maintains a pool of liquid assets to mitigate its liquidity risk. This pool includes cash, deposits with central banks and securities.
In Canada, the Bank raises short and longer-term wholesale debt through the issuance of senior unsecured notes. Additional longer-term wholesale debt may be generated through the Bank’s Canadian Debt and Equity Shelf, the securitization of Canadian insured residential mortgages through CMHC programs (such as Canada Mortgage Bonds), uninsured residential mortgages through the Bank’s Covered Bond Program, retail credit card receivables through the Trillium Credit Card Trust II program, retail indirect auto loan receivables through the Securitized Term Auto Receivables Trust program and unsecured personal lines of credit receivables through the Halifax Receivables Trust program. CMHC securitization programs, while included in the Bank’s view of wholesale debt issuance, do not entail the
run-off
risk that can be experienced in funding raised from capital markets.
Outside of Canada, short-term wholesale debt may be raised through the issuance of negotiable certificates of deposit in the United States, Hong Kong, the United Kingdom and Australia and the issuance of commercial paper in the United States. The Bank operates longer-term wholesale debt issuance registered programs in the United States, such as its SEC Registered Debt and Equity Shelf, and
non-registered
programs, such as the securitization of retail indirect auto loan receivables through the Securitized Term Auto Receivables Trust program and retail credit card receivables through the Trillium Credit Card Trust II program. The Bank may issue its Covered Bond Program (listed with the U.K. Listing Authority and the Swiss Stock Exchange), in Europe, the United Kingdom, the United States, Australia and Switzerland. The Bank also raises longer-term funding across a variety of currencies through its Australian Medium Term Note Programme, European Medium Term Note Programme (listed with the U.K. Listing Authority and the Swiss Stock Exchange) and Singapore Medium Term Note Programme (listed with the Singapore Exchange and the Taiwan Exchange).
The Department of Finance’s
bail-in
regulations under the Canada Deposit Insurance Corporation (CDIC) Act and the Bank Act, became effective September 23, 2018. Senior unsecured debt issued by the Bank on or after September 23, 2018, that has an original term greater than 400 days and is marketable, subject to certain exceptions, is subject to the Canadian Bank Recapitalization
(Bail-in)
regime. Under the
Bail-in
regime, in circumstances when the Superintendent of Financial Institutions has determined that a bank may no longer be viable, the Governor in Council may, upon a recommendation of the Minister of Finance that they are of the opinion that it is in the public interest to do so, grant an order directing the CDIC to convert all or a portion of certain shares and liabilities of that bank into common shares. As at January 31, 2023, issued and outstanding liabilities of $74 billion (October 31, 2022 – $73 billion) were subject to conversion under the
bail-in
regime.
 
40    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
The table below provides the remaining contractual maturities of funding raised through wholesale funding sources. In the Consolidated Statement of Financial Position, these liabilities are primarily included in Business and Government Deposits.
Wholesale funding sources
T30 Wholesale funding
(1)
 
    
As at January 31, 2023
  
($ millions)
  
Less than
1 month
    
1-3
months
    
3-6
months
    
6-9
months
    
9-12
months
    
Sub-Total
≤
1 Year
    
1-2
years
    
2-5
years
    
>5
years
    
Total
  
Deposit by banks
(2)
  
$
2,486
 
  
$
875
 
  
$
974
 
  
$
386
 
  
$
64
 
  
$
4,785
 
  
$
263
 
  
$
–
 
  
$
–
 
  
$
5,048
 
Bearer notes, commercial paper and certificate of deposits
  
 
10,404
 
  
 
23,809
 
  
 
30,799
 
  
 
18,411
 
  
 
12,564
 
  
 
95,987
 
  
 
1,840
 
  
 
348
 
  
 
51
 
  
 
98,226
 
Asset-backed commercial paper
(3)
  
 
1,861
 
  
 
4,254
 
  
 
4,648
 
  
 
–
 
  
 
–
 
  
 
10,763
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
10,763
 
Senior notes
(4)(5)
  
 
4,903
 
  
 
3,671
 
  
 
2,110
 
  
 
5,388
 
  
 
3,231
 
  
 
19,303
 
  
 
3,254
 
  
 
6,445
 
  
 
12,440
 
  
 
41,442
 
Bail-inable notes
(5)
  
 
1,323
 
  
 
67
 
  
 
5,634
 
  
 
5,282
 
  
 
596
 
  
 
12,902
 
  
 
18,898
 
  
 
28,577
 
  
 
13,157
 
  
 
73,534
 
Asset-backed securities
  
 
–
 
  
 
–
 
  
 
–
 
  
 
579
 
  
 
2
 
  
 
581
 
  
 
1
 
  
 
633
 
  
 
119
 
  
 
1,334
 
Covered bonds
  
 
–
 
  
 
4,090
 
  
 
–
 
  
 
2,531
 
  
 
1,808
 
  
 
8,429
 
  
 
4,339
 
  
 
31,462
 
  
 
5,442
 
  
 
49,672
 
Mortgage securitization
(6)
  
 
–
 
  
 
806
 
  
 
1,048
 
  
 
2,560
 
  
 
953
 
  
 
5,367
 
  
 
3,765
 
  
 
8,892
 
  
 
4,685
 
  
 
22,709
 
Subordinated debt
(7)
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
47
 
  
 
2,558
 
  
 
8,325
 
  
 
10,930
 
Total wholesale funding sources
  
$
20,977
 
  
$
37,572
 
  
$
45,213
 
  
$
35,137
 
  
$
19,218
 
  
$
158,117
 
  
$
32,407
 
  
$
78,915
 
  
$
44,219
 
  
$
313,658
 
Of Which:
                    
Unsecured funding
  
$
19,116
 
  
$
28,422
 
  
$
39,517
 
  
$
29,467
 
  
$
16,455
 
  
$
132,977
 
  
$
24,302
 
  
$
37,929
 
  
$
33,973
 
  
$
229,181
 
Secured funding
  
 
1,861
 
  
 
9,150
 
  
 
5,696
 
  
 
5,670
 
  
 
2,763
 
  
 
25,140
 
  
 
8,105
 
  
 
40,986
 
  
 
10,246
 
  
 
84,477
 
    
As at October 31, 2022
  
($ millions)
  
Less than
1 month
    
1-3
months
    
3-6
months
    
6-9
months
    
9-12
months
    
Sub-Total
≤
1 Year
    
1-2
years
    
2-5
years
    
>5
years
     Total  
Deposit by banks
(2)
   $ 2,182     $ 799     $ 319     $ 600     $ 298     $ 4,198     $ 128     $ 12     $ –     $ 4,338  
Bearer notes, commercial paper and certificate of deposits
     8,739       18,053       29,042       17,568       9,958       83,360       824       416       50       84,650  
Asset-backed commercial paper
(3)
     1,767       5,418       2,337       68       –       9,590       –       –       –       9,590  
Senior notes
(4)(5)
     1,998       1,605       8,335       1,925       5,161       19,024       2,720       6,048       11,003       38,795  
Bail-inable notes
(5)
     1,311       682       1,420       5,500       5,408       14,321       13,678       29,887       14,630       72,516  
Asset-backed securities
     –       1       –       1       592       594       3       648       103       1,348  
Covered bonds
     –       859       3,919       –       2,356       7,134       4,375       26,973       7,423       45,905  
Mortgage securitization
(6)
     –       1,721       806       1,048       2,562       6,137       4,069       8,854       4,778       23,838  
Subordinated debt
(7)
     –       –       –       –       –       –       3       2,108       8,566       10,677  
Total wholesale funding sources
   $ 15,997     $ 29,138     $ 46,178     $ 26,710     $ 26,335     $ 144,358     $ 25,800     $ 74,946     $ 46,553     $ 291,657  
Of Which:
                    
Unsecured funding
   $ 14,231     $ 21,138     $ 39,117     $ 25,592     $ 20,825     $ 120,903     $ 17,353     $ 38,471     $ 34,248     $ 210,975  
Secured funding
     1,766       8,000       7,061       1,118       5,510       23,455       8,447       36,475       12,305       80,682  
(1)
Wholesale funding sources exclude obligations related to securities sold under repurchase agreements and bankers’ acceptances, which are disclosed in the contractual maturities table below. Amounts are based on remaining term to maturity.
(2)
Only includes commercial bank deposits.
(3)
Wholesale funding sources also exclude asset-backed commercial paper (ABCP) issued by certain ABCP conduits that are not consolidated for financial reporting purposes.
(4)
Not subject to
bail-in.
(5)
Includes structured notes issued to institutional investors.
(6)
Represents residential mortgages funded through Canadian Federal Government agency sponsored programs. Funding accessed through such programs does not impact the funding capacity of the Bank in its own name.
(7)
Although subordinated debentures are a component of regulatory capital, they are included in this table in accordance with EDTF recommended disclosures.
Wholesale funding generally bears a higher risk of
run-off
in a stressed environment than other sources of funding. The Bank mitigates this risk through funding diversification, ongoing engagement with investors and by maintaining a large holding of unencumbered liquid assets. Unencumbered liquid assets of $287 billion as at January 31, 2023 (October 31, 2022 – $260 billion) were well in excess of wholesale funding sources which mature in the next twelve months.
 
Scotiabank First Quarter Report 2023
    41
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Contractual maturities
The table below provides the maturity of assets and liabilities as well as the
off-balance
sheet commitments as at January 31, 2023, based on the contractual maturity date. From a liquidity risk perspective the Bank considers factors other than contractual maturity in the assessment of liquid assets or in determining expected future cash flows. In particular, for securities with a fixed maturity date, the ability and time horizon to raise cash from these securities is more relevant to liquidity management than contractual maturity. For other assets and deposits the Bank uses assumptions about rollover rates to assess liquidity risk for normal course and stress scenarios. Similarly, the Bank uses assumptions to assess the potential drawdown of credit commitments in various scenarios.
T31  Contractual maturities
 
    
As at January 31, 2023
  
($ millions)
  
Less
than one
month
    
One to
three
months
    
Three
to six
months
    
Six to
nine
months
    
Nine to
twelve
months
    
One to
two years
    
Two
to five
years
    
Over five
years
    
No
specific
maturity
    
Total
  
Assets
                    
Cash and deposits with financial institutions and precious metals
  
$
76,182
 
  
$
236
 
  
$
326
 
  
$
126
 
  
$
94
 
  
$
211
 
  
$
395
 
  
$
297
 
  
$
4,244
 
  
$
82,111
 
Trading assets
  
 
2,408
 
  
 
5,533
 
  
 
6,229
 
  
 
2,306
 
  
 
2,358
 
  
 
7,465
 
  
 
16,748
 
  
 
20,836
 
  
 
52,463
 
  
 
116,346
 
Securities purchased under resale agreements and securities borrowed
  
 
138,033
 
  
 
25,347
 
  
 
14,776
 
  
 
440
 
  
 
94
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
178,690
 
Derivative financial instruments
  
 
2,766
 
  
 
3,944
 
  
 
3,002
 
  
 
2,669
 
  
 
2,765
 
  
 
5,706
 
  
 
11,408
 
  
 
12,560
 
  
 
–
 
  
 
44,820
 
Investment securities – FVOCI
  
 
3,719
 
  
 
7,262
 
  
 
5,044
 
  
 
11,062
 
  
 
2,236
 
  
 
9,367
 
  
 
29,493
 
  
 
14,317
 
  
 
2,610
 
  
 
85,110
 
Investment securities – amortized cost
  
 
88
 
  
 
298
 
  
 
1,840
 
  
 
829
 
  
 
983
 
  
 
1,753
 
  
 
5,173
 
  
 
13,231
 
  
 
–
 
  
 
24,195
 
Investment securities – FVTPL
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
1,699
 
  
 
1,699
 
Loans
  
 
60,343
 
  
 
35,092
 
  
 
43,233
 
  
 
31,617
 
  
 
32,861
 
  
 
106,110
 
  
 
334,913
 
  
 
54,025
 
  
 
56,963
 
  
 
755,157
 
Residential mortgages
  
 
2,427
 
  
 
5,322
 
  
 
14,179
 
  
 
10,777
 
  
 
10,071
 
  
 
47,594
 
  
 
221,220
 
  
 
41,028
 
  
 
909
(1)
 
  
 
353,527
 
Personal loans
  
 
3,940
 
  
 
2,474
 
  
 
3,735
 
  
 
3,488
 
  
 
2,997
 
  
 
13,088
 
  
 
24,628
 
  
 
6,902
 
  
 
39,789
 
  
 
101,041
 
Credit cards
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
15,494
 
  
 
15,494
 
Business and government
  
 
53,976
 
  
 
27,296
 
  
 
25,319
 
  
 
17,352
 
  
 
19,793
 
  
 
45,428
 
  
 
89,065
 
  
 
6,095
 
  
 
6,284
(2)
 
  
 
290,608
 
Allowance for credit losses
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –    
 
–
 
  
 
–
 
  
 
–
 
  
 
(5,513
) 
  
 
(5,513
) 
Customers’ liabilities under acceptances
  
 
17,676
 
  
 
4,016
 
  
 
141
 
  
 
23
 
  
 
16
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
21,872
 
Other assets
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
64,438
 
  
 
64,438
 
Total assets
  
$
301,215
 
  
$
81,728
 
  
$
74,591
 
  
$
49,072
 
  
$
41,407
 
  
$
130,612
 
  
$
398,130
 
  
$
115,266
 
  
$
182,417
 
  
$
1,374,438
 
Liabilities and equity
                    
Deposits
  
$
108,983
 
  
$
74,099
 
  
$
71,349
 
  
$
54,652
 
  
$
52,515
 
  
$
54,050
 
  
$
89,442
 
  
$
23,089
 
  
$
421,708
 
  
$
949,887
 
Personal
  
 
15,500
 
  
 
14,843
 
  
 
15,092
 
  
 
12,765
 
  
 
16,015
 
  
 
17,663
 
  
 
14,794
 
  
 
333
 
  
 
167,874
 
  
 
274,879
 
Non-personal
  
 
93,483
 
  
 
59,256
 
  
 
56,257
 
  
 
41,887
 
  
 
36,500
 
  
 
36,387
 
  
 
74,648
 
  
 
22,756
 
  
 
253,834
 
  
 
675,008
 
Financial instruments designated at fair value through profit or loss
  
 
352
 
  
 
418
 
  
 
920
 
  
 
1,238
 
  
 
1,032
 
  
 
6,256
 
  
 
3,054
 
  
 
13,313
 
  
 
–
 
  
 
26,583
 
Acceptances
  
 
17,716
 
  
 
4,016
 
  
 
141
 
  
 
23
 
  
 
16
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
21,912
 
Obligations related to securities sold short
  
 
660
 
  
 
855
 
  
 
2,236
 
  
 
1,835
 
  
 
1,774
 
  
 
3,951
 
  
 
6,082
 
  
 
9,342
 
  
 
16,704
 
  
 
43,439
 
Derivative financial instruments
  
 
3,556
 
  
 
3,691
 
  
 
2,919
 
  
 
2,597
 
  
 
2,765
 
  
 
6,374
 
  
 
13,225
 
  
 
17,619
 
  
 
–
 
  
 
52,746
 
Obligations related to securities sold under repurchase agreements and securities lent
  
 
121,729
 
  
 
7,120
 
  
 
3,177
 
  
 
–
 
  
 
180
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
132,206
 
Subordinated debentures
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
1,867
 
  
 
6,846
 
  
 
–
 
  
 
8,713
 
Other liabilities
  
 
5,033
 
  
 
2,601
 
  
 
1,328
 
  
 
1,366
 
  
 
977
 
  
 
8,293
 
  
 
5,213
 
  
 
6,617
 
  
 
31,773
 
  
 
63,201
 
Total equity
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
75,751
 
  
 
75,751
 
Total liabilities and equity
  
$
258,029
 
  
$
92,800
 
  
$
82,070
 
  
$
61,711
 
  
$
59,259
 
  
$
78,924
 
  
$
118,883
 
  
$
76,826
 
  
$
545,936
 
  
$
1,374,438
 
Off-balance
sheet commitments
                    
Credit commitments
(3)
  
$
6,023
 
  
$
13,126
 
  
$
22,256
 
  
$
16,369
 
  
$
23,232
 
  
$
37,327
 
  
$
142,238
 
  
$
6,962
 
  
$
7,023
 
  
$
274,556
 
Financial guarantees
(4)
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
47,231
 
  
 
47,231
 
Outsourcing obligations
(5)
  
 
18
 
  
 
35
 
  
 
54
 
  
 
54
 
  
 
54
 
  
 
189
 
  
 
45
 
  
 
38
 
  
 
–
 
  
 
487
 
(1)
Includes primarily impaired mortgages.
(2)
Includes primarily overdrafts and impaired loans.
(3)
Includes the undrawn component of committed credit and liquidity facilities.
(4)
Includes outstanding balances of guarantees, standby letters of credit and commercial letters of credit which may expire undrawn.
(5)
The Bank relies on outsourcing arrangements for certain support and/or business functions, including, but not limited to, computer operations and cheque and bill payment processing.
 
42    
Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
     As at October 31, 2022  
($ millions)
   Less
than one
month		     One to
three
months		     Three
to six
months		     Six to
nine
months		     Nine to
twelve
months		     One to
two years		     Two
to five
years		     Over
five
years		     No
specific
maturity		     Total  
Assets
                    
Cash and deposits with financial institutions and precious metals
   $ 57,217     $ 481     $ 171     $ 94     $ 89     $ 298     $ 464     $ 390     $ 7,234     $ 66,438  
Trading assets
     2,228       5,501       6,338       4,073       2,519       8,652       15,791       19,323       48,729       113,154  
Securities purchased under resale agreements and securities borrowed
     132,383       28,000       13,781       997       152       –       –       –       –       175,313  
Derivative financial instruments
     5,227       5,797       4,166       2,749       2,653       7,386       14,538       13,183       –       55,699  
Investment securities – FVOCI
     3,886       6,929       4,983       3,574       10,347       8,466       29,274       13,809       3,442       84,710  
Investment securities – amortized cost
     19       746       314       1,945       854       2,113       4,957       12,662       –       23,610  
Investment securities – FVTPL
     –       –       –       –       –       –       54       8       1,626       1,688  
Loans
     61,748       39,627       33,765       37,342       32,941       95,758       339,211       49,828       54,767       744,987  
Residential mortgages
     2,523       5,132       8,614       14,293       10,995       42,088       227,488       37,498       648
(1)
 		     349,279  
Personal loans
     3,909       2,023       3,287       3,415       3,138       13,008       24,271       6,610       39,770       99,431  
Credit cards
     –       –       –       –       –       –       –       –       14,518       14,518  
Business and government
     55,316       32,472       21,864       19,634       18,808       40,662       87,452       5,720       5,179
(2)
 		     287,107  
Allowance for credit losses
     –       –       –       –       –       –       –       –       (5,348 )      (5,348 ) 
Customers’ liabilities under acceptances
     15,418       3,812       191       55       18       –       –       –       –       19,494  
Other assets
     –       –       –       –       –       –       –       –       64,325       64,325  
Total assets
   $ 278,126     $ 90,893     $ 63,709     $ 50,829     $ 49,573     $ 122,673     $ 404,289     $ 109,203     $ 180,123     $ 1,349,418  
Liabilities and equity
                    
Deposits
   $ 97,418     $ 63,589     $ 67,249     $ 48,001     $ 53,602     $ 43,075     $ 83,647     $ 28,645     $ 430,955     $ 916,181  
Personal
     12,910       12,478       14,358       12,931       12,872       13,870       13,361       639       172,473       265,892  
Non-personal
     84,508       51,111       52,891       35,070       40,730       29,205       70,286       28,006       258,482       650,289  
Financial instruments designated at fair value through profit or loss
     337       658       727       900       1,189       5,989       2,190       10,431       –       22,421  
Acceptances
     15,449       3,812       191       55       18       –       –       –       –       19,525  
Obligations related to securities sold short
     539       1,507       890       1,817       2,404       3,959       5,437       7,426       16,470       40,449  
Derivative financial instruments
     3,386       4,968       4,876       3,032       3,181       8,721       17,231       20,505       –       65,900  
Obligations related to securities sold under repurchase agreements and securities lent
     128,128       8,596       2,153       72       –       76       –       –       –       139,025  
Subordinated debentures
     –       –       –       –       –       –       1,943       6,526       –       8,469  
Other liabilities
     3,914       1,342       2,331       1,713       695       7,526       5,404       7,150       32,624       62,699  
Total equity
     –       –       –       –       –       –       –       –       74,749       74,749  
Total liabilities and equity
   $ 249,171     $ 84,472     $ 78,417     $ 55,590     $ 61,089     $ 69,346     $ 115,852     $ 80,683     $ 554,798     $ 1,349,418  
Off-balance
sheet commitments
                    
Credit commitments
(3)
   $ 8,531     $ 9,272     $ 19,662     $ 23,795     $ 20,971     $ 35,498     $ 126,074     $ 23,164     $ –     $ 266,967  
Financial guarantees
(4)
     –       –       –       –       –       –       –       –       41,977       41,977  
Outsourcing obligations
(5)
     18       36       53       53       53       208       61       35       –       517  
(1)
Includes primarily impaired mortgages.
(2)
Includes primarily overdrafts and impaired loans.
(3)
Includes the undrawn component of committed credit and liquidity facilities.
(4)
Includes outstanding balances of guarantees, standby letters of credit and commercial letters of credit which may expire undrawn.
(5)
The Bank relies on outsourcing arrangements for certain support and/or business functions, including, but not limited to, computer operations and cheque and bill payment processing.
Credit ratings
Credit ratings are one of the factors that impact the Bank’s access to capital markets and the terms on which it can conduct derivatives, hedging transactions and borrow funds. The credit ratings and outlook that the rating agencies assign to the Bank are based on their own views and methodologies.
The Bank continues to have strong credit ratings
and its deposits and legacy senior debt are rated AA by DBRS Morningstar, Aa2 by Moody’s, A+ by Standard and Poor’s (S&P), and AA by Fitch. The Bank’s bail-inable senior debt is rated AA (low) by DBRS Morningstar, A2 by Moody’s,
AA-
by Fitch and
A-
by S&P. As of January 31, 2023 all rating agencies have a Stable outlook on the Bank. There were no changes made to the Bank’s credit ratings or outlooks during the quarter.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Capital Management
We continue to manage our capital in accordance with the capital management framework as described on pages 54 to 67 of the Bank’s 2022 Annual Report. In addition, in December 2022 OSFI announced that the Domestic Stability Buffer (DSB) will increase to 3.0% of total risk-weighted assets, effective February 1, 2023, and has increased the DSB’s range from 0% to 4.0%. OSFI’s minimum regulatory capital ratio requirements, including the domestic systemically important bank
(D-SIB)
1.0% surcharge and its Domestic Stability Buffer will increase to: 11.0%, 12.5% and 14.5% for Common Equity Tier 1 (CET1), Tier 1 and Total capital ratios, respectively.
Effective Q2 2023, the Bank’s Leverage and TLAC Leverage ratios will no longer benefit from the temporary exclusion of central bank reserves. The Q1 2023 Leverage ratio included a benefit of approximately 20 basis points from the temporary exclusion of central bank reserves.
Regulatory capital and total loss absorbing capacity ratios
The Bank’s various regulatory capital and total loss absorbing capacity measures consist of the following:
T32 Regulatory capital and total loss absorbing capacity ratios
 
      As at  
($ millions)
   
January 31
2023
      October 31
2022		  
Common Equity Tier 1 capital
(1)
   
$
54,138
 
    $ 53,081  
Tier 1 capital
(1)
   
 
62,317
 
      61,262  
Total regulatory capital
(1)
   
 
71,867
 
      70,710  
Total loss absorbing capacity (TLAC)
(2)
   
 
131,433
 
      126,565  
Risk-weighted assets
(1)(3)
   
$
471,528
 
    $ 462,448  
Capital ratios (%)
(1)
:
      
Common Equity Tier 1 capital ratio
   
 
11.5
 
      11.5  
Tier 1 capital ratio
   
 
13.2
 
      13.2  
Total capital ratio
   
 
15.2
 
      15.3  
Total loss absorbing capacity ratio
(2)
   
 
27.9
 
      27.4  
Leverage
(4)
:
      
Leverage exposures
   
$
1,468,559
 
    $ 1,445,619  
Leverage ratio
(%)
   
 
4.2
 
      4.2  
Total loss absorbing capacity leverage ratio (%)
(2)
   
 
8.9
 
      8.8  
(1)
Regulatory capital ratios are determined in accordance with OSFI Guideline – Capital Adequacy Requirements (November 2018).
(2)
This measure has been disclosed in this document in accordance with OSFI Guideline – Total Loss Absorbing Capacity (September 2018).
(3)
As at January 31, 2023 and October 31, 2022, the Bank did not have a regulatory capital floor
add-on
to risk-weighted assets for CET1, Tier1, Total and TLAC RWA.
(4)
This measure has been disclosed in this document in accordance with OSFI Guideline – Leverage Requirements (November 2018).
The Bank’s CET1 capital ratio was 11.5% as at January 31, 2023, unchanged from the prior quarter, as internal capital generation and gains from the revaluation of FVOCI securities were offset by organic growth in risk-weighted assets across all business lines and the impact of the Canada Recovery Dividend (CRD).
The Bank’s Tier 1 capital ratio was 13.2% as at January 31, 2023, approximately in line with the prior quarter, due primarily to the above noted impacts to the CET1 ratio.
The Bank’s Total capital ratio was 15.2% as at January 31, 2023, a decrease of approximately 10 basis points from the prior quarter, mainly due to the above noted impacts to the Tier 1 capital ratio.
The Leverage ratio was 4.2% as at January 31, 2023 and also remained in line with the prior quarter, due primarily to higher Tier 1 capital offset by strong growth in the Bank’s on and
off-balance
sheet assets.
The TLAC ratio was 27.9% as at January 31, 2023, an increase of approximately 50 basis points from the prior quarter, mainly from higher TLAC instruments partly offset by the above noted impacts to the Total capital ratio.
The TLAC Leverage ratio was 8.9%, an increase of approximately 10 basis points, due primarily to higher TLAC instruments partly offset by the growth in leverage exposures.
As at January 31, 2023, the CET1, Tier 1, Total capital, Leverage, TLAC and TLAC Leverage ratios were well above OSFI’s minimum capital ratios.
Continuity of Common Equity Tier 1 ratio
(1)
 
(1)
This measure has been disclosed in this document in accordance with OSFI Guideline – Capital Adequacy Requirements (November 2018).
 
