Table of Contents
Exhibit 99.1

 
 
 

 
Live audio Web
broadcast of the
Bank’s analysts’
conference call.
See page 91 for
details.
  
 
Quarterly Report
to Shareholders
 
 
 
Scotiabank reports second quarter results
 
TORONTO, May
 24, 2023 –
Scotiabank reported second quarter net income of $2,159 million compared to $2,747 million in the same period last year. Diluted earnings per share (“EPS”) were $1.69, compared to $2.16 in the same period a year ago.
 
Adjusted net income
(1)
for the second quarter was $2,174 million and EPS was $1.70, down from $2.18 last year. Adjusted return on equity was 12.4% compared to 16.4% a year ago.
 
The Bank reported a strengthened Common Equity Tier 1 (“CET1”) capital ratio
(2)
of 12.3% and announced a quarterly dividend increase of 3 cents to $1.06 per share. The Bank also made progress in building its liquidity position with double digit year-over-year customer deposit growth, which outpaced loan growth in the quarter. The Liquidity Coverage Ratio (“LCR”)
(3)
was a healthy 131% at quarter end, up from 122% in the prior period.
 
“I am pleased with the Bank’s stable operational performance in the quarter and encouraged that our strong capital and liquidity profile positioned us well to manage through the current environment of heightened macroeconomic uncertainty.” said Scott Thomson, President and CEO of Scotiabank. “We are committed to delivering long-term profitable and sustainable growth through a focus on customers, capital discipline and operational excellence.”
 
Canadian Banking delivered adjusted earnings
(1)
of $1,061 million this quarter, impacted by normalization in provision for credit losses.
Pre-tax
pre-provision
earnings
(4)
increased due to strong revenue growth and net interest margin expansion of eight basis points.
 
International Banking generated adjusted earnings
(1)
of $673 million, affected by higher provision for credit losses.
Pre-tax
pre-provision
earnings
(4)
increased year-over-year as a result of strong loan growth and net interest margin expansion of 16 basis points, partly offset by higher
non-interest
expenses.
 
Global Wealth Management adjusted earnings
(1)
were $362 million. Challenging market conditions continue to impact fee income growth in Canada, partly offset by strong growth across our international businesses and continued prudent expense management.
 
Global Banking and Markets generated earnings of $401 million. The results reflect strong loan and deposit growth, and were impacted by challenging market conditions and higher performing loan provisions.
 
(1)
   Refer to
Non-GAAP
Measures section starting on page 4.
(2)     
This measure has been disclosed in this document in accordance with OSFI Guideline – Capital Adequacy Requirements (February 2023).
(3)     
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).
(4)     
Pre-tax,
pre-provision (PTPP) earnings are calculated as revenue net of
non-interest
expenses. This is a
non-GAAP
measure. PTPP earnings do not have a standardized meaning under GAAP and may not be comparable to similar measures disclosed by other financial institutions. The Bank uses PTPP earnings to assess its ability to generate earnings growth excluding the impact of credit losses and income taxes. The Bank believes that certain
non-GAAP
measures provide readers with a better understanding of how management assesses performance.
 

  
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
  
    Q2 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.     44, 48-52    
 
 
 
  
 
 
 
    
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.     48-49       3-4        
54-57
       206  
    10      a) Regulatory capital components.    
48-49, 79
       21-24         58    
     b) Reconciliation of the accounting balance sheet to the regulatory balance sheet.  
 
     18-19      
 
  
    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.     48-49       78        
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.  
 
    
6-7, 37, 38, 41-54,

62-65, 69, 81, 87		  
 		      
63-67,
79, 123		       176, 229  
    14      Analysis of the capital requirements for each Basel asset class.  
 
    
 16-17, 37-55,
61-65, 69, 74-77
  
 		      
63-67
      
 176,
223-229
  
 
    15      Tabulate credit risk in the Banking Book.     82-83      
16-17, 37-55, 74-77
        
63-67
       224  
    16      Flow statements reconciling the movements in risk-weighted assets for each risk-weighted asset type.  
 
     56, 68, 80        
63-67
    
 
     17      Discussion of Basel III Back-testing requirement including credit risk model performance and validation.  
 
 
 
     85    
 
 
 
    
64-66
    
 
 
 
Liquidity Funding     18      Analysis of the Bank’s liquid assets.     39-42          
97-102
    
    19      Encumbered and unencumbered assets analyzed by balance sheet category.     39-42           99    
    20      Consolidated total assets, liabilities and
off-balance
sheet commitments analyzed by remaining contractual maturity at the balance sheet date.		     46-47          
103-105
    
    21      Analysis of the Bank’s sources of funding and a description of the Bank’s funding strategy.     44-45    
 
 
 
  
 
 
 
    
102-103
    
 
 
 
Market Risk     22      Linkage of market risk measures for trading and
non-trading
portfolios and the balance sheet.		    
38-39
           96    
    23      Discussion of significant trading and
non-trading
market risk factors.		     84          
92-97
      
228-229
  
    24      Discussion of changes in period on period VaR results as well as VaR assumptions, limitations, backtesting and validation.     37, 84          
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.  
 
    
 6-7, 37-38, 41-54,
62-65		  
 		      
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.     67       34, 35        
88, 117-118,

120, 121		  
 		     187  
    29      Analysis of counterparty credit risk that arises from derivative transactions.     49, 82-83       86        
83-84
      
174-177
  
 
     30      Discussion of credit risk mitigation, including collateral held for all sources of credit risk.     82-83    
 
 
 
  
 
 
 
    
83-84,
89		    
 
 
 
Other risks
     31      Quantified measures of the management of operational risk.  
 
         67, 106    
    32      Discussion of publicly known risk items.     50           71    
 
2    
Scotiabank Second 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 April 30, 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 May 24, 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
13
   Financial Highlights
14
   Overview of Performance
16
   Group Financial Performance
18
   Business Segment Review
31
   Geographic Highlights
32
   Quarterly Financial Highlights
33
   Financial Position
33
   Risk Management
48
   Capital Management
49
   Financial Instruments
50
   Off-Balance Sheet Arrangements
50
   Regulatory Developments
52
   Accounting Policies and Controls
53
   Share Data
54
   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 Second 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, recorded in Q1, 2023:
In Q1 2023, 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 quarter enacted. 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 Second 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      For the six months ended  
($ millions)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Reported Results
               
Net interest income
   
$
4,466
 
    $ 4,569      $ 4,473     
$
9,035
 
    $ 8,817  
Non-interest
income
   
 
3,463
 
      3,411        3,469     
 
6,874
 
      7,174  
Total revenue
   
 
7,929
 
      7,980        7,942     
 
15,909
 
      15,991  
Provision for credit losses
   
 
709
 
      638        219     
 
1,347
 
      441  
Non-interest
expenses
   
 
4,576
 
      4,464        4,159     
 
9,040
 
      8,382  
Income before taxes
   
 
2,644
 
      2,878        3,564     
 
5,522
 
      7,168  
Income tax expense
   
 
485
 
      1,106        817     
 
1,591
 
      1,681  
Net income
   
$
2,159
 
    $ 1,772      $ 2,747     
$
3,931
 
    $ 5,487  
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
   
 
26
 
      40        78     
 
66
 
      166  
Net income attributable to equity holders
   
 
2,133
 
      1,732        2,669     
 
3,865
 
      5,321  
Net income attributable to preferred shareholders and other equity instrument holders
   
 
104
 
      101        74     
 
205
 
      118  
Net income attributable to common shareholders
   
$
2,029
 
    $ 1,631      $ 2,595     
$
3,660
 
    $ 5,203  
Diluted earnings per share
(in dollars)
   
$
1.69
 
    $ 1.36      $ 2.16     
$
3.04
 
    $ 4.30  
Weighted average number of diluted common shares outstanding
(millions)
   
 
1,197
 
      1,199        1,201     
 
1,199
 
      1,225  
Adjustments
               
Adjusting items impacting
non-interest
expenses
(Pre-tax)
               
Amortization of acquisition-related intangible assets
   
$
21
 
    $ 21      $ 24     
$
42
 
    $ 49  
Total
non-interest
expense adjusting items
(Pre-tax)
   
 
21
 
      21        24     
 
42
 
      49  
Total impact of adjusting items on net income before taxes
   
 
21
 
      21        24     
 
42
 
      49  
Impact of adjusting items on income tax expense
               
Canada recovery dividend
   
 
–
 
      579        –     
 
579
 
      –  
Amortization of acquisition-related intangible assets
   
 
(6
) 
      (6 )       (6 )    
 
(12
) 
      (13 ) 
Total impact of adjusting items on income tax expense
   
 
(6
) 
      573        (6 )    
 
567
 
      (13 ) 
Total impact of adjusting items on net income
   
$
15
 
    $ 594      $ 18     
$
609
 
    $ 36  
Impact of adjusting items on NCI
   
 
–
 
      –        –     
 
–
 
      –  
Total impact of adjusting items on net income attributable to equity holders and common shareholders
   
$
15
 
    $ 594      $ 18     
$
609
 
    $ 36  
Adjusted Results
               
Net interest income
   
$
4,466
 
    $ 4,569      $ 4,473     
$
9,035
 
    $ 8,817  
Non-interest
income
   
 
3,463
 
      3,411        3,469     
 
6,874
 
      7,174  
Total revenue
   
 
7,929
 
      7,980        7,942     
 
15,909
 
      15,991  
Provision for credit losses
   
 
709
 
      638        219     
 
1,347
 
      441  
Non-interest
expenses
   
 
4,555
 
      4,443        4,135     
 
8,998
 
      8,333  
Income before taxes
   
 
2,665
 
      2,899        3,588     
 
5,564
 
      7,217  
Income tax expense
   
 
491
 
      533        823     
 
1,024
 
      1,694  
Net Income
   
$
2,174
 
    $ 2,366      $ 2,765     
$
4,540
 
    $ 5,523  
Net income attributable to NCI
   
 
26
 
      40        78     
 
66
 
      166  
Net income attributable to equity holders
   
 
2,148
 
      2,326        2,687     
 
4,474
 
      5,357  
Net income attributable to preferred shareholders and other equity instrument holders
   
 
104
 
      101        74     
 
205
 
      118  
Net income attributable to common shareholders
   
$
2,044
 
    $ 2,225      $ 2,613     
$
4,269
 
    $ 5,239  
Diluted earnings per share
(in dollars)
   
$
1.70
 
    $ 1.85      $ 2.18     
$
3.55
 
    $ 4.33  
Impact of adjustments on diluted earnings per share
(in dollars)
   
$
0.01
 
    $ 0.49      $ 0.02     
$
0.51
 
    $ 0.03  
Weighted average number of diluted common shares outstanding
(millions)
   
 
1,197
 
      1,210        1,201     
 
1,199
 
      1,225  
 
Scotiabank Second 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 April 30, 2023
(1)
  
($ millions)
  
Canadian
Banking
    
International
Banking
    
Global
Wealth
Management
    
Global
Banking
and Markets
    
Other
    
Total
  
Reported net income (loss)
  
$
1,060
 
  
$
665
 
  
$
356
 
  
$
401
 
  
$
(323
) 
  
$
2,159
 
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
  
 
–
 
  
 
23
 
  
 
3
 
  
 
–
 
  
 
–
 
  
 
26
 
Reported net income attributable to equity holders
  
 
1,060
 
  
 
642
 
  
 
353
 
  
 
401
 
  
 
(323
) 
  
 
2,133
 
Reported net income attributable to preferred shareholders and other equity instrument holders
  
 
1
 
  
 
1
 
  
 
1
 
  
 
1
 
  
 
100
 
  
 
104
 
Reported net income attributable to common shareholders
  
$
1,059
 
  
$
641
 
  
$
352
 
  
$
400
 
  
$
(423
) 
  
$
2,029
 
Adjustments:
            
Adjusting items impacting
non-interest
expenses
(Pre-tax)
            
Amortization of acquisition-related intangible assets
  
 
1
 
  
 
11
 
  
 
9
 
  
 
–
 
  
 
–
 
  
 
21
 
Total
non-interest
expenses adjustments
(Pre-tax)
  
 
1
 
  
 
11
 
  
 
9
 
  
 
–
 
  
 
–
 
  
 
21
 
Total impact of adjusting items on net income before taxes
  
 
1
 
  
 
11
 
  
 
9
 
  
 
–
 
  
 
–
 
  
 
21
 
Impact of adjusting items on income tax expense
  
 
–
 
  
 
(3
) 
  
 
(3
) 
  
 
–
 
  
 
–
 
  
 
(6
) 
Total impact of adjusting items on net income
  
 
1
 
  
 
8
 
  
 
6
 
  
 
–
 
  
 
–
 
  
 
15
 
Total impact of adjusting items on net income attributable to equity holders and common shareholders
  
 
1
 
  
 
8
 
  
 
6
 
  
 
–
 
  
 
–
 
  
 
15
 
Adjusted net income (loss)
  
$
1,061
 
  
$
673
 
  
$
362
 
  
$
401
 
  
$
(323
) 
  
$
2,174
 
Adjusted net income attributable to equity holders
  
$
1,061
 
  
$
650
 
  
$
359
 
  
$
401
 
  
$
(323
) 
  
$
2,148
 
Adjusted net income attributable to common shareholders
  
$
1,060
 
  
$
649
 
  
$
358
 
  
$
400
 
  
$
(423
) 
  
$
2,044
 
(1)
Refer to Business Segment Review on page 18.
 
    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 Segment Review on page 18.
 
6    
Scotiabank Second Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
     For the three months ended April 30, 2022
(1)
  
($ millions)
    Canadian
Banking		      International
Banking		      Global
Wealth
Management		      Global
Banking
and Markets		      Other     Total  
Reported net income (loss)
    $ 1,179      $ 681      $ 409      $ 488      $ (10 )    $ 2,747  
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
      –        76        2        –        –       78  
Reported net income attributable to equity holders
      1,179        605        407        488        (10 )      2,669  
Reported net income attributable to preferred shareholders and other equity instrument holders
      1        2        –        1        70       74  
Reported net income attributable to common shareholders
    $ 1,178      $ 603      $ 407      $ 487      $ (80 )    $ 2,595  
Adjustments:
                 
Adjusting items impacting
non-interest
expenses
(Pre-tax)
Amortization of acquisition-related intangible assets
      5        10        9        –        –       24  
Total
non-interest
expenses adjustments
(Pre-tax)
      5        10        9        –        –       24  
Total impact of adjusting items on net income before taxes
      5        10        9        –        –       24  
Impact of adjusting items on income tax expense
      (1 )       (2 )       (3 )       –        –       (6 ) 
Total impact of adjusting items on net income
      4        8        6        –        –       18  
Total impact of adjusting items on net income attributable to equity holders and common shareholders
      4        8        6        –        –       18  
Adjusted net income (loss)
    $ 1,183      $ 689      $ 415      $ 488      $ (10 )    $ 2,765  
Adjusted net income attributable to equity holders
    $ 1,183      $ 613      $ 413      $ 488      $ (10 )    $ 2,687  
Adjusted net income attributable to common shareholders
    $ 1,182      $ 611      $ 413      $ 487      $ (80 )    $ 2,613  
(1)
Refer to Business Segment Review on page 18.
 
   
For the six months ended April 30, 2023
(1)
  
($ millions)
  
Canadian
Banking
    
International
Banking
    
Global
Wealth
Management
    
Global
Banking
and Markets
    
Other
    
Total
  
Reported net income (loss)
  
$
2,147
 
  
$
1,357
 
  
$
743
 
  
$
920
 
  
$
(1,236
) 
  
$
3,931
 
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
  
 
–
 
  
 
61
 
  
 
5
 
  
 
–
 
  
 
–
 
  
 
66
 
Reported net income attributable to equity holders
  
 
2,147
 
  
 
1,296
 
  
 
738
 
  
 
920
 
  
 
(1,236
) 
  
 
3,865
 
Reported net income attributable to preferred shareholders and other equity instrument holders
  
 
2
 
  
 
2
 
  
 
1
 
  
 
2
 
  
 
198
 
  
 
205
 
Reported net income attributable to common shareholders
  
$
2,145
 
  
$
1,294
 
  
$
737
 
  
$
918
 
  
$
(1,434
) 
  
$
3,660
 
Adjustments:
            
Adjusting items impacting
non-interest
expenses
(Pre-tax)
            
Amortization of acquisition-related intangible assets
  
 
3
 
  
 
21
 
  
 
18
 
  
 
–
 
  
 
–
 
  
 
42
 
Total
non-interest
expenses adjustments
(Pre-tax)
  
 
3
 
  
 
21
 
  
 
18
 
  
 
–
 
  
 
–
 
  
 
42
 
Total impact of adjusting items on net income before taxes
  
 
3
 
  
 
21
 
  
 
18
 
  
 
–
 
  
 
–
 
  
 
42
 
Impact of adjusting items on income tax expense
            
Canada recovery dividend
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
579
 
  
 
579
 
Impact of other adjusting items on income tax expense
  
 
(1
) 
  
 
(6
) 
  
 
(5
) 
  
 
–
 
  
 
–
 
  
 
(12
) 
Total impact of adjusting items on income tax expense
  
 
(1
) 
  
 
(6
) 
  
 
(5
) 
  
 
–
 
  
 
579
 
  
 
567
 
Total impact of adjusting items on net income
  
 
2
 
  
 
15
 
  
 
13
 
  
 
–
 
  
 
579
 
  
 
609
 
Total impact of adjusting items on net income attributable to equity holders and common shareholders
  
 
2
 
  
 
15
 
  
 
13
 
  
 
–
 
  
 
579
 
  
 
609
 
Adjusted net income (loss)
  
$
2,149
 
  
$
1,372
 
  
$
756
 
  
$
920
 
  
$
(657
) 
  
$
4,540
 
Adjusted net income attributable to equity holders
  
$
2,149
 
  
$
1,311
 
  
$
751
 
  
$
920
 
  
$
(657
) 
  
$
4,474
 
Adjusted net income attributable to common shareholders
  
$
2,147
 
  
$
1,309
 
  
$
750
 
  
$
918
 
  
$
(855
) 
  
$
4,269
 
(1)
Refer to Business Segment Review on page 18.
 
Scotiabank Second Quarter Report 2023
    7
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
    For the six months ended April 30, 2022
(1)
  
($ millions)
   Canadian
Banking		     International
Banking		     Global
Wealth
Management		     Global
Banking
and Markets		     Other     Total  
Reported net income (loss)
   $ 2,380     $ 1,311     $ 824     $ 1,049     $ (77 )    $ 5,487  
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
     –       161       5       –       –       166  
Reported net income attributable to equity holders
     2,380       1,150       819       1,049       (77 )      5,321  
Reported net income attributable to preferred shareholders and other equity instrument holders
     4       5       2       3       104       118  
Reported net income attributable to common shareholders
   $ 2,376     $ 1,145     $ 817     $ 1,046     $ (181 )    $ 5,203  
Adjustments:
            
Adjusting items impacting
non-interest
expenses
(Pre-tax)
Amortization of acquisition-related intangible assets
     11       20       18       –       –       49  
Total
non-interest
expenses adjustments
(Pre-tax)
     11       20       18       –       –       49  
Total impact of adjusting items on net income before taxes
     11       20       18       –       –       49  
Impact of adjusting items on income tax expense
     (3 )      (5 )      (5 )      –       –       (13 ) 
Total impact of adjusting items on net income
     8       15       13       –       –       36  
Total impact of adjusting items on net income attributable to equity holders and common shareholders
     8       15       13       –       –       36  
Adjusted net income (loss)
   $ 2,388     $ 1,326     $ 837     $ 1,049     $ (77 )    $ 5,523  
Adjusted net income attributable to equity holders
   $ 2,388     $ 1,165     $ 832     $ 1,049     $ (77 )    $ 5,357  
Adjusted net income attributable to common shareholders
   $ 2,384     $ 1,160     $ 830     $ 1,046     $ (181 )    $ 5,239  
(1)
Refer to Business Segment Review on page 18.
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 15.
T2 Reconciliation of International Banking’s reported and adjusted results and constant dollar results
 
Reported Results
   For the three months ended     For the six months ended  
($ millions)
   January 31, 2023     April 30, 2022     April 30, 2022  
(Taxable equivalent basis)
   Reported     Foreign
exchange		     Constant
dollar		     Reported     Foreign
exchange		     Constant
dollar		     Reported     Foreign
exchange		     Constant
dollar		  
Net interest income
   $ 1,899     $ (73 )    $ 1,972     $ 1,687     $ (140 )    $ 1,827     $ 3,335     $ (245 )    $ 3,580  
Non-interest
income
     802       (35 )      837       720       (5 )      725       1,469       16       1,453  
Total revenue
     2,701       (108 )      2,809       2,407       (145 )      2,552       4,804       (229 )      5,033  
Provision for credit losses
     404       (18 )      422       276       (16 )      292       550       (33 )      583  
Non-interest
expenses
     1,436       (51 )      1,487       1,268       (84 )      1,352       2,553       (149 )      2,702  
Income tax expense
     169       (2 )      171       182       (3 )      185       390       (2 )      392  
Net income
   $ 692     $ (37 )    $ 729     $ 681     $ (42 )    $ 723     $ 1,311     $ (45 )    $ 1,356  
Net income attributable to
non-controlling
interest in subsidiaries (NCI)
   $ 38     $ (2 )    $ 40     $ 76     $ (5 )    $ 81     $ 161     $ (6 )    $ 167  
Net income attributable to equity holders of the Bank
   $ 654     $ (35 )    $ 689     $ 605     $ (37 )    $ 642     $ 1,150     $ (39 )    $ 1,189  
Other measures
                  
Average assets
($ billions)
   $ 228     $ (9 )    $ 237     $ 204     $ (16 )    $ 220     $ 200     $ (5 )    $ 205  
Average liabilities
($ billions)
   $ 169     $ (7 )    $ 176     $ 149     $ (12 )    $ 161     $ 146     $ (10 )    $ 156  
 
8    
Scotiabank Second Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Adjusted Results
   For the three months ended     For the six months ended  
($ millions)
   January 31, 2023     April 30, 2022     April 30, 2022  
(Taxable equivalent basis)
   Adjusted     Foreign
exchange		    
Constant
dollar
adjusted
     Adjusted     Foreign
exchange		    
Constant
dollar
adjusted
     Adjusted     Foreign
exchange		    
Constant
dollar
adjusted
  
Net interest income
   $ 1,899     $ (73 )    $ 1,972     $ 1,687     $ (140 )    $ 1,827     $ 3,335     $ (245 )    $ 3,580  
Non-interest
income
     802       (35 )      837       720       (5 )      725       1,469       16       1,453  
Total revenue
     2,701       (108 )      2,809       2,407       (145 )      2,552       4,804       (229 )      5,033  
Provision for credit losses
     404       (18 )      422       276       (16 )      292       550       (33 )      583  
Non-interest
expenses
     1,426       (51 )      1,477       1,258       (83 )      1,341       2,533       (148 )      2,681  
Income tax expense
     172       (1 )      173       184       (4 )      188       395       (2 )      397  
Net income
   $ 699     $ (38 )    $ 737     $ 689     $ (42 )    $ 731     $ 1,326     $ (46 )    $ 1,372  
Net income attributable to NCI
   $ 38     $ (2 )    $ 40     $ 76     $ (5 )    $ 81     $ 161     $ (7 )    $ 168  
Net income attributable to equity holders of the Bank
   $ 661     $ (36 )    $ 697     $ 613     $ (37 )    $ 650     $ 1,165     $ (39 )    $ 1,204  
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. This is a
non-GAAP
measure.
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. This is a
non-GAAP
measure.
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 represents 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.
 
Scotiabank Second Quarter Report 2023
    9
Table of Contents
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      For the six months ended  
($ millions)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Average total assets – Reported
(1)
   
$
1,390,459
 
    $ 1,380,008      $ 1,264,193     
$
1,385,602
 
    $ 1,250,641  
Less:
Non-earning
assets
   
 
111,261
 
      118,465        102,901     
 
115,377
 
      97,909  
Average total earning assets
(1)
   
$
1,279,198
 
    $ 1,261,543      $ 1,161,292     
$
1,270,225
 
    $ 1,152,732  
Less:
               
Trading assets
   
 
115,611
 
      119,974        144,501     
 
117,829
 
      153,845  
Securities purchased under resale agreements and securities borrowed
   
 
189,757
 
      174,942        127,255     
 
182,227
 
      129,210  
Other deductions
   
 
73,073
 
      70,779        59,618     
 
71,908
 
      58,812  
Average core earning assets
(1)
   
$
900,757
 
    $ 895,848      $ 829,918     
$
898,261
 
    $ 810,865  
Net Interest Income – Reported
   
$
4,466
 
    $ 4,569      $ 4,473     
$
9,035
 
    $ 8,817  
Less:
Non-core
net interest income
   
 
(204
) 
      (205 )       (33 )    
 
(409
) 
      (10 ) 
Core net interest income
   
$
4,670
 
    $ 4,774      $ 4,506     
$
9,444
 
    $ 8,827  
Net interest margin
   
 
2.13
% 
      2.11 %       2.23 %    
 
2.12
% 
      2.20 % 
(1)
Average balances represent the average of daily balances for the period.
Canadian Banking
 
      For the three months ended      For the six months ended  
($ millions)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Average total assets – Reported
(1)
   
$
450,634
 
    $ 450,040      $ 423,218     
$
450,332
 
    $ 417,388  
Less:
Non-earning
assets
   
 
3,957
 
      4,035        4,035     
 
3,997
 
      4,083  
Average total earning assets
(1)
   
$
446,677
 
    $ 446,005      $ 419,183     
$
446,335
 
    $ 413,305  
Less:
               
Trading assets
   
 
–
 
      –        –     
 
–
 
      –  
Securities purchased under resale agreements and securities borrowed
   
 
–
 
      –        –     
 
–
 
      –  
Other deductions
   
 
28,655
 
      27,284        22,478     
 
27,958
 
      21,514  
Average core earning assets
(1)
   
$
418,022
 
    $ 418,721      $ 396,705     
$
418,377
 
    $ 391,791  
Net Interest Income – Reported
   
$
2,340
 
    $ 2,386      $ 2,144     
$
4,726
 
    $ 4,277  
Less:
Non-core
net interest income
   
 
–
 
      –        –     
 
–
 
      –  
Core net interest income
   
$
2,340
 
    $ 2,386      $ 2,144     
$
4,726
 
    $ 4,277  
Net interest margin
   
 
2.30
% 
      2.26 %       2.22 %    
 
2.28
% 
      2.20 % 
(1)
Average balances represent the average of daily balances for the period.
International Banking
 
      For the three months ended      For the six months ended  
($ millions)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Average total assets – Reported
(1)
   
$
238,705
 
    $ 228,374      $ 203,875     
$
233,454
 
    $ 199,923  
Less:
Non-earning
assets
   
 
20,050
 
      19,103        17,371     
 
19,569
 
      16,694  
Average total earning assets
(1)
   
$
218,655
 
    $ 209,271      $ 186,504     
$
213,885
 
    $ 183,229  
Less:
               
Trading assets
   
 
6,059
 
      5,132        4,376     
 
5,587
 
      4,839  
Securities purchased under resale agreements and securities borrowed
   
 
2,868
 
      3,033        145     
 
2,952
 
      173  
Other deductions
   
 
7,240
 
      7,565        6,707
(2)
 		   
 
7,406
 
      6,712
(2)
 
Average core earning assets
(1)
   
$
202,488
 
    $ 193,541      $ 175,276     
$
197,940
 
    $ 171,505  
Net Interest Income – Reported
   
$
2,007
 
    $ 1,899      $ 1,687     
$
3,906
 
    $ 3,335  
Less:
Non-core
net interest income
   
 
(27
) 
      (54 )       (4 )    
 
(81
) 
      8  
Core net interest income
   
$
2,034
 
    $ 1,953      $ 1,691     
$
3,987
 
    $ 3,327  
Net interest margin
   
 
4.12
% 
      4.00 %       3.96 %    
 
4.06
% 
      3.91 % 
(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.
 
10    
Scotiabank Second Quarter Report 2023
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.
T4 Return on equity by operating segment
 
     
For the three months ended April 30, 2023
  
($ millions)
   
Canadian
Banking
    
International
Banking
     
Global
Wealth
Management
     
Global
Banking
and Markets
    
Other
     
Total
  
Reported
                
Net income attributable to common shareholders
   
$
1,059
 
  
$
641
 
   
$
352
 
   
$
400
 
  
$
(423
) 
   
$
2,029
 
Total average common equity
   
 
19,077
 
  
 
19,866
 
   
 
9,732
 
   
 
15,587
 
  
 
3,332
 
   
 
67,594
 
Return on equity
   
 
22.8
% 
  
 
13.2
% 
   
 
14.8
% 
   
 
10.5
% 
  
 
nm
(1)
 
   
 
12.3
% 
Adjusted
(2)
                
Net income attributable to common shareholders
   
$
1,060
 
  
$
649
 
   
$
358
 
   
$
400
 
  
$
(423
) 
   
$
2,044
 
Return on equity
   
 
22.8
% 
  
 
13.4
% 
   
 
15.1
% 
   
 
10.5
% 
  
 
nm
(1)
 
   
 
12.4
% 
(1)
Not meaningful
(2)
Refer to Tables on page 5.
 