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Scotiabank First Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Changes in regulatory capital
The Bank’s Common Equity Tier 1 capital was $54.1 billion, as at January 31, 2023, an increase of approximately $1.0 billion from the prior quarter, due primarily to strong internal capital generation of $982 million (excluding the CRD) and higher net accumulated other comprehensive income of $526 million, mainly from net gains in FVOCI securities and from foreign currency translation, partly offset by the CRD of $579 million.
Risk-weighted assets
CET1 risk-weighted assets (RWA) increased during the quarter by $9.1 billion (or 2.0%) to $471.5 billion, due primarily to organic growth in retail mortgages, personal and business lending and the impacts from foreign currency translation.
Global Systemically Important Bank
(G-SIB)
Disclosures
In 2013, the Basel Committee on Banking Supervision (BCBS), in conjunction with the Financial Stability Board (FSB), issued “Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement” which assesses the systemic importance of banks to the global financial system and wider economy. Banks with Basel III leverage exposures in excess of EUR 200 billion or those classified as a
G-SIB
in the past year are required to participate in an annual survey.
The
G-SIB
indicators as defined by the BCBS are intended to reflect the size of banks, their interconnectedness, the amount of financial institution infrastructure they provide, their cross-jurisdictional activity and their complexity. According to the most recent assessment by the FSB communicated in November 2022, the Bank is not considered to be a
G-SIB
based on October 31, 2021 indicators. However, the Bank is required to disclose the values of its indicators in accordance with the “Global systemically important banks – Public disclosure requirements” as revised by OSFI in 2021. The
G-SIB
indicators provided below are calculated based on specific instructions issued by the BCBS and may not be directly comparable against other disclosed information.
T33
G-SIB
indicators
 
As at and for the year ended October 31 ($ millions)
                
Category
(1)
   
Indicator
(1)
   
2022
      2021  
Cross-jurisdictional activity
    Cross-jurisdictional claims   
$
643,118
 
    $ 526,898  
 
   
Cross-jurisdictional liabilities
   
 
435,855
 
      345,942  
Size
   
Total exposures as defined for use in the Basel III leverage ratio
   
 
1,513,699
 
      1,347,678  
Interconnectedness
    Intra-financial system assets   
 
140,274
 
      126,348  
   Intra-financial system liabilities   
 
108,988
 
      88,154  
 
   
Securities outstanding
   
 
343,516
 
      304,979  
Substitutability/financial institution infrastructure
    Payments activity   
 
17,254,651
 
      14,431,274  
   Assets under custody   
 
371,855
 
      359,478  
   Underwritten transactions in debt and equity markets   
 
87,482
 
      85,121  
   Trading volume      
   – Trading volume fixed income   
 
2,809,979
 
      2,783,046  
 
   
– Trading volume equities and other securities
   
 
1,554,656
 
      1,576,615  
Complexity
    Notional amount of
over-the-counter
derivatives		   
 
7,291,214
 
      5,842,155  
   Trading, FVTPL, and FVOCI securities   
 
38,359
 
      73,321  
 
   
Level 3 assets
   
 
1,750
 
      1,411  
(1)
As defined by the BCBS publication “Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement” (July 2018).
Changes in
G-SIB
Indicators
During 2022, intra-financial system liabilities increased primarily due to increased deposits. Payment activity increased primarily due to higher volumes in US and CAD dollars. Level 3 assets increased primarily from equity securities. Notional amounts of over-the-counter derivatives increased primarily in interest rate contracts. Trading, FVTPL, and FVOCI securities decreased primarily due to the indicator’s exclusions of higher volumes of Basel III LCR Level 1 Trading and FVOCI securities. Other year-over-year movements generally reflect changes in business activity or impacts from foreign currency translation.
Normal Course Issuer Bid
The Bank currently does not have an active normal course issuer bid and did not repurchase any common shares during the quarter ended January 31, 2023. The Bank’s previous normal course issuer bid terminated on December 1, 2022. Under this program, the Bank repurchased and cancelled approximately 32.9 million common shares at a volume weighted average price of $87.28 per share for a total amount of $2,873 million. These repurchases were carried out prior to October 31, 2022.
Common dividend
The Board of Directors, at its meeting on February 27, 2023, approved a dividend of $1.03 per share. This quarterly dividend is payable to shareholders of record as of April 4, 2023, on April 26, 2023.
Shareholders of the Bank may elect to have their cash dividends reinvested in common shares of the Bank, in accordance with the Shareholder Dividend Reinvestment and Share Purchase Plan (the “Plan”). The Bank has determined that, beginning with the dividend declared on February 28, 2023, and to be paid on April 26, 2023, and until further announcement, the Bank will issue the common shares from treasury with a discount of 2% to the average market price (as defined in the Plan). Previously, common shares received by participants under the Plan were shares purchased from the open market at prevailing market prices.
Regulatory capital developments
Basel Committee on Banking Supervision – Finalized Basel III Regulatory Capital Reforms
In December 2017, the Group of Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision (BCBS), announced that they have agreed on the remaining Basel III reforms. The previously expected implementation year of 2022 was delayed to 2023.
The final Basel III reforms package includes:
 
  •  
a revised standardized approach for credit risk;
  •  
revisions to the internal ratings-based approach for credit risk;
  •  
revisions to the credit valuation adjustment (CVA) framework, including the removal of the internally modelled approach and the introduction of a revised standardized approach;
  •  
a revised market risk framework from a Fundamental Review of the Trading Book (FRTB);
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
  •  
a revised standardized approach for operational risk, which will replace the existing standardized approaches and the advanced measurement approach;
  •  
revisions to the measurement of the leverage ratio and a leverage ratio buffer for global systemically important banks
(G-SIBs),
which will take the form of a Tier 1 capital buffer set at 50% of a
G-SIB’s
risk-weighted capital buffer; and
  •  
an aggregate output floor, which will ensure that banks’ risk-weighted assets (RWAs) generated by internal models are not lower than 72.5% of RWAs as calculated by the Basel III framework’s standardized approaches.
Banks will also be required to disclose their RWAs based on these standardized approaches. There is a
phase-in
period for the 72.5% output floor from 2023 until 2028.
In January 2022, OSFI finalized revisions to its Capital Adequacy Requirements Guideline, Leverage Requirements Guideline, and Pillar 3 Disclosures Guideline for
D-SIBs.
OSFI’s requirements are substantially aligned with Basel III with some differences, primarily in retail residential real estate and qualifying revolving retail exposures and with respect to an acceleration of the
phase-in
period of the aggregate output floor to 72.5% by 2026. Implementation timelines are Q2 2023, with exception of CVA and FRTB market risk requirements which are effective Q1 2024.
The Bank will be implementing the Basel III reforms in line with OSFI’s requirements in Q2 2023. The expected benefit on adoption is estimated to be in the range of approximately 20 to 30 basis points.
Financial Instruments
Given the nature of the Bank’s main business activities, financial instruments make up a substantial portion of the balance sheet and are integral to the Bank’s business. There are various measures that reflect the level of risk associated with the Bank’s portfolio of financial instruments. Further discussion of some of these risk measures is included in the Risk Management section. The methods of determining the fair value of financial instruments are detailed on page 166 of the Bank’s 2022 Annual Report.
Management’s judgment on valuation inputs is necessary when observable market data is not available, and in the selection of appropriate valuation models. Uncertainty in these estimates and judgments can affect fair value and financial results recorded. During the quarter, changes in the fair value of financial instruments reflect the current economic environment, industry and market conditions.
Many financial instruments are traded products such as derivatives, and are generally transacted under industry standard International Swaps and Derivatives Association (ISDA) master netting agreements with counterparties, which allow for a single net settlement of all transactions covered by that agreement in the event of a default or early termination of the transactions. ISDA agreements are frequently accompanied by an ISDA Credit Support Annex (CSA), the terms of which may vary according to each party’s view of the other party’s creditworthiness. CSAs can require one party to post initial margin at the onset of each transaction. CSAs also allow for variation margin to be called if total uncollateralized
mark-to-market
exposure exceeds an agreed upon threshold. Such variation margin provisions can be
one-way
(only one party will ever post collateral) or
bi-lateral
(either party may post depending upon which party is
in-the-money).
The CSA will also detail the types of collateral that are acceptable to each party, and the haircuts that will be applied against each collateral type. The terms of the ISDA master netting agreements and CSAs are taken into consideration in the calculation of counterparty credit risk exposure (see also page 84 of the Bank’s 2022 Annual Report).
Total derivative notional amounts were $7,960 billion as at January 31, 2023, compared to $7,597 billion as at October 31, 2022. The quarterly increase was primarily due to an increase in the volume of interest rate and foreign exchange contracts, partly offset by foreign currency translation. The total notional amount of
over-the-counter
derivatives was $7,510 billion compared to $7,290 billion as at October 31, 2022, of which $5,625 billion was settled through central counterparties as at January 31, 2023 (October 31, 2022 – $5,474 billion). The credit equivalent amount, after taking master netting arrangements into account, was $38.0 billion, compared to $41.0 billion at October 31, 2022. The decrease was primarily attributable to the lower exposure of commodity and foreign exchange contracts partly offset by an increase in equity contracts.
Selected credit instruments
A complete discussion of selected credit instruments which markets regarded as higher risk during the financial crisis was provided on page 71 of the Bank’s 2022 Annual Report. The Bank’s net exposures have remained substantially unchanged from year end.
Off-Balance
Sheet Arrangements
In the normal course of business, the Bank enters into contractual arrangements that are either consolidated or not required to be consolidated in its financial statements, but could have a current or future impact on the Bank’s financial performance or financial condition. These arrangements can be classified into the following categories: structured entities, securitizations and guarantees and other commitments.
No material contractual obligations were entered into this quarter by the Bank with the structured entities that are not in the ordinary course of business. Processes for review and approval of these contractual arrangements are unchanged from last year. For a complete discussion of these types of arrangements, please refer to pages 67 to 70 of the Bank’s 2022 Annual Report.
Structured entities
The Bank sponsors two Canadian multi-seller conduits that are not consolidated. These multi-seller conduits purchase high-quality financial assets and finance these assets through the issuance of highly rated commercial paper. Although the Bank has power over the relevant activities of the conduits, it has limited exposure to variability in returns, which results in the Bank not consolidating the two Canadian conduits.
A significant portion of the conduits’ assets have been structured to receive credit enhancements from the sellers, including overcollateralization protection and cash reserve accounts. Each asset purchased by the conduits is supported by a backstop liquidity facility provided by the Bank in the form of a liquidity asset purchase agreement (LAPA). The primary purpose of the backstop liquidity facility is to provide an alternative source of financing in the event the conduits are unable to access the commercial paper market. Under the terms of the LAPA, in most cases, the Bank is not obliged to purchase defaulted assets.
The Bank’s primary exposure to the Canadian-based conduits is the liquidity support provided, with total liquidity facilities of $7 billion as at January 31, 2023 (October 31, 2022 – $6.4 billion). As at January 31, 2023, total commercial paper outstanding for these conduits was $5.1 billion (October 31, 2022 – $3.8 billion). Funded assets purchased and held by these conduits as at January 31, 2023, as reflected at original cost, were $5.1 billion (October 31, 2022 – $3.8 billion). The fair value of these assets approximates original cost. There has been no significant change in the composition or risk profile of these conduits since October 31, 2022.
Other
off-balance
sheet arrangements
Guarantees and other indirect commitments increased by 1% from October 31, 2022. The increase is due primarily to securities lending activities and undrawn commitments. Fees from guarantees and loan commitment arrangements recorded as credit fees in
non-interest
income were $178 million for the three months ended January 31, 2023, compared to $174 million in the previous quarter, and $170 million in the same period last year.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Regulatory Developments
The Bank continues to monitor and respond to global regulatory developments relating to a broad spectrum of topics, in order to ensure that control functions and business lines are responsive on a timely basis and business impacts, if any, are minimized. A high-level summary of some of the key regulatory developments that have the potential of impacting the Bank’s operations is included in the Legal and compliance risk section in the Bank’s 2022 Annual Report, as may be updated below.
Regulatory Initiatives Impacting Financial Services in Canada
On September 22, 2021, Bill 64, Quebec’s Act to Modernize Legislative Provisions respecting the Protection of Personal Information received royal assent. The first series of amendments came into force on September 22, 2022, and the second series of amendments come into force on September 22, 2023, with the remainder coming into force in 2024. This law reforms the Quebec Act Respecting the Protection of Personal Information in the Private Sector. It is modeled after the initial versions of the European Union’s General Data Protection Regulation, and introduced key changes, including increased enforcement powers for the Commission d’accès à l’information, significant new monetary penalties for
non-compliance,
risk assessments for data transfers outside Quebec, mandatory breach notification and record keeping, and itemized express consent requirements. The Bank has established a project under which it has engaged business stakeholders and key groups to consider the law’s application.
On July 16, 2022, the Canadian federal government introduced Bill
C-27,
the Digital Charter Implementation Act 2022. Bill
C-27
is designed to modernize, and in certain respects reinforce, Canadian private sector privacy law by enhancing transparency and control over personal information held by businesses, and imposing new, potentially significant fines for
non-compliance.
Bill
C-27
is currently in its second reading in Parliament, and the Bank continues to monitor its progress.
On July 13, 2022, the Office of the Superintendent of Financial Institutions (OSFI) issued Guideline
B-13
– Technology and Cyber Risk Management.
B-13
applies to all federally regulated financial institutions (FRFIs), which includes the Bank, and establishes expectations with the aim to support FRFIs in developing greater resilience to technology and cyber risks.
B-13
is organized into three domains, each of which sets out key components for sound risk management: Governance and Risk Management, Technology Operations and Resilience, and Cyber Security.
B-13
will become effective on January 1, 2024. The Bank has completed the gap assessment against this Guideline and is currently working on remediation plans to achieve compliance.
On June 14, 2022, the House of Commons of Canada introduced Bill
C-26,
the Critical Cyber System Protection Act (CCSP) that will require, among other things, mandatory reporting of cyberattacks against systems of critical importance to Canadian interests. The legislative process regarding Bill
C-26
is ongoing. The Bank continues to monitor developments under this Bill.
The Commodity Futures Trading Commission (CFTC) Position Limit and Swap Reporting Rules
In October 2020, the CFTC approved final position limit rules for twenty-five commodity derivatives and their linked cash-settled futures, options on futures, and economically equivalent swaps. New position limits for futures, options on futures, and for economically equivalent swaps went into effect in January 2022 and January 2023, respectively. The Bank is on track with the implementation of these rules.
On January 31, 2022, the CFTC published
No-Action
Relief extending the Compliance Dates of the Swap Data Reporting Rule Amendments from May 2022 and May 2023 to December 5, 2022, and December 4, 2023, respectively. Certain swap reporting rule amendments went into effect in December 2022. The Bank is on track with the implementation for December 2023.
The Ontario Securities Commission New Fees
The Ontario Securities Commission (OSC) changed OSC Rule
13-502
to establish new fees for entities that enter into
over-the-counter
(OTC) derivatives transactions. The changes are effective April 2023. BNS will be subject to new fees which will finance the OSC’s supervision of banks’ OTC derivatives business conduct. The CSA has indicated that new Canada OTC derivative business conduct rules may be published in 2023 and have an effective date one year following the date of publication. The Bank has been involved in discussions within the industry to prepare for these new conduct requirements.
Disclosure of Climate-Related Matters
In 2022, various regulators and standard setting bodies announced draft climate-related disclosure guidelines that are aligned to the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
The Bank participated in the reviewing of these draft guidelines. General advocacy themes included a
phased-in
approach to full compliance that encourages harmonization across jurisdictions, allows for flexibility in the timing and location of disclosures that are based on materiality, and requires climate-specific safe harbor protections for certain disclosure elements.
Recently, the SEC published its intention to release its final climate risk guideline in April 2023 and the International Sustainability Standards Board (ISSB) signaled that their final climate and sustainability-related disclosure standards are expected to be published in June 2023.
From a Canadian perspective, OSFI’s final climate risk management guideline should be released in Spring 2023 and will align to the ISSB standards. The CSA announced the removal of their initial disclosure deadline and are actively considering the impact of international developments on their proposed climate-related disclosure rule before final publication.
The Bank actively monitors policy and legislative requirements through ongoing dialogue with government, industry, and stakeholders in the countries where it operates.
Interest rate benchmark reform
Major interest rate benchmark reviews have been undertaken globally to either reform or phase out certain interbank offered rates (IBORs), including the Canadian Dollar Offered Rate (CDOR). As an alternative to IBORs, the regulators have recommended markets begin adopting alternative risk-free rates.
As of June 30, 2023, USD LIBOR will cease to be published in its current form. The Bank’s Transition Program continues to focus its efforts on the transition of products referencing USD LIBOR and ensuring the Bank is not building its exposure to USD LIBOR, except as permitted by the regulators.
On May 16, 2022, Refinitiv Benchmark Services (UK) Limited, the administrator of CDOR, announced the cessation of the publication of
one-month,
two-month,
and three-month CDOR tenors after June 28, 2024, and this was authorized by the Ontario Securities Commission and the Autorité des marchés financiers.
The Canadian Alternative Reference Rate (CARR) committee has published a detailed transition roadmap with milestones to guide market participants on the transition away from CDOR for all product types. The CARR has also confirmed its intention to move forward with the development of a forward-looking Term Canadian Overnight Repo Rate Average (CORRA), which is expected to become available by September 30, 2023. OSFI has also set out its expectations for FRFIs, with transactions linked to CDOR, to transition to new reference rates before the cessation date.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
The Bank’s Transition Program has updated its project plans to align with the CDOR transition roadmap and milestones published by CARR and ensure alignment with OSFI’s expectations for FRFIs. The details regarding the Bank’s Transition Program for the interest rate benchmark reform are available in Note 4 of the 2022 Annual Report.
Canadian Federal Tax Measures
On December 15, 2022, Bill
C-32
relating to tax measures announced in the 2022 Federal Budget completed all readings in parliament and received royal assent to become law. These tax measures included the Canada Recovery Dividend (CRD) under which the Bank and certain Canadian banking subsidiaries will pay a
one-time
15% tax on “taxable income” in excess of $1 billion, as well as an increase of 1.5% to the federal corporate income tax rate on their taxable income above $100 million. For the CRD, “taxable income” is based on the average taxable income for the 2020 and 2021 taxation years. The CRD is payable in equal amounts over five years.
The impact of these enacted tax measures has been recognized in the Bank’s financial results as at January 31, 2023. The Bank recognized income tax expense of $579 million in the Consolidated Statement of Income for the present value of the total CRD payable of approximately $640 million. The increase in the Canadian statutory tax rate resulted in a benefit of $39 million related to the 2022 taxation year, including the revaluation of the Bank’s deferred tax assets and liabilities. Of this amount, $13 million was recognized in the Consolidated Statement of Income and the remainder in Other Comprehensive Income.
Accounting Policies and Controls
Accounting policies and estimates
The condensed interim consolidated financial statements have been prepared in accordance with IAS 34
Interim Financial Reporting
, using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The significant accounting policies used in the preparation of the condensed interim consolidated financial statements are consistent with those used in the Bank’s audited consolidated financial statements for the year ended October 31, 2022, as described in Note 3 of the Bank’s 2022 annual consolidated financial statements.
Future accounting developments
There are no significant updates to the future accounting developments disclosed in Note 5 of the Bank’s audited consolidated financial statements in the 2022 Annual Report.
Changes in internal control over financial reporting
There have been no changes in the Bank’s internal control over financial reporting during the three months ended January 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.
Related party transactions
There were no changes to the Bank’s procedures and policies for related party transactions from those outlined in the Bank’s 2022 Annual Report. All transactions with related parties continued to be at market terms and conditions.
 