     For the three months ended January 31, 2023     For the three months ended April 30, 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
  
$
1,086
 
  
$
653
 
  
$
385
 
  
$
518
 
  
$
(1,011
) 
  
$
1,631
 
  
$
1,178
 
  
$
603
 
  
$
407
 
  
$
487
 
  
$
(80
) 
  
$
2,595
 
Total average common equity
  
 
18,753
 
  
 
19,302
 
  
 
9,835
 
  
 
15,535
 
  
 
2,206
 
  
 
65,631
 
  
 
17,848
 
  
 
18,804
 
  
 
9,529
 
  
 
12,832
 
  
 
6,490
 
  
 
65,503
 
Return on equity
  
 
23.0
% 
  
 
13.4
% 
  
 
15.5
% 
  
 
13.2
% 
  
 
nm
(1)
 
  
 
9.9
% 
  
 
27.1
% 
  
 
13.2
% 
  
 
17.5
% 
  
 
15.6
% 
  
 
nm
(1)
 
  
 
16.2
% 
Adjusted
(2)
            
 
            
Net income attributable to common shareholders
  
$
1,087
 
  
$
660
 
  
$
392
 
  
$
518
 
  
$
(432
) 
  
$
2,225
 
  
$
1,182
 
  
$
611
 
  
$
413
 
  
$
487
 
  
$
(80
) 
  
$
2,613
 
Return on equity
  
 
23.0
% 
  
 
13.6
% 
  
 
15.8
% 
  
 
13.2
% 
  
 
nm
(1)
 
  
 
13.4
% 
  
 
27.2
% 
  
 
13.3
% 
  
 
17.8
% 
  
 
15.6
% 
  
 
nm
(1)
 
  
 
16.4
% 
(1)
Not meaningful
(2)
Refer to Tables on page 5.
 
    
For the six months ended April 30, 2023
     For the six months ended April 30, 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
  
$
2,145
 
  
$
1,294
 
  
$
737
 
  
$
918
 
  
$
(1,434
) 
  
$
3,660
 
  
$
2,376
 
  
$
1,145
 
  
$
817
 
  
$
1,046
 
  
$
(181
) 
  
$
5,203
 
Total average common equity
  
 
18,913
 
  
 
19,580
 
  
 
9,784
 
  
 
15,561
 
  
 
2,942
 
  
 
66,780
 
  
 
17,607
 
  
 
18,176
 
  
 
9,485
 
  
 
12,774
 
  
 
7,210
 
  
 
65,252
 
Return on equity
  
 
22.9
% 
  
 
13.3
% 
  
 
15.2
% 
  
 
11.9
% 
  
 
nm
(1)
 
  
 
11.1
% 
  
 
27.2
% 
  
 
12.7
% 
  
 
17.4
% 
  
 
16.5
% 
  
 
nm
(1)
 
  
 
16.1
% 
Adjusted
(2)
            
 
            
Net income attributable to common shareholders
  
$
2,147
 
  
$
1,309
 
  
$
750
 
  
$
918
 
  
$
(855
) 
  
$
4,269
 
  
$
2,384
 
  
$
1,160
 
  
$
830
 
  
$
1,046
 
  
$
(181
) 
  
$
5,239
 
Return on equity
  
 
22.9
% 
  
 
13.5
% 
  
 
15.5
% 
  
 
11.9
% 
  
 
nm
(1)
 
  
 
12.9
% 
  
 
27.3
% 
  
 
12.9
% 
  
 
17.6
% 
  
 
16.5
% 
  
 
nm
(1)
 
  
 
16.2
% 
(1)
Not meaningful
(2)
Refer to Tables on page 5.
 
Scotiabank Second Quarter Report 2023
    11
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
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.
T5 Return on tangible common equity
 
     For the three months ended        For the six months ended  
($ millions)
  
April 30
2023
      January 31
2023		      April 30
2022		    
April 30
2023
      April 30
2022		  
Reported
             
Average common equity – Reported
(1)
  
$
67,594
 
    $ 65,631      $ 65,503    
$
66,780
 
    $ 65,252  
Average goodwill
(1)(2)
  
 
(9,513
) 
      (9,334 )       (9,263 )   
 
(9,410
) 
      (9,234 ) 
Average acquisition-related intangibles (net of deferred tax)
(1)
  
 
(3,747
) 
      (3,760 )       (3,817 )   
 
(3,754
) 
      (3,823 ) 
Average tangible common equity
(1)
  
$
54,334
 
    $ 52,537      $ 52,423    
$
53,616
 
    $ 52,195  
Net income attributable to common shareholders – reported
  
$
2,029
 
    $ 1,631      $ 2,595    
$
3,660
 
    $ 5,203  
Amortization of acquisition-related intangible assets (after tax)
(3)
  
 
15
 
      15        18    
 
30
 
      36  
Net income attributable to common shareholders adjusted for amortization of acquisition-related intangible assets (after tax)
  
$
2,044
 
    $ 1,646      $ 2,613    
$
3,690
 
    $ 5,239  
Return on tangible common equity
(4)
  
 
15.4
% 
      12.4 %       20.4 %   
 
13.9
% 
      20.2 % 
Adjusted
(3)
                                           
Adjusted net income attributable to common shareholders
  
$
2,044
 
    $ 2,225      $ 2,613    
$
4,269
 
    $ 5,239  
Return on tangible common equity – adjusted
(4)
  
 
15.4
% 
      16.8 %       20.4 %   
 
16.1
% 
      20.2 % 
(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.
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.
 
12    
Scotiabank Second Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Financial Highlights
T6 Financial highlights
 
      As at and for the three months ended       For the six months ended  
(Unaudited)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Operating results
($ millions)
               
Net interest income
   
 
4,466
 
      4,569        4,473     
 
9,035
 
      8,817  
Non-interest
income
   
 
3,463
 
      3,411        3,469     
 
6,874
 
      7,174  
Total revenue
   
 
7,929
 
      7,980        7,942     
 
15,909
 
      15,991  
Provision for credit losses
   
 
709
 
      638        219     
 
1,347
 
      441  
Non-interest
expenses
   
 
4,576
 
      4,464        4,159     
 
9,040
 
      8,382  
Income tax expense
   
 
485
 
      1,106        817     
 
1,591
 
      1,681  
Net income
   
 
2,159
 
      1,772        2,747     
 
3,931
 
      5,487  
Net income attributable to common shareholders
   
 
2,029
 
      1,631        2,595     
 
3,660
 
      5,203  
Operating performance
               
Basic earnings per share
($)
   
 
1.70
 
      1.37        2.16     
 
3.07
 
      4.32  
Diluted earnings per share
 ($)
   
 
1.69
 
      1.36        2.16     
 
3.04
 
      4.30  
Return on equity
(%)
(1)
   
 
12.3
 
      9.9        16.2     
 
11.1
 
      16.1  
Return on tangible common equity
(%)
(2)
   
 
15.4
 
      12.4        20.4     
 
13.9
 
      20.2  
Productivity ratio
(%)
(1)
   
 
57.7
 
      55.9        52.4     
 
56.8
 
      52.4  
Net interest margin
(%)
(2)
   
 
2.13
 
      2.11        2.23     
 
2.12
 
      2.20  
Financial position information
($ millions)
              
Cash and deposits with financial institutions
   
 
63,893
 
      81,386        85,910        
Trading assets
   
 
114,695
 
      116,346        133,644        
Loans
   
 
764,068
 
      755,157        689,702        
Total assets
   
 
1,373,198
 
      1,374,438        1,288,506        
Deposits
   
 
945,538
 
      949,887        876,554        
Common equity
   
 
69,077
 
      66,112        64,833        
Preferred shares and other equity instruments
   
 
8,075
 
      8,075        5,552        
Assets under administration
(1)
   
 
684,170
 
      664,683        640,227        
Assets under management
(1)
   
 
329,502
 
      322,423        326,223     
 
 
 
   
 
 
 
Capital and liquidity measures
               
Common Equity Tier 1 (CET1) capital ratio
(%)
(3)
   
 
12.3
 
      11.5        11.6        
Tier 1 capital ratio
(%)
(3)
   
 
14.1
 
      13.2        12.8        
Total capital ratio
(%)
(3)
   
 
16.2
 
      15.2        15.0        
Total loss absorbing capacity (TLAC) ratio
(%)
(4)
   
 
28.3
 
      27.9        30.1        
Leverage ratio
(%)
(5)
   
 
4.2
 
      4.2        4.2        
TLAC Leverage ratio
(%)
(4)
   
 
8.4
 
      8.9        9.8        
Risk-weighted assets
($ millions)
(3)
   
 
451,063
 
      471,528        445,273        
Liquidity coverage ratio (LCR)
(%)
(6)
   
 
131
 
      122        125        
Net stable funding ratio (NSFR)
(%)
(7)
   
 
111
 
      109        109     
 
 
 
   
 
 
 
Credit quality
               
Net impaired loans
($ millions)
   
 
3,554
 
      3,450        2,660        
Allowance for credit losses
($ millions)
(8)
   
 
5,931
 
      5,668        5,375        
Gross impaired loans as a % of loans and acceptances
(1)
   
 
0.67
 
      0.65        0.60        
Net impaired loans as a % of loans and acceptances
(1)
   
 
0.45
 
      0.44        0.37        
Provision for credit losses as a % of average net loans and acceptances (annualized)
(1)(9)
   
 
0.37
 
      0.33        0.13     
 
0.35
 
      0.13  
Provision for credit losses on impaired loans as a % of average net loans and acceptances (annualized)
(1)(9)
   
 
0.33
 
      0.29        0.24     
 
0.31
 
      0.24  
Net write-offs as a % of average net loans and acceptance (annualized)
(1)
   
 
0.29
 
      0.29        0.25     
 
0.29
 
      0.26  
Adjusted results
(2)
               
Adjusted net income
($ millions)
   
 
2,174
 
      2,366        2,765     
 
4,540
 
      5,523  
Adjusted diluted earnings per share
($)
   
 
1.70
 
      1.85        2.18     
 
3.55
 
      4.33  
Adjusted return on equity
(%)
   
 
12.4
 
      13.4        16.4     
 
12.9
 
      16.2  
Adjusted return on tangible common equity
(%)
   
 
15.4
 
      16.8        20.4     
 
16.1
 
      20.2  
Adjusted productivity ratio
(%)
   
 
57.5
 
      55.7        52.1     
 
56.6
 
      52.1  
Common share information
               
Closing share price
($)
 (TSX)
   
 
67.63
 
      72.03        81.35        
Shares outstanding
(millions)
               
Average – Basic
   
 
1,192
 
      1,192        1,199     
 
1,192
 
      1,205  
Average – Diluted
   
 
1,197
 
      1,199        1,201     
 
1,199
 
      1,225  
End of period
   
 
1,198
 
      1,192        1,198        
Dividends paid per share
($)
   
 
1.03
 
      1.03        1.00     
 
2.06
 
      2.00  
Dividend yield
(%)
(1)
   
 
6.0
 
      6.1        4.5     
 
6.0
 
      4.6  
Market capitalization
($ millions)
(TSX)
   
 
81,033
 
      85,842        97,441        
Book value per common share
($)
(1)
   
 
57.65
 
      55.47        54.13        
Market value to book value multiple
(1)
   
 
1.2
 
      1.3        1.5        
Price to earnings multiple (trailing 4 quarters)
(1)
   
 
9.9
 
      9.9        9.8     
 
 
 
   
 
 
 
Other information
               
Employees (full-time equivalent)
   
 
91,030
 
      91,264        90,619        
Branches and offices
(10)
   
 
2,398
 
      2,411        2,460     
 
 
 
   
 
 
 
(1)
Refer to Glossary on page 54 for the description of the measure.
(2)
Refer to
Non-GAAP
Measures section starting on page 4.
(3)
Q2 2023 regulatory capital ratios are based on Revised Basel III requirements as determined in accordance with OSFI Guideline – Capital Adequacy Requirements (February 2023). Prior period regulatory capital ratios were prepared 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)
Q2 2023 leverage ratios are based on Revised Basel III requirements as determined in accordance with OSFI Guideline – Leverage Requirements (February 2023). Prior period leverage ratios were prepared 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 include MD Financial and Jarislowsky Fraser offices.
 
Scotiabank Second Quarter Report 2023
    13
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Overview of Performance
Financial performance summary
The Bank’s reported net income this quarter was $2,159 million, compared to $2,747 million in the same period last year, and $1,772 million last quarter which included the impact of the Canada Recovery Dividend (CRD) of $579 million. Diluted earnings per share were $1.69 compared to $2.16 in the same period last year and $1.36 last quarter. Return on equity was 12.3%, compared to 16.2% in the same period last year and 9.9% last quarter.
Adjusted net income was $2,174 million compared to $2,765 million last year, a decrease of 21%. The decrease 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 $2,174 million this quarter compared to $2,366 million last quarter, a decrease of 8%. The decrease was due mainly to lower net interest income, higher provision for credit losses and
non-interest
expenses, partly offset by lower provision for income taxes.
Adjusted diluted earnings per share were $1.70 compared to $2.18 last year and $1.85 last quarter. Adjusted return on equity was 12.4% compared to 16.4% a year ago and 13.4% last quarter.
Refer to
non-GAAP
measures starting on page 4 for details of adjustments.
Economic summary and outlook
The economic outlook has remained relatively stable over the last quarter despite tensions in the U.S. banking system. Growth is expected to slow meaningfully over coming quarters although there was a stronger than anticipated start to the year. This strength early in the year is expected to be offset to some extent by the consequences of the challenges experienced in some U.S. banks which is likely to lead to a modest pullback in lending in the U.S. as the year progresses. More broadly, and despite these developments, the global economy remains resilient to the broad range of headwinds that would normally slow economic activity. Against this background, inflation is slowing less rapidly than forecasted in Canada and the U.S. and remains elevated in a broad range of countries. Many central banks are at the end or nearing the end of their tightening cycles, but cuts to policy rates are unlikely this year and expected in 2024.
In Canada, we expect that the Bank of Canada will raise its policy rate one final time owing to the persistence of inflation and signs of a sharp improvement in housing markets. A mild recession is still expected and there is evidence of cooling economic activity late in the first quarter, but employment growth remains strong. Inflation remains on a very gradual path to 2% in 2024 but it is slowing less rapidly than expected. Risks to the inflation outlook appear tilted towards higher inflation. To balance risks around the inflation outlook, we expect the Bank of Canada will raise its policy rate by an additional 25 basis points to 4.75%. A process of gradual cuts is expected to commence in early 2024.
A similar dynamic is at play in the United States. Inflation is on a downward path but is slowing less rapidly than in Canada. Strong employment growth continues to be observed. The challenge faced by some U.S. banks should lead to a modest drag on growth as bank lending is impacted. A mild recession in the United States is forecasted as policymakers engineer weaker growth through higher policy rates, although the Federal Reserve is likely done raising its policy rate and is expected to undertake a series of gradual rate cuts commencing early 2024.
Inflation remains more challenging in the Pacific Alliance Countries as central banks have had to tighten more than expected to subdue it. As in many other countries, regional central banks are either done or nearly done raising rates. The economic outlook is softening as expected. Commodity prices continue to support economic activity in the region, though an improvement in copper prices is expected as the year progresses owing to a clearly deficient supply for the next few years. Political developments continue to influence the outlook but the environment is now more stable, suggesting that the economic consequences of the political shifts are fading.
 