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Share Data
T34 Shares and other instruments
 
January 31, 2023
   
Amount
($ millions)
     
Dividends
declared per
share
(1)
     
Number
outstanding
(000s)
     
Conversion
feature
  
Common Shares
(2)
    $ 18,732      $ 1.03        1,191,752        n/a  
NVCC Preferred Shares
(3)
            
Preferred shares Series 40
(4)
    $ 300      $ 0.303125        12,000        Series 41  
NVCC Additional Tier 1 Securities
(3)(6)
   
Amount
($ millions)
     
Distribution
(5)
     
Yield
(%)
     
Number
outstanding
(000s)
  
Subordinated Additional Tier 1 Capital Notes
    US$ 1,250      US$ 18.6347        7.45386        1,250  
Subordinated Additional Tier 1 Capital Notes
    US$ 1,250      US$ 12.25        4.900        1,250  
Limited Recourse Capital Notes Series 1
    $ 1,250      $ 9.25        3.700        1,250  
Limited Recourse Capital Notes Series 2
    US$ 600      US$ 9.0625        3.625        600  
Limited Recourse Capital Notes Series 3
    $ 1,500      $ 17.5575        7.023        1,500  
Limited Recourse Capital Notes Series 4
    US$ 750      US$ 21.5625        8.625        750  
NVCC Subordinated Debentures
(3)
                   
Amount
($ millions)
     
Interest rate
(%)
  
Subordinated debentures due December 2025
          US$ 1,250        4.50  
Subordinated debentures due January 2029
          $ 1,750        3.89  
Subordinated debentures due July 2029
          $ 1,500        2.836  
Subordinated debentures due May 2032
          $ 1,750        3.934  
Subordinated debentures due December 2032
          JPY 33,000        1.800  
Subordinated debentures due May 2037
          US$ 1,250        4.588  
Other
   
Amount
($ millions)
     
Distribution
(5)
     
Yield
(%)
     
Number
outstanding
(000s)
  
Scotiabank Trust Securities – Series
2006-1
issued by Scotiabank Capital Trust
(7)
    $ 750      $ 28.25        5.650        750  
Options
                           
Number
outstanding
(000s)
  
Outstanding options granted under the Stock Option Plans to purchase common shares
(2)
   
 
 
 
   
 
 
 
   
 
 
 
      11,937  
(1)
Dividends are paid quarterly, if and when declared. Represents dividends announced on February 28, 2023. The Board of Directors, at its meeting on February 27, 2023, approved a dividend payable on April 26, 2023 to shareholders of record as of April 4, 2023.
(2)
As at February 17, 2023, the number of outstanding common shares and options were 1,191,758 thousand and 11,888 thousand, respectively.
(3)
These securities contain
Non-Viability
Contingent Capital (NVCC) provisions necessary to qualify as regulatory capital under Basel III. Refer to Notes 21 and 24 of the consolidated financial statements in the Bank’s 2022 Annual Report for further details. The maximum number of common shares issuable on conversion of NVCC subordinated debentures, NVCC Subordinated additional Tier 1 capital notes, including those issued to Scotiabank LRCN Trust as recourse assets in respect of NVCC Limited Recourse Capital Notes, and NVCC Preferred Shares as at January 31, 2023 would be 4,627 million common shares based on the floor price and excluding the impact of any accrued and unpaid interest and any declared but unpaid dividends.
(4)
These preferred shares are entitled to
non-cumulative
preferential cash dividends payable quarterly. These preferred shares have conversion features. Refer to Note 24 of the Consolidated Financial Statements in the Bank’s 2022 Annual Report for further details.
(5)
Distributions per face amount of $1,000 or US$1,000 semi-annually or quarterly, as applicable.
(6)
Quarterly distributions are recorded in each fiscal quarter, if and when paid.
(7)
These securities have exchange features. Refer to Table 29 in the Bank’s 2022 Annual Report for further details.
For further details on outstanding securities of the Bank, including convertibility features, refer to Notes 21, 24 and 26 of the Bank’s consolidated financial statements in the 2022 Annual Report.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Glossary
Allowance for Credit Losses:
An allowance set aside which, in management’s opinion, is adequate to absorb credit-related losses on all financial assets and
off-balance
sheet exposures subject to impairment assessment. It includes allowances for performing financial assets and impaired financial assets.
Allowance for Credit Losses Ratio:
The ratio of period end total allowance for credit losses (excluding debt securities and deposits with financial institutions) divided by gross loans and acceptances.
Allowance for Impaired Loans Ratio:
The ratio of period end impaired allowance for credit losses (excluding debt securities and deposits with financial institutions) divided by gross loans and acceptances.
Allowance for Performing Loans Ratio:
The ratio of period end performing allowance for credit losses (excluding debt securities and deposits with financial institutions) divided by gross loans and acceptances.
Allowance against Impaired Loans as a % of Gross Impaired Loans:
The ratio of allowance against impaired loans to gross impaired loans.
Assets Under Administration (AUA):
Assets administered by the Bank which are beneficially owned by clients and therefore not reported on the Bank’s Consolidated Statement of Financial Position. Services provided for AUA are of an administrative nature, such as trusteeship, custodial, safekeeping, income collection and distribution, securities trade settlements, customer reporting, and other similar services.
Assets Under Management (AUM):
Assets managed by the Bank on a discretionary basis and in respect of which the Bank earns investment management fees. AUM are beneficially owned by clients and are therefore not reported on the Bank’s Consolidated Statement of Financial Position. Some AUM are also administered assets and are therefore included in assets under administration.
Bankers’ Acceptances (BAs):
Negotiable, short-term debt securities, guaranteed for a fee by the issuer’s bank.
Basis Point:
A unit of measure defined as
one-hundredth
of one per cent.
Book Value per Common Share:
Common shareholders equity divided by the number of outstanding common shares at the end of the period.
Common Equity Tier 1 (CET1), Tier 1 and Total Capital Ratios:
Under Basel III, there are three primary regulatory capital ratios used to assess capital adequacy, CET1, Tier 1 and Total capital ratios, which are determined by dividing those capital components by their respective risk-weighted assets.
CET1 consists primarily of common shareholders’ equity net of regulatory adjustments. These regulatory adjustments include goodwill, intangible assets net of deferred tax liabilities, deferred tax assets that rely on future profitability, defined-benefit pension fund net assets, shortfall of credit provision to expected losses and significant investments in common equity of other financial institutions.
Tier 1 includes CET1 and additional Tier 1 capital which consists primarily of qualifying
non-cumulative
preferred shares,
non-cumulative
subordinated additional Tier 1 capital notes and limited recourse capital notes. Tier 2 capital consists mainly of qualifying subordinated debentures and the eligible allowances for credit losses.
Total capital is comprised of CET1 capital, Tier 1 capital and Tier 2 capital.
Covered Bonds:
Debt obligations of the Bank for which the payment of all amounts of interest and principal are unconditionally and irrevocably guaranteed by a limited partnership and secured by a pledge of the covered bond portfolio. The assets in the covered bond portfolio held by the limited partnership consist of first lien Canadian uninsured residential mortgages or first lien Canadian residential mortgages insured under CMHC Mortgage Insurance, respectively, and their related security interest.
Derivative Products:
Financial contracts whose value is derived from an underlying price, interest rate, exchange rate or price index. Forwards, options and swaps are all derivative instruments.
Dividend Yield:
Dividends per common share divided by the average of the high and low share price in the relevant period.
Effective Tax Rate:
The effective tax rate is the overall tax rate paid by the Bank on its earned income. The effective tax rate is calculated by dividing the Bank’s income tax expenses by the income before taxes.
Fair Value:
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal, or in its absence, the most advantageous market to which the Bank has access at the measurement date.
Foreign Exchange Contracts:
Commitments to buy or sell a specified amount of foreign currency on a set date and at a predetermined rate of exchange.
Forward Rate Agreement (FRA):
A contract between two parties, whereby a designated interest rate, applied to a notional principal amount, is locked in for a specified period of time. The difference between the contracted rate and prevailing market rate is paid in cash on the settlement date. These agreements are used to protect against, or take advantage of, future interest rate movements.
Futures:
Commitments to buy or sell designated amounts of commodities, securities or currencies on a specified date at a predetermined price. Futures are traded on recognized exchanges. Gains and losses on these contracts are settled daily, based on closing market prices.
Gross Impaired Loans as a % of Loans and Acceptances:
The ratio of gross impaired loans, debt investments and
off-balance
sheet exposures expressed as a percentage of loans and acceptances.
Hedging:
Protecting against price, interest rate or foreign exchange exposures by taking positions that are expected to react to market conditions in an offsetting manner.
Impaired Loans:
Loans on which the Bank no longer has reasonable assurance as to the timely collection of interest and principal, or where a contractual payment is past due for a prescribed period or the customer is declared to be bankrupt.
Leverage Ratio:
The ratio of Basel III Tier 1 capital to a leverage exposure measure which includes
on-balance
sheet assets and
off-balance
sheet commitments, derivatives and securities financing transactions, as defined within the OSFI Leverage Requirements Guideline.
 
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Liquidity Coverage Ratio (LCR):
The ratio of high quality liquid assets to stressed net cash outflows over a 30 calendar day time horizon, as defined within the OSFI Liquidity Adequacy Requirements Guideline.
Marked-To-Market:
The valuation of certain financial instruments at fair value as of the Consolidated Statement of Financial Position date.
Market Value to Book Value Multiple:
This financial valuation metric is calculated by dividing the current closing share price of the period by the book value per common share.
Net Impaired Loans as a % of Loans and Acceptances:
The ratio of net impaired loans, debt investments and
off-balance
sheet exposures expressed as a percentage of loans and acceptances.
Net Interest Margin:
Net interest margin is calculated as core net interest income for the business line divided by average core earning assets.
Net Stable Funding Ratio (NSFR):
The ratio of available stable funding to required stable funding, as defined within the OSFI Liquidity Adequacy Requirements Guideline.
Net Write-offs as a % of Average Net Loans and Acceptances:
The ratio of net write-offs expressed as a percentage of average net loans and acceptances.
Notional Principal Amounts:
The contract or principal amounts used to determine payments for certain
off-balance
sheet instruments and derivatives, such as FRAs, interest rate swaps and cross-currency swaps. The amounts are termed “notional” because they are not usually exchanged themselves, serving only as the basis for calculating amounts that do change hands.
Off-Balance
Sheet Instruments:
These are indirect credit commitments, including undrawn commitments to extend credit and derivative instruments, which are not recorded on the Bank’s balance sheet under IFRS.
Operating Leverage:
This financial metric measures the rate of growth in total revenue less the rate of growth in non-interest expenses.
Options:
Contracts between buyer and seller giving the buyer of the option the right, but not the obligation, to buy (call) or sell (put) a specified commodity, financial instrument or currency at a set price or rate on or before a specified future date.
OSFI:
The Office of the Superintendent of Financial Institutions Canada, the regulator of Canadian banks.
Pacific Alliance:
Comprises the countries of Chile, Colombia, Mexico and Peru.
Price to Earnings Multiple (Trailing 4 Quarters):
Closing share price at period end divided by cumulative basic earnings per common share (EPS) of the past 4 quarters.
Productivity Ratio:
Management uses the productivity ratio as a measure of the Bank’s efficiency. This ratio represents non-interest expenses as a percentage of total revenue.
Provision for Credit Losses (PCL) as a % of Average Net Loans and Acceptances:
The ratio of PCL on loans, acceptances and
off-balance
sheet exposures expressed as a percentage of average net loans and acceptances.
Provision for Credit Losses (PCL) on Impaired Loans as a % of Average Net Loans and Acceptances:
PCL on impaired loans ratio under IFRS 9 is calculated using PCL on impaired loans, acceptances and
off-balance
sheet exposures as a percentage of average net loans and acceptances.
Repos:
Repos is short for “obligations related to securities sold under repurchase agreements” – a short-term transaction where the Bank sells assets, normally government bonds, to a client and simultaneously agrees to repurchase them on a specified date and at a specified price. It is a form of short-term funding.
Return on Assets (ROA):
Net income expressed as a percentage of total average assets.
Return on Equity (ROE):
Net income attributable to common shareholders, expressed as a percentage of average common shareholders’ equity. 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 in 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.
Return on Tangible Common Equity (ROTCE):
Return on Tangible Common Equity 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 acquisition-related intangible assets (excluding software), net of deferred taxes.
Reverse Repos:
Reverse repos is short for “securities purchased under resale agreements” – a short-term transaction where the Bank purchases assets, normally government bonds, from a client and simultaneously agrees to resell them on a specified date and at a specified price. It is a form of short-term collateralized lending.
Risk-Weighted Assets:
Comprised of three broad categories including credit risk, market risk and operational risk, which are computed under the Basel III Framework in accordance with OSFI Guideline – Capital Adequacy Requirements (November 2018). Risk-weighted assets for credit risk are calculated using modelled parameters, formulas and risk-weight requirements as specified by the Basel III Framework. In addition, the Bank uses both internal models and standardized approaches to calculate market risk capital and standardized approaches for operational risk capital which are converted to risk-weighted assets.
Securitization:
The process by which financial assets (typically loans) are transferred to a trust, which normally issues a series of different classes of asset-backed securities to investors to fund the purchase of loans.
Structured Entities:
A structured entity is defined as an entity created to accomplish a narrow and well-defined objective. A structured entity may take the form of a corporation, trust, partnership or unincorporated entity. Structured entities are often created with legal arrangements that impose strict and sometimes permanent limits on the decision-making powers of their governing board, trustee or management over the operations of the entity.
Standby Letters of Credit and Letters of Guarantee:
Written undertakings by the Bank, at the request of the customer, to provide assurance of payment to a third-party regarding the customer’s obligations and liabilities to that third-party.
Structured Credit Instruments:
A wide range of financial products which includes Collateralized Debt Obligations, Collateralized Loan Obligations, Structured Investment Vehicles, and Asset-Backed Securities. These instruments represent investments in pools of credit-related assets, whose values are primarily dependent on the performance of the underlying pools.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Swaps:
Interest rate swaps are agreements to exchange streams of interest payments, typically one at a floating rate, the other at a fixed rate, over a specified period of time, based on notional principal amounts. Cross-currency swaps are agreements to exchange payments in different currencies over predetermined periods of time.
Taxable Equivalent Basis (TEB):
The Bank analyzes net interest income,
non-interest
income, and total revenue on a taxable equivalent basis (TEB). This methodology grosses up
tax-exempt
income earned on certain securities reported in either net interest income or
non-interest
income to an equivalent before tax basis. A corresponding increase is made to the provision for income taxes; hence, there is no impact on net income. Management believes that this basis for measurement 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. For purposes of segmented reporting, a segment’s revenue and provision for income taxes are grossed up by the taxable equivalent amount. The elimination of the TEB gross up is recorded in the Other segment.
Total Annual Shareholder Return (TSR):
Total annual shareholder return is calculated as the overall appreciation in share price, plus any dividends paid during the year; this sum is then divided by the share price at the beginning of the year to arrive at the TSR. Total annual shareholder return assumes reinvestment of quarterly dividends.
Total Loss Absorbing Capacity (TLAC):
The aggregate of NVCC Tier 1 capital, NVCC Tier 2 capital, and other TLAC instruments that are subject to conversion in whole or in part into common shares under the CDIC Act and meet all of the eligibility criteria under the OSFI guideline – Total Loss Absorbing Capacity (September 2018).
Other TLAC Instruments include prescribed shares and liabilities that are subject to conversion into common shares pursuant to the CDIC Act and which meet all of the eligibility criteria set out in the Total Loss Absorbing Capacity (TLAC) Guidelines.
Value At Risk (VaR):
An estimate of the potential loss that might result from holding a position for a specified period of time, with a given level of statistical confidence.
Yield Curve:
A graph showing the term structure of interest rates, plotting the yields of similar quality bonds by term to maturity.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Basel III Glossary
Credit Risk Parameters
Exposure at Default (EAD):
Generally represents the expected gross exposure – outstanding amount for
on-balance
sheet exposure and loan equivalent amount for
off-balance
sheet exposure at default.
Probability of Default (PD):
Measures the likelihood that a borrower will default within a
one-year
time horizon, expressed as a percentage.
Loss Given Default (LGD):
Measures the severity of loss on a facility in the event of a borrower’s default, expressed as a percentage of exposure at default.
Exposure Types
Non-retail
Corporate:
Defined as a debt obligation of a corporation, partnership, or proprietorship.
Bank:
Defined as a debt obligation of a bank or bank equivalent (including certain public sector entities (PSEs) treated as bank equivalent exposures).
Sovereign:
Defined as a debt obligation of a sovereign, central bank, certain multi development banks and certain PSEs treated as sovereign.
Securitization:
On-balance
sheet investments in asset-backed securities, mortgage-backed securities, collateralized loan obligations and collateralized debt obligations,
off-balance
sheet liquidity lines to the Bank’s own sponsored and third-party conduits and credit enhancements.
Retail
Residential Mortgage:
Loans to individuals against residential property (four units or less).
Secured Lines Of Credit:
Revolving personal lines of credit secured by residential real estate.
Qualifying Revolving Retail Exposures:
Credit cards and unsecured lines of credit for individuals.
Other Retail:
All other personal loans.
Exposure
Sub-types
Drawn:
Outstanding amounts for loans, leases, acceptances, deposits with banks and FVOCI debt securities.
Undrawn:
Unutilized portion of authorized committed credit lines.
Other Exposures
Repo-Style Transactions:
Reverse repurchase agreements (reverse repos) and repurchase agreements (repos), securities lending and borrowing.
OTC Derivatives:
Over-the-counter
derivatives contracts refers to financial instruments which are traded through a dealer network rather than through an exchange.
Other
Off-balance
Sheet:
Direct credit substitutes, such as standby letters of credit and guarantees, trade letters of credit, and performance letters of credit and guarantees.
Exchange-Traded Derivative Contracts:
Exchange-traded derivative contracts are derivative contracts (e.g., futures contracts and options) that are transacted on an organized futures exchange. These include futures contracts (both long and short positions), purchased options and written options.
Qualifying Central Counterparty (QCCP):
A licensed central counterparty is considered “qualifying” when it is compliant with the International Organization of Securities Commissions (IOSCO) standards and is able to assist clearing member banks in properly capitalizing for CCP exposures.
Asset Value Correlation Multiplier (AVC):
Basel III has increased the risk-weights on exposures to certain Financial Institutions (FIs) relative to the
non-financial
corporate sector by introducing an AVC. The correlation factor in the risk-weight formula is multiplied by this AVC factor of 1.25 for all exposures to regulated FIs whose total assets are greater than or equal to US $100 billion and all exposures to unregulated FIs.
Specific
Wrong-Way
Risk (WWR):
Specific
Wrong-Way
Risk arises when the exposure to a particular counterparty is positively correlated with the probability of default of the counterparty due to the nature of the transactions with the counterparty.
Basel II Regulatory Capital Floor:
Since the introduction of Basel II in 2008, OSFI has prescribed a minimum regulatory capital floor for institutions that use the advanced internal ratings-based approach for credit risk. Effective Q2 2018, the Basel II capital floor
add-on
is determined by comparing a capital requirement calculated by reference to the Basel II standardized approach for credit risk. Revised Basel II capital floor requirements also include risk-weighted assets for market risk and CVA. A shortfall in the Basel III capital requirement as compared with the Basel II floor is added to RWA.
 
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Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Condensed Interim Consolidated Financial Statements (unaudited)
TABLE OF CONTENTS
55
  
60
  
 
60
    Note 1 - Reporting entity
 
60
    Note 2 - Basis of preparation
 
60
    Note 3 - Significant accounting policies
 
60
   
 
61
   
 
61
   
 
62
   
 
69
   
 
70
    Note 9 - Investments in associates
 
71
    Note 10 - Deposits
 
71
    Note 11 - Capital and financing transactions
 
72
    Note 12 - Capital management
 
72
    Note 13 - Share-based payments
 
72
    Note 14 - Employee benefits
 
72
    Note 15 - Operating segments
 
74
    Note 16 - Interest income and expense
 
74
    Note 17 - Earnings per share
 
75
    Note 18 - Financial instruments
 
80
    Note 19 - Corporate income taxes
    
 
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Consolidated Statement of Financial Position
 
            As at  
(Unaudited) ($ millions)
    Note   
January 31
2023
      October 31
2022		  
Assets
                       
Cash and deposits with financial institutions
   
5
   
$
81,386
 
    $ 65,895  
Precious metals
        
 
725
 
      543  
Trading assets
                       
Securities
        
 
106,735
 
      103,547  
Loans
        
 
7,642
 
      7,811  
Other
   
 
   
 
1,969
 
      1,796  
         
 
116,346
 
      113,154  
Securities purchased under resale agreements and securities borrowed
        
 
178,690
 
      175,313  
Derivative financial instruments
        
 
44,820
 
      55,699  
Investment securities
   
6
   
 
111,004
 
      110,008  
Loans
                       
Residential mortgages
   
7
   
 
353,527
 
      349,279  
Personal loans
   
7
   
 
101,041
 
      99,431  
Credit cards
   
7
   
 
15,494
 
      14,518  
Business and government
   
7
   
 
290,608
 
      287,107  
         
 
760,670
 
      750,335  
Allowance for credit losses
   
7(c)
   
 
5,513
 
      5,348  
         
 
755,157
 
      744,987  
Other
                       
Customers’ liability under acceptances, net of allowance
        
 
21,872
 
      19,494  
Property and equipment
        
 
5,699
 
      5,700  
Investments in associates
   
9
   
 
2,684
 
      2,633  
Goodwill and other intangible assets
        
 
17,170
 
      16,833  
Deferred tax assets
        
 
2,508
 
      1,903  
Other assets
  

   
36,377
 
      37,256  
 
   
 
   
 
86,310
 
      83,819  
Total assets
   
 
   
$
1,374,438
 
    $ 1,349,418  
Liabilities
                       
Deposits
                       
Personal
   
10
   
$
274,879
 
    $ 265,892  
Business and government
   
10
   
 
621,740
 
      597,617  
Financial institutions
   
10
   
 
53,268
 
      52,672  
         
 
949,887
 
      916,181  
Financial instruments designated at fair value through profit or loss
   
18(b)
   
 
26,583
 
      22,421  
Other
                       
Acceptances
        
 
21,912
 
      19,525  
Obligations related to securities sold short
        
 
43,439
 
      40,449  
Derivative financial instruments
        
 
52,746
 
      65,900  
Obligations related to securities sold under repurchase agreements and securities lent
        
 
132,206
 
      139,025  
Subordinated debentures
   
11
   
 
8,713
 
      8,469  
Other liabilities
   
 
   
 
63,201
 
      62,699  
 
   
 
   
 
322,217
 
      336,067  
Total liabilities
   
 
   
 
1,298,687
 
      1,274,669  
Equity
                       
Common equity
                       
Common shares
   
11
   
 
18,732
 
      18,707  
Retained earnings
        
 
54,165
 
      53,761  
Accumulated other comprehensive income (loss)
        
 
(6,640
 )      (7,166 ) 
Other reserves
   
 
   
 
(145
 )      (152 ) 
Total common equity
        
 
66,112
 
      65,150  
Preferred shares and other equity instruments
   

  
 
8,075
 
      8,075  
Total equity attributable to equity holders of the Bank
        
 
74,187
 
      73,225  
Non-controlling interests in subsidiaries
   
 
   
 
1,564
 
      1,524  
Total equity
   
 
   
 
75,751
 
      74,749  
Total liabilities and equity
   
 
   
$
1,374,438
 
    $ 1,349,418  
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
 
Scotiabank First Quarter Report 2023
    55
Table of Contents

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Consolidated Statement of Income
 
            For the three months ended  
(Unaudited) ($ millions)
    Note   
January 31
2023
      October 31
2022		      January 31
2022		  
Revenue
                                
Interest income
(1)
                                
Loans
        
$
10,619
 
    $ 9,271      $ 5,994  
Securities
        
 
1,458
 
      1,217        358  
Securities purchased under resale agreements and securities borrowed
        
 
336
 
      209        47  
Deposits with financial institutions
   
 
   
 
743
 
      421        64  
 
   
16
   
 
13,156
 
      11,118        6,463  
Interest expense
                                
Deposits
        
 
7,834
 
      5,722        1,573  
Subordinated debentures
        
 
105
 
      93        45  
Other
   
 
   
 
648
 
      681        501  
 
   
16
   
 
8,587
 
      6,496        2,119  
Net interest income
   
 
   
 
4,569
 
      4,622        4,344  
Non-interest income
                                
Card revenues
        
 
201
 
      195        190  
Banking services fees
        
 
469
 
      456        437  
Credit fees
        
 
466
 
      451        401  
Mutual funds
        
 
532
 
      528        628  
Brokerage fees
        
 
279
 
      264        298  
Investment management and trust
        
 
253
 
      242        256  
Underwriting and advisory fees
        
 
102
 
      136        172  
Non-trading foreign exchange
        
 
232
 
      228        225  
Trading revenues
        
 
634
 
      418        609  
Net gain on sale of investment securities
        
 
44
 
      71        2  
Net income from investments in associated corporations
        
 
16
 
      49        91  
Insurance underwriting income, net of claims
        
 
112
 
      114        101  
Other fees and commissions
        
 
186
 
      206        156  
Other
   
 
   
 
(115
)
      (354 )       139  
 
   
 
   
 
3,411
 
      3,004        3,705  
Total revenue
        
 
7,980
 
      7,626        8,049  
Provision for credit losses
   
 
   
 
638
 
      529        222  
 
   
 
   
 
7,342
 
      7,097        7,827  
Non-interest expenses
                                
Salaries and employee benefits
        
 
2,340
 
      2,187        2,280  
Premises and technology
        
 
640
 
      636        586  
Depreciation and amortization
        
 
406
 
      394        375  
Communications
        
 
94
 
      90        90  
Advertising and business development
        
 
136
 
      140        109  
Professional
        
 
175
 
      239        192  
Business and capital taxes
        
 
161
 
      134        140  
Other
   
 
   
 
512
 
      709        451  
 
   
 
   
 
4,464
 
      4,529        4,223  
Income before taxes
        
 
2,878
 
      2,568        3,604  
Income tax expense
   
19
   
 
1,106
 
      475        864  
Net income
        
$
1,772
 
    $ 2,093      $ 2,740  
Net income attributable to non-controlling interests in subsidiaries
   
 
   
 
40
 
      38        88  
Net income attributable to equity holders of the Bank
        
$
1,732
 
    $ 2,055      $ 2,652  
Preferred shareholders and other equity instrument holders
        
 
101
 
      106        44  
Common shareholders
   
 
   
$
1,631
 
    $ 1,949      $ 2,608  
Earnings per common share
(in dollars)
                                
Basic
   
17
   
$
1.37
 
    $ 1.64      $ 2.15  
Diluted
   
17
   
 
1.36
 
      1.63        2.14  
Dividends paid per common share
(in dollars)
   
 
   
 
1.03
 
      1.03        1.00  
(1)
Includes interest income on financial assets measured at amortized cost and FVOCI, calculated using the effective interest method, of $12,710 for the quarter ended January 31, 2023 (October
 
31, 2022 – $
10,703; January 31, 2022 – $6,331).
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
 
56    
Scotiabank First Quarter Report 2023
Table of Contents

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Consolidated Statement of Comprehensive Income
 
  
  
For the three months ended
 
(Unaudited) ($ millions)
  
January 31
2023
 
  
October 31
2022
 
  
January 31
2022
 
Net income
   
$
1,772
 
    $ 2,093      $ 2,740  
Other comprehensive income (loss)
                           
Items that will be reclassified subsequently to net income
                           
Net change in unrealized foreign currency translation gains (losses):
                           
Net unrealized foreign currency translation gains (losses)
   
 
543
 
      3,106        1,500  
Net gains (losses) on hedges of net investments in foreign operations
   
 
16
 
      (1,140 )       (559 ) 
Income tax expense (benefit):
                           
Net unrealized foreign currency translation gains (losses)
   
 
8
 
      27        12  
Net gains (losses) on hedges of net investments in foreign operations
   
 
(6
)
      (299 )       (147 ) 
    
 
557
 
      2,238        1,076  
Net change in fair value due to change in debt instruments measured at fair value through other comprehensive income:
       
 
                  