14    
Scotiabank Second Quarter Report 2023
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 8.
T7 Impact of foreign currency translation
 
      Average exchange rate      % Change  
For the three months ended   
April 30, 2023
      January 31, 2023      April 30, 2022      April 30, 2023
vs. January 31, 2023		     April 30, 2023
vs. April 30, 2022		  
U.S dollar/Canadian dollar
   
 
0.738
 
      0.742        0.790        (0.5 )%      (6.5 )% 
Mexican Peso/Canadian dollar
   
 
13.549
 
      14.342        16.072        (5.5 )%      (15.7 )% 
Peruvian Sol/Canadian dollar
   
 
2.799
 
      2.853        2.964        (1.9 )%      (5.5 )% 
Colombian Peso/Canadian dollar
   
 
3,469.331
 
      3,567.606        3,033.704        (2.8 )%      14.4 % 
Chilean Peso/Canadian dollar
   
 
594.071
 
      646.312        637.946        (8.1 )%      (6.9 )% 
                      Average exchange rate     % Change  
For the six months ended                   
April 30, 2023
      April 30, 2022     April 30, 2023
vs. April 30, 2022		  
U.S dollar/Canadian dollar
         
 
0.740
 
      0.789       (6.2 )% 
Mexican Peso/Canadian dollar
         
 
13.952
 
      16.230       (14.0 )% 
Peruvian Sol/Canadian dollar
         
 
2.827
 
      3.055       (7.5 )% 
Colombian Peso/Canadian dollar
         
 
3,519.268
 
      3,081.854       14.2 % 
Chilean Peso/Canadian dollar
   
 
 
 
   
 
 
 
   
 
620.625
 
      646.099       (3.9 )% 
                      For the three months ended     For the
six months ended		  
Impact on net income
(1)
($ millions except EPS)
                    April 30, 2023
vs. April 30, 2022		      April 30, 2023
vs. January 31, 2023		     April 30, 2023
vs. April 30, 2022		  
Net interest income
          $ 159      $ 81     $ 288  
Non-interest
income
(2)
            36        157       (42 ) 
Total revenue
            195        238       246  
Non-interest
expenses
            (123 )       (57 )      (219 ) 
Other items (net of tax)
(2)
   
 
 
 
   
 
 
 
      (26 )       (59 )      (38 ) 
Net income
   
 
 
 
   
 
 
 
    $ 46      $ 122     $ (11 ) 
Earnings per share (diluted)
   
 
 
 
   
 
 
 
    $ 0.04      $ 0.10     $ (0.01 ) 
Impact by business line
($ millions)
              
Canadian Banking
          $ 2      $ –     $ 3  
International Banking
(2)
            28        88       (9 ) 
Global Wealth Management
            4        (3 )      14  
Global Banking and Markets
            23        –       45  
Other
(2)
   
 
 
 
   
 
 
 
      (11 )       37       (64 ) 
Net income
   
 
 
 
   
 
 
 
    $ 46      $ 122     $ (11 ) 
(1)
Includes the impact of all currencies.
(2)
Includes the impact of foreign currency hedges.
 
Scotiabank Second Quarter Report 2023
    15
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Group Financial Performance
Net income
Q2 2023 vs Q2 2022
Net income was $2,159 million compared to $2,747 million. Adjusted net income was $2,174 million compared to $2,765 million, a decrease of 21%, due mainly to higher provision for credit losses and
non-interest
expenses, partly offset by lower provision for income taxes and the positive impact of foreign currency translation.
Q2 2023 vs Q1 2023
Net income was $2,159 million compared to $1,772 million, an increase of 22%. Adjusted net income was $2,174 million compared to $2,366 million, a decrease of 8%, due mainly to lower net interest income, higher provision for credit losses and
non-interest
expenses, partly offset by lower provision for income taxes and the positive impact of foreign currency translation.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Net income was $3,931 million compared to $5,487 million. Adjusted net income was $4,540 million compared to $5,523 million, a decrease of 18%, due mainly to higher provision for credit losses and
non-interest
expenses and lower
non-interest
income, partly offset by higher net interest income and a lower provision for income taxes.
Total revenue
Q2 2023 vs Q2 2022
Revenues were $7,929 million compared to $7,942 million, a decrease of $13 million.
Net interest income was $4,466 million, down $7 million. Asset growth in mortgages, commercial and corporate loans, and the positive impact of foreign currency translation were mostly offset by a lower net interest margin. Net interest margin was down ten basis points to 2.13%, driven primarily by a lower contribution from asset/liability management activities related to higher funding costs, as well as lower margins in Global Banking and Markets. This was partly offset by higher margins in International and Canadian Banking both benefitting from central bank rate increases.
Non-interest
income was $3,463 million, down $6 million. The decrease was due mainly to lower wealth management and trading revenues and unrealized losses on non-trading derivatives, which were largely offset by higher banking revenues, other fees and commissions, and the positive impact of foreign currency translation.
Q2 2023 vs Q1 2023
Revenues were $7,929 million, compared to $7,980 million, a decrease of 1%.
Net interest income was down $103 million or 2%, as higher margins were more than offset by the impact of three fewer days in the quarter. Net interest margin was up two basis points driven by higher margins in International and Canadian Banking, partly offset by a lower contribution from asset/liability management activities related to higher funding costs, and lower margins in Global Banking and Markets.
Non-interest
income was up $52 million or 2%. The impact of foreign currency translation was a positive 5%. The remaining decrease of 3% was due primarily to lower trading and banking revenues, which were partly offset by higher other fees and commissions, underwriting and advisory fees, and income from associated corporations.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Revenues were $15,909 million compared to $15,991 million, a decrease of 1%.
Net interest income was $9,035 million, an increase of $218 million or 2%. Strong mortgage, commercial and corporate loan growth and the positive impact of foreign currency translation were partly offset by a lower net interest margin. Net interest margin was down eight basis points to 2.12%, driven primarily by a lower contribution from asset/liability management activities related to higher funding costs, partly offset by higher margins in International and Canadian Banking both benefitting from central bank rate increases.
Non-interest
income was down $300 million or 4% due primarily to lower wealth management revenues, unrealized losses on
non-trading
derivatives, lower underwriting and advisory fees and income from associated corporations, as well as the negative impact of foreign currency translation. These were partly offset by higher banking revenues and other fees and commissions.
Provision for credit losses
Q2 2023 vs Q2 2022
The provision for credit losses was $709 million, compared to $219 million, an increase of $490 million. The provision for credit losses ratio increased 24 basis points to 37 basis points.
The provision for credit losses on performing loans was $88 million, compared to a net reversal of $187 million. The provision this period was driven primarily by the less favourable macroeconomic outlook, impacting mainly the corporate and commercial portfolios, as well as higher retail provisions due to challenging market conditions in Chile and Colombia driven by higher inflation. This was partly offset by reversals in Canada, including credit migration to impaired.
The provision for credit losses on impaired loans was $621 million, compared to $406 million, an increase of $215 million or 53%, due primarily to higher formations in the retail portfolios in Canadian and International Banking. The provision for credit losses ratio on impaired loans was 33 basis points, an increase of nine basis points.
 
16    
Scotiabank Second Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Q2 2023 vs Q1 2023
The provision for credit losses was $709 million, compared to $638 million, an increase of $71 million or 11%. The provision for credit losses ratio increased four basis points to 37 basis points.
The provision for credit losses on performing loans was $88 million, compared to $76 million, an increase of $12 million from the continued unfavourable macroeconomic outlook, impacting mainly the corporate and commercial portfolios, as well as higher retail provisions due to challenging market conditions in Colombia and Chile driven by higher inflation. This was partly offset by reversals in Canada, including credit migration to impaired.
The provision for credit losses on impaired loans was $621 million, compared to $562 million, an increase of $59 million or 10% due primarily to higher formations in the retail portfolios in Canadian and International Banking. The provision for credit losses ratio on impaired loans was 33 basis points, an increase of four basis points.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
The provision for credit losses was $1,347 million, compared to $441 million, an increase of $906 million. The provision for credit losses ratio increased 22 basis points to 35 basis points.
Provision for credit losses on performing loans was $164 million, compared to a net reversal of $370 million. The provision this period was driven by higher retail provisions due to challenging market conditions in Colombia and Chile from higher inflation, portfolio growth across markets primarily in retail, and a less favourable macroeconomic outlook primarily impacting commercial and corporate portfolios.
Provision for credit losses on impaired loans was $1,183 million compared to $811 million, an increase of $372 million or 46% due primarily to higher formations in the retail portfolios in Canadian and International Banking. The provision for credit losses ratio on impaired loans increased seven basis points to 31 basis points.
Non-interest expenses
Q2 2023 vs Q2 2022
Non-interest
expenses were $4,576 million, up $417 million or 10%. Adjusted
non-interest
expenses were $4,555 million, up $420 million or 10%, driven by higher personnel costs from increased staffing levels and inflationary adjustments, advertising costs to support business growth, as well as the unfavourable impact of foreign currency translation.
The productivity ratio was 57.7% compared to 52.4%. The adjusted productivity ratio was 57.5% compared to 52.1%.
Q2 2023 vs Q1 2023
Non-interest
expenses were up $112 million or 3%. Adjusted
non-interest
expenses were also up $112 million or 3%. The increase was driven by higher share-based compensation, communication and professional fees, and the unfavourable impact of foreign currency translation. This was partly offset by the impact of three fewer days in the quarter.
The productivity ratio was 57.7% compared to 55.9%. The adjusted productivity ratio was 57.5% compared to 55.7%.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Non-interest
expenses were $9,040 million, up $658 million or 8%. Adjusted
non-interest
expenses were $8,998 million, up $665 million or 8%, driven by higher advertising and technology costs to support business growth, business and capital taxes, personnel costs from increased staffing levels and inflationary adjustments, and the unfavourable impact of foreign currency translation. Partly offsetting were lower professional fees and share-based compensation.
The productivity ratio was 56.8% compared to 52.4%. The adjusted productivity ratio was 56.6% compared to 52.1%.
Operating leverage was negative 8.4% on a reported basis and negative 8.5% on an adjusted basis.
Taxes
Q2 2023 vs Q2 2022
The effective tax rate was 18.4% compared to 22.9% due primarily to higher income from lower tax rate jurisdictions and higher
tax-exempt
income in the current quarter.
Q2 2023 vs Q1 2023
The effective tax rate was 18.4% compared to 38.4%. The decrease was due primarily to the recognition of the CRD of $579 million in the prior quarter. On an adjusted basis, the effective tax rate was 18.4% in line with the prior quarter.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
The effective tax rate was 28.8% compared to 23.4% due primarily to the impact of the CRD in the current year. On an adjusted basis, the effective rate was 18.4% compared to 23.5% due primarily to higher income from lower tax rate jurisdictions and higher
tax-exempt
income in the current year.
 
Scotiabank Second Quarter Report 2023
    17
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      For the six months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Reported Results
               
Net interest income
   
$
 2,340
 
    $ 2,386      $ 2,144     
$
4,726
 
    $ 4,277  
Non-interest
income
(1)
   
 
794
 
      778        759     
 
1,572
 
      1,500  
Total revenue
   
 
3,134
 
      3,164        2,903     
 
6,298
 
      5,777  
Provision for credit losses
   
 
218
 
      218        (12 )    
 
436
 
      (47 ) 
Non-interest
expenses
   
 
1,457
 
      1,449        1,324     
 
2,906
 
      2,606  
Income tax expense
   
 
399
 
      410        412     
 
809
 
      838  
Net income
   
$
1,060
 
    $ 1,087      $ 1,179     
$
2,147
 
    $ 2,380  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –     
$
–
 
    $ –  
Net income attributable to equity holders of the Bank
   
$
1,060
 
    $ 1,087      $ 1,179     
$
2,147
 
    $ 2,380  
Other financial data and measures
               
Return on equity
(2)
   
 
22.8
% 
      23.0 %       27.1 %    
 
22.9
% 
      27.2 % 
Net interest margin
(2)
   
 
2.30
% 
      2.26 %       2.22 %    
 
2.28
% 
      2.20 % 
Provision for credit losses – performing (Stage 1 and 2)
   
$
(5
) 
    $ 31      $ (143 )    
$
26
 
    $ (303 ) 
Provision for credit losses – impaired (Stage 3)
   
$
223
 
    $ 187      $ 131     
$
410
 
    $ 256  
Provision for credit losses as a percentage of average net loans and acceptances (annualized)
(3)
   
 
0.20
% 
      0.19 %       (0.01 )%    
 
0.20
% 
      (0.02 )% 
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)
(3)
   
 
0.21
% 
      0.17 %       0.13 %    
 
0.19
% 
      0.12 % 
Net write-offs as a percentage of average net loans and acceptances (annualized)
(3)
   
 
0.18
% 
      0.16 %       0.14 %    
 
0.17
% 
      0.14 % 
Average assets
($ billions)
   
$
451
 
    $ 450      $ 423     
$
450
 
    $ 417  
Average liabilities
($ billions)
   
$
367
 
    $ 357      $ 326     
$
362
 
    $ 323  
(1)
Includes income (on a taxable equivalent basis) from associated corporations for the three months ended April 30, 2023 – $25 (January 31, 2023 – $15; April 30, 2022 – $18) and for the six months ended April 30, 2023 – $40 (April 30, 2022 – $26).
(2)
Refer to
Non-GAAP
Measures starting on page 4 for the description of the measure.
(3)
Refer to Glossary on page 54 for the description of the measure.
 
T8A Adjusted Canadian Banking financial performance
                                   
      For the three months ended      For the six months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Adjusted Results
(1)
               
Net interest income
   
$
 2,340
 
    $ 2,386      $ 2,144     
$
4,726
 
    $ 4,277  
Non-interest
income
   
 
794
 
      778        759     
 
1,572
 
      1,500  
Total revenue
   
 
3,134
 
      3,164        2,903     
 
6,298
 
      5,777  
Provision for credit losses
   
 
218
 
      218        (12 )    
 
436
 
      (47 ) 
Non-interest
expenses
(2)
   
 
1,456
 
      1,447        1,319     
 
2,903
 
      2,595  
Income tax expense
   
 
399
 
      411        413     
 
810
 
      841  
Net income
   
$
1,061
 
    $ 1,088      $ 1,183     
$
2,149
 
    $ 2,388  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –     
$
–
 
    $ –  
Net income attributable to equity holders of the Bank
   
$
1,061
 
    $ 1,088      $ 1,183     
$
2,149
 
    $ 2,388  
(1)
Refer to
Non-GAAP
Measures starting on page 4 for adjusted results.
(2)
Includes adjustment for amortization of acquisition-related intangible assets, excluding software for the three months ended April 30, 2023 – $1 (January 31, 2023 – $2; April 30, 2022 – $5) and for the six months ended April 30, 2023 – $3 (April 30, 2022 – $11).
 
18    
Scotiabank Second Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Net income
Q2 2023 vs Q2 2022
Net income attributable to equity holders was $1,060 million, compared to $1,179 million. Adjusted net income attributable to equity holders was $1,061 million, down $122 million or 10%. The decline was due primarily to higher provision for credit losses and
non-interest
expenses, partly offset by higher revenue.
Q2 2023 vs Q1 2023
Net income attributable to equity holders and adjusted net income attributable to equity holders declined $27 million. The decline was due to lower revenue and higher
non-interest
expenses.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Net income attributable to equity holders was $2,147 million, compared to $2,380 million. Adjusted net income attributable to equity holders was $2,149 million, down $239 million or 10%. The decline was due primarily to higher provision for credit losses and
non-interest
expenses, partly offset by higher revenue.
Average assets
Q2 2023 vs Q2 2022
Average assets were $451 billion, an increase of $28 billion or 6%. The growth included $13 billion or 18% in business loans and acceptances, $9 billion or 3% in residential mortgages, $4 billion or 6% in personal loans, and $1 billion or 16% in credit cards.
Q2 2023 vs Q1 2023
Average assets were in line with prior quarter. The growth of $2 billion or 2% in business loans and acceptances was offset by a decline of $2 billion or 1% in residential mortgages.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Average assets were $450 billion, an increase of $33 billion or 8%. The growth included $14 billion or 20% in business loans and acceptances, $14 billion or 5% in residential mortgages, $4 billion or 6% in personal loans, and $1 billion or 14% in credit cards.
Average liabilities
Q2 2023 vs Q2 2022
Average liabilities were $367 billion, an increase of $41 billion or 13%. The growth included $29 billion or 15% in personal deposits, primarily in term products, and $5 billion or 5% in
non-personal
deposits.
Q2 2023 vs Q1 2023
Average liabilities increased $10 billion or 3%. The growth included $8 billion or 4% in personal deposits, primarily in term products, and $1 billion or 1% in
non-personal
deposits.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Average liabilities were $362 billion, an increase of $39 billion or 12%. The growth included $27 billion or 14% in personal deposits, primarily in term products, and $5 billion or 5% in
non-personal
deposits.
Total revenue
Q2 2023 vs Q2 2022
Revenues were $3,134 million, up $231 million or 8%.
Net interest income of $2,340 million increased $196 million or 9%, due primarily to strong loan and deposit growth, as well as margin expansion. The net interest margin increased eight basis points to 2.30%, due mainly to higher deposit margins and the impact of the Bank of Canada rate increases, partly offset by lower loan margins.
Non-interest
income of $794 million increased $35 million or 5%. The increase was due primarily to elevated private equity gains, higher insurance revenue, foreign exchange fees, and income from associated corporations, partly offset by lower banking revenue and mutual fund distribution fees.
Q2 2023 vs Q1 2023
Revenues declined $30 million or 1%.
Net interest income decreased $46 million or 2%, due primarily to the impact of three fewer days in the quarter, partly offset by margin expansion and strong deposit growth. The net interest margin increased four basis points to 2.30% as higher loan margins were partly offset by lower deposit margins.
 
Scotiabank Second Quarter Report 2023
    19
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Non-interest
income increased $16 million or 2%. The increase was due primarily to higher insurance revenue, income from associated corporations, and foreign exchange fees, partly offset by lower banking revenue.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Revenues were $6,298 million, up $521 million or 9%.
Net interest income of $4,726 million increased $449 million or 11%, due primarily to strong loan and deposit growth, as well as margin expansion. The net interest margin increased eight basis points to 2.28%, due mainly to higher deposit margins and the impact of the Bank of Canada rate increases, partly offset by lower loan margins.
Non-interest
income of $1,572 million increased $72 million or 5%. The increase was due primarily to elevated private equity gains, and higher insurance revenue, income from associated corporations and foreign exchange fees, partly offset by lower mutual fund distribution fees.
Provision for credit losses
Q2 2023 vs Q2 2022
The provision for credit losses was $218 million, compared to a net reversal of $12 million. The provision for credit losses ratio increased 21 basis points to 20 basis points.
Provision for credit losses on performing loans was a net reversal of $5 million, compared to a net reversal of $143 million. The provision reversals this period related to retail provisions primarily in unsecured revolving loans, including credit migration to impaired, and were partly offset by the less favourable macroeconomic outlook.
Provision for credit losses on impaired loans was $223 million, compared to $131 million, an increase of $92 million due primarily to higher retail formations. The provision for credit losses ratio on impaired loans was 21 basis points, an increase of eight basis points.
Q2 2023 vs Q1 2023
The provision for credit losses was $218 million, in line with last quarter. The provision for credit losses ratio increased one basis point to 20 basis points.
Provision for credit losses on performing loans was a net reversal of $5 million, compared to $31 million. The provision reversals this period related to retail provisions primarily in unsecured revolving loans, including credit migration to impaired, and were partly offset by the continued unfavourable macroeconomic outlook.
Provision for credit losses on impaired loans was $223 million, compared to $187 million, an increase of $36 million or 19% due primarily to higher retail formations. The provision for credit losses ratio on impaired loans was 21 basis points, an increase of four basis points.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
The provision for credit losses was $436 million, an increase of $483 million. The provision for credit losses ratio was 20 basis points, an increase of 22 basis points.
Provision for credit losses on performing loans was $26 million, compared to a net reversal of $303 million. The provision for credit losses this period was driven primarily by commercial provisions due to a less favourable macroeconomic outlook.
Provision for credit losses on impaired loans was $410 million compared to $256 million, an increase of $154 million due primarily to higher retail formations. The provision for credit losses ratio on impaired loans was 19 basis points, an increase of seven basis points.
Non-interest expenses
Q2 2023 vs Q2 2022
Non-interest
expenses were $1,457 million compared to $1,324 million, up 10%. Adjusted
non-interest
expenses were $1,456 million, up $137 million or 10%, due primarily to higher personnel costs from increased client-facing staffing levels and inflationary adjustments, and higher advertising and business development costs to support business growth.
Q2 2023 vs Q1 2023
Non-interest
expenses were up $8 million or 1%, due largely to higher premises and personnel-related costs to support business growth, partly offset by the impact of three fewer days in the quarter.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Non-interest
expenses were $2,906 million compared to $2,606 million, up 12%. Adjusted
non-interest
expenses were $2,903 million, up $308 million or 12%, due primarily to higher personnel costs from increased client-facing staffing levels and inflationary adjustments, higher technology, advertising, and business development costs to support business growth.
Taxes
Q2 2023 vs Q2 2022
The effective tax rate was 27.4% compared to 25.9% driven mainly by the higher Canadian statutory tax rate.
Q2 2023 vs Q1 2023
The effective tax rate was 27.4%, in line with prior quarter.
 
20    
Scotiabank Second Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
The effective tax rate was 27.4% compared to 26.0% driven mainly by the higher Canadian statutory tax rate.
 
International Banking
                                   
T9 International Banking financial performance
                                   
      For the three months ended      For the six months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Reported Results
               
Net interest income
   
$
2,007
 
    $ 1,899      $ 1,687     
$
3,906
 
    $ 3,335  
Non-interest
income
(1)
   
 
745
 
      802        720     
 
1,547
 
      1,469  
Total revenue
   
 
2,752
 
      2,701        2,407     
 
5,453
 
      4,804  
Provision for credit losses
   
 
436
 
      404        276     
 
840
 
      550  
Non-interest
expenses
   
 
1,479
 
      1,436        1,268     
 
2,915
 
      2,553  
Income tax expense
   
 
172
 
      169        182     
 
341
 
      390  
Net income
   
$
665
 
    $ 692      $ 681     
$
1,357
 
    $ 1,311  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
23
 
    $ 38      $ 76     
$
61
 
    $ 161  
Net income attributable to equity holders of the Bank
   
$
642
 
    $ 654      $ 605     
$
1,296
 
    $ 1,150  
Other financial data and measures
               
Return on equity
(2)
   
 
13.2
% 
      13.4 %       13.2 %    
 
13.3
% 
      12.7 % 
Net interest margin
(2)
(3)
   
 
4.12
% 
      4.00 %       3.96 %    
 
4.06
% 
      3.91 % 
Provision for credit losses – performing (Stage 1 and 2)
   
$
40
 
    $ 29      $ (2 )    
$
69
 
    $ (14 ) 
Provision for credit losses – impaired (Stage 3)
   
$
396
 
    $ 375      $ 278     
$
771
 
    $ 564  
Provision for credit losses as a percentage of average net loans and acceptances (annualized)
(4)
   
 
1.03
% 
      0.96 %       0.77 %    
 
0.99
% 
      0.77 % 
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)
(4)
   
 
0.94
% 
      0.89 %       0.77 %    
 
0.91
% 
      0.79 % 
Net write-offs as a percentage of average net loans and acceptances (annualized)
(4)
   
 
0.83
% 
      0.88 %       0.76 %    
 
0.86
% 
      0.82 % 
Average assets
($ billions)
   
$
239
 
    $ 228      $ 204     
$
233
 
    $ 200  
Average liabilities
($ billions)
   
$
181
 
    $ 169      $ 149     
$
175
 
    $ 146  
(1)
Includes income (on a taxable equivalent basis) from associated corporations for the three months ended April 30, 2023 – $69 (January 31, 2023 – $63; April 30, 2022 – $77) and for the six months ended April 30, 2023 – $132 (April 30, 2022 – $145).
(2)
Refer to
Non-GAAP
Measures starting on page 4 for the description of the measure.
(3)
Prior period has been restated to reflect the deduction of non-interest-bearing deposits with financial institutions, to align with the Bank’s definition.
(4)
Refer to Glossary on page 54 for the description of the measure.
 
T9A Adjusted International Banking financial performance
                     
      For the three months ended      For the six months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Adjusted Results
(1)
               
Net interest income
   
$
2,007
 
    $ 1,899      $ 1,687     
$
3,906
 
    $ 3,335  
Non-interest
income
   
 
745
 
      802        720     
 
1,547
 
      1,469  
Total revenue
   
 
2,752
 
      2,701        2,407     
 
5,453
 
      4,804  
Provision for credit losses
   
 
436
 
      404        276     
 
840
 
      550  
Non-interest
expenses
(2)
   
 
1,468
 
      1,426        1,258     
 
2,894
 
      2,533  
Income tax expense
   
 
175
 
      172        184     
 
347
 
      395  
Net income
   
$
673
 
    $ 699      $ 689     
$
1,372
 
    $ 1,326  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
23
 
    $ 38      $ 76     
$
61
 
    $ 161  
Net income attributable to equity holders of the Bank
   
$
650
 
    $ 661      $ 613     
$
1,311
 
    $ 1,165  
(1)
Refer to
Non-GAAP
Measures starting on page 4 for adjusted results.
(2)
Includes adjustment for amortization of acquisition-related intangible assets, excluding software for the three months ended April 30, 2023 – $11 (January 31, 2023 – $10; April 30, 2022 – $10) and for the six months ended April 30, 2023 – $21 (April 30, 2022 – $20).
Net income
Q2 2023 vs Q2 2022
Net income attributable to equity holders was $642 million, an increase of 6% from $605 million. Adjusted net income attributable to equity holders was $650 million, an increase of $37 million or 6%. The increase was driven by higher revenues and the positive impact of foreign currency translation, partly offset by higher
non-interest
expenses and provision for credit losses.
Q2 2023 vs Q1 2023
Net income attributable to equity holders decreased by $12 million or 2%. The decrease was due primarily to lower
non-interest
income, higher
non-interest
expenses and provision for credit losses, partly offset by higher net interest income and the positive impact of foreign currency translation.
 
Scotiabank Second Quarter Report 2023
    21
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Net income attributable to equity holders was $1,296 million, an increase of 13% from $1,150 million. Adjusted net income attributable to equity holders was $1,311 million, an increase of $146 million or 13%. 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.
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 starting on page 4). 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      For the six months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Constant dollars – Reported
(1)
               
Net interest income
   
$
2,007
 
    $ 1,972      $ 1,827     
$
3,906
 
    $ 3,580  
Non-interest
income
(2)
   
 
745
 
      837        725     
 
1,547
 
      1,453  
Total revenue
   
 
2,752
 
      2,809        2,552     
 
5,453
 
      5,033  
Provision for credit losses
   
 
436
 
      422        292     
 
840
 
      583  
Non-interest
expenses
   
 
1,479
 
      1,487        1,352     
 
2,915
 
      2,702  
Income tax expense
   
 
172
 
      171        185     
 
341
 
      392  
Net income
   
$
665
 
    $ 729      $ 723     
$
1,357
 
    $ 1,356  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
23
 
    $ 40      $ 81     
$
61
 
    $ 167  
Net income attributable to equity holders of the Bank
   
$
642
 
    $ 689      $ 642     
$
1,296
 
    $ 1,189  
Other financial data and measures
               
Average assets
($ billions)
   
$
239
 
    $ 237      $ 220     
$
233
 
    $ 205  
Average liabilities
($ billions)
   
$
181
 
    $ 176      $ 161     
$
175
 
    $ 156  
(1)
Refer to
Non-GAAP
Measures starting on page 4 for adjusted results.
(2)
Includes income (on a taxable equivalent basis) from associated corporations for the three months ended April 30, 2023 – $69 (January 31, 2023 – $64; April 30, 2022 – $80) and for the six months ended April 30, 2023 – $132 (April 30, 2022 – $149).
 
T10A International Banking financial performance on adjusted and constant dollar basis
                      
      For the three months ended      For the six months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Constant dollars – Adjusted
(1)
               
Net interest income
   
$
2,007
 
    $ 1,972      $ 1,827     
$
3,906
 
    $ 3,580  
Non-interest
income
   
 
745
 
      837        725     
 
1,547
 
      1,453  
Total revenue
   
 
2,752
 
      2,809        2,552     
 
5,453
 
      5,033  
Provision for credit losses
   
 
436
 
      422        292     
 
840
 
      583  
Non-interest
expenses
   
 
1,468
 
      1,477        1,341     
 
2,894
 
      2,681  
Income tax expense
   
 
175
 
      173        188     
 
347
 
      397  
Net income
   
$
673
 
    $ 737      $ 731     
$
1,372
 
    $ 1,372  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
23
 
    $ 40      $ 81     
$
61
 
    $ 168  
Net income attributable to equity holders of the Bank
   
$
650
 
    $ 697      $ 650     
$
1,311
 
    $ 1,204  
Other financial data and measures
               
Average assets
($ billions)
   
$
239
 
    $ 237      $ 220     
$
233
 
    $ 205  
Average liabilities
($ billions)
   
$
181
 
    $ 176      $ 161     
$
175
 
    $ 156  
(1)
Refer to
Non-GAAP
Measures starting on page 4 for adjusted results.
Net income
Q2 2023 vs Q2 2022
Net income attributable to equity holders was $642 million, in line with the prior year. Adjusted net income attributable to equity holders was $650 million, in line with the prior year, driven by higher revenues and lower provision for income taxes, offset by higher provision for credit losses and
non-interest
expenses.
Q2 2023 vs Q1 2023
Net income attributable to equity holders decreased by $47 million or 7%. The decrease was due primarily to lower
non-interest
income, and higher provision for credit losses and provision for income taxes, partly offset by higher net interest income and lower
non-interest
expenses.
 