Net gains (losses) in fair value
   
 
1,234
 
      (2,460 )       (321 ) 
Reclassification of net (gains) losses to net income
   
 
(791
)
      1,767        117  
Income tax expense (benefit):
       
 
                  
Net gains (losses) in fair value
   
 
288
 
      (619 )       (80 ) 
Reclassification of net (gains) losses to net income
   
 
(178
)
      458        35  
    
 
333
 
      (532 )       (159 ) 
Net change in gains (losses) on derivative instruments designated as cash flow hedges:
       
 
                  
Net gains (losses) on derivative instruments designated as cash flow hedges
   
 
3,476
 
      (1,669 )       (976 ) 
Reclassification of net (gains) losses to net income
   
 
(2,756
)
      (937 )       669  
Income tax expense (benefit):
       
 
                  
Net gains (losses) on derivative instruments designated as cash flow hedges
   
 
983
 
      (444 )       (251 ) 
Reclassification of net (gains) losses to net income
   
 
(798
)
      (233 )       171  
 
   
 
535
 
      (1,929 )       (227 ) 
Other comprehensive income (loss) from investments in associates
   
 
(13
)
      (382 )       4  
Items that will not be reclassified subsequently to net income
       
 
                  
Net change in remeasurement of employee benefit plan asset and liability:
       
 
                  
Actuarial gains (losses) on employee benefit plans
   
 
(219
)
      (17 )       148  
Income tax expense (benefit)
   
 
(69
)
      (1 )       69  
    
 
(150
)
      (16 )       79  
Net change in fair value due to change in equity instruments designated at fair value through other comprehensive
income:
       
 
                  
Net gains (losses) in fair value
   
 
101
 
      (160 )       194  
Income tax expense (benefit)
   
 
10
 
      (46 )       68  
    
 
91
 
      (114 )       126  
Net change in fair value due to change in own credit risk on financial liabilities designated under the fair value option:
       
 
                  
Change in fair value due to change in own credit risk on financial liabilities designated under the fair value option
   
 
(1,090
)
      373        231  
Income tax expense (benefit)
   
 
(284
)
      98        61  
 
   
 
(806
)
      275        170  
Other comprehensive income (loss) from investments in associates
   
 
2
 
      –        1  
Other comprehensive income (loss)
   
 
549
 
      (460 )       1,070  
Comprehensive income
   
$
2,321
 
    $ 1,633      $ 3,810  
Comprehensive income (loss) attributable to non-controlling interests
   
 
63
 
      60        149  
Comprehensive income attributable to equity holders of the Bank
   
 
2,258
 
      1,573        3,661  
Preferred shareholders and other equity instrument holders
   
 
101
 
      106        44  
Common shareholders
   
$
    2,157
 
    $    1,467      $   3,617  
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
 
Scotiabank First Quarter Report 2023
    57
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Consolidated Statement of Changes in Equity
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Unaudited) ($ millions)
 
Common
shares
 
 
Retained
earnings
(1)
 
 
Foreign
currency
translation
 
 
Debt
instruments
FVOCI
 
 
Equity
instruments
FVOCI
 
 
Cash
flow
hedges
 
 
Other
(2)
 
 
Other
reserves
 
 
Total
common
equity
 
 
Preferred
shares and
other
equity
instruments
 
 
Total
attributable
to equity
holders
 
 
Non-
controlling
interests in
subsidiaries
 
 
Total
 
Balance as at October 31, 2022
  
$
18,707
 
  
$
53,761
 
  
$
(2,478
)
 
  
$
(1,482
)
 
  
$
216
 
  
$
(4,786
)
 
  
$
1,364
 
  
$
(152
)
 
  
$
65,150
 
  
$
8,075
 
  
$
73,225
 
  
$
1,524
 
  
$
74,749
 
Net income
  
 
–
 
  
 
1,631
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
1,631
 
  
 
101
 
  
 
1,732
 
  
 
40
 
  
 
1,772
 
Other comprehensive income (loss)
  
 
–
 
  
 
–
 
  
 
524
 
  
 
333
 
  
 
82
 
  
 
537
 
  
 
(950
)
  
 
–
 
  
 
526
 
  
 
–
 
  
 
526
 
  
 
23
 
  
 
549
 
Total comprehensive income
  
$
–
 
  
$
1,631
 
  
$
524
 
  
$
333
 
  
$
82
 
  
$
537
 
  
$
(950
)
  
$
–
 
  
$
2,157
 
  
$
101
 
  
$
2,258
 
  
$
63
 
  
$
2,321
 
Shares issued
  
 
25
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
(2
)
  
 
23
 
  
 
–
 
  
 
23
 
  
 
–
 
  
 
23
 
Shares repurchased/redeemed
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
Dividends and distributions paid to equity holders
  
 
–
 
  
 
(1,228
)
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
(1,228
)
  
 
(101
)
  
 
(1,329
)
  
 
(23
)
  
 
(1,352
)
Share-based payments
(3)
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
9
 
  
 
9
 
  
 
–
 
  
 
9
 
  
 
–
 
  
 
9
 
Other
  
 
–
 
  
 
1
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
1
 
  
 
–
 
  
 
1
 
  
 
–
 
  
 
1
 
Balance as at January 31, 2023
  
$
18,732
 
  
$
54,165
 
  
$
(1,954
)
 
  
$
(1,149
 )
 
  
$
298
 
  
$
(4,249
)
 
  
$
414
 
  
$
(145
 )
 
  
$
66,112
 
  
$
8,075
 
  
$
74,187
 
  
$
1,564
 
  
$
75,751
 
                           
Balance as at October 31, 2021
   $ 18,507     $ 51,354     $ (4,709 )    $ (270 )    $ 291     $ (214 )    $ (431 )    $ 222     $ 64,750     $ 6,052     $ 70,802     $ 2,090     $ 72,892  
Net income
     –       2,608       –       –       –       –       –       –       2,608       44       2,652       88       2,740  
Other comprehensive income (loss)
     –       –       1,030       (159 )      129       (240 )      249       –       1,009       –       1,009       61       1,070  
Total comprehensive income
   $ –     $ 2,608     $ 1,030     $ (159 )    $ 129     $ (240 )    $ 249     $ –     $ 3,617     $ 44     $ 3,661     $ 149     $ 3,810  
Shares issued
     104       –       –       –       –       –       –       (13 )      91       –       91       –       91  
Shares repurchased/redeemed
     (190 )      (896 )      –       –       –       –       –       –       (1,086 )      (500 )      (1,586 )      –       (1,586 ) 
Dividends and distributions paid to equity holders
     –       (1,207 )      –       –       –       –       –       –       (1,207 )      (44 )      (1,251 )      (17 )      (1,268 ) 
Share-based payments
(3)
     –       –       –       –       –       –       –       6       6       –       6       –       6  
Other
     –       (11 )      –       –       –       –       –       12       1       –       1       –       1  
Balance as at January 31, 2022
   $ 18,421     $ 51,848     $ (3,679 )    $ (429 )    $ 420     $ (454 )    $ (182 )    $ 227     $ 66,172     $ 5,552     $ 71,724     $ 2,222     $ 73,946  
(1)
Includes undistributed retained earnings of $66 (January 31, 2022 – $62) related to a foreign associated corporation, which is subject to local regulatory restriction.
(2)
Includes Share from associates, Employee benefits and Own credit risk.
(3)
Represents amounts on account of share-based payments (refer to Note 13).
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
 
58    
Scotiabank First Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Consolidated Statement of Cash
Flows

 
(Unaudited) ($ millions)
  
For the three months ended
 
Sources (uses) of cash flows
  
January 31
2023
 
  
January 31
2022
 
Cash flows from operating activities
  
  
Net income
   
$
1,772
 
    $ 2,740  
Adjustment for:
                  
Net interest income
   
 
(4,569
)
      (4,344 ) 
Depreciation and amortization
   
 
406
 
      375  
Provision for credit losses
   
 
638
 
      222  
Equity-settled share-based payment expense
   
 
9
 
      6  
Net gain on sale of investment securities
   
 
(44
)
      (2 ) 
Net income from investments in associated corporations
   
 
(16
)
      (91 ) 
Income tax expense
   
 
1,106
 
      864  
Changes in operating assets and liabilities:
       
 
         
Trading assets
   
 
(3,217
)
      (4,497 ) 
Securities purchased under resale agreements and securities borrowed
   
 
(3,685
)
      (2,775 ) 
Loans
   
 
(6,055
)
      (24,821 ) 
Deposits
   
 
35,582
 
      46,498  
Obligations related to securities sold short
   
 
2,986
 
      4,843  
Obligations related to securities sold under repurchase agreements and securities lent
   
 
(6,977
)
      (2,452 ) 
Net derivative financial instruments
   
 
1,485
 
      (1,963 ) 
Other, net
   
 
(8,202
)
      2,152  
Dividends received
   
 
324
 
      284  
Interest received
   
 
12,618
 
      6,553  
Interest paid
   
 
(7,254
)
      (2,177 ) 
Income tax paid
   
 
(553
)
      (1,458 ) 
Net cash from/(used in) operating activities
   
 
16,354
 
      19,957  
Cash flows from investing activities
       
 
         
Interest-bearing deposits with financial institutions
   
 
(18,926
)
      (10,229 ) 
Purchase of investment securities
   
 
(18,562
)
      (22,578 ) 
Proceeds from sale and maturity of investment securities
   
 
18,735
 
      16,909  
Property and equipment, net of disposals
   
 
(56
)
      (45 ) 
Other, net
   
 
(262
)
      (227 ) 
Net cash from/(used in) investing activities
   
 
(19,071
)
      (16,170 ) 
Cash flows from financing activities
       
 
         
Proceeds from issue of subordinated debentures
   
 
337
 
      –  
Redemption of preferred shares
   
 
–
 
      (500 ) 
Proceeds from common shares issued
   
 
25
 
      104  
Common shares purchased for cancellation
   
 
–
 
      (1,086 ) 
Cash dividends and distributions paid
   
 
(1,329
)
      (1,251 ) 
Distributions to non-controlling interests
   
 
(23
)
      (17 ) 
Payment of lease liabilities
   
 
(85
)
      (89 ) 
Other, net
   
 
891
 
      (224 ) 
Net cash from/(used in) financing activities
   
 
(184
)
      (3,063 ) 
Effect of exchange rate changes on cash and cash equivalents
   
 
137
 
      146  
Net change in cash and cash equivalents
   
 
(2,764
)
      870  
Cash and cash equivalents at beginning of period
(1)
   
 
11,065
 
      9,693  
Cash and cash equivalents at end of period
(1)
   
$
   8,301
 
    $    10,563  
(1)
Represents cash and non-interest-bearing deposits with financial institutions (refer to Note 5).
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
 
Scotiabank First Quarter Report 2023
    59
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
 
1.
Reporting entity
The Bank of Nova Scotia (the Bank) is a chartered bank under the Bank Act (Canada) (the Bank Act). The Bank is a Schedule I bank under the Bank Act and is regulated by the Office of the Superintendent of Financial Institutions (OSFI). The Bank is a global financial services provider offering a diverse range of products and services, including personal, commercial, corporate and investment banking. The head office of the Bank is located at 1709 Hollis Street, Halifax, Nova Scotia, Canada and its executive offices are at 40 Temperance Street, Toronto, Canada. The common shares of the Bank are listed on the Toronto Stock Exchange and the New York Stock Exchange.
 
2.
Basis of preparation
Statement of compliance
These condensed interim consolidated financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and accounting requirements of OSFI in accordance with Section 308 of the Bank Act. Section 308 states that except as otherwise specified by OSFI, the financial statements are to be prepared in accordance with IFRS.
These condensed interim consolidated financial statements were prepared in accordance with International Accounting Standard 34,
Interim Financial Reporting
(IAS 34) and do not include all of the information required for full annual financial statements. These condensed interim consolidated financial statements should be read in conjunction with the Bank’s annual audited consolidated financial statements for the year ended October 31, 2022.
The condensed interim consolidated financial statements for the quarter ended January 31, 2023 have been approved by the Board of Directors for issue on February 28, 2023.
Basis of measurement
The condensed interim consolidated financial statements have been prepared on the historical cost basis except for the following material items that are measured at fair value in the Consolidated Statement of Financial Position:
 
  •  
Financial assets and liabilities measured at fair value through profit or loss
 
  •  
Financial assets and liabilities designated at fair value through profit or loss
 
  •  
Derivative financial instruments
 
  •  
Equity instruments designated at fair value through other comprehensive income
 
  •  
Debt instruments measured at fair value through other comprehensive income
Functional and presentation currency
These condensed interim consolidated financial statements are presented in Canadian dollars, which is the Bank’s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest million unless otherwise stated.
Use of estimates and judgments
The preparation of financial statements, in conformity with IFRS, requires management to make estimates, apply judgments and make assumptions that affect the reported amount of assets and liabilities at the date of the condensed interim consolidated financial statements, and income and expenses during the reporting period. Estimates made by management are based on historical experience and other assumptions that are believed to be reasonable. Key areas where management has made difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain, include those relating to the allowance for credit losses, the fair value of financial instruments (including derivatives), corporate income taxes, employee benefits, the fair value of all identifiable assets and liabilities as a result of business combinations, impairment of
non-financial
assets and derecognition of financial assets and liabilities. While management makes its best estimates and assumptions, actual results could differ from these estimates and assumptions.
 
3.
Significant accounting policies
These
 
condensed interim consolidated financial statements should be read in conjunction with the Bank’s audited consolidated financial statements for the year ended October 31, 2022.
The significant accounting policies used in the preparation of the condensed interim consolidated financial statements are consistent with those used in the Bank’s audited consolidated financial statements for the year ended October 31, 2022 as described in Note 3 of the Bank’s 2022 annual consolidated financial statements.
 
4.
Future accounting developments
There are no significant updates to the future accounting developments disclosed in Note 5 of the Bank’s audited consolidated financial statements in the 2022 Annual Report.
 
60    
Scotiabank First Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
5.
Cash and deposits
with
financial institutions
 
       As at  
($ millions)
   
January 31
2023
      October 31
2022		  
Cash and
 
non-interest-bearing
 
deposits with financial institutions
   
$
8,301
 
    $ 11,065  
Interest-bearing deposits with financial institutions
   
 
73,085
 
      54,830  
Total
   
$
81,386
(1)
 
    $   65,895
(1)
 
  (1)
Net of allowances of $5 (October 31, 2022 – $4).
The Bank is required to maintain balances with central banks, other regulatory authorities and certain counterparties and these amounted to $5,604 million (October 31, 2022 – $5,958 million) and are included above.
 
6.
Investment securities
The following table presents the carrying amounts of the Bank’s investment securities per measurement category.
 
      As at     
($ millions)
   
January 31
2023
      October 31
2022		  
Debt investment securities measured at FVOCI
   
$
82,431
 
    $ 81,271  
Debt investment securities measured at amortized cost
   
 
24,195
 
      23,610  
Equity investment securities designated at FVOCI
   
 
2,679
 
      3,439  
Equity investment securities measured at FVTPL
   
 
1,636
 
      1,626  
Debt investment securities measured at FVTPL
   
 
63
 
      62  
Total investment securities
   
$
111,004
 
    $   110,008  
(a) Debt investment securities measured at fair value through other comprehensive income (FVOCI)
 
As at January 31, 2023 ($ millions)
   
Cost
     
Gross
unrealized
gains
     
Gross
unrealized
losses
     
Fair value
  
Canadian federal government issued or guaranteed debt
   
$
10,122
 
   
$
6
 
   
$
266
 
   
$
9,862
 
Canadian provincial and municipal debt
   
 
6,728
 
   
 
16
 
   
 
319
 
   
 
6,425
 
U.S. treasury and other U.S. agency debt
   
 
36,609
 
   
 
75
 
   
 
1,849
 
   
 
34,835
 
Other foreign government debt
   
 
30,141
 
   
 
72
 
   
 
924
 
   
 
29,289
 
Other debt
   
 
2,084
 
   
 
6
 
   
 
70
 
   
 
2,020
 
Total
   
$
  85,684
 
   
$
  175
 
   
$
  3,428
 
   
$
  82,431
 
 
As at October 31, 2022 ($ millions)
    Cost      Gross
unrealized
gains		      Gross
unrealized
losses		      Fair value  
Canadian federal government issued or guaranteed debt
    $ 11,372      $ 4      $ 374      $ 11,002  
Canadian provincial and municipal debt
      5,860        1        432        5,429  
U.S. treasury and other U.S. agency debt
      37,690        80        2,534        35,236  
Other foreign government debt
      28,794        27        1,135        27,686  
Other debt
      1,989        1        72        1,918  
Total
    $   85,705      $   113      $   4,547      $   81,271  
(b) Debt investment securities measured at amortized cost
 
      As at    
     
January 31, 2023
      October 31, 2022  
($ millions)
   
Fair value
     
Carrying
value
(1)
      Fair value      Carrying
value		  
Canadian federal and provincial government issued or guaranteed debt
   
$
8,719
 
   
$
8,987
 
    $ 8,684      $ 9,024  
U.S. treasury and other U.S. agency debt
   
 
12,874
 
   
 
13,600
 
      12,212        13,042  
Other foreign government debt
   
 
1,493
 
   
 
1,497
 
      1,459        1,470  
Corporate debt
   
 
120
 
   
 
111
 
      88        74  
Total
   
$
23,206
 
   
$
  24,195
 
    $   22,443      $   23,610  
 
  (1)
Net of allowances of $1 (October 31, 2022 – $1).
 
Scotiabank First Quarter Report 2023
    61
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
(c) Equity investment securities designated at fair value through other comprehensive income (FVOCI)
The Bank has designated certain instruments at FVOCI shown in the following table as these equity securities are held for strategic purposes.
 
As at January 31, 2023 ($ millions)
   
Cost
     
Gross
unrealized
gains
     
Gross
unrealized
losses
     
Fair value
  
Common shares
   
$
2,313
 
   
$
508
 
   
$
142
 
   
$
2,679
 
Total
   
$
2,313
 
   
$
508
 
   
$
142
 
   
$
2,679
 
         
As at October 31, 2022 ($ millions)
    Cost      Gross
unrealized
gains		      Gross
unrealized
losses		      Fair value  
Common shares
    $ 3,175      $ 487      $ 223      $ 3,439  
Total
    $   3,175      $   487      $   223      $   3,439  
Dividend income earned on equity securities designated at FVOCI of $33 million for the three months ended January 31, 2023 (October 31, 2022 – $44 million; January 31, 2022 – $38 million) has been recognized in interest income.
During the three months ended January 31, 2023, the Bank has disposed of certain equity securities designated at FVOCI with a fair value of $788 million (October 31, 2022 – $301 million; January 31, 2022 – $381 million). This has resulted in a realized loss of $64 million in the three months ended January 31, 2023 (October 31, 2022 – loss of $42 million; January 31, 2022 – gain of $36 million).
 
7.
Loans, impaired loans and allowance for credit losses
(a) Loans at amortized cost
 
      As at    
     
January 31, 2023
      October 31, 2022  
($ millions)
   
Gross
carrying
amount
     
Allowance
for credit
losses
     
Net
carrying
amount
      Gross
carrying
amount		      Allowance
for credit
losses		      Net
carrying
amount		  
Residential mortgages
   
$
353,527
 
   
$
938
 
   
$
352,589
 
    $ 349,279      $ 899      $ 348,380  
Personal loans
   
 
101,041
 
   
 
2,204
 
   
 
98,837
 
      99,431        2,137        97,294  
Credit cards
   
 
15,494
 
   
 
1,100
 
   
 
14,394
 
      14,518        1,083        13,435  
Business and government
   
 
290,608
 
   
 
1,271
 
   
 
289,337
 
      287,107        1,229        285,878  
Total
   
$
  760,670
 
   
$
  5,513
 
   
$
  755,157
 
    $   750,335      $   5,348      $   744,987  
(b) Impaired loans
(1)(2)
 
  
  
As at       
 
  
  
January 31, 2023
 
  
October 31, 2022
 
($ millions)
  
Gross
impaired
loans
 
  
Allowance
for credit
losses
 
  
Net
 
  
Gross
impaired
loans
 
  
Allowance
for credit
losses
 
  
Net
 
Residential mortgages
   
$
1,539
 
   
$
428
 
   
$
1,111
 
    $ 1,386      $ 406      $ 980  
Personal loans
   
 
968
 
   
 
563
 
   
 
405
 
      848        551        297  
Credit cards
   
 
–
 
   
 
–
 
   
 
–
 
      –        –        –  
Business and government
   
 
2,597
 
   
 
663
 
   
 
1,934
 
      2,552        678        1,874  
Total
   
$
5,104
 
   
$
1,654
 
   
$
3,450
 
    $ 4,786      $ 1,635      $ 3,151  
By geography:
                                                      
Canada
   
$
1,212
 
   
$
434
 
   
$
778
 
    $ 1,054      $ 440      $ 614  
United States
   
 
–
 
   
 
–
 
   
 
–
 
      –        –        –  
Mexico
   
 
1,034
 
   
 
295
 
   
 
739
 
      1,020        294        726  
Peru
   
 
720
 
   
 
351
 
   
 
369
 
      761        352        409  
Chile
   
 
953
 
   
 
243
 
   
 
710
 
      740        202        538  
Colombia
   
 
306
 
   
 
72
 
   
 
234
 
      301        67        234  
Other international
   
 
879
 
   
 
259
 
   
 
620
 
      910        280        630  
Total
   
$
    5,104
 
   
$
    1,654
 
   
$
    3,450
 
    $     4,786      $     1,635      $     3,151  
  (1)
Interest income recognized on impaired loans during the three months ended January 31, 2023 was $12 (October 31, 2022 – $11).
  (2)
Additional interest income of approximately $86 would have been recorded if the above loans had not been classified as impaired (October 31, 2022 – $81).
 
62    
Scotiabank First Quarter Report 2023

Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
 
(c)
Allowance for credit losses
 
  (i)
Key inputs and assumptions
The Bank’s allowance for credit losses is measured using a three-stage approach based on the extent of credit deterioration since origination. The calculation of the Bank’s allowance for credit losses is an output of complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. Some of the key drivers include the following:
 
  •  
Changes in risk ratings of the borrower or instrument reflecting changes in their credit quality;
 
  •  
Changes in the volumes of transactions;
 
  •  
Changes in the forward-looking macroeconomic environment reflected in the variables used in the models such as GDP growth, unemployment rates, commodity prices, interest rates, and house price indices, which are most closely related with credit losses in the relevant portfolio; 
 
  •  
Changes in macroeconomic scenarios and the probability weights assigned to each scenario; and
 
  •  
Borrower migration between the three stages.
The Bank determines its allowance for credit losses using four probability-weighted forward-looking scenarios (base case, optimistic, pessimistic and very pessimistic).
The Bank considers both internal and external sources of information and data to achieve unbiased projections and forecasts in determining the allowance for credit losses. The Bank prepares the scenarios using forecasts generated by Scotiabank Economics (SE). The forecasts are generated using models whose outputs are modified by SE as necessary to formulate a ‘base case’ view of the most probable future direction of economic developments. The development of the base case and alternative scenarios is overseen by a governance committee that consists of internal stakeholders from across the Bank. The final base case and alternative scenarios reflect significant review and oversight, and incorporate judgment both in the determination of the scenarios’ forecasts and the probability weights that are assigned to them.
 
(ii)
Key macroeconomic variables
The inputs and models used for calculating expected credit losses may not always capture all characteristics of the market at the date of the financial statements. Qualitative adjustments or overlays may be made for certain portfolios or geographies as temporary adjustments in circumstances where, in the Bank’s view, the inputs, assumptions, and/or modelling techniques do not capture all relevant risk factors, including the emergence of economic or geopolitical events up to the date of financial statements.
The Bank has applied expert credit judgement in the determination of the allowance for credit losses to capture, as described above, all relevant risk factors up to the end of the reporting period. The Bank considered both quantitative and qualitative information in the assessment of significant increase in credit risk.
The Bank’s models are calibrated to consider past performance and macroeconomic forward-looking variables as inputs. The Bank has generated a forward-looking base case scenario and three alternate forward-looking scenarios (one optimistic and two pessimistic) as key inputs into the expected credit loss provisioning models. The base case is less favourable this quarter, as stronger observed inflation pressures – and the U.S. Federal Reserve’s stronger tone – will bring monetary policy rates to higher than previously forecasted levels. The optimistic scenario features somewhat stronger economic activity relative to the base case.
The two pessimistic scenarios were updated this quarter around the potential risk of stagflation and recession and are built around alternative assumptions on the source, duration and impact of stagflation shocks. These pessimistic scenarios are less severe than last quarter as they reflect less uncertainty in regard to the impact of the Russia/Ukraine war, and a portion of the previously assumed risk of strong inflation has materialized and is now captured in the base case.
The pessimistic scenarios both feature a protracted period of elevated financial market uncertainty and a further disruption to supply chains with these being more severe in the very pessimistic scenario. The pessimistic scenario also adds high commodity prices as a source for stagflation shock, while these are simply reacting (negatively) to the weaker global economic in the very pessimistic scenario. Consequently these scenarios feature much higher inflation compared to the base case scenario resulting in a rapid deceleration of growth. In the pessimistic scenario, stagflation is short-lived, while in the very pessimistic scenario, the stagflation shock is strong and persists for a longer period of time.

The following tables show certain key macroeconomic variables used to calculate the modelled estimate for the allowance for credit losses. Further changes in these variables up to the date of the financial statements is incorporated through expert credit judgment. For the base case, optimistic and pessimistic scenarios, the projections are provided for the next 12 months and for the remaining forecast period, which represents a medium-term view.
 
Scotiabank First Quarter Report 2023
    63
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
  
  
Base Case Scenario
 
  
Alternative Scenario -
Optimistic
 
  
Alternative Scenario -
Pessimistic
 
  
Alternative Scenario -
Very Pessimistic
 
As at January 31, 2023
  
Next 12
Months
 
 
Remaining
Forecast
Period
 
  
Next 12
Months
 
 
Remaining
Forecast
Period
 
  
Next 12
Months
 
 
Remaining
Forecast
Period
 
  
Next 12
Months
 
 
Remaining
Forecast
Period
 
Canada
                                                                    
Real GDP growth, y/y % change
   
 
0.8
 
  
 
2.3
 
   
 
1.7
 
  
 
3.6
 
   
 
-2.2
 
  
 
3.1
 
   
 
-3.2
 
  
 
3.1
 
Consumer price index, y/y %
   
 
4.1
 
  
 
1.8
 
   
 
4.3
 
  
 
2.3
 
   
 
6.3
 
  
 
2.0
 
   
 
7.0
 
  
 
2.0
 
Unemployment rate, average %
   
 
5.8
 
  
 
6.1
 
   
 
5.4
 
  
 
4.5
 
   
 
7.8
 
  
 
6.5
 
   
 
8.6
 
  
 
6.8
 
Bank of Canada overnight rate target, average %
   
 
4.2
 
  
 
2.5
 
   
 
4.5
 
  
 
3.7
 
   
 
4.8
 
  
 
2.8
 
   
 
5.1
 
  
 
3.0
 
HPI - Housing Price Index, y/y % change
   
 
-13.1
 
  
 
0.2
 
   
 
-12.6
 
  
 
1.7
 
   
 
-15.8
 
  
 
0.2
 
   
 
-16.7
 
  
 
0.2
 
USD/CAD exchange rate, average
   
 
1.33
 
  
 
1.24
 
   
 
1.32
 
  
 
1.24
 
   
 
1.33
 
  
 
1.25
 
   
 
1.33
 
  
 
1.25
 
U.S.
                                                                    
Real GDP growth, y/y % change
   
 
0.6
 
  
 
1.9
 
   
 
1.3
 
  
 
2.7
 
   
 
-2.3
 
  
 
2.7
 
   
 
-3.2
 
  
 
2.8
 
Consumer price index, y/y %
   
 
5.0
 
  
 
2.3
 
   
 
5.2
 
  
 
2.6
 
   
 
7.3
 
  
 
2.4
 
   
 
8.1
 
  
 
2.5
 
Target federal funds rate, upper limit, average %
   
 
4.9
 
  
 
2.8
 
   
 
5.2
 
  
 
4.0
 
   
 
5.6
 
  
 
3.1
 
   
 
5.8
 
  
 
3.3
 
Unemployment rate, average %
   
 
4.2
 
  
 
4.8
 
   
 
4.0
 
  
 
4.4
 
   
 
6.0
 
  
 
5.2
 
   
 
6.7
 
  
 
5.4
 
Mexico
                                                                    
Real GDP growth, y/y % change
   
 
0.8
 
  
 
2.2
 
   
 
1.5
 
  
 
3.1
 
   
 
-1.8
 
  
 
2.9
 
   
 
-2.7
 
  
 
3.0
 
Unemployment rate, average %
   
 
3.9
 
  
 
3.8
 
   
 
3.7
 
  
 
3.1
 
   
 
5.6
 
  
 
4.3
 
   
 
6.3
 
  
 
4.6
 
Chile
                                                                    
Real GDP growth, y/y % change
   
 
-1.7
 
  
 
2.5
 
   
 
-0.7
 
  
 
3.6
 
   
 
-4.4
 
  
 
3.3
 
   
 
-5.3
 
  
 
3.4
 
Unemployment rate, average %
   
 
9.1
 
  
 
7.3
 
   
 
8.8
 
  
 
6.7
 
   
 
10.9
 
  
 
7.6
 
   
 
11.6
 
  
 
7.8
 
Peru
                                                                    
Real GDP growth, y/y % change
   
 
2.4
 
  
 
2.3
 
   
 
2.7
 
  
 
3.7
 
   
 
-0.6
 
  
 
3.1
 
   
 
-1.5
 
  
 
3.2
 
Unemployment rate, average %
   
 
7.4
 
  
 
7.3
 
   
 
7.2
 
  
 
5.8
 
   
 
9.4
 
  
 
7.8
 
   
 
10.6
 
  
 
8.3
 
Colombia
                                                                    
Real GDP growth, y/y % change
   
 
2.0
 
  
 
2.7
 
   
 
4.5
 
  
 
4.2
 
   
 
-1.0
 
  
 
3.4
 
   
 
-1.9
 
  
 
3.6
 
Unemployment rate, average %
   
 
10.7
 
  
 
10.3
 
   
 
9.4
 
  
 
7.0
 
   
 
12.7
 
  
 
10.7
 
   
 
14.3
 
  
 
11.5
 
Caribbean
                                                                    
Real GDP growth, y/y % change
   
 
3.7
 
  
 
3.9
 
   
 
4.3
 
  
 
4.8
 
   
 
1.0
 
  
 
4.6
 
   
 
0.1
 
  
 
4.7
 
Global
                                                                    
WTI oil price, average USD/bbl
   
 
94
 
  
 
69
 
   
 
99
 
  
 
81
 
   
 
108
 
  
 
71
 
   
 
80
 
  
 
65
 
Copper price, average USD/lb
   
 
3.50
 
  
 
4.51
 
   
 
3.61
 
  
 
5.02
 
   
 
3.71
 
  
 
4.54
 
   
 
3.21
 
  
 
4.38
 
Global GDP, y/y % change
   
 
2.07
 
  
 
2.52
 
   
 
2.80
 
  
 
3.47
 
   
 
-0.47
 
  
 
3.23
 
   
 
-1.31
 
  
 
3.32
 
      Base Case Scenario      Alternative Scenario -
Optimistic		      Alternative Scenario -
Pessimistic		      Alternative Scenario -
Very Pessimistic		  
As at October 31, 2022
    Next 12
Months		     Remaining
Forecast
Period		      Next 12
Months		     Remaining
Forecast
Period		      Next 12
Months		     Remaining
Forecast
Period		      Next 12
Months		     Remaining
Forecast
Period		  
Canada
                                                                    
Real GDP growth, y/y % change
      1.2       2.1        2.4       3.1        -4.8       3.7        -5.9       2.6  
Consumer price index, y/y %
      4.9       2.1        5.2       2.6        9.3       2.3        12.5       9.5  
Unemployment rate, average %
      5.7       6.0        5.1       4.7        9.7       6.9        10.2       8.6  
Bank of Canada overnight rate target, average %
      3.8       2.7        4.2       4.1        5.1       3.2        5.1       3.7  
HPI - Housing Price Index, y/y % change
      -12.3       -0.3        -9.7       1.6        -17.6       -0.3        -20.0       -1.3  
USD/CAD exchange rate, average
      1.27       1.24        1.26       1.23        1.28       1.24        1.28       1.25  
U.S.
                                                                    
Real GDP growth, y/y % change
      0.6       2.1        1.3       3.0        -5.1       3.7        -6.5       3.3  
Consumer price index, y/y %
      5.4       2.4        5.8       2.8        10.0       2.6        13.2       10.1  
Target federal funds rate, upper limit, average %
      3.5       2.7        4.7       4.5        4.8       3.3        4.8       3.7  
Unemployment rate, average %
      4.3       5.0        4.2       4.6        7.9       5.7        8.3       6.7  
Mexico
                                                                    
Real GDP growth, y/y % change
      1.4       2.6        1.9       3.5        -4.0       4.0        -5.1       2.5  
Unemployment rate, average %
      3.8       3.9        3.7       3.2        7.2       4.8        7.6       6.4  
Chile
                                                                    
Real GDP growth, y/y % change
      -2.0       2.4        -0.8       3.6        -7.3       3.9        -8.4       2.9  
Unemployment rate, average %
      8.6       7.6        8.0       6.5        12.2       8.3        12.9       9.0  
Peru
                                                                    
Real GDP growth, y/y % change
      2.5       2.7        3.7       3.8        -1.0       4.1        -3.3       3.5  
Unemployment rate, average %
      7.0       6.9        6.0       4.7        10.3       7.6        11.4       9.2  
Colombia
                                                                    
Real GDP growth, y/y % change
      3.9       2.6        6.5       3.6        0.4       4.0        -2.0       3.4  
Unemployment rate, average %
      10.7       9.9        9.0       6.7        14.0       10.7        15.1       12.3  
Caribbean
                                                                    
Real GDP growth, y/y % change
      4.4       4.0        5.0       4.9        0.5       5.2        -1.0       3.8  
Global
                                                                    
WTI oil price, average USD/bbl
      89       79        95       96        116       83        125       116  
Copper price, average USD/lb
      3.25       3.49        3.39       3.95        3.66       3.54        3.78       3.78  
Global GDP, y/y % change
      2.02       2.83        2.96       3.83        -3.05       4.23        -4.14       3.79  
 
  (iii)
Sensitivity
Relative to the base case scenario, the weighting of these multiple scenarios increased the reported allowance for credit losses for financial assets in Stage 1 and Stage 2 to $3,998 million (October 31, 2022 – $3,847 million) from $3,901 million (October 31, 2022 – $3,609
million). If the Bank was to only use the very pessimistic scenario for the measurement of allowance for credit losses for such assets, the allowance for credit losses on performing financial instruments would be $538 million (October 31, 2022 – $1,096 million) higher than the reported allowance for credit losses as
 
64    
Scotiabank First Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
at January 31, 2023. The decrease in quantitative impact quarter over quarter reflects that the pessimistic scenarios are less severe than last quarter given a portion of the previously assumed risk of strong inflation has materialized and is now captured in the base case. Actual results will differ as this does not consider the migration of exposures or incorporate changes that would occur in the portfolio due to risk mitigation actions and other factors. Furthermore, the consideration of qualitative overlays or expert credit judgement is not considered.
Under the current probability-weighted scenarios, if all performing financial assets were in Stage 1, reflecting a 12 month expected loss period, the allowance for credit losses would be $541 million (October 31, 2022 – $521 million) lower than the reported allowance for credit losses on performing financial assets.

 
 
(iv)
Allowance for credit losses
 
Allowance for credit losses
 
($ millions)
  
Balance as at
November 1,
2022
 
  
Provision for
credit losses
 
  
Net write-offs
 
  
Other, including
foreign currency
adjustment
 
  
Balance as at
January 31,
2023
 
Residential mortgages
    $ 899      $ 31      $
(15
 )    $ 23     
$
938
 
Personal loans
      2,137        276        (250 )      41     
 
2,204
 
Credit cards
      1,083        191        (204 )      30     
 
1,100
 
Business and government
      1,368        140        (94 )      (3
)

   
 
1,411
 
 
    $   5,487      $       638      $       (563
)

    $     91     
$
  5,653
 
Presented as:
                                             
Allowance for credit losses on loans
    $ 5,348                                
$
5,513
 
Allowance for credit losses on acceptances
(1)
      31                                
 
40
 
Allowance for credit losses on
off-balance
sheet exposures
(2)
      108     
 
 
 
   
 
 
 
   
 
 
 
   
 
100
 
 
(1)
Allowance for credit losses on acceptances are recorded against the financial asset in the Consolidated Statement of Financial Position.
 
(2)
Allowance for credit losses on
off-balance
sheet exposures is recorded in other liabilities in the Consolidated Statement of Financial Position.
 
($ millions)
    Balance as at
November 1,
2021		      Provision for
credit losses		     
Net write-offs
      Other, including
foreign currency
adjustment		      Balance as at
January 31,
2022		  
Residential mortgages
    $ 802      $ 26      $ (14 )     $ 21      $ 835  
Personal loans
      2,341        111        (240 )       37        2,249  
Credit cards
      1,211        73        (139 )       20        1,165  
Business and government
      1,374        12        (64 )       9        1,331  
 
    $   5,728      $   222      $   (457 )     $   87      $   5,580  
Presented as:
                                             
Allowance for credit losses on loans
    $ 5,626                                 $ 5,492  
Allowance for credit losses on acceptances
(1)
      37                                   33  
Allowance for credit losses on
off-balance
sheet exposures
(2)
      65     
 
 
 
   
 
 
 
   
 
 
 
      55  
  (1)
Allowance for credit losses on acceptances are recorded against the financial asset in the Consolidated Statement of Financial Position.
  (2)
Allowance for credit losses on
off-balance
sheet exposures is recorded in other liabilities in the Consolidated Statement of Financial Position.
 
Allowance for credit losses on loans
   
As at January 31, 2023
  
($ millions)
   
Stage 1
     
Stage 2
     
Stage 3
     
Total
  
Residential mortgages
   
$
209
 
   
$
301
 
   
$
428
 
   
$
938
 
Personal loans
   
 
673
 
   
 
968
 
   
 
563
 
   
 
2,204
 
Credit cards
   
 
436
 
   
 
664
 
   
 
–
 
   
 
1,100
 
Business and government
   
 
315
 
   
 
293
 
   
 
663
 
   
 
1,271
 
Total
(1)
   
$
1,633
 
   
$
2,226
 
   
$
1,654
 
   
$
5,513
 
  (1)
Excludes allowance for credit losses of $155 for other financial assets including acceptances, investment securities, deposits with banks,
off-balance
sheet credit risks and reverse repos.
 
      As at October 31, 2022  
($ millions)
    Stage 1      Stage 2      Stage 3      Total  
Residential mortgages
    $ 197      $ 296      $ 406      $ 899  
Personal loans
      665        921        551        2,137  
Credit cards
      436        647        –        1,083  
Business and government
      255        296        678        1,229  
Total
(1)
    $   1,553      $   2,160      $   1,635      $   5,348  
  (1)
Excludes allowance for credit losses of $151
for other financial assets including acceptances, investment securities, deposits with banks, off-balance sheet credit risks and reverse repos. 
 
      As at January 31, 2022  
($ millions)
    Stage 1      Stage 2      Stage 3      Total  
Residential mortgages
    $ 161      $ 279      $ 395      $ 835  
Personal loans
      655        1,020        574        2,249  
Credit cards
      399        766        –        1,165  
Business and government
      198        391        654        1,243  
Total
(1)
    $   1,413      $   2,456      $   1,623      $   5,492  
  (1)
Excludes allowance for credit losses of $91
for other financial assets including acceptances, investment securities, deposits with banks, off-balance sheet credit risks and reverse repos. 
 
Scotiabank First Quarter Report 2023
    65
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
The following table presents the changes to the allowance for credit losses on loans.
 
  
 
As at January 31, 2023
 
 
As at January 31, 2022
 
($ millions)
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
Total
 
Retail loans:
                                                                
Residential mortgages
                                                                
Balance at beginning of period
  
$
197
 
  
$
296
 
  
$
406
 
  
$
899
 
   $ 152     $ 276     $ 374     $ 802  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(31
)
  
 
9
 
  
 
49
 
  
 
27
 
     (19 )      11       29       21  
Newly originated or purchased financial assets
  
 
9
 
  
 
–
 
  
 
–
 
  
 
9
 
     10       –       –       10  
Derecognition of financial assets and maturities
  
 
(2
)
  
 
(3
)
  
 
–
 
  
 
(5
)
     (2 )      (3 )      –       (5 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
37
 
  
 
(29
)
  
 
(8
)
  
 
–
 
     19       (17 )      (2 )      –  
Stage 2
  
 
(7
)
  
 
31
 
  
 
(24
)
  
 
–
 
     (2 )      7       (5 )      –  
Stage 3
  
 
–
 
  
 
(13
)
  
 
13
 
  
 
–
 
     –       (3 )      3       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(22
)
  
 
(22
)
     –       –       (21 )      (21 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
7
 
  
 
7
 
     –       –       7       7  
Foreign exchange and other movements
  
 
6
 
  
 
10
 
  
 
7
 
  
 
23
 
     3       8       10       21  
Balance at end of period
(2)
  
$
209
 
  
$
301
 
  
$
428
 
  
$
938
 
   $ 161     $ 279     $ 395     $ 835  
Personal loans
                                                                
Balance at beginning of period
  
$
665
 
  
$
921
 
  
$
551
 
  
$
2,137
 
   $ 644     $ 1,071     $ 626     $ 2,341  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(181
)
  
 
242
 
  
 
183
 
  
 
244
 
     (156 )      95       144       83  
Newly originated or purchased financial assets
  
 
90
 
  
 
–
 
  
 
–
 
  
 
90
 
     75       –       –       75  
Derecognition of financial assets and maturities
  
 
(21
)
  
 
(37
)
  
 
–
 
  
 
(58
)
     (18 )      (29 )      –       (47 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
157
 
  
 
(154
)
  
 
(3
)
  
 
–
 
     130       (127 )      (3 )      –  
Stage 2
  
 
(46
)
  
 
63
 
  
 
(17
)
  
 
–
 
     (30 )      44       (14 )      –  
Stage 3
  
 
(2
)
  
 
(84
)
  
 
86
 
  
 
–
 
     (1 )      (50 )      51       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(307
)
  
 
(307
)
     –       –       (307 )      (307 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
57
 
  
 
57
 
     –       –       67       67  
Foreign exchange and other movements
  
 
11
 
  
 
17
 
  
 
13
 
  
 
41
 
     11       16       10       37  
Balance at end of period
(2)
  
$
673
 
  
$
968
 
  
$
563
 
  
$
2,204
 
   $ 655     $ 1,020     $ 574     $ 2,249  
Credit cards
                                                                
Balance at beginning of period
  
$
436
 
  
$
647
 
  
$
–
 
  
$
1,083
 
   $ 352     $ 859     $ –     $ 1,211  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(74
)
  
 
111
 
  
 
140
 
  
 
177
 
     (52 )      5       109       62  
Newly originated or purchased financial assets
  
 
47
 
  
 
–
 
  
 
–
 
  
 
47
 
     28       –       –       28  
Derecognition of financial assets and maturities
  
 
(17
)
  
 
(16
)
  
 
–
 
  
 
(33
)
     (10 )      (7 )      –       (17 ) 
Changes in models and methodologies
  
 
–
   
 
–
   
 
–
 
  
 
–
      –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
67
 
  
 
(67
)
  
 
–
 
  
 
–
 
     87       (87 )      –       –  
Stage 2
  
 
(35
)
  
 
35
 
  
 
–
 
  
 
–
 
     (13 )      13       –       –  
Stage 3
  
 
–
 
  
 
(60
)
  
 
60
 
  
 
–
 
     –       (28 )      28       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(241
)
  
 
(241
)
     –       –       (192 )      (192 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
37
 
  
 
37
 
     –       –       53       53  
Foreign exchange and other movements
  
 
12
 
  
 
14
 
  
 
4
 
  
 
30
 
     7       11       2       20  
Balance at end of period
(2)
  
$
436
 
  
$
664
 
  
$
–
 
  
$
1,100
 
   $ 399     $ 766     $ –     $ 1,165  
Total retail loans
                                                                
Balance at beginning of period
  
$
1,298
 
  
$
1,864
 
  
$
957
 
  
$
4,119
 
   $ 1,148     $ 2,206     $   1,000     $   4,354  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(286
)
  
 
362
 
  
 
372
 
  
 
448
 
     (227 )      111       282       166  
Newly originated or purchased financial asset
s
  
 
146
 
  
 
–
 
  
 
–
 
  
 
146
 
     113       –       –       113  
Derecognition of financial assets and maturities
  
 
(40
)
  
 
(56
)
  
 
–
 
  
 
(96
)
     (30 )      (39 )      –       (69 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
261
 
  
 
(250
)
  
 
(11
)
  
 
–
 
     236       (231 )      (5 )      –  
Stage 2
  
 
(88
)
  
 
129
 
  
 
(41
)
  
 
–
 
     (45 )      64       (19 )      –  
Stage 3
  
 
(2
)
  
 
(157
)
  
 
159
 
  
 
–
 
     (1 )      (81 )      82       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(570
)
  
 
(570
)
     –       –       (520 )      (520 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
101
 
  
 
101
 
     –       –       127       127  
Foreign exchange and other movements
  
 
29
 
  
 
41
 
  
 
24
 
  
 
94
 
     21       35       22       78  
Balance at end of period
(2)
  
$
1,318
 
  
$
1,933
 
  
$
991
 
  
$
4,242
 
   $   1,215     $   2,065     $ 969     $ 4,249  
Non-retail
loans:
                                                                
Business and government
                                                                
Balance at beginning of period
  
$
322
 
  
$
320
 
  
$
695
 
  
$
1,337
 
   $ 212     $ 470     $ 655     $ 1,337  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
20
 
  
 
11
 
  
 
85
 
  
 
116
 
     (30 )      (14 )      76       32  
Newly originated or purchased financial assets
  
 
97
 
  
 
–
 
  
 
–
 
  
 
97
 
     56       –       –       56  
Derecognition of financial assets and maturities
  
 
(73
)
  
 
(8
)
  
 
(3
)
  
 
(84
)
     (41 )      (20 )      (11 )      (72 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
      
 
      
 
      
 
      
 
                                
Stage 1
  
 
22
 
  
 
(22
)
  
 
–
 
  
 
–
 
     42       (42 )      –       –  
Stage 2
  
 
(8
)
  
 
8
 
  
 
–
 
  
 
–
 
     (8 )      8       –       –  
Stage 3
  
 
–
 
  
 
(1
)
  
 
1
 
  
 
–
 
     –       –       –       –  
Gross write-offs  
 
–
 
  
 
–
 
  
 
(106
)
  
 
(106
)
     –       –       (73 )      (73 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
12
 
  
 
12
 
     –       –       9       9  
Foreign exchange and other movements
  
 
–
 
  
 
4
 
  
 
(5
)
  
 
(1
)
     2       9       (2 )      9  
Balance at end of period including
off-balance
sheet exposures
(2)
  
$
380
 
  
$
312
 
  
$
679
 
  
$
1,371
 
   $ 233     $ 411     $ 654     $ 1,298  
Less: Allowance for credits losses on
off-balance
sheet exposures
(3)
  
 
(65
)
  
 
(19
)
  
 
(16
)
  
 
(100
)
     (35 )      (20 )      –       (55 ) 
Balance at end of period
(2)
  
$
315
 
  
$
293
 
  
$
663
 
  
$
1,271
 
   $ 198     $ 391     $ 654     $ 1,243  
  (1)
Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments.
  (2)
Additional interest income of approximately $86 would have been recorded if the above loans had not been classified as impaired 
(January 31, 2022 – $61).
  (3)
Allowance for credit losses on
off-balance
sheet exposures is recorded in other liabilities in the Consolidated Statement of Financial Position.

66    
Scotiabank First Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
  (d)
Carrying value of exposures by risk rating
 
Residential
mortgages
 
As at January 31, 2023
 
 
As at October 31, 2022
 
Category of PD grades
($ millions)
 
Stage 1
 
 
Stage 2
 
 
Stage 3
(1)
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
(1)
 
 
Total
 
Very low
  
$
207,851
 
  
$
583
 
  
$
–
 
  
$
208,434
 
   $ 208,526     $ 635     $ –     $ 209,161  
Low
  
 
93,497
 
  
 
930
 
  
 
–
 
  
 
94,427
 
     90,745       1,172       –       91,917  
Medium
  
 
19,848
 
  
 
1,102
 
  
 
–
 
  
 
20,950
 
     18,399       1,032       –       19,431  
High
  
 
3,067
 
  
 
2,732
 
  
 
–
 
  
 
5,799
 
     2,759       2,680       –       5,439  
Very high
  
 
62
 
  
 
1,707
 
  
 
–
 
  
 
1,769
 
     53       1,429       –       1,482  
Loans not graded
(2)
  
 
19,396
 
  
 
1,213
 
  
 
–
 
  
 
20,609
 
     19,276       1,187       –       20,463  
Default
  
 
–
 
  
 
–
 
  
 
1,539
 
  
 
1,539
 
     –       –       1,386       1,386  
Total
  
$
343,721
 
  
$
8,267
 
  
$
1,539
 
  
$
353,527
 
   $   339,758     $   8,135     $ 1,386     $   349,279  
Allowance for credit losses
  
 
209
 
  
 
301
 
  
 
428
 
  
 
938
 
     197       296       406       899  
Carrying value
  
$
343,512
 
  
$
7,966
 
  
$
1,111
 
  
$
352,589
 
   $ 339,561     $ 7,839     $ 980     $ 348,380  
  (1)
Stage 3 includes purchased or originated credit-impaired loans.
  (2)
Portfolios where the customer account level ‘Probability of Default’ has not been determined have been included in the ‘Loans not graded’ category.
 