22    
Scotiabank Second Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Net income attributable to equity holders was $1,296 million, an increase of 9% from $1,189 million. Adjusted net income attributable to equity holders was $1,311 million, an increase of $107 million or 9%. The increase was driven by higher revenues and lower provision for income taxes, partly offset by higher provision for credit losses and
non-interest
expenses.
Average assets
Q2 2023 vs Q2 2022
Average assets were $239 billion, an increase of $19 billion or 9%. Total loan growth was 9%, due primarily to growth in Chile and Mexico. Residential mortgages increased by 12%, personal loans and credit cards increased by 8%, and business loans increased by 8%.
Q2 2023 vs Q1 2023
Average assets increased by $2 billion or 1%.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Average assets were $233 billion, an increase of $28 billion or 14%. Total loan growth was 11%, due primarily to growth in Chile and Mexico. Residential mortgages increased by 13%, business loans increased by 11%, and personal loans and credit cards increased by 8%.
Average liabilities
Q2 2023 vs Q2 2022
Average liabilities were $181 billion, an increase of $20 billion or 12%. Total deposits increased by 10% driven mainly by Mexico and Chile.
Non-personal
deposits increased by 13% and personal deposits by 3%. Term deposits increased by 29% and
non-term
deposits decreased by 6%.
Q2 2023 vs Q1 2023
Average liabilities were $181 billion, an increase of $4 billion. Total deposits increased by 2% driven mainly by Mexico and Colombia.
Non-personal
deposits increased by 3% and personal deposits remained in line with the prior period. Term deposits increased by 6% and
non-term
deposits decreased by 2%.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Average liabilities were $175 billion, an increase of $18 billion. Total deposits increased by 10% driven mainly by Mexico and Chile.
Non-personal
deposits increased by 14% and personal deposits increased by 4%. Term deposits increased by 30% and
non-term
deposits decreased by 5%.
Total revenue
Q2 2023 vs Q2 2022
Revenues were $2,752 million, an increase of $200 million or 8%.
Net interest income was $2,007 million, an increase of $180 million or 10%, driven by growth in business loans, residential mortgages, credit cards and personal loans, as well as margin expansion. Net interest margin increased by 16 basis points to 4.12%, driven by asset repricing margin expansion in the Caribbean and Central America and changes in asset mix, partly offset by lower inflation.
Non-interest
income was $745 million an increase of $20 million, driven mainly by higher capital market revenues, partly offset by lower net fees and commissions and income from associated corporations.
Q2 2023 vs Q1 2023
Revenues decreased by $57 million or 2%.
Net interest income increased by $35 million or 2%, driven by growth in residential mortgages, credit cards and personal loans, and margin expansion, partly offset by the decrease in business loans. Net interest margin increased by 12 basis points to 4.12%, driven by asset repricing, and higher inflation.
Non-interest
income decreased by $92 million or 11%, driven by lower net fees and commissions, partly offset by higher income from associated corporations and capital market revenues.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Revenues were $5,453 million, an increase of $420 million or 8%.
Net interest income was $3,906 million, an increase of $326 million or 9%, driven by growth in business loans, residential mortgages, credit cards and personal loans, as well as margin expansion. Net interest margin increased by 15 basis points to 4.06%, driven by asset repricing and changes in asset mix, partly offset by lower inflation.
Non-interest
income was $1,547 million an increase of $94 million, driven mainly by higher net fees and commissions and capital market revenues, partly offset by lower income from associated corporations.
 
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    23
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Provision for credit losses
Q2 2023 vs Q2 2022
The provision for credit losses was $436 million compared to $292 million, an increase of $144 million or 49%. The provision for credit losses ratio increased 26 basis points to 103 basis points.
Provision for credit losses on performing loans was $40 million, compared to a reversal of $2 million. The increase is from higher retail provisions due to challenging market conditions in Chile and Colombia, portfolio growth across markets and a less favourable macroeconomic outlook impacting primarily the commercial portfolio.
Provision for credit losses on impaired loans was $396 million, compared to $294 million, an increase of $102 million or 35%. This was due primarily to higher retail provisions driven by higher formations, primarily in Peru and Colombia. The provision for credit losses ratio on impaired loans was 94 basis points, an increase of 17 basis points.
Q2 2023 vs Q1 2023
The provision for credit losses was $436 million, compared to $422 million, an increase of $14 million or 3%. The provision for credit losses ratio increased by seven basis points to 103 basis points.
Provision for credit losses on performing loans was $40 million compared to $29 million, an increase of $11 million. The increase is from higher retail provisions due to challenging market conditions in Chile and Colombia, portfolio growth across markets and the continued unfavourable macroeconomic outlook, impacting primarily the commercial portfolio.
Provision for credit losses on impaired loans was $396 million compared to $393 million, an increase of $3 million or 1% due to higher retail provisions driven by higher formations, primarily in Peru and Colombia. The provision for credit losses ratio on impaired loans increased by five basis points to 94 basis points.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
The provision for credit losses was $840 million, an increase of $257 million or 44%. The provision for credit losses ratio was 99 basis points, an increase of 22 basis points.
Provision for credit losses on performing loans was $69 million, compared to a net reversal of $12 million. The increase related mainly to higher retail provisions due to challenging market conditions in Chile and Colombia, portfolio growth across markets, and the less favourable macroeconomic outlook, impacting primarily the commercial portfolio.
Provision for credit losses on impaired loans was $771 million, compared to $595 million, an increase of $176 million due primarily to higher retail provisions driven by higher formations, primarily in Chile, Peru and Colombia. The provision for credit losses ratio on impaired loans was 91 basis points, an increase of 12 basis points.
Non-interest expenses
Q2 2023 vs Q2 2022
Non-interest
expenses were $1,479 million, an increase of $127 million or 9%. Adjusted
non-interest
expenses were $1,468 million, up 9%, driven mainly by inflationary adjustments on salaries and benefits, partly offset by the benefits realized from efficiency initiatives executed in the prior year.
Q2 2023 vs Q1 2023
Non-interest
expenses were $1,479 million, a decrease of 1%. Adjusted
non-interest
expenses decreased $9 million or 1% from $1,477 million due to seasonal business taxes in the Caribbean in the prior quarter, partly offset by higher salaries and benefits.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Non-interest
expenses were $2,915 million, an increase of $213 million or 8%. On an adjusted basis,
non-interest
expenses were $2,894 million, an increase of 8%, driven by inflationary adjustments on salaries and benefits, higher business taxes and software amortization.
Taxes
Q2 2023 vs Q2 2022
The effective tax rate was 20.6%, compared to 21.0%. On an adjusted basis, the effective tax rate was 20.7% compared to 21.1%, due to changes in earnings mix across jurisdictions, partly offset by lower inflationary adjustments in Mexico and Chile.
Q2 2023 vs Q1 2023
The effective tax rate was 20.6%, compared to 19.6%. On an adjusted basis, the effective tax rate was 20.7% compared to 19.7% due primarily to lower inflationary adjustments in Mexico and Chile and lower
tax-exempt
income.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
The effective tax rate was 20.1% compared to 22.9%. On an adjusted basis, the effective tax rate was 20.2% compared to 23.0% due primarily to changes in earnings mix across jurisdictions, partly offset by lower inflationary adjustments in Mexico and Chile.
 
24    
Scotiabank Second Quarter Report 2023
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Global Wealth Management
                                   
T11 Global Wealth Management financial performance
                                   
      For the three months ended      For the six months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Reported Results
               
Net interest income
   
$
209
 
    $ 213      $ 184     
$
422
 
    $ 358  
Non-interest
income
   
 
1,091
 
      1,110        1,174     
 
2,201
 
      2,422  
Total revenue
   
 
1,300
 
      1,323        1,358     
 
2,623
 
      2,780  
Provision for credit losses
   
 
2
 
      1        1     
 
3
 
      –  
Non-interest
expenses
   
 
818
 
      802        803     
 
1,620
 
      1,665  
Income tax expense
   
 
124
 
      133        145     
 
257
 
      291  
Net income
   
$
356
 
    $ 387      $ 409     
$
743
 
    $ 824  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
3
 
    $ 2      $ 2     
$
5
 
    $ 5  
Net income attributable to equity holders of the Bank
   
$
353
 
    $ 385      $ 407     
$
738
 
    $ 819  
Other financial data and measures
               
Return on equity
(1)
   
 
14.8
% 
      15.5 %       17.5 %    
 
15.2
% 
      17.4 % 
Assets under administration
($ billions)
(2)
   
$
624
 
    $ 607      $ 591     
$
624
 
    $ 591  
Assets under management
($ billions)
(2)
   
$
330
 
    $ 322      $ 326     
$
330
 
    $ 326  
Average assets
($ billions)
   
$
34
 
    $ 34      $ 32     
$
34
 
    $ 32  
Average liabilities
($ billions)
   
$
41
 
    $ 42      $ 48     
$
42
 
    $ 48  
(1)
Refer to
Non-GAAP
Measures starting on page 4 for the description of the measure.
(2)
Refer to Glossary on page 54 for the description of the measure.
 
T11A Adjusted Global Wealth Management financial performance
              
      For the three months ended      For the six months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Adjusted Results
(1)
               
Net interest income
   
$
209
 
    $ 213      $ 184     
$
422
 
    $ 358  
Non-interest
income
   
 
1,091
 
      1,110        1,174     
 
2,201
 
      2,422  
Total revenue
   
 
1,300
 
      1,323        1,358     
 
2,623
 
      2,780  
Provision for credit losses
   
 
2
 
      1        1     
 
3
 
      –  
Non-interest
expenses
(2)
   
 
809
 
      793        794     
 
1,602
 
      1,647  
Income tax expense
   
 
127
 
      135        148     
 
262
 
      296  
Net income
   
$
362
 
    $ 394      $ 415     
$
756
 
    $ 837  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
3
 
    $ 2      $ 2     
$
5
 
    $ 5  
Net income attributable to equity holders of the Bank
   
$
359
 
    $ 392      $ 413     
$
751
 
    $ 832  
(1)
Refer to
Non-GAAP
Measures starting on page 4 for adjusted results.
(2)
Includes adjustment for Amortization of acquisition-related intangible assets, excluding software for the three months ended April 30, 2023 – $9 (January 31, 2023 – $9; April 30, 2022 – $9) and for the six months ended April 30, 2023 – $18 (April 30, 2022 – $18).
Net income
Q2 2023 vs Q2 2022
Net income attributable to equity holders was $353 million, compared to $407 million. Adjusted net income attributable to equity holders was $359 million, down $54 million or 13%. The decline was due primarily to lower mutual fund fees and brokerage revenues, partly offset by higher net interest income.
Q2 2023 vs Q1 2023
Net income attributable to equity holders decreased $32 million or 8%. Adjusted net income attributable to equity holders decreased $33 million or 8%, due primarily to lower fee revenue and net interest income, and higher
non-interest
expenses.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Net income attributable to equity holders was $738 million, compared to $819 million. Adjusted net income attributable to equity holders was $751 million, down $81 million or 10%. The decline was due primarily to lower fee income, partly offset by higher net interest income and lower
non-interest
expenses.
Assets under management (AUM) and assets under administration (AUA)
Q2 2023 vs Q2 2022
Assets under management of $330 billion increased $4 billion or 1% driven by market appreciation partly offset by net redemptions. Assets under administration of $624 billion increased $33 billion or 5% due primarily to higher net sales and market appreciation.
 
Scotiabank Second Quarter Report 2023
    25
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Q2 2023 vs Q1 2023
Assets under management increased $8 billion or 2% due primarily to market appreciation partly offset by net redemptions. Assets under administration increased $17 billion or 3% due primarily to market appreciation and higher net sales.
Total revenue
Q2 2023 vs Q2 2022
Revenues were $1,300 million, down $58 million or 4% due primarily to lower mutual fund fees and brokerage revenues, partly offset by higher net interest income driven by strong loan growth and improved margins.
Q2 2023 vs Q1 2023
Revenues were down $23 million or 2% due primarily to lower brokerage revenues, mutual fund fees, and net interest income from the impact of three fewer days in the quarter, partly offset by improved margins.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Revenues were $2,623 million, down $157 million or 6% due primarily to lower mutual fund fees and brokerage revenues, partly offset by higher net interest income driven by strong loan growth and improved margins.
Provision for credit losses
Q2 2023 vs Q2 2022
The provision for credit losses was $2 million, an increase of $1 million. The provision for credit losses ratio increased four basis points to five basis points.
Q2 2023 vs Q1 2023
The provision for credit losses was $2 million, an increase of $1 million. The provision for credit losses ratio increased four basis points to five basis points.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
The provision for credit losses was $3 million, an increase of $3 million. The provision for credit losses ratio was three basis points, an increase of three basis points.
Non-interest expenses
Q2 2023 vs Q2 2022
Non-interest
expenses of $818 million were up $15 million or 2%, driven largely by higher personnel and technology costs to support business growth.
Q2 2023 vs Q1 2023
Non-interest
expenses were up $16 million or 2%, driven largely by higher personnel and technology costs to support business growth.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Non-interest
expenses of $1,620 million were down $45 million or 3%, driven largely by lower volume-related expenses.
Taxes
The effective tax rate was 25.8% compared to 26.2% in the prior year and 25.6% in the prior quarter.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
The effective tax rate was 25.7% compared to 26.1% in the prior year.
 
26    
Scotiabank Second Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Global Banking and Markets
T12 Global Banking and Markets financial performance
 
      For the three months ended      For the six months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
April 30
2023
(1)
      January 31
2023
(1)
      April 30
2022
(1)
     
April 30
2023
(1)
      April 30
2022
(1)
  
Reported Results
               
Net interest income
   
$
384
 
    $ 454      $ 360     
$
838
 
    $ 733  
Non-interest
income
   
 
968
 
      1,049        902     
 
2,017
 
      1,933  
Total revenue
   
 
1,352
 
      1,503        1,262     
 
2,855
 
      2,666  
Provision for credit losses
   
 
53
 
      15        (46 )    
 
68
 
      (62 ) 
Non-interest
expenses
   
 
752
 
      773        653     
 
1,525
 
      1,323  
Income tax expense
   
 
146
 
      196        167     
 
342
 
      356  
Net income
   
$
401
 
    $ 519      $ 488     
$
920
 
    $ 1,049  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –     
$
–
 
    $ –  
Net income attributable to equity holders of the Bank
   
$
401
 
    $ 519      $ 488     
$
920
 
    $ 1,049  
Other financial data and measures
               
Return on equity
(2)
   
 
10.5
% 
      13.2 %       15.6 %    
 
11.9
% 
      16.5 % 
Provision for credit losses – performing (Stage 1 and 2)
   
$
54
 
    $ 13      $ (42 )    
$
67
 
    $ (50 ) 
Provision for credit losses – impaired (Stage 3)
   
$
(1
) 
    $ 2      $ (4 )    
$
1
 
    $ (12 ) 
Provision for credit losses as a percentage of average net loans and acceptances (annualized)
(3)
   
 
0.15
% 
      0.04 %       (0.16 )%    
 
0.10
% 
      (0.11 )% 
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)
(3)
   
 
–
% 
      – %       (0.01 )%    
 
–
% 
      (0.02 )% 
Net write-offs as a percentage of average net loans and acceptances
(3)
   
 
–
% 
      0.02 %       0.02 %    
 
0.01
% 
      0.01 % 
Average assets
($ billions)
   
$
488
 
    $ 481      $ 431     
$
484
 
    $ 438  
Average liabilities
($ billions)
   
$
446
 
    $ 455      $ 400     
$
450
 
    $ 403  
(1)
Includes the
gross-up
of
tax-exempt
income earned on certain securities reported in either net interest income or
non-interest
income for the three months ended April 30, 2023 of $109 (January 31, 2023 – $110; April 30, 2022 – $82) and for the six months ended April 30, 2023 of $219 (April 30, 2022 – $165).
(2)
Refer to
Non-GAAP
Measures on page 4 for the description of the measure.
(3)
Refer to Glossary on page 54 for the description of the measure.
Net income
Q2 2023 vs Q2 2022
Net income attributable to equity holders was $401 million, a decrease of $87 million or 18%, due mainly to higher provision for credit losses and
non-interest
expenses, partly offset by higher revenue and the positive impact of foreign currency translation.
Q2 2023 vs Q1 2023
Net income attributable to equity holders decreased by $118 million or 23% due to higher provision for credit losses and lower revenue, partly offset by lower
non-interest
expenses.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Net income attributable to equity holders was $920 million, a decrease of $129 million or 12% due to higher provision for credit losses and
non-interest
expenses, partly offset by higher revenue and the positive impact of foreign currency translation.
Average assets
Q2 2023 vs Q2 2022
Average assets were $488 billion, an increase of $57 billion or 13% due mainly to increases in business loans which increased 29%, securities purchased under resale agreements, and the impact of foreign currency translation, partly offset by lower trading securities.
Q2 2023 vs Q1 2023
Average assets increased $7 billion or 1% due mainly to increases in securities purchased under resale agreements, partly offset by lower trading securities.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Average assets were $484 billion, an increase of $46 billion or 11% due mainly to increases in business loans which increased 32%, securities purchased under resale agreements, and the impact of foreign currency translation, partly offset by lower trading securities.
Average liabilities
Q2 2023 vs Q2 2022
Average liabilities were $446 billion, an increase of $46 billion or 12% due mainly to increases in deposits, securities sold under repurchase agreements, and the impact of foreign currency translation. Deposits increased 11% compared to the same period last year.
 