Personal loans
 
As at January 31, 2023
 
 
As at October 31, 2022
 
Category of PD grades
($ millions)
 
Stage 1
 
 
Stage 2
 
 
Stage 3
(1)
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
(1)
 
 
Total
 
Very low
  
$
30,068
 
  
$
186
 
  
$
–
 
  
$
30,254
 
   $ 30,098     $ 285     $ –     $ 30,383  
Low
  
 
27,908
 
  
 
548
 
  
 
–
 
  
 
28,456
 
     27,284       685       –       27,969  
Medium
  
 
8,644
 
  
 
584
 
  
 
–
 
  
 
9,228
 
     8,789       1,464       –       10,253  
High
  
 
7,534
 
  
 
3,125
 
  
 
–
 
  
 
10,659
 
     7,059       2,275       –       9,334  
Very high
  
 
74
 
  
 
1,788
 
  
 
–
 
  
 
1,862
 
     81       1,655       –       1,736  
Loans not graded
(2)
  
 
18,040
 
  
 
1,574
 
  
 
–
 
  
 
19,614
 
     17,371       1,537       –       18,908  
Default
  
 
–
 
  
 
–
 
  
 
968
 
  
 
968
 
     –       –       848       848  
Total
  
$
92,268
 
  
$
7,805
 
  
$
968
 
  
$
101,041
 
   $   90,682     $   7,901     $ 848     $   99,431  
Allowance for credit losses
  
 
673
 
  
 
968
 
  
 
563
 
  
 
2,204
 
     665       921       551       2,137  
Carrying value
  
$
91,595
 
  
$
6,837
 
  
$
405
 
  
$
98,837
 
   $ 90,017     $ 6,980     $ 297     $ 97,294  
  (1)
Stage 3 includes purchased or originated credit-impaired loans.
  (2)
Portfolios where the customer account level ‘Probability of Default’ has not been determined have been included in the ‘Loans not graded’ category.
 
Credit cards
 
As at January 31, 2023
 
 
As at October 31, 2022
 
Category of PD grades
($ millions)
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
Total
 
Very low
  
$
1,826
 
  
$
54
 
  
$
–
 
  
$
1,880
 
   $ 1,813     $ 47     $ –     $ 1,860  
Low
  
 
3,018
 
  
 
123
 
  
 
–
 
  
 
3,141
 
     2,756       159       –       2,915  
Medium
  
 
3,760
 
  
 
144
 
  
 
–
 
  
 
3,904
 
     3,434       190       –       3,624  
High
  
 
3,200
 
  
 
1,055
 
  
 
–
 
  
 
4,255
 
     3,042       998       –       4,040  
Very high
  
 
36
 
  
 
681
 
  
 
–
 
  
 
717
 
     36       587       –       623  
Loans not graded
(1)
  
 
1,116
 
  
 
481
 
  
 
–
 
  
 
1,597
 
     997       459       –       1,456  
Default
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Total
  
$
12,956
 
  
$
2,538
 
  
$
–
 
  
$
15,494
 
   $ 12,078     $ 2,440     $ –     $ 14,518  
Allowance for credit losses
  
 
436
 
  
 
664
 
  
 
–
 
  
 
1,100
 
     436       647       –       1,083  
Carrying value
  
$
12,520
 
  
$
1,874
 
  
$
–
 
  
$
14,394
 
   $   11,642     $   1,793     $ –     $   13,435  
  (1)
Portfolios where the customer account level ‘Probability of Default’ has not been determined have been included in the ‘Loans not graded’ category.
 

Undrawn loan
commitments –
Retail
 
As at January 31, 2023
 
 
As at October 31, 2022
 
Category of PD grades
($ millions)
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
Total
 
Very low
  
$
100,943
 
  
$
6
 
  
$
–
 
  
$
100,949
 
   $ 98,973     $ 6     $ –     $ 98,979  
Low
  
 
19,113
 
  
 
8
 
  
 
–
 
  
 
19,121
 
     19,196       9       –       19,205  
Medium
  
 
7,907
 
  
 
13
 
  
 
–
 
  
 
7,920
 
     7,880       44       –       7,924  
High
  
 
3,593
 
  
 
347
 
  
 
–
 
  
 
3,940
 
     3,700       307       –       4,007  
Very high
  
 
33
 
  
 
334
 
  
 
–
 
  
 
367
 
     34       354       –       388  
Loans not graded
(1)
  
 
9,501
 
  
 
1,815
 
  
 
–
 
  
 
11,316
 
     8,316       1,667       –       9,983  
Default
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Carrying value
  
$
141,090
 
  
$
2,523
 
  
$
–
 
  
$
143,613
 
   $   138,099     $   2,387     $ –     $   140,486  
  (1)
Portfolios where the customer account level ‘Probability of Default’ has not been determined have been included in the ‘Loans not graded’ category.
 
Scotiabank First Quarter Report 2023
    67
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 
Total retail loans
 
As at January 31, 2023
 
 
As at October 31, 2022
 
Category of PD grades
($ millions)
 
Stage 1
 
 
Stage 2
 
 
Stage 3
(1)
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
(1)
 
 
Total
 
Very low
  
$
340,688
 
  
$
829
 
  
$
–
 
  
$
341,517
 
   $ 339,410     $ 973     $ –     $ 340,383  
Low
  
 
143,536
 
  
 
1,609
 
  
 
–
 
  
 
145,145
 
     139,981       2,025       –       142,006  
Medium
  
 
40,159
 
  
 
1,843
 
  
 
–
 
  
 
42,002
 
     38,502       2,730       –       41,232  
High
  
 
17,394
 
  
 
7,259
 
  
 
–
 
  
 
24,653
 
     16,560       6,260       –       22,820  
Very high
  
 
205
 
  
 
4,510
 
  
 
–
 
  
 
4,715
 
     204       4,025       –       4,229  
Loans not graded
(2)
  
 
48,053
 
  
 
5,083
 
  
 
–
 
  
 
53,136
 
     45,960       4,850       –       50,810  
Default
  
 
–
 
  
 
–
 
  
 
2,507
 
  
 
2,507
 
     –       –       2,234       2,234  
Total
  
$
590,035
 
  
$
21,133
 
  
$
2,507
 
  
$
613,675
 
   $ 580,617     $ 20,863     $ 2,234     $ 603,714  
Allowance for credit losses
  
 
1,318
 
  
 
1,933
 
  
 
991
 
  
 
4,242
 
     1,298       1,864       957       4,119  
Carrying value
  
$
588,717
 
  
$
19,200
 
  
$
1,516
 
  
$
609,433
 
   $   579,319     $   18,999     $   1,277     $   599,595  
  (1)
Stage 3 includes purchased or originated credit-impaired loans.
  (2)
Portfolios where the customer account level ‘Probability of Default’ has not been determined have been included in the ‘Loans not graded’ category.
 
Business and
government loans
 
As at January 31, 2023
 
 
As at October 31, 2022
 
Grade
($ millions)
 
Stage 1
 
 
Stage 2
 
 
Stage 3
(1)
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
(1)
 
 
Total
 
Investment grade
  
$
162,899
 
  
$
1,230
 
  
$
–
 
  
$
164,129
 
   $ 162,696     $ 1,775     $ –     $ 164,471  
Non-investment
grade
  
 
109,684
 
  
 
9,104
 
  
 
–
 
  
 
118,788
 
     105,251       9,563       –       114,814  
Watch list
  
 
22
 
  
 
2,693
 
  
 
–
 
  
 
2,715
 
     22       2,890       –       2,912  
Loans not graded
(2)
  
 
2,365
 
  
 
14
 
  
 
–
 
  
 
2,379
 
     2,346       12       –       2,358  
Default
  
 
–
 
  
 
–
 
  
 
2,597
 
  
 
2,597
 
     –       –       2,552       2,552  
Total
  
$
274,970
 
  
$
13,041
 
  
$
2,597
 
  
$
290,608
 
   $ 270,315     $ 14,240     $ 2,552     $ 287,107  
Allowance for credit losses
  
 
315
 
  
 
293
 
  
 
663
 
  
 
1,271
 
     255       296       678       1,229  
Carrying value
  
$
274,655
 
  
$
12,748
 
  
$
1,934
 
  
$
289,337
 
   $   270,060     $   13,944     $   1,874     $   285,878  
  (1)
Stage 3 includes purchased or originated credit-impaired loans.
  (2)
Portfolios where the customer account level ‘Probability of Default’ has not been determined have been included in the ‘Loans not graded’ category.
 
Undrawn loan
commitments –
Business and
government
 
As at January 31, 2023
 
 
As at October 31, 2022
 
Grade
($ millions)
 
Stage 1
 
 
Stage 2
 
 
Stage 3
(1)
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
(1)
 
 
Total
 
Investment grade
  
$
227,270
 
  
$
1,474
 
  
$
–
 
  
$
228,744
 
   $ 222,734     $ 1,502     $ –     $ 224,236  
Non-investment
grade
  
 
62,077
 
  
 
4,083
 
  
 
–
 
  
 
66,160
 
     62,827       4,534       –       67,361  
Watch list
  
 
5
 
  
 
639
 
  
 
–
 
  
 
644
 
     4       604       –       608  
Loans not graded
(2)
  
 
4,738
 
  
 
1
 
  
 
–
 
  
 
4,739
 
     4,573       –       –       4,573  
Default
  
 
–
 
  
 
–
 
  
 
129
 
  
 
129
 
     –       –       139       139  
Total
  
$
294,090
 
  
$
6,197
 
  
$
129
 
  
$
300,416
 
   $ 290,138     $ 6,640     $ 139     $ 296,917  
Allowance for credit losses
  
 
65
 
  
 
19
 
  
 
16
 
  
 
100
 
     67       24       17       108  
Carrying value
  
$
294,025
 
  
$
6,178
 
  
$
113
 
  
$
300,316
 
   $   290,071     $   6,616     $   122     $   296,809  
  (1)
Stage 3 includes purchased or originated credit-impaired loans.
  (2)
Portfolios where the customer account level ‘Probability of Default’ has not been determined have been included in the ‘Loans not graded’ category.
 
Total
non-retail

loans
 
As at January 31, 2023
 
 
As at October 31, 2022
 
Grade
($ millions)
 
Stage 1
 
 
Stage 2
 
 
Stage 3
(1)
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
(1)
 
 
Total
 
Investment grade
  
$
390,169
 
  
$
2,704
 
  
$
–
 
  
$
392,873
 
   $ 385,430     $ 3,277     $ –     $ 388,707  
Non-investment
grade
  
 
171,761
 
  
 
13,187
 
  
 
–
 
  
 
184,948
 
     168,078       14,097       –       182,175  
Watch list
  
 
27
 
  
 
3,332
 
  
 
–
 
  
 
3,359
 
     26       3,494       –       3,520  
Loans not graded
(2)
  
 
7,103
 
  
 
15
 
  
 
–
 
  
 
7,118
 
     6,919       12       –       6,931  
Default
  
 
–
 
  
 
–
 
  
 
2,726
 
  
 
2,726
 
     –       –       2,691       2,691  
Total
  
$
569,060
 
  
$
19,238
 
  
$
2,726
 
  
$
591,024
 
   $ 560,453     $ 20,880     $ 2,691     $ 584,024  
Allowance for credit losses
  
 
380
 
  
 
312
 
  
 
679
 
  
 
1,371
 
     322       320       695       1,337  
Carrying value
  
$
568,680
 
  
$
18,926
 
  
$
2,047
 
  
$
589,653
 
   $   560,131     $   20,560     $   1,996     $   582,687  
  (1)
Stage 3 includes purchased or originated credit-impaired loans.
  (2)
Portfolios where the customer account level ‘Probability of Default’ has not been determined have been included in the ‘Loans not graded’ category.
 
68    
Scotiabank First Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
  (e)
Loans past due but not impaired
(1)
A loan is considered past due wh
e
n a counterparty has not made a payment by the contractual due date. The following table presents the carrying value of loans that are contractually past due but not classified as impaired because they are either less than 90 days past due or fully secured and collection efforts are reasonably expected to result in repayment, or restoring it to a current status in accordance with the Bank’s policy.

 
  
 
As at January 31, 2023
(2)
 
 
As at October 31, 2022
(2)
 
($ millions)
 
31-60
days
 
 
61-90
days
 
 
91 days
and greater
(3)
 
 
Total
 
 
31-60

days
 
 
61-90

days
 
 
91 days
and greater
(3)
 
 
Total
 
Residential mortgages
  
$
1,034
 
  
$
509
 
  
$
–
 
  
$
1,543
 
   $ 1,015     $ 482     $ –     $ 1,497  
Personal loans
  
 
525
 
  
 
300
 
  
 
–
 
  
 
825
 
     505       254       –       759  
Credit cards
  
 
192
 
  
 
129
 
  
 
270
 
  
 
591
 
     173       113       249       535  
Business and government
  
 
121
 
  
 
64
 
  
 
–
 
  
 
185
 
     122       47       –       169  
Total
  
$
1,872
 
  
$
1,002
 
  
$
270
 
  
$
3,144
 
   $   1,815     $   896     $   249     $   2,960  
  (1)
Loans past due 30 days or less are not presented in this analysis as they are not administratively considered past due.
  (2)
For loans where payment deferrals were granted, deferred payments are not considered past due and such loans are not aged further during the deferral period. Regular ageing of the loans resumes, after the end of the deferral period.
  (3)
All loans that are over 90 days past due are considered impaired with the exception of credit card receivables which are considered impaired when 180 days past due.
 
  (f)
Purchased credit-impaired loans
Certain financial assets including loans are credit-impaired on initial recognition. The following table provides details of such
assets:
 
  
  
As at  
 
($ millions)
  
January 31
2023
 
  
October 31
2022
 
Unpaid principal balance
(1)
   
$
311
 
   $ 309  
Credit related fair value adjustments
   
 
(74
)
      (70 ) 
Carrying value
   
 
237
 
      239  
Stage 3 allowance
   
 
(2
)
      (2 ) 
Carrying value net related allowance
   
$
   235
 
    $   237  
  (1)
Represents principal amount owed net of write-offs.
 
8
.
Derecognition of financial assets
Securitization of residential mortgage loans
The Bank securitizes fully insured residential mortgage loans, Bank originated and others, through the creation of mortgage-backed securities (MBS) under the National Housing Act (NHA) MBS program, sponsored by Canada Mortgage and Housing Corporation (CMHC). MBS created under the program are sold to Canada Housing Trust (the Trust), a government sponsored entity under the Canada Mortgage Bond (CMB) program. The Trust issues securities to third-party investors. The CMHC also purchased insured mortgage pools from the Bank under the Insured Mortgage Purchase Program (IMPP).
The sale of mortgages under the above programs do not meet the derecognition requirements, where the Bank retains the
pre-payment
and interest rate risks associated with the mortgages, which represent substantially all the risks and rewards associated with the transferred assets.
The transferred mortgages continue to be recognized on the Consolidated Statement of Financial Position as residential mortgage loans. Cash proceeds from the transfer are treated as secured borrowings and included in Deposits – Business and government on the Consolidated Statement of Financial Position.
The following table provides the carrying amount of transferred assets that do not qualify for derecognition and the associated
liabilities:
 
  
  
As at  
 
($ millions)
  
January 31
2023
(1)
 
  
October 31
2022
(1)
 
Assets
                  
Carrying value of residential mortgage loans
   
$
14,898
 
    $ 15,032  
Other related assets
(2)
   
 
9,458
 
      9,854  
Liabilities
                  
Carrying value of associated liabilities
   
$
   22,892
 
    $   24,173  
  (1)
The fair value of the transferred assets is $22,833 (October 31, 2022 – $23,379) and the fair value of the associated liabilities is $22,207 (October 31, 2022 – $23,254) for a net position of $626 (October 31, 2022 – $125).
  (2)
These include cash held in trust and trust permitted investment assets, including repurchase style transactions of mortgage-backed securities, acquired as part of the principal reinvestment account that the Bank is required to maintain in order to participate in the programs.
Securitization of personal lines of credit, credit cards and auto loans
The Bank securitizes a portion of its credit card and auto loan receivables through consolidated structured entities. These receivables continue to be recognized on the Consolidated Statement of Financial Position as personal loans and credit card loans. During the quarter, the Bank did not enter into any new securitization arrangements.
 
Scotiabank First Quarter Report 2023
    69
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Securities sold under repurchase agreements and securities lent
The Bank enters into transactions, such as repurchase agreements and securities lending agreements, where the Bank transfers assets under agreements to repurchase them on a future date and retains all the substantial risks and rewards associated with the assets. The transferred securities remain on the Consolidated Statement of Financial Position.
The following table provides the carrying amount of the transferred assets and the associated
liabilities:
 
  
  
As at  
 
($ millions)
  
January 31
2023
(1)
 
  
October 31
2022
(1)
 
Carrying value of securities associated with:
                  
Repurchase agreements
(2)
   
$
111,534
 
    $ 122,552  
Securities lending agreements
   
 
60,896
 
      52,178  
Total
   
 
172,430
 
      174,730  
Carrying value of associated liabilities
(3)
   
$
   132,206
 
    $   139,025  
  (1)
The fair value of transferred assets is $172,430 (October 31, 2022 – $174,730) and the fair value of the associated liabilities is $132,206 (October 31, 2022 – $139,025) for a net position of $40,224 (October 31, 2022 – $35,705).
  (2)
Does not include over-collateralization of assets pledged.
  (3)
Liabilities for securities lending arrangements only include amounts related to cash collateral received. In most cases, securities are received as collateral.
Continuing involvement in transferred financial assets that qualify for derecognition
Loans issued by the Bank under the Canada Emergency Business Account (CEBA) program are derecognized from the Consolidated Statement of Financial Position as the program meets the pass-through criteria for derecognition of financial assets under IFRS 9.
As at January 31, 2023, the Bank has derecognized $3.8 billion CEBA loans (October 31, 2022 – $3.9 billion). The Bank retains a continuing involvement in these derecognized loans through its servicing of these loans on behalf of Export Development Canada. The appropriate level of administration fees for servicing the loans has been recognized.
 
9
.
Investments in associates
The Bank had significant investments in the following
associates:
 
  
  
  
 
  
  
 
  
  
 
  
 As at
 
  
  
  
 
  
  
 
  
  
 
  
  
 
  
January 31
2023
 
  
October 31
2022
 
($ millions)
  
Country of
incorporation
 
  
Nature of
business
 
  
Ownership
percentage
 
  
Date of financial
statements
(1)
 
  
Carrying
value
 
  
Carrying
value
 
Canadian Tire Financial Services business (CTFS)
(2)
      Canada       
Financial Services  
 
      20.00 %       December 31, 2022     
$
  565
 
    $ 579  
Bank of Xi’an Co. Ltd.
(3)
      China        Banking        18.11 %       December 31, 2022     
 
1,077
 
        1,007  
Maduro & Curiel’s Bank N.V.
(4)
      Curacao        Banking        48.10 %       December 31, 2022     
 
437
 
      438  
  (1)
Represents the date of the most recent financial statements made available to the Bank by the associates’ management.
  (2)
Canadian Tire has an option to sell to the Bank up to an additional 29% equity interest until the end of the 10th anniversary (October 1, 2024) at the then fair value, that can be settled, at the Bank’s discretion, by issuance of common shares or cash. After October 1, 2024 for a period of six months, the Bank has the option to sell its equity interest back to Canadian Tire at the then fair value.
  (3)
Based on the quoted price on the Shanghai Stock Exchange, the Bank’s Investment in Bank of Xi’an Co. Ltd. was $
556
(October 31, 2022 – $489
). The market value of the investment has remained below the carrying amount. The Bank performed an impairment test as at January 31, 2023 using a value in use
(VIU),
discounted cash flow model. The Bank concluded that there is no impairment as at January 31, 2023. 
  (4)
The local regulator requires financial institutions to set aside reserves for general banking risks. These reserves are not required under IFRS, and represent undistributed retained earnings related to a foreign associated corporation, which are subject to local regulatory restrictions. As of January 31, 2023, these reserves amounted to $66 (October 31, 2022 – $67).
 
70    
Scotiabank First Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
1
0
.
Deposits
 
  
 
As at
 
  
 
January 31, 2023
 
 
October 31
2022
 
 
 
Payable on demand
(1)
 
 
Payable
after
notice
(2)
 
 
 
 
 
 
 
 
 
 
($ millions)
 
Interest-
bearing
 
 
Non-interest-

bearing
 
 
Payable on a
fixed date
(3)
 
 
Total
 
 
Total
 
Personal
  
$
  6,331
 
  
$
  10,351
 
  
$
  151,192
 
  
$
  107,005
 
  
$
  274,879
 
   $   265,892  
Business and government
  
 
164,460
 
  
 
34,293
 
  
 
40,106
 
  
 
382,881
 
  
 
621,740
 
     597,617  
Financial institutions
  
 
11,994
 
  
 
1,181
 
  
 
1,800
 
  
 
38,293
 
  
 
53,268
 
     52,672  
 
  
$
182,785
 
  
$
45,825
 
  
$
193,098
(4)
 
  
$
528,179
 
  
$
949,887
 
   $ 916,181  
Recorded in:
                                                
Canada
  
$
130,716
 
  
$
25,910
 
  
$
161,145
 
  
$
352,858
 
  
$
670,629
 
   $ 642,977  
United States
  
 
41,369
 
  
 
81
 
  
 
136
 
  
 
62,684
 
  
 
104,270
 
     104,984  
United Kingdom
  
 
–
 
  
 
–
 
  
 
409
 
  
 
24,950
 
  
 
25,359
 
     24,243  
Mexico
  
 
–
 
  
 
6,871
 
  
 
8,729
 
  
 
18,525
 
  
 
34,125
 
     31,841  
Peru
  
 
5,187
 
  
 
251
 
  
 
5,137
 
  
 
5,345
 
  
 
15,920
 
     16,439  
Chile
  
 
1,471
 
  
 
5,312
 
  
 
176
 
  
 
18,171
 
  
 
25,130
 
     22,105  
Colombia
  
 
33
 
  
 
486
 
  
 
4,674
 
  
 
3,827
 
  
 
9,020
 
     8,211  
Other International
  
 
4,009
 
  
 
6,914
 
  
 
12,692
 
  
 
41,819
 
  
 
65,434
 
     65,381  
Total
(5)
  
$
  
182,785
 
  
$
45,825
 
  
$
193,098
 
  
$
528,179
 
  
$
949,887
 
   $ 916,181  
  (1)
Deposits payable on demand include all deposits for which we do not have the right to notice of withdrawal, generally chequing accounts.
  (2)
Deposits payable after notice include all deposits for which we require notice of withdrawal, generally savings accounts.
  (3)
All deposits that mature on a specified date, generally term deposits, guaranteed investments certificates and similar instruments.
  (4)
Includes $138
 
(October 31, 2022 – $156) of
non-interest-bearing
deposits.
  (5)
Deposits denominated in U.S. dollars amount to $335,247
 
(October 31, 2022 – $326,041), deposits denominated in Chilean pesos amount to $21,103 (October 31, 2022 – $18,740), deposits denominated in Mexican pesos amount to $31,034 (October 31, 2022 – $29,269) and deposits denominated in other foreign currencies amount to $115,591 (October 31, 2022 – $106,817).
The following table presents the maturity schedule for term deposits in Canada greater than $100,000
(1)
.
 
($ millions)
    Within
three months		      Three to
six months		      Six to
twelve months		      One to
five years		      Over
five years		      Total  
As at January 31, 2023
   
$
67,485
 
   
$
34,684
 
   
$
68,819
 
   
$
122,864
 
   
$
18,049
 
   
$
311,901
 
As at October 31, 2022
    $   53,656      $   36,035      $   62,891      $   110,015      $   21,440      $   284,037  
  (1)
The majority of foreign term deposits are in excess of $100,000.
 
1
1
.
Capital and financing transactions
Subordinated debentures
On December 20, 2022, the Bank issued JPY 33 billion 1.800% Fixed Rate Resetting Subordinated Debentures due December 20, 2032 (Non-Viability Contingent Capital (NVCC)). The debentures are subject to optional redemption by the Bank on December 20, 2027. Interest will be payable semi-annually at a rate of 1.800% per annum from and including the issue date to, but excluding, December 20, 2027, and thereafter to, but excluding, December 20, 2032, at the reference Japanese Government Bond rate plus 1.681%. The debentures contain NVCC provisions necessary to qualify as Tier 2 regulatory capital under Basel III.
Common shares
Normal Course Issuer Bid
The Bank currently does not have an active normal course issuer bid and did not repurchase any common shares during the quarter ended January 31, 2023. The Bank’s previous normal course issuer bid terminated on December 1, 2022. Under this program, the Bank repurchased and cancelled approximately
 32.9 million common shares at a volume weighted average price of $87.28 per share for a total amount of $2,873 million. These repurchases were carried out prior to October 31, 2022.
 
Scotiabank First Quarter Report 2023
    71
Table of Contents

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
1
2
.
Capital management
The Bank’s regulatory capital, total loss absorbing capacity and leverage measures were as
follows:
 
  
  
   As at
 
($ millions)
  
January 31
2023
 
  
October 31
2022
 
Capital
(1)
                 
Common Equity Tier 1 capital
   
$
54,138
 
    $ 53,081  
Net Tier 1 capital
   
 
62,317
 
      61,262  
Total regulatory capital
   
 
71,867
 
      70,710  
Total loss absorbing capacity (TLAC)
(2)
   
 
131,433
 
      126,565  
Risk-weighted assets/exposures used in calculation of capital ratios
                  
Risk-weighted assets
(1)(3)
   
$
471,528
 
    $ 462,448  
Leverage exposures
(4)
   
 
1,468,559
 
      1,445,619  
Regulatory ratios
(1)
                  
Common Equity Tier 1 capital ratio
   
 
11.5
% 
      11.5 % 
Tier 1 capital ratio
   
 
13.2
% 
      13.2 % 
Total capital ratio
   
 
15.2
% 
      15.3 % 
Total loss absorbing capacity ratio
(2)
   
 
27.9
% 
      27.4 % 
Leverage ratio
(4)
   
 
4.2
% 
      4.2 % 
Total loss absorbing capacity leverage ratio
(2)
   
 
8.9
% 
      8.8 % 
  (1)
This measure has been disclosed in this document in accordance with OSFI Guideline – Capital Adequacy Requirements (November 2018).
  (2)
This measure has been disclosed in this document in accordance with OSFI Guideline – Total Loss Absorbing Capacity (September 2018). 
  (3)
As at January 31, 2023 and October 31, 2022, the Bank did not have a regulatory capital floor
add-on
for CET1, Tier 1, Total capital and TLAC RWA.
  (4)
This measure has been disclosed in this document in accordance with OSFI Guideline – Leverage Requirements (November 2018).
The Bank substantially exceeded the OSFI minimum regulatory capital and TLAC ratios as at January 31, 2023, including the Domestic Stability Buffer requirement. In addition, the Bank substantially exceeded OSFI minimum leverage and TLAC leverage ratios as at January 31, 2023.
 
1
3
.
Share-based payments
During the first quarter, the Bank granted 2,478,138 options with an exercise price of $68.58 per option and a weighted average fair value of $6.81 to select employees, under the terms of the Employee Stock Option Plan. These stock options vest 50% at the end of the third year and 50% at the end of the fourth year. Options granted prior to December 2014 vest evenly over a four-year period.
The Bank recorded an increase to equity – other reserves of $9 million for the three months ended January 31, 2023 (January 31, 2022 – $6 million) as a result of equity-classified share-based payment expense.
 
1
4
.
Employee benefits
Employee benefits include pensions, other post-retirement benefits, and post-employment benefits. The following table summarizes the expenses for the Bank’s principal plans
(1)
.
 
      For the three months ended
 
  
  
Pension plans
 
  
Other benefit plans
 
($ millions)
  
January 31
2023
 
  
January 31
2022
 
  
January 31
2023
 
  
January 31
2022
 
Defined benefit service cost
   
$
  55
 
    $ 79     
$
5
 
    $ 5  
Interest on net defined benefit (asset) liability
   
 
(9
)
      (1 )    
 
16
 
      12  
Other
   
 
3
 
      4     
 
2
 
      (2 ) 
Defined benefit expense
   
$
49
 
    $ 82     
$
23
 
    $ 15  
Defined contribution expense
   
$
37
 
    $ 30     
 
–
 
        –  
Increase (Decrease) in other comprehensive income related to employee benefits
(2)
   
$
(170
)
    $   109     
$
  (49
)
    $ 39  
  (1)
Other plans operated by certain subsidiaries of the Bank are not considered material and are not included in this note.
  (2)
Changes in discount rates and return on plan assets are reviewed and updated on a quarterly basis. In the absence of legislated changes, all other assumptions are updated annually.
 
15.
Operating segments
Scotiabank is a diversified financial services institution that provides a wide range of financial products and services to retail, commercial and corporate customers around the world. The Bank’s businesses are grouped into four business lines: Canadian Banking, International Banking, Global Wealth Management and Global Banking and Markets. Other smaller business segments are included in the Other segment. The results of these business segments are based upon the internal financial reporting systems of the Bank. The accounting policies used in these segments are generally consistent with those followed in the preparation of the consolidated financial statements as disclosed in Note 3 of the Bank’s audited consolidated financial statements in the 2022 Annual Report. Notable accounting measurement differences are:
 
 
•
 
tax normalization adjustments related to the
gross-up
of income from associated corporations. This adjustment normalizes the effective tax rate in the divisions to better present the contribution of the associated companies to the divisional results.
 
 
•
 
the grossing up of
tax-exempt
net interest income and
non-interest
income to an equivalent
before-tax
basis for those affected segments. This change in measurement enables comparison of net interest income and
non-interest
income arising from taxable and
tax-exempt
sources.
 
72    
Scotiabank First Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
 
Scotiabank’s results, and average assets and liabilities, allocated by these operating segments, are as
follows:

 
     
For the three months ended January 31, 2023
  
Taxable equivalent basis
($ millions)
   
Canadian
Banking
     
International
Banking
     
Global
Wealth
Management
     
Global
Banking and
Markets
     
Other
(1)
     
Total
  
Net interest income
(2)
   
$
     2,386
 
   
$
        1,899
 
   
$
        213
 
   
$
         454
 
   
$
   (383
)
   
$
 
 
4,569
 
Non-interest
income
(3)(4)
   
 
778
 
   
 
802
 
   
 
1,110
 
   
 
1,049
 
   
 
(328
)
   
 
3,411
 
Total revenues
   
 
3,164
 
   
 
2,701
 
   
 
1,323
 
   
 
1,503
 
   
 
(711
)
   
 
7,980
 
Provision for credit losses
   
 
218
 
   
 
404
 
   
 
1
 
   
 
15
 
   
 
–
 
   
 
638
 
Non-interest
expenses
   
 
1,449
 
   
 
1,436
 
   
 
802
 
   
 
773
 
   
 
4
 
   
 
4,464
 
Provision for income taxes
   
 
410
 
   
 
169
 
   
 
133
 
   
 
196
 
   
 
198
 
   
 
1,106
 
Net income
   
$
1,087
 
   
$
692
 
   
$
387
 
   
$
519
 
   
$
(913
)
   
$
1,772
 
Net income attributable to
non-controlling
interests in
subsidiaries
   
$
–
 
   
$
38
 
   
$
2
 
   
$
–
 
   
$
–
 
   
$
40
 
Net income attributable to equity holders of the Bank
   
$
1,087
 
   
$
654
 
   
$
385
 
   
$
519
 
   
$
(913
)
   
$
1,732
 
Average assets
($ billions)
  
$
450
 
   
$
228
 
   
$
34
 
   
$
481
 
   
$
187
 
   
$
1,380
 
Average liabilities
($ billions)
  
$
357
 
   
$
169
 
   
$
42
 
   
$
455
 
   
$
282
 
   
$
1,305
 
  (1)
Includes all other smaller operating segments and corporate adjustments, such as the elimination of the
tax-exempt
income
gross-up
reported in net interest income and
non-interest
income and provision for income taxes of $120 to arrive at the amounts reported in the Consolidated Statement of Income and differences in the actual amount of costs incurred and charged to the operating segments.
  (2)
Interest income is reported net of interest expense as management relies primarily on net interest income as a performance measure.
  (3)
Card revenues and Banking services fees are mainly earned in Canadian and International Banking. Mutual fund, Brokerage fees and Investment management and trust fees are primarily earned in Global Wealth Management. Underwriting and other advisory fees are predominantly earned in Global Banking and Markets.
  (4)
Includes income (on a taxable equivalent basis) from investments in associated corporations for Canadian Banking – $15; International Banking – $63, Global Wealth Management – $3, and Other – $(65).
 
      For the three months ended October 31, 2022  
Taxable equivalent basis
($ millions)
    Canadian
Banking		      International
Banking		      Global
Wealth
Management		      Global
Banking and
Markets		      Other
(1)
      Total  
Net interest income
(
2
)
    $   2,363      $   1,806      $ 206      $ 492      $ (245 )     $ 4,622  
Non-interest
income
(
3
)(
4
)
      771        698          1,083        862        (410 )       3,004  
Total revenues
      3,134        2,504        1,289          1,354          (655 )         7,626  
Provision for credit losses
      163        355        1        11        (1 )       529  
Non-interest
expenses
      1,397        1,364        798        696        274        4,529  
Provision for income taxes
      404        106        127        163        (325 )       475  
Net income
    $ 1,170      $ 679      $ 363      $ 484      $ (603 )     $ 2,093  
Net income attributable to
non-controlling
interests in
 
subsidiaries
    $ –      $ 36      $ 2      $ –      $ –      $ 38  
Net income attributable to equity holders of the Bank
    $ 1,170      $ 643      $ 361      $ 484      $ (603 )     $ 2,055  
Average assets
($ billions)
   $ 446      $ 217      $ 34      $ 461      $ 175      $ 1,333  
Average liabilities
($ billions)
    $ 347      $ 160      $ 44      $ 430      $ 278      $ 1,259  
  (1)
Includes all other smaller operating segments and corporate adjustments, such as the elimination of the
tax-exempt
income
gross-up
reported in net interest income and
non-interest
income and provision for income taxes of $99 to arrive at the amounts reported in the Consolidated Statement of Income and differences in the actual amount of costs incurred and charged to the operating segments.
(2)
Interest income is reported net of interest expense as management relies primarily on net interest income as a performance measure.
 
(3)
Card revenues and Banking services fees are mainly earned in Canadian and International Banking. Mutual fund, Brokerage fees and Investment management and trust fees are primarily earned in Global Wealth Management. Underwriting and other advisory fees are predominantly earned in Global Banking and Markets.
 
(4)
Includes income (on a taxable equivalent basis) from investments in associated corporations for Canadian Banking – $23; International Banking – $51, Global Wealth Management – $5, and Other – $(30).
 
Scotiabank First Quarter Report 2023
    73
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
      For the three months ended January 31, 2022  
Taxable equivalent basis
($ millions)
    Canadian
Banking		      International
Banking		      Global
Wealth
Management		      Global
Banking and
Markets		      Other
(1)
      Total  
Net interest income
(2)
    $   2,133      $   1,648      $ 174      $ 373      $ 16      $ 4,344  
Non-interest
income
(3)(4)
      741        749          1,248          1,031        (64 )       3,705  
Total revenues
      2,874        2,397        1,422        1,404        (48 )       8,049  
Provision for credit losses
      (35 )       274        (1 )       (16 )       –        222  
Non-interest
expenses
      1,282        1,285        862        670        124          4,223  
Provision for income taxes
      426        208        146        189          (105 )       864  
Net income
    $ 1,201      $ 630      $ 415      $ 561      $ (67 )     $ 2,740  
Net income attributable to
non-controlling
interests in subsidiaries
    $ –      $ 85      $ 3      $ –      $ –      $ 88  
Net income attributable to equity holders of the Bank
    $ 1,201      $ 545      $ 412      $ 561      $ (67 )     $ 2,652  
Average assets
($ billions)
   $ 412      $ 196      $ 31      $ 444      $ 156      $ 1,239  
Average liabilities
($ billions)
    $ 320      $ 144      $ 47      $ 407      $ 247      $ 1,165  
  (1)
Includes all other smaller operating segments and corporate adjustments, such as the elimination of the
tax-exempt
income
gross-up
reported in net interest income and
non-interest
income and provision for income taxes of $92 to arrive at the amounts reported in the Consolidated Statement of Income and differences in the actual amount of costs incurred and charged to the operating segments.
  (2)
Interest income is reported net of interest expense as management relies primarily on net interest income as a performance measure.
  (3)
Card revenues and Banking services fees are mainly earned in Canadian and International Banking. Mutual fund, Brokerage fees and Investment management and trust fees are primarily earned in Global Wealth Management. Underwriting and other advisory fees are predominantly earned in Global Banking and Markets.
  (4)
Includes income (on a taxable equivalent basis) from investments in associated corporations for Canadian Banking – $8; International Banking – $68, Global Wealth Management – $1, and Other – $14.
 
16.
Interest income and expense
 
  
  
For the three months ended
 
  
  
January 31, 2023
 
  
October 31, 2022
 
 
January 31, 2022
 
($ millions)
  
Interest
income
 
 
Interest
expense
 
  
Interest
income
 
  
Interest
expense
 
 
Interest
income
 
  
Interest
expense
 
Measured at amortized cost
(1)
   
$
  11,897
 
  
$
  8,545
 
    $   10,058      $   6,454     $   6,150      $   2,069  
Measured at FVOCI
(1)
   
 
813
 
  
 
–
 
      645        –       181        –  
    
 
12,710
 
  
 
8,545
 
      10,703        6,454       6,331        2,069  
Other
   
 
446
(2)
 
  
 
42
(3)
 
      415
(2)
 		      42
(3)
 		     132
(2)
 		      50
(3)
 
Total
   
$
13,156
 
  
$
8,587
 
    $ 11,118      $ 6,496     $ 6,463      $ 2,119  
  (1)
The interest income/expense on financial assets/liabilities are calculated using the effective interest method.
  (2)
Includes dividend income on equity securities.
  (3)
Includes interest on lease liabilities for the three months ended January 31, 2023 of
 
$
26
 
(October 31, 2022 – $
27
; January 31, 2022 – $
27
).
 
17.
Earnings per share
 
  
  
For the three months ended
 
($ millions)
  
January 31
2023
 
  
October 31
2022
 
  
January 31
2022
 
Basic earnings per common share
                           
Net income attributable to common shareholders
   
$
  1,631
 
    $   1,949      $   2,608  
Weighted average number of common shares outstanding
(millions)
   
 
1,192
 
      1,192        1,211  
Basic earnings per common share
(1)
(in dollars)
   
$
1.37
 
    $ 1.64      $ 2.15  
Diluted earnings per common share
                           
Net income attributable to common shareholders
   
$
1,631
 
    $ 1,949      $ 2,608  
Dilutive impact of share-based payment options and others
(2)
   
 
(4
)
      4        24  
Net income attributable to common shareholders (diluted)
   
$
1,627
 
    $ 1,953      $ 2,632  
Weighted average number of common shares outstanding
(millions)
   
 
1,192
 
      1,192        1,211  
Dilutive impact of share-based payment options and others
(2)
(millions)
   
 
7
 
      7        19  
Weighted average number of diluted common shares outstanding
(millions)
   
 
1,199
 
      1,199        1,230  
Diluted earnings per common share
(1)
(in dollars)
   
$
1.36
 
    $ 1.63      $ 2.14  
  (1)
Earnings per share calculations are based on full dollar and share amounts.
  (2)
Certain options as well as acquisition-related put/call options that the Bank may settle at its own discretion by issuing common shares were not included in the calculation of diluted earnings per share as they were anti-dilutive.
 
74    
Scotiabank First Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 

18.
Financial instruments
(a) Risk management
The Bank’s principal business activities result in a balance sheet that consists primarily of financial instruments. In addition, the Bank uses derivative financial instruments for both trading and hedging purposes. The principal financial risks that arise from transacting financial instruments include credit risk, liquidity risk and market risk. The Bank’s framework to monitor, evaluate and manage these risks is consistent with that in place as at October 31, 2022.
(i) Credit risk
Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to honour its financial or contractual obligations to the Bank.
Credit risk exposures disclosed below are presented based on the Basel framework utilized by the Bank. The Bank uses the Advanced Internal Ratings-Based approach (AIRB) for all material Canadian, U.S. and European portfolios, and for a significant portion of the international corporate and commercial portfolios. The remaining portfolios, including other international portfolios, are treated under the standardized approach. Under the AIRB approach, the Bank uses internal risk parameter estimates, based on historical experience.
Under the standardized approach, credit risk is estimated using the risk weights as prescribed by the Basel framework, either based on credit assessments by external rating agencies or based on the counterparty type for non-retail exposures and product type for retail exposures.
 
Exposure at default
(1)
  
As at
 
  
  
January 31, 2023
 
  
October 31
2022
 
($ millions)
  
AIRB
 
  
Standardized
 
  
Total
 
  
Total
 
By exposure sub-type
  
  
  
  
Non-retail
  
  
  
  
Drawn
(2)(3)
   
$
  491,347
 
   
$
  62,157
 
   
$
  553,504
 
    $ 534,978  
Undrawn commitments
   
 
129,035
 
   
 
3,149
 
   
 
132,184
 
      132,195  
Other exposures
(4)
   
 
123,432
 
   
 
8,551
 
   
 
131,983
 
      130,471  
Total non-retail
   
$
743,814
 
   
$
73,857
 
   
$
817,671
 
    $ 797,644  
Retail
(5)
                                    
Drawn
   
$
284,232
 
   
$
116,036
 
   
$
400,268
 
    $ 392,143  
Undrawn commitments
   
 
58,330
 
   
 
863
 
   
 
59,193
 
      57,913  
Total retail
   
$
342,562
 
   
$
116,899
 
   
$
459,461
 
    $ 450,056  
Total
   
$
 
1,086,376
 
   
$
190,756
 
   
$
 
1,277,132
 
    $   1,247,700  
  (1)
After credit risk mitigation and excludes equity securities and other assets.
  (2)
Non-retail AIRB drawn exposures include government guaranteed and privately insured mortgages.
  (3)
Non-retail drawn includes loans, bankers’ acceptances, deposits with financial institutions and FVOCI debt securities.
  (4)
Includes off-balance sheet lending instruments such as letters of credit, letters of guarantee, securitizations, over-the-counter derivatives and repo-style transactions net of related collateral.
  (5)
Retail includes residential mortgages, credit cards, lines of credit, other personal loans and small business treated as other regulatory retail.
Credit quality of non-retail exposures
The Bank’s non-retail portfolio is well diversified by industry. A significant portion of the authorized corporate and commercial lending portfolio was internally assessed at a grade that would generally equate to an investment grade rating by external rating agencies. There has not been a significant change in concentrations of credit risk since October 31, 2022.
Credit quality of retail exposures
The Bank’s retail portfolios consist of a number of relatively small loans to a large number of borrowers. The portfolios are distributed across Canada and a wide range of countries. As such, the portfolios inherently have a high degree of diversification. In addition, as of January 31, 2023, 27% (October 31, 2022 – 28%) of the Canadian residential mortgage portfolio is insured. The average loan-to-value ratio of the uninsured portion of the Canadian residential mortgage portfolio is 52% (October 31, 2022 – 49%).
Retail standardized portfolio
The retail standardized portfolio of $117 billion as at January 31, 2023 (October 31, 2022 – $111 billion) was comprised of residential mortgages, personal loans, credit cards and lines of credit to individuals, mainly in Latin America and the
Caribbean. Of the
total retail standardized exposures, $67 billion (October 31, 2022 – $63 billion) was represented by mortgages and loans secured by residential real estate, mostly with a loan-to-value ratio of below 80%.
(ii) Liquidity risk
Liquidity risk is the risk that the Bank is unable to meet its financial obligations in a timely manner at reasonable prices. The Bank’s liquidity risk is subject to extensive risk management controls and is managed within the framework of policies and limits approved by the Board. The Board receives reports on risk exposures and performance against approved limits. The Asset/Liability Committee (ALCO) provides senior management oversight of liquidity risk.

 
Scotiabank First Quarter Report 2023
    75
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
The key elements of the Bank’s liquidity risk management framework include:
 
  •  
liquidity risk measurement and management limits, including limits on maximum net cash outflow by currency over specified short-term horizons;
 
  •  
prudent diversification of its wholesale funding activities by using a number of different funding programs to access the global financial markets and manage its maturity profile, as appropriate;
 
  •  
large holdings of liquid assets to support its operations, which can generally be sold or pledged to meet the Bank’s obligations;
 
  •  
liquidity stress testing, including Bank-specific, global-systemic, and combination systemic/specific scenarios; and
 
  •  
liquidity contingency planning.
The Bank’s foreign operations have liquidity management frameworks that are similar to the Bank’s framework. Local deposits are managed from a liquidity risk perspective based on the local management frameworks and regulatory requirements.
(iii) Market risk
Market risk arises from changes in market prices and rates (including interest rates, credit spreads, equity prices, foreign exchange rates and commodity prices), the correlations among them, and their levels of volatility.
Interest rate risk
Interest rate risk is the risk of loss due to the following: changes in the level, slope and curvature of the yield curve; the volatility of interest rates and changes in customers’ preferences (e.g. mortgage prepayment rates).
Non-trading foreign currency risk
Foreign currency risk is the risk of loss due to changes in spot and forward rates.
As at January 31, 2023, a one per cent increase (decrease) in the Canadian dollar against all currencies in which the Bank operates decreases (increases) the Bank’s before-tax annual earnings by approximately $59 million (October 31, 2022 – $55 million; January 31, 2022 – $44
million) in the absence of hedging activity, due primarily from exposure to U.S. dollars.
A similar change in the Canadian dollar as at January 31, 2023, would increase (decrease) the unrealized foreign currency translation losses in the accumulated other comprehensive income section of shareholders’ equity by approximately $316 million (October 31, 2022 – $308 million; January 31, 2022 – $329 million), net of hedging.
Non-trading equity risk
Equity risk is the risk of loss due to adv
e
rse movements in equity prices. The Bank is exposed to equity risk through its investment equity portfolios. The fair value of investment equity securities is shown in Note 7.
Trading portfolio risk management
The table below shows the Bank’s VaR by risk factor along with Stressed VaR:
 
  
  
For the three months ended
 
  
  
 
    
As at
 
  
As at
 
 
  
January 31, 2023
(1)
 
  
 
 
    
January 31
 
  
October 31
 
  
January 31
 
($ millions)
  
Average
 
  
High
 
  
Low
 
  
  
 
  
2023
 
  
2022
 
  
2022
 
Credit spread plus interest rate
  
$
     13.8
 
   
$
19.4
 
   
$
9.0
 
  
 
 
 
 
$
   10.8
 
    $ 9.3      $ 14.0  
Credit spread
   
 
7.5
 
   
 
10.0
 
   
 
3.8
 
   
 
 
 
 
 
6.1
 
      7.7        5.9  
Interest rate
   
 
13.1
 
   
 
19.8
 
   
 
7.5
 
   
 
 
 
 
 
11.4
 
      8.4        14.1  
Equities
   
 
3.5
 
   
 
4.7
 
   
 
2.5
 
   
 
 
 
 
 
4.7
 
      3.4        2.2  
Foreign exchange
   
 
2.1
 
   
 
4.9
 
   
 
0.9
 
   
 
 
 
 
 
4.9
 
      1.5        1.4  
Commodities
   
 
4.6
 
   
 
6.9
 
   
 
2.9
 
   
 
 
 
 
 
6.5
 
      5.2        1.7  
Debt specific
   
 
3.8
 
   
 
4.8
 
   
 
3.0
 
   
 
 
 
 
 
3.0
 
      4.6        2.0  
Diversification effect
   
 
(12.7
)
   
 
–
 
   
 
–
 
   
 
 
 
 
 
(17.2
)
      (10.6 )       (7.4 ) 
Total VaR
   
$
15.1
 
   
$
19.4
 
   
$
11.9
 
   
 
 
 
 
$
12.7
 
    $   13.4      $   13.9  
Total Stressed VaR
   
$
45.1
 
   
$
   64.4
 
   
$
22.3
 
   
 
 
 
 
$
40.7
 
    $ 27.4      $ 24.7  
 
(1)
In Q1 2023, the 2019/2020 COVID period was used to generate the Stressed VaR. In the prior periods, the Stressed VaR was calculated using the 2008/2009 credit crisis period.
(b) Financial instruments designated at fair value through profit or loss

In accordance with its risk management strategy, the Bank has elected to designate certain senior note liabilities at fair value through profit or loss to reduce an accounting mismatch between fair value changes in these instruments and fair value changes in related derivatives, and where a hybrid financial liability contains one or more embedded derivatives that are not closely related to the host contract. Changes in fair value of financial liabilities arising from the Bank’s own credit risk are recognized in other comprehensive income, without subsequent reclassification to net income.
The cumulative fair value adjustment due to own credit risk is determined at a point in time by comparing the present value of expected future cash flows over the term of these liabilities discounted at the Bank’s effective funding rate, and the present value of expected future cash flows discounted
at
a benchmark rate.
 