Scotiabank Second Quarter Report 2023
    27
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Q2 2023 vs Q1 2023
Average liabilities decreased $9 billion or 2% due mainly to decreases in securities sold under repurchase agreements, deposits and the impact of foreign currency translation.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Average liabilities were $450 billion, an increase of $47 billion or 12% due mainly to increases in deposits, securities sold under repurchase agreements and the impact of foreign currency translation. Deposits increased 12% compared to the same period last year.
Total revenue
Q2 2023 vs Q2 2022
Revenues were $1,352 million, an increase of $90 million or 7%.
Net interest income was $384 million, an increase of $24 million or 7% due mainly to growth in business loans and deposits, higher loan fees and the positive impact of foreign currency translation, partly offset by higher trading-related funding costs. Business loans increased 29%, primarily in the U.S. and Canada.
Non-interest
income was $968 million, an increase of $66 million or 7% due mainly to higher trading-related revenue, banking fees and the positive impact of foreign currency translation.
Q2 2023 vs Q1 2023
Revenues decreased by $151 million or 10%.
Net interest income decreased by $70 million or 15% due mainly to lower loan and deposits margins, higher trading-related funding costs and three fewer days in the quarter.
Non-interest
income decreased by $81 million or 8%, due mainly to lower trading-related revenue in fixed income and equities, partly offset by higher underwriting and advisory fees.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Revenues increased by $189 million or 7%.
Net interest income was $838 million, an increase of $105 million or 14%, due mainly 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.
Non-interest
income was $2,017 million, an increase of $84 million or 4%, due mainly to higher banking and trading-related revenue and the positive impact of foreign currency translation, partly offset by lower underwriting and advisory fees.
Provision for credit losses
Q2 2023 vs Q2 2022
The provision for credit losses was $53 million compared to a net reversal of $46 million. The provision for credit losses ratio was 15 basis points, an increase of 31 basis points.
Provision for credit losses on performing loans was $54 million, compared to a net reversal of $42 million. The provision this period was driven primarily by the less favourable macroeconomic outlook.
Provision for credit losses on impaired loans was a net reversal of $1 million, compared to a net reversal of $4 million. The provision for credit losses ratio on impaired loans was nil, an increase of one basis point.
Q2 2023 vs Q1 2023
The provision for credit losses was $53 million compared to $15 million, an increase of $38 million. The provision for credit losses ratio was 15 basis points, an increase of 11 basis points.
Provision for credit losses on performing loans was $54 million compared to $13 million. The provision this period was driven primarily by the continued unfavourable macroeconomic outlook.
Provision for credit losses on impaired loans was a net reversal of $1 million, a decrease of $3 million. The provision for credit losses ratio on impaired loans was nil, in line with last quarter.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
The provision for credit losses was $68 million compared to a net reversal of $62 million. The provision for credit losses ratio was ten basis points, an increase of 21 basis points.
Provision for credit losses on performing loans was $67 million, compared to a net reversal of $50 million. The provision this period was driven primarily by the less favourable macroeconomic outlook.
Provision for credit losses on impaired loans was $1 million compared to a net reversal of $12 million, an increase of $13 million. The provision for credit losses ratio on impaired loans increased by two basis points.
Non-interest expenses
Q2 2023 vs Q2 2022
Non-interest
expenses of $752 million, were up $99 million or 15%, due mainly to higher personnel and technology costs to support business growth, and the negative impact of foreign currency translation.
 
28    
Scotiabank Second Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Q2 2023 vs Q1 2023
Non-interest
expenses decreased $21 million or 3% due mainly to decreases in performance-related compensation costs and three fewer days in the quarter.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Non-interest
expenses of $1,525 million increased $202 million or 15% due mainly to increases in personnel and technology costs to support business development, and the negative impact of foreign currency translation.
Taxes
Q2 2023 vs Q2 2022
The effective tax rate was 26.7% compared to 25.5% due mainly to an increase in the Canadian statutory tax rate.
Q2 2023 vs Q1 2023
The effective tax rate was 26.7% compared to 27.5% due mainly to the change in earnings mix across jurisdictions.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
The effective tax rate was 27.1% compared to 25.4% due mainly to an increase in the Canadian statutory tax rate and the change in earnings mix across jurisdictions.
Other
(1)
T13 Other financial performance
 
      For the three months ended      For the six months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Reported Results
               
Net interest income
(2)
   
$
(474
) 
    $ (383 )     $ 98     
$
(857
) 
    $ 114  
Non-interest
income
(2)(3)
   
 
(135
) 
      (328 )       (86 )    
 
(463
) 
      (150 ) 
Total revenue
   
 
(609
) 
      (711 )       12     
 
(1,320
) 
      (36 ) 
Provision for credit losses
   
 
–
 
      –        –     
 
–
 
      –  
Non-interest
expenses
   
 
70
 
      4        111     
 
74
 
      235  
Income tax expense/(benefit)
(2)
   
 
(356
) 
      198        (89 )    
 
(158
) 
      (194 ) 
Net income (loss)
   
$
(323
) 
    $ (913 )     $ (10 )    
$
(1,236
) 
    $ (77 ) 
Net income (loss) attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –     
$
–
 
    $ –  
Net income (loss) attributable to equity holders
   
$
(323
) 
    $ (913 )     $ (10 )    
$
(1,236
) 
    $ (77 ) 
Other measures
               
Average assets
($ billions)
   
$
178
 
    $ 187      $ 174     
$
185
 
    $ 164  
Average liabilities
($ billions)
   
$
278
 
    $ 282      $ 269     
$
280
 
    $ 258  
(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 for the three months ended April 30, 2023 – $119 (January 31, 2023 – $120; April 30, 2022 – $92) and for six months ended April 30, 2023 – $239 (April 30, 2022 – $184) to arrive at the amounts reported in the Consolidated Statement of Income.
(3)
Income (on a taxable equivalent basis) 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 for the three months ended April 30, 2023 – $(35) (January 31, 2023 – $(65); April 30, 2022 – $(16)) and for the six months ended April 30, 2023 – $(100) (April 30, 2022 – $(2)).
T13A Adjusted Other financial performance
 
      For the three months ended      For the six months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Adjusted Results
(1)
               
Net interest income
   
$
(474
) 
    $ (383 )     $ 98     
$
(857
) 
    $ 114  
Non-interest
income
   
 
(135
) 
      (328 )       (86 )    
 
(463
) 
      (150 ) 
Total revenue
   
 
(609
) 
      (711 )       12     
 
(1,320
) 
      (36 ) 
Provision for credit losses
   
 
–
 
      –        –     
 
–
 
      –  
Non-interest
expenses
   
 
70
 
      4        111     
 
74
 
      235  
Income tax expense/(benefit)
(2)
   
 
(356
) 
      (381 )       (89 )    
 
(737
) 
      (194 ) 
Net income (loss)
   
$
(323
) 
    $ (334 )     $ (10 )    
$
(657
) 
    $ (77 ) 
Net income (loss) attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –     
$
–
 
    $ –  
Net income (loss) attributable to equity holders
   
$
(323
) 
    $ (334 )     $ (10 )    
$
(657
) 
    $ (77 ) 
(1)
Refer to
Non-GAAP
Measures starting on page 4 for adjusted results.
(2)
Includes adjustment for the Canada Recovery Dividend of $579 in Q1, 2023.
 
Scotiabank Second Quarter Report 2023
    29
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
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.
Q2 2023 vs Q2 2022
Net income attributable to equity holders was a net loss of $323 million, compared to a $10 million net loss in the prior year. The decrease of $313 million was due mainly to lower revenues of $621 million, partly offset by lower expenses and taxes. Lower revenue due primarily to higher funding costs and lower income from hedges, was partly offset by higher income from liquid assets and investment gains.
Q2 2023 vs Q1 2023
Net income attributable to equity holders increased $590 million, due mainly to the recognition of the CRD of $579 million in the prior quarter. On an adjusted basis, net income attributable to equity holders increased $11 million, due mainly to higher revenues, partly offset by higher non-interest expenses and provision for income taxes. The higher revenue is due primarily to treasury activities related to higher income from liquid assets and income from hedges, which were partly offset by higher term funding costs. Also contributing were higher investment gains and income from associated corporations this period.
Year-to-date
Q2 2023 vs
Year-to-date
Q2 2022
Net income attributable to equity holders was a net loss of $1,236 million compared to net income of $77 million. Adjusted net income attributable to equity holders was a net loss of $657 million, a decrease of $580 million, due mainly to lower revenues of $1,284 million, partly offset by lower taxes and lower non-interest expenses. The lower revenue is due primarily to treasury activities related to higher funding costs and lower income from hedges, which were partly offset by higher income from liquid assets. Also contributing to the lower revenue was lower income from associated corporations.
 
30    
Scotiabank Second Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Geographic Highlights
T14 Geographic highlights
 
     
For the three months ended April 30, 2023
  
(Unaudited) ($ millions)
   
Canada
     
U.S.
     
Mexico
     
Peru
     
Chile
     
Colombia
     
Caribbean
and Central
America
     
Other
     
Total
  
Reported results
                           
Net interest income
   
$
2,067
 
   
$
249
 
   
$
512
 
   
$
323
 
   
$
470
 
   
$
134
 
   
$
448
 
   
$
263
 
   
$
4,466
 
Non-interest
income
   
 
2,109
 
   
 
334
 
   
 
219
 
   
 
122
 
   
 
147
 
   
 
100
 
   
 
206
 
   
 
226
 
   
 
3,463
 
Total revenue
   
 
4,176
 
   
 
583
 
   
 
731
 
   
 
445
 
   
 
617
 
   
 
234
 
   
 
654
 
   
 
489
 
   
 
7,929
 
Provision for credit losses
   
 
238
 
   
 
34
 
   
 
58
 
   
 
83
 
   
 
153
 
   
 
104
 
   
 
25
 
   
 
14
 
   
 
709
 
Non-interest
expenses
   
 
2,555
 
   
 
306
 
   
 
366
 
   
 
177
 
   
 
265
 
   
 
163
 
   
 
358
 
   
 
386
 
   
 
4,576
 
Income tax expense
   
 
189
 
   
 
68
 
   
 
76
 
   
 
45
 
   
 
27
 
   
 
(16
) 
   
 
58
 
   
 
38
 
   
 
485
 
Net income
   
 
1,194
 
   
 
175
 
   
 
231
 
   
 
140
 
   
 
172
 
   
 
(17
) 
   
 
213
 
   
 
51
 
   
 
2,159
 
Net income attributable to
non-controlling
interests in subsidiaries
   
 
–
 
   
 
–
 
   
 
6
 
   
 
–
 
   
 
4
 
   
 
(11
) 
   
 
27
 
   
 
–
 
   
 
26
 
Net income attributable to equity holders of the Bank
   
$
1,194
 
   
$
175
 
   
$
225
 
   
$
140
 
   
$
168
 
   
$
(6
) 
   
$
186
 
   
$
51
 
   
$
2,133
 
Adjusted results
(1)
                           
Adjustments
   
 
6
 
   
 
–
 
   
 
–
 
   
 
2
 
   
 
5
 
   
 
–
 
   
 
1
 
   
 
1
 
   
 
15
 
Adjusted net income (loss) attributable to equity holders of the Bank
   
$
1,200
 
   
$
175
 
   
$
225
 
   
$
142
 
   
$
173
 
   
$
(6
) 
   
$
187
 
   
$
52
 
   
$
2,148
 
Average Assets
($ billions)
   
$
837
 
   
$
217
 
   
$
57
 
   
$
28
 
   
$
64
 
   
$
14
 
   
$
34
 
   
$
139
 
   
$
1,390
 
 
     For the three months ended January 31, 2023     For the three months ended April 30, 2022  
(Unaudited) ($ millions)
   Canada     U.S.     Mexico     Peru     Chile     Colombia     Caribbean
and
Central
America		     Other     Total     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     $ 2,480     $ 207     $ 412     $ 295     $ 410     $ 175     $ 329     $ 165     $ 4,473  
Non-interest
income
     2,005       310       205       134       207       96       201       253       3,411       2,191       254       192       108       141       104       194       285       3,469  
Total revenue
     4,237       606       719       465       586       230       629       508       7,980       4,671       461       604       403       551       279       523       450       7,942  
Provision for credit losses
     228       3       56       98       122       74       36       21       638       (35 )      (22 )      51       89       38       53       39       6       219  
Non-interest
expenses
     2,469       313       351       178       240       156       361       396       4,464       2,421       259       287       156       219       169       319       329       4,159  
Income tax expense
     811       82       67       45       33       3       49       16       1,106       534       57       54       46       31       20       49       26       817  
Net income
     729       208       245       144       191       (3 )      183       75       1,772       1,751       167       212       112       263       37       116       89       2,747  
Net income attributable to
non-controlling
interests in subsidiaries
     –       –       5       1       11       (4 )      27       –       40       (1 )      –       4       3       34       16       22       –       78  
Net income attributable to equity holders of the Bank
   $ 729     $ 208     $ 240     $ 143     $ 180     $ 1     $ 156     $ 75     $ 1,732     $ 1,752     $ 167     $ 208     $ 109     $ 229     $ 21     $ 94     $ 89     $ 2,669  
Adjusted results
(1)
                                    
Adjustments
     586       –       –       1       5       –       1       1       594       9       –       –       2       5       –       1       1       18  
Adjusted net income (loss) attributable to equity holders of the Bank
   $ 1,315     $ 208     $ 240     $ 144     $ 185     $ 1     $ 157     $ 76     $ 2,326     $ 1,761     $ 167     $ 208     $ 111     $ 234     $ 21     $ 95     $ 90     $ 2,687  
Average Assets
($ billions)
   $ 834     $ 212     $ 54     $ 28     $ 59     $ 13     $ 34     $ 146     $ 1,380     $ 751     $ 210     $ 44     $ 27     $ 53     $ 14     $ 31     $ 134     $ 1,264  
                                                                                                             
    
For the six months ended April 30, 2023
     For the six months ended April 30, 2022  
(Unaudited) ($ millions)
  
Canada
    
U.S.
    