76    
Scotiabank First Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
The following table presents the fair value of liabilities designated at fair value through profit or loss and their changes in fair value.

 
  
 
Fair value
 
 
Change in fair value
 
 
Cumulative change in fair value
(1)
 
  
 
As at
 
 
For the three months ended
 
 
  
 
 
As at
 
 
  
 
($ millions)
 
January 31
2023
 
 
October 31
2022
 
 
January 31
2023
 
 
October 31
2022
 
 
January 31
2022
 
 
January 31
2023
 
 
October 31
2022
 
 
January 31
2022
 
Liabilities
                                                                
Senior note liabilities
(2)
  
$
  26,583
 
   $   22,421    
$
  (3,524)
 
   $   3,483     $   902    
$
  4,369
 
   $   7,893     $   195  
  (1)
The cumulative change in fair value is measured from the instruments’ date of initial recognition.
  (2)
Changes in fair value attributable to changes in the Bank’s own credit risk are recorded in other comprehensive income. Other changes in fair value are recorded in non-interest income – trading revenues. The offsetting fair value changes from associated derivatives is also recorded in non-interest income – trading revenues.
The following table presents the changes in fair value attributable to changes in the Bank’s own credit risk for financial liabilities designated at fair value through profit or loss as well as their contractual maturity and carrying amounts.
 
  
  
Senior Note Liabilities
 
($ millions)
  
 
Contractual
maturity
amount
 
 
 
  
 
Carrying value
 
  
 
Difference
between
carrying
value and
contractual
maturity
amount
 
 
 
 
 
 
 
  
 
Changes in fair value
for the three
month period
attributable to
changes in own
credit risk
recorded in other
comprehensive
income
 
 
 
 
 
 
 
 
 
  
 
Cumulative changes
in fair value
attributable to
changes in own
credit risk
(1)
 
 
 
 
 
As at January 31, 2023
   
$
           30,952
 
   
$
  26,583
 
   
$
         4,369
 
   
 
$  (1,090
)
 
   
$
   
 
139
 
As at October 31, 2022
        30,314          22,421          7,893          373          1,229  
As at January 31, 2022
      24,174        23,979        195        231        (498 ) 
  (1)
The cumulative change in fair value is measured from the instruments’ date of initial recognition.
(c) Financial instruments – fair value
Fair value of financial instruments
The calculation of fair value is based on market conditions at a specific point in time and therefore may not be reflective of future fair values. The Bank has controls and processes in place to ensure that the valuation of financial instruments is appropriately determined.
Refer to Note 7 of the Bank’s audited consolidated financial statements in the 2022 Annual Report for the valuation techniques used to fair value its significant financial assets and liabilities.
The following table sets out the fair values of financial instruments of the Bank and excludes non-financial assets, such as property and equipment, investments in associates, precious metals, goodwill and other intangible assets.
 
  
  
As at   
 
  
  
January 31, 2023
 
  
October 31, 2022
 
($ millions)
  
Total fair
value
 
  
Total
carrying
value
 
  
Total fair
value
 
  
Total
carrying
value
 
Assets:
                                    
Cash and deposits with financial institutions
   
$
81,386
 
   
$
  81,386
 
    $ 65,895      $ 65,895  
Trading assets
   
 
 
 
116,346
 
   
 
 
 
116,346
 
      113,154        113,154  
Securities purchased under resale agreements and securities borrowed
   
 
178,690
 
   
 
178,690
 
        175,313          175,313  
Derivative financial instruments
   
 
44,820
 
   
 
44,820
 
      55,699        55,699  
Investment securities – FVOCI and FVTPL
   
 
86,809
 
   
 
86,809
 
      86,398        86,398  
Investment securities – amortized cost
   
 
23,206
 
   
 
24,195
 
      22,443        23,610  
Loans
   
 
739,659
 
   
 
755,157
 
      729,149        744,987  
Customers’ liability under acceptances
   
 
21,872
 
   
 
21,872
 
      19,494        19,494  
Other financial assets
   
 
25,049
 
   
 
25,049
 
      27,394        27,394  
Liabilities:
                                    
Deposits
   
 
940,543
 
   
 
949,887
 
      904,033        916,181  
Financial instruments designated at fair value through profit or loss
   
 
26,583
 
   
 
26,583
 
      22,421        22,421  
Acceptances
   
 
21,912
 
   
 
21,912
 
      19,525        19,525  
Obligations related to securities sold short
   
 
43,439
 
   
 
43,439
 
      40,449        40,449  
Derivative financial instruments
   
 
52,746
 
   
 
52,746
 
      65,900        65,900  
Obligations related to securities sold under repurchase agreements and securities lent
   
 
132,206
 
   
 
132,206
 
      139,025        139,025  
Subordinated debentures
   
 
8,524
 
   
 
8,713
 
      8,038        8,469  
Other financial liabilities
   
 
47,862
 
   
 
48,697
 
      45,723        46,682  
 

Scotiabank First Quarter Report 2023
    77
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
(d) Fair value hierarchy
The best evidence of fair value for a financial instrument is the quoted price in an active market. Unadjusted quoted market prices for identical instruments represent a Level 1 valuation. Where possible, valuations are based on quoted prices or observable inputs obtained from active markets.
Quoted prices are not always available for over-the-counter transactions, as well as transactions in inactive or illiquid markets. In these instances, internal models that maximize the use of observable inputs are used to estimate fair value. The chosen valuation technique incorporates all the factors that market participants would take into account in pricing a transaction. When all significant inputs to models are observable, the valuation is classified as Level 2. Financial instruments traded in a less active market are valued using indicative market prices or other valuation techniques. Fair value estimates do not consider forced or liquidation sales.
Where financial instruments trade in inactive markets, illiquid markets or when using models where observable parameters do not exist, greater management judgment is required for valuation purposes. Valuations that require the significant use of unobservable inputs are classified as Level 3.
The following table outlines the fair value hierarchy and instruments carried at fair value on a recurring basis.

 
  
 
As at        
 
  
 
January 31, 2023
 
 
October 31, 2022
 
($ millions)
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Total
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Total
 
Instruments carried at fair value on a recurring basis:
                                                                
Assets:
                                                                
Precious metals
(1)
  
$
–
 
  
$
725
 
  
$
–
 
  
$
725
 
   $ –     $ 543     $ –     $ 543  
Trading assets
                                                                
Loans
  
 
–
 
  
 
7,641
 
  
 
1
 
  
 
7,642
 
     –       7,811       –       7,811  
Canadian federal government and government guaranteed debt
  
 
11,541
 
  
 
4,407
 
  
 
–
 
  
 
15,948
 
     10,139       4,595       –       14,734  
Canadian provincial and municipal debt
  
 
4,497
 
  
 
4,798
 
  
 
–
 
  
 
9,295
 
     4,299       5,978       –       10,277  
U.S. treasury and other U.S. agencies’ debt
  
 
11,488
 
  
 
–
 
  
 
–
 
  
 
11,488
 
     11,957       –       –       11,957  
Other foreign governments’ debt
  
 
187
 
  
 
8,676
 
  
 
–
 
  
 
8,863
 
     15       8,287       –       8,302  
Corporate and other debt
  
 
2,643
 
  
 
7,992
 
  
 
6
 
  
 
10,641
 
     2,367       8,976       1       11,344  
Equity securities
  
 
50,362
 
  
 
110
 
  
 
28
 
  
 
50,500
 
     46,698       224       11       46,933  
Other
  
 
–
 
  
 
1,969
 
  
 
–
 
  
 
1,969
 
     –       1,796       –       1,796  
 
  
$
80,718
 
  
$
35,593
 
  
$
35
 
  
$
116,346
 
   $ 75,475     $ 37,667     $ 12     $   113,154  
Investment securities
(2)
                                                                
Canadian federal government and government guaranteed debt
  
$
5,008
 
  
$
4,854
 
  
$
–
 
  
$
9,862
 
   $ 4,947     $ 6,055     $ –     $ 11,002  
Canadian provincial and municipal debt
  
 
2,480
 
  
 
3,945
 
  
 
–
 
  
 
6,425
 
     2,029       3,400       –       5,429  
U.S. treasury and other U.S. agencies’ debt
  
 
32,223
 
  
 
2,612
 
  
 
–
 
  
 
34,835
 
     32,412       2,824       –       35,236  
Other foreign governments’ debt
  
 
3,153
 
  
 
26,155
 
  
 
–
 
  
 
29,308
 
     3,217       24,487       –       27,704  
Corporate and other debt
  
 
–
 
  
 
2,011
 
  
 
53
 
  
 
2,064
 
     40       1,874       48       1,962  
Equity securities
  
 
2,442
 
  
 
217
 
  
 
1,656
 
  
 
4,315
 
     3,210       215       1,640       5,065  
 
  
$
45,306
 
  
$
39,794
 
  
$
1,709
 
  
$
86,809
 
   $   45,855     $   38,855     $   1,688     $ 86,398  
Derivative financial instruments
                                                                
Interest rate contracts
  
$
–
 
  
$
13,698
 
  
$
12
 
  
$
13,710
 
   $ –     $ 15,193     $ 17     $ 15,210  
Foreign exchange and gold contracts
  
 
–
 
  
 
25,406
 
  
 
–
 
  
 
25,406
 
     –       32,223       –       32,223  
Equity contracts
  
 
62
 
  
 
2,309
 
  
 
25
 
  
 
2,396
 
     332       2,209       20       2,561  
Credit contracts
  
 
–
 
  
 
517
 
  
 
4
 
  
 
521
 
     –       780       –       780  
Commodity contracts
  
 
–
 
  
 
2,774
 
  
 
13
 
  
 
2,787
 
     –       4,912       13       4,925  
 
  
$
62
 
  
$
44,704
 
  
$
54
 
  
$
44,820
 
   $ 332     $ 55,317     $ 50     $ 55,699  
Liabilities:
                                                                
Deposits
  
$
–
 
  
$
104
 
  
$
–
 
  
$
104
 
   $ –     $ 15     $ –     $ 15  
Financial liabilities designated at fair value through profit or loss
  
 
–
 
  
 
26,583
 
  
 
–
 
  
 
26,583
 
     –       22,421       –       22,421  
Obligations related to securities sold short
  
 
38,104
 
  
 
5,329
 
  
 
6
 
  
 
43,439
 
     35,059       5,387       3       40,449  
                 
Derivative financial instruments
                                                                
Interest rate contracts
  
 
–
 
  
 
19,865
 
  
 
12
 
  
 
19,877
 
     –       22,842       12       22,854  
Foreign exchange and gold contracts
  
 
–
 
  
 
28,000
 
  
 
–
 
  
 
28,000
 
     –       35,634       –       35,634  
Equity contracts
  
 
152
 
  
 
2,834
 
  
 
22
 
  
 
3,008
 
     636       3,063       21       3,720  
Credit contracts
  
 
–
 
  
 
20
 
  
 
2
 
  
 
22
 
     –       25       –       25  
Commodity contracts
  
 
–
 
  
 
1,833
 
  
 
6
 
  
 
1,839
 
     –       3,660       7       3,667  
   
$
   152
 
  
$
52,552
 
  
$
   42
 
  
$
 52,746
 
   $ 636     $   65,224     $ 40     $ 65,900  
  (1)
The fair value of precious metals is determined based on quoted market prices and forward spot prices, where applicable, less the cost to sell.
  (2)
Excludes debt investment securities measured at amortized cost of $24,195 (October 31, 2022 – $23,610).
 
78    
Scotiabank First Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Level 3 instrument fair value changes
Financial instruments categorized as Level 3 as at January 31, 2023, in the fair value hierarchy comprise certain trading loans, structured corporate bonds, equity securities, complex derivatives and obligations related to securities sold short.
The following table summarizes the changes in Level 3 instruments carried at fair value for the three months ended January 31, 2023.
All positive balances represent assets and negative balances represent liabilities. Consequently, positive amounts indicate purchases of assets or settlements of liabilities and negative amounts indicate sales of assets or issuances of liabilities.
 
  
 
As at January 31, 2023
 
($ millions)
 
 
Fair
value,
beginning
of the
quarter
 
 
 
 
 
 
 
Gains/
(losses)
recorded
in income
 
 
 
 
 
 
Gains/
(losses)
recorded
in OCI
 
 
 
 
 
 
Purchases/
Issuances
 
 
 
 
Sales/
Settlements
 
 
 
 
Transfers
into/out
of Level 3
 
 
 
 
 
Fair
value, end
of the
quarter
 
 
 
 
 
 
Changes in
unrealized
gains/(losses)
recorded in
income for
instruments
still held
(1)
 
 
 
 
 
 
 
Trading assets
 
 
 
 
 
 
 
 
 
Loans
 
$
–
 
 
$
–
 
 
$
–
 
 
$
–
 
 
$
–
 
 
$
1
 
 
$
1
 
 
$
–
 
Corporate and other debt
 
 
1
 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
5
 
 
 
6
 
 
 
–
 
Equity securities
 
 
11
 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
 (5 )
 
 
22
 
 
 
28
 
 
 
–
 
 
 
12
 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
 (5 )
 
 
28
 
 
 
35
 
 
 
–
 
Investment securities
 
 
 
 
 
 
 
 
 
Corporate and other debt
 
 
48
 
 
 
–
 
 
 
5
 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
53
 
 
 
–
 
Equity securities
 
 
1,640
 
 
 
10
 
 
 
5
 
 
 
47
 
 
 
(49
) 
 
 
3
 
 
 
1,656
 
 
 
12
 
 
 
1,688
 
 
 
10
 
 
 
10
 
 
 
47
 
 
 
(49
) 
 
 
3
 
 
 
1,709
 
 
 
12
 
Derivative financial instruments – assets
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
17
 
 
 
(2
) 
 
 
–
 
 
 
3
 
 
 
(3
) 
 
 
(3
) 
 
 
12
 
 
 
(2
) 
Equity contracts
 
 
20
 
 
 
(2
) 
 
 
–
 
 
 
1
 
 
 
–
 
 
 
6
 
 
 
25
 
 
 
(2
)
(2)
 
Credit contracts
 
 
–
 
 
 
–
 
 
 
–
 
 
 
4
 
 
 
–
 
 
 
–
 
 
 
4
 
 
 
–
 
Commodity contracts
 
 
13
 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
13
 
 
 
–
 
 
 
 
Derivative financial instruments – liabilities
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
(12
) 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
(12
) 
 
 
–
(3)
 
Equity contracts
 
 
(21
) 
 
 
5
 
 
 
–
 
 
 
(10
) 
 
 
–
 
 
 
4
 
 
 
(22
) 
 
 
5
(2)
 
Credit contracts
 
 
–
 
 
 
–
 
 
 
–
 
 
 
(2
) 
 
 
–
 
 
 
–
 
 
 
(2
) 
 
 
–
 
Commodity contracts
 
 
(7
) 
 
 
1
 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
(6
) 
 
 
1
 
 
 
10
 
 
 
2
 
 
 
–
 
 
 
(4
) 
 
 
(3
) 
 
 
7
 
 
 
12
 
 
 
2
 
 
 
 
Obligations related to securities sold short
 
 
(3
) 
 
 
–
 
 
 
–
 
 
 
–
 
 
 
2
 
 
 
(5
) 
 
 
(6
) 
 
 
–
 
Total
 
$
  1,707
 
 
$
  12
 
 
$
  10
 
 
$
  43
 
 
$
  (55
 )
 
 
$
  33
 
 
$
  1,750
 
 
$
  14
 
  (1)
These amounts represent the gains and losses from fair value changes of Level 3 instruments still held at the end of the period that are recorded in the Consolidated Statement of Income.
  (2)
Certain unrealized gains and losses on derivative assets and liabilities are largely offset by mark-to-market changes on other instruments included in trading revenues in the Consolidated Statement of Income, since these instruments act as an economic hedge to certain derivative assets and liabilities.
  (3)
Certain unrealized losses on interest rate derivative contracts are largely offset by mark-to-market changes on embedded derivatives on certain deposit liabilities in the Consolidated Statement of Income.
The following table summarizes the changes in Level 3 instruments carried at fair value for the three months ended October 31, 2022.
 
      As at October 31, 2022  
($ millions)
    Fair value,
beginning
of the
quarter		      Gains/
(losses)
recorded
in income
(1)
      Gains/
(losses)
recorded
in OCI		      Purchases/
Issuances		      Sales/
Settlements		      Transfers
into/
out of
Level 3		      Fair value,
end of the
quarter		  
Trading assets
    $ 43      $ (1 )     $   –      $ –      $ (1 )     $ (29 )     $ 12  
Investment securities
        1,735          74        –          56        (62 )       (115 )         1,688  
Derivative financial instruments
      25        (18 )       –        3        –        –        10  
Financial liabilities designated at fair value through profit or loss
      (12 )       –        –        –          12              –        –  
Obligations related to securities sold short
      (3 )       –        –        (2 )       3        (1 )       (3 ) 
(1)
Gains or losses for items in Level 3 may be offset with losses or gains on related hedges in Level 1 or Level 2.
Significant transfers
Significant transfers can occur between the fair value hierarchy levels when additional or new information regarding valuation inputs and their refinement and observability become available. The Bank recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
The following significant transfers made between Level 1 and 2, were based on whether the fair value was determined using quoted market prices from an active market.
 
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
During the three months ended January 31, 2023:
 
 
•
 
Trading assets of $909 million, investment securities of $459 million and obligations related to securities sold short of $247 million were transferred out of Level 2 into Level 1.
 
 
•
 
Trading assets of $496 million, investment securities of $512 million and obligations related to securities sold short of $136 million were transferred out of Level 1 into Level 2.
During the three months ended October 31, 2022:
 
  •  
Trading assets of $9,837 million, investment securities of $6,265
 
million and obligations related to securities sold short of $3,966 million were transferred out of Level 2 into Level 1.
 
  •  
Trading assets of $798 million, investment securities of $235 million and obligations related to securities sold short of $89 million were transferred out of Level 1 into Level 2.
There were no
 significant transfers into and out of Level 3 during the three months ended January 31, 2023. 
During the three months ended October 31, 2022, Investments in other foreign governments’ debt of $120 million were transferred out of Level 3 into Level 2. Transfers were a result of the change in the observability of the price used for valuing the securities.
Level 3 sensitivity
The Bank applies judgment in determining unobservable inputs used to calculate the fair value of Level 3 instruments.
Refer to Note 7 of the Bank’s audited consolidated financial statements for the year ended October 31, 2022 for a description of the significant unobservable inputs for Level 3 instruments and the potential effect that a change in each unobservable input may have on the fair value measurement. There have been no significant changes to the Level 3 sensitivities during the quarter.

 
19.
Corporate income taxes
Tax Assessments
The Bank received reassessments totaling $1,515 million of tax and interest as a result of the Canada Revenue Agency (CRA) denying the tax deductibility of certain Canadian dividends received during the 2011-2017 taxation years. The circumstances of the dividends subject to these reassessments are similar to those prospectively addressed by tax rules introduced in 2015 and 2018. The Bank has filed a Notice of Appeal with the Tax Court of Canada against the federal reassessment in respect of its 2011 taxation year.
A subsidiary of the Bank received withholding tax assessments from the CRA in respect of certain of its securities lending transactions for its 2014-2017 taxation years totaling $470 million of tax, penalties and
interest. On February 10, 2023, a further assessment of $83 million was received in respect of similar securities lending transactions for the 2018 taxation year.
In respect of both matters, the Bank is confident that its tax filing position was appropriate and in accordance with the relevant provisions of the Income Tax Act (Canada) and intends to vigorously defend its position.

Canadian Federal Tax Measures
On December 15, 2022, Bill C-32 relating to tax measures announced in the 2022 Federal Budget completed all readings in parliament and received royal assent to become law. These tax measures included the Canada Recovery Dividend (CRD) under which the Bank and certain Canadian banking subsidiaries will pay a one-time 15% tax on “taxable income” in excess of $1 billion, as well as an increase of 1.5
% to the federal corporate income tax rate on their taxable income above $
100 million. For the CRD, “taxable income” is based on the average taxable income for the 2020 and 2021 taxation years. The CRD is payable in equal amounts over five years.
The impact of these enacted tax measures has been recognized in the Bank’s financial results as at January 31, 2023. The Bank recognized income tax expense of $579 million in the Consolidated Statement of Income for the present value of the total CRD payable of approximately $640 million.
The increase in the Canadian statutory tax rate resulted in a benefit of $
39
 million related to the 2022 taxation year, including the revaluation of the Bank’s deferred tax assets and liabilities. Of this amount, $
13
 
million was recognized in the Consolidated Statement of Income and the remainder in Other Comprehensive Income.
 
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SHAREHOLDER INFORMATION
 
Direct Deposit Service
Shareholders may have dividends deposited directly into accounts held at financial institutions which are members of the Canadian Payments Association. To arrange direct deposit service, please write to the transfer agent.
Dividend and Share Purchase Plan
Scotiabank’s dividend reinvestment and share purchase plan allows common and preferred shareholders to purchase additional common shares by reinvesting their cash dividend without incurring brokerage or administrative fees.
As well, eligible shareholders may invest up to $20,000 each fiscal year to purchase additional common shares of the Bank. All administrative costs of the plan are paid by the Bank.
For more information on participation in the plan, please contact the transfer agent.
Dividend Dates for 2023
Record and payment dates for common and preferred shares, subject to approval by the Board of Directors.
 
Record Date
  
Payment Date
January 4, 2023
  
January 27, 2023
April 4, 2023
  
April 26, 2023
July 5, 2023
  
July 27, 2023
October 3, 2023
  
October 27, 2023
Annual Meeting
The Annual Meeting for fiscal year 2022 will be held on April 4, 2023 beginning at 9:00 a.m. (Eastern) in Toronto, Ontario, Canada. Please visit our website at https://www.scotiabank.com/annualmeeting for updates concerning the meeting.
Website
For information relating to Scotiabank and its services, visit us at our website: www.scotiabank.com.
Conference Call and Web Broadcast
The quarterly results conference call will take place on February 28, 2023, at 8:15 am EST and is expected to last approximately one hour. Interested parties are invited to access the call live, in listen-only mode, by telephone at
416-641-6104
or toll-free, at
1-800-952-5114
using ID 7307684# (please call shortly before 8:15 am EST). In addition, an audio webcast, with accompanying slide presentation, may be accessed via the Investor Relations page of www.scotiabank.com.
Following discussion of the results by Scotiabank executives, there will be a question and answer session. A telephone replay of the conference call will be available from February 28, 2023, to April 6, 2023, by calling
905-694-9451
or
1-800-408-3053
(North America toll-free) and entering the access code 1127377#.
 
 
Contact Information
Investors:
Financial Analysts, Portfolio Managers and other Institutional Investors requiring financial information, please contact Investor Relations, Finance Department:
Scotiabank
40 Temperance Street
,
 
Toronto, Ontario

Canada M5H 0B4
Telephone:
(416) 775-0798
E-mail:
investor.relations@scotiabank.com
Global Communications:
Scotiabank
40 Temperance Street, Toronto, Ontario
Canada M5H 0B4
E-mail:
corporate.communications@scotiabank.com
Shareholders:
For enquiries related to changes in share registration or address, dividend information, lost share certificates, estate transfers, or to advise of duplicate mailings, please contact the Bank’s transfer agent:
Computershare Trust Company of Canada
100 University Avenue, 8th Floor
Toronto, Ontario, Canada M5J 2Y1
Telephone:
1-877-982-8767
E-mail:
service@computershare.com
 
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SHAREHOLDER INFORMATION
 
Co-Transfer
Agent (U.S.A.)
Computershare Trust Company, N.A.
Overnight Mail Delivery:
Computershare C/O: Shareholder Services
462 South 4th Street, Suite 1600
Louisville, KY 40202
First Class, Registered or Certified Mail Delivery:
Computershare C/O: Shareholder Services
P.O. Box 505000, Louisville, KY 40233-5000
Tel:
1-800-962-4284
E-mail:
service@computershare.com
For other shareholder enquiries, please contact the Corporate Secretary’s Department:
Scotiabank
40 Temperance Street
Toronto, Ontario, Canada M5H 0B4
Telephone:
(416) 866-3672
E-mail:
corporate.secretary@scotiabank.com
Rapport trimestriel disponible en français
Le Rapport annuel et les états financiers de la Banque sont publiés en français et en anglais et distribués aux actionnaires dans la version de leur choix. Si vous préférez que la documentation vous concernant vous soit adressée en français, veuillez en informer Relations publiques, Affaires de la société et Affaires gouvernementales, La Banque de Nouvelle-Écosse, Scotia Plaza, 44, rue King Ouest, Toronto (Ontario), Canada M5H 1H1, en joignant, si possible, l’étiquette d’adresse, afin que nous puissions prendre note du changement.
 
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The Bank of Nova Scotia is incorporated in Canada with limited liability.