Mexico
    
Peru
    
Chile
    
Colombia
    
Caribbean
and
Central
America
    
Other
    
Total
     Canada     U.S.     Mexico     Peru     Chile     Colombia     Caribbean
and
Central
America		     Other     Total  
Reported results
                                    
Net interest income
  
$
4,299
 
  
$
545
 
  
$
1,026
 
  
$
654
 
  
$
849
 
  
$
268
 
  
$
876
 
  
$
518
 
  
$
9,035
 
   $ 4,866     $ 408     $ 833     $ 574     $ 815     $ 337     $ 654     $ 330     $ 8,817  
Non-interest
income
  
 
4,114
 
  
 
644
 
  
 
424
 
  
 
256
 
  
 
354
 
  
 
196
 
  
 
407
 
  
 
479
 
  
 
6,874
 
     4,503       532       365       227       280       207       377       683       7,174  
Total revenue
  
 
8,413
 
  
 
1,189
 
  
 
1,450
 
  
 
910
 
  
 
1,203
 
  
 
464
 
  
 
1,283
 
  
 
997
 
  
 
15,909
 
     9,369       940       1,198       801       1,095       544       1,031       1,013       15,991  
Provision for credit losses
  
 
466
 
  
 
37
 
  
 
114
 
  
 
181
 
  
 
275
 
  
 
178
 
  
 
61
 
  
 
35
 
  
 
1,347
 
     (72 )      (28 )      111       164       77       99       79       11       441  
Non-interest
expenses
  
 
5,024
 
  
 
619
 
  
 
717
 
  
 
355
 
  
 
505
 
  
 
319
 
  
 
719
 
  
 
782
 
  
 
9,040
 
     4,883       514       576       305       443       344       653       664       8,382  
Income tax expense
  
 
1,000
 
  
 
150
 
  
 
143
 
  
 
90
 
  
 
60
 
  
 
(13
) 
  
 
107
 
  
 
54
 
  
 
1,591
 
     1,074       116       114       94       83       38       83       79       1,681  
Net income
  
 
1,923
 
  
 
383
 
  
 
476
 
  
 
284
 
  
 
363
 
  
 
(20
) 
  
 
396
 
  
 
126
 
  
 
3,931
 
     3,484       338       397       238       492       63       216       259       5,487  
Net income attributable to
non-controlling
interests in subsidiaries
  
 
–
 
  
 
–
 
  
 
11
 
  
 
1
 
  
 
15
 
  
 
(15
) 
  
 
54
 
  
 
–
 
  
 
66
 
     (1 )      –       8       5       84       27       43       –       166  
Net income attributable to equity holders of the Bank
  
$
1,923
 
  
$
383
 
  
$
465
 
  
$
283
 
  
$
348
 
  
$
(5
) 
  
$
342
 
  
$
126
 
  
$
3,865
 
   $ 3,485     $ 338     $ 389     $ 233     $ 408     $ 36     $ 173     $ 259     $ 5,321  
Adjusted results
(1)
                                    
Adjustments
  
 
592
 
  
 
–
 
  
 
–
 
  
 
3
 
  
 
10
 
  
 
–
 
  
 
2
 
  
 
2
 
  
 
609
 
     19       –       –       3       10       –       2       2       36  
Adjusted net income (loss) attributable to equity holders of the Bank
  
$
2,515
 
  
$
383
 
  
$
465
 
  
$
286
 
  
$
358
 
  
$
(5
) 
  
$
344
 
  
$
128
 
  
$
4,474
 
   $ 3,504     $ 338     $ 389     $ 236     $ 418     $ 36     $ 175     $ 261     $ 5,357  
Average Assets
($ billions)
  
$
836
 
  
$
215
 
  
$
55
 
  
$
28
 
  
$
61
 
  
$
13
 
  
$
34
 
  
$
144
 
  
$
1,386
 
   $ 735     $ 212     $ 44     $ 26     $ 52     $ 14     $ 31     $ 137     $ 1,251  
(1)
Refer to
Non-GAAP
Measures section starting on page 4.
 
Scotiabank Second Quarter Report 2023
    31
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Quarterly Financial Highlights
T15 Quarterly financial highlights
 
        For the three months ended  
(Unaudited) ($ millions)
     
April 30
2023
     January 31
2023		      October 31
2022		      July 31
2022		      April 30
2022		      January 31
2022		      October 31
2021		      July 31
2021		  
Reported results
       
 
            
 
      
Net interest income
     
$
4,466
 
   $ 4,569      $ 4,622      $ 4,676      $ 4,473      $ 4,344      $ 4,217      $ 4,217  
Non-interest
income
     
 
3,463
 
     3,411        3,004        3,123        3,469        3,705        3,470        3,540  
Total revenue
     
$
7,929
 
   $ 7,980      $ 7,626      $ 7,799      $ 7,942      $ 8,049      $ 7,687      $ 7,757  
Provision for credit losses
     
 
709
 
     638        529        412        219        222        168        380  
Non-interest
expenses
     
 
4,576
 
     4,464        4,529        4,191        4,159        4,223        4,271        4,097  
Income tax expense
     
 
485
 
     1,106        475        602        817        864        689        738  
Net income
     
$
2,159
 
   $ 1,772      $ 2,093      $ 2,594      $ 2,747      $ 2,740      $ 2,559      $ 2,542  
Basic earnings per share
($)
     
 
1.70
 
     1.37        1.64        2.10        2.16        2.15        1.98        2.00  
Diluted earnings per share
($)
     
 
1.69
 
     1.36        1.63        2.09        2.16        2.14        1.97        1.99  
Net interest margin
(%)
(1)
     
 
2.13
 
     2.11        2.18        2.22        2.23        2.16        2.17        2.23  
Effective tax rate
(%)
(2)
     
 
18.4
 
     38.4        18.5        18.8        22.9        24.0        21.2        22.5  
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
 
     21        24        24        24        25        25        24  
Restructuring and other provisions
     
 
–
 
     –        85        –        –        –        188
(3)
 		      –  
Support costs for the Scene+ loyalty program
     
 
–
 
     –        133        –        –        –        –        –  
Total
non-interest
expenses adjustments
(Pre-tax)
     
 
21
 
     21        242        24        24        25        213        24  
Total impact of adjusting items on net income before taxes
     
 
21
 
     21        603        24        24        25        213        24  
Impact of adjusting items on income tax expense:
       
 
            
 
      
Canada recovery dividend
     
 
–
 
     579        –        –        –        –        –        –  
Impact of other adjusting items on income tax expense
     
 
(6
) 
     (6 )       (81 )       (7 )       (6 )       (7 )       (56 )       (6 ) 
Total impact of adjusting items on net income
     
 
15
 
     594        522        17        18        18        157        18  
Adjusted net income
     
$
2,174
 
   $ 2,366      $ 2,615      $ 2,611      $ 2,765      $ 2,758      $ 2,716      $ 2,560  
Adjusted diluted earnings per share
($)
     
 
1.70
 
     1.85        2.06        2.10        2.18        2.15        2.10        2.01  
(1)
Refer to
Non-GAAP
Measures section starting on page 4.
(2)
Refer to Glossary on page 54 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 lower effective tax rates, partly offset by higher provision for credit losses and increased term funding costs.
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 business loans and central bank rate increase. Global Wealth Management
non-interest
income has been impacted by recent 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.
 
32    
Scotiabank Second 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 18.4% this quarter. The effective tax rate average was 23.1% 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)
   
April 30
2023
      October 31
2022		      Change      Volume
Change		      FX
Change		  
Assets
               
Cash, deposits with financial institutions and precious metals
   
$
65.1
 
    $ 66.4        (2.0 )%       (3.4 )%       1.4 % 
Trading assets
   
 
114.7
 
      113.2        1.4        0.3        1.1  
Securities purchased under resale agreements and securities borrowed
   
 
184.7
 
      175.3        5.3        3.7        1.6  
Investment securities
   
 
116.6
 
      110.0        6.0        4.7        1.3  
Loans
   
 
764.1
 
      745.0        2.6        1.2        1.4  
Other
   
 
128.0
 
      139.5        (8.2 )       (13.7 )       5.5  
Total assets
   
$
1,373.2
 
    $ 1,349.4        1.8 %       – %       1.8 % 
Liabilities
               
Deposits
   
$
945.5
 
    $ 916.2        3.2 %       1.9 %       1.3 % 
Obligations related to securities sold under repurchase agreements and securities lent
   
 
132.6
 
      139.0        (4.6 )       (6.6 )       2.0  
Other liabilities
   
 
207.5
 
      211.0        (1.6 )       (6.0 )       4.4  
Subordinated debentures
   
 
8.8
 
      8.5        3.7        3.9        (0.2 ) 
Total liabilities
   
$
1,294.4
 
    $ 1,274.7        1.6 %       (0.3 )%       1.9 % 
Equity
               
Common equity
(1)
   
$
69.1
 
    $ 65.1        6.0 %       4.6 %       1.4 % 
Preferred shares and other equity instruments
   
 
8.1
 
      8.1        –        –        –  
Non-controlling
interests in subsidiaries
   
 
1.6
 
      1.5        4.9        4.1        0.8  
Total equity
   
$
78.8
 
    $ 74.7        5.4 %       4.2 %       1.2 % 
Total liabilities and equity
   
$
1,373.2
 
    $ 1,349.4        1.8 %       – %       1.8 % 
(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 $1,373 billion as at April 30, 2023, up $24 billion or 2% from October 31, 2022. Loans increased $19 billion. Residential mortgages increased $4 billion mainly in Chile and Mexico. Personal loans and credit cards increased $4 billion reflecting increased consumer spending. Business and government loans increased $11 billion mainly in Canada, Chile and Mexico. Securities purchased under resale agreements and securities borrowed increased $9 billion due to higher client demand. Investment securities increased $7 billion due to higher holdings of U.S. and other foreign government debt. Derivative instrument assets decreased by $11 billion due to changes in foreign exchange rates, interest rates and lower activity.
Total liabilities were $1,294 billion as at April 30, 2023, up $20 billion or 2% from October 31, 2022. Total deposits increased $29 billion. Personal deposits of $284 billion increased $18 billion due primarily to growth in term deposits in Canada. Business and government deposits grew by $14 billion mainly in Canada. Deposits by financial institutions decreased $2 billion. Financial instruments designated at fair value through profit or loss increased $5 billion due to the issuance of senior note liabilities. Other liabilities increased $4 billion due mainly to accrued interest and debt issuance by subsidiaries. Obligations related to securities sold under repurchase agreements and securities lent decreased by $6 billion. Derivative instrument liabilities decreased $15 billion due to changes in interest rates, foreign exchange rates and lower activity.
Total shareholders’ equity was $79 billion, an increase of $4 billion from October 31, 2022. Equity was higher due to current year earnings of $3,931 million, other comprehensive income of $2,330 million and net share issuances of $450 million, mainly related to the Shareholder Dividend and Share Purchase Plan. Partly offsetting these items were dividends paid of $2,660 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 Second Quarter Report 2023
    33
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 credit 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 applied 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 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 scenario shows stronger inflation pressures in both Canada and the U.S. compared to last quarter, which brings monetary policy rates to higher than forecasted levels. Rising interest rates, combined with the negative impact from the banking sector turmoil in the U.S. (and Europe to a lesser extent), are leading to a technical recession in Canada and the U.S., with their real GDP declining mildly in both the second and third quarter of this year. Despite this modest recession, GDP will still grow in 2023 in both economies – albeit at a slower pace than in the previous year – given a good starting point.
The optimistic scenario features somewhat stronger economic activity relative to the base case. The pessimistic scenario is now based on the recent banking sector turmoil in the U.S. and Europe and features deteriorating private sector financial conditions and confidence (unlike a stagflation shock in the previous quarter). These are reducing economic activity and inflation worldwide from the base case scenario, requiring central banks to reduce their monetary policy rates to mitigate the decline in economic activity and prevent inflation from falling below targeted ranges. Lastly, the very pessimistic (stagflation) scenario features further supply chain disruptions also leading to a protracted period of financial market uncertainty. This results in higher inflation rates, requiring central banks to raise their policy rate to higher levels than in the base case in order to bring inflation under control, which is dampening economic activity.
The following section provides additional detail on certain key macroeconomic variables used to calculate the modelled estimate for the allowance for credit losses (see page 68 for all key variables). Further changes in these variables up to the date of the financial statements are incorporated through expert credit judgement.
 
  •  
Gross Domestic Product (GDP):
The base case scenario assumes that a mild recession occurs in Canada and the U.S. owing to the impacts of monetary tightening on both economies. In Canada, we expect the economy will grow by about 0.7% in 2023 despite two quarters of negative growth
mid-year.
We then expect the economy to return to a moderate growth path in 2024. This is similar to the outlook used in the previous quarter. In the U.S., we expect an economic expansion of about 1% for 2023 and 2024, despite a mild recession in
mid-2023.
Relative to last quarter, this profile exhibits a bit more strength in 2023 at the expense of slower growth in 2024.
 

   
 
  •  
Unemployment Rate:
The base case scenario assumes a modest increase in the unemployment rate in both Canada and the U.S. this year and next. The employment response to the mild contraction in GDP predicted
mid-year
is expected to be muted relative to previous cycles owing to still high job vacancies and an expectation that firms will hold on to workers to a greater degree than previous recessions given the high costs of attracting and retaining workers. Unemployment rate projections for both countries are lower than they were last quarter owing to much stronger labour markets than previously assessed.
 

   
 
34    
Scotiabank Second Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
The total allowance for credit losses as at April 30, 2023 was $5,931 million compared to $5,668 million last quarter. The allowance for credit losses ratio was 75 basis points, an increase of three basis points. The allowance for credit losses on loans was $5,736 million, up $223 million from the prior quarter. The increase was due primarily to the impact of foreign currency translation in the International Banking portfolios, as well as the impact of the continued unfavourable macroeconomic outlook primarily impacting the corporate and commercial portfolios, and higher provisions in International retail portfolios.
The allowance against performing loans was higher at $3,985 million compared to $3,859 million as at January 31, 2023. The allowance for performing loans ratio was 52 basis points, an increase of one basis point. The increase was due primarily to the impact of foreign currency translation in the International Banking portfolios, continued unfavourable macroeconomic outlook for the corporate and commercial portfolio and higher retail provisions in Chile and Colombia.
The allowance on impaired loans increased to $1,751 million from $1,654 million last quarter. The allowance for impaired loans ratio was 23 basis points, an increase of two basis points from the prior quarter. The increase was due primarily to higher retail provisions.
Impaired loans
Gross impaired loans increased to $5,305 million as at April 30, 2023, from $5,104 million last quarter. The increase was due primarily to the impact of foreign currency translation in International Banking, and net formations in retail portfolios. The gross impaired loan ratio was 67 basis points, an increase of two basis points from last quarter.
Net impaired loans in Canadian Banking were $724 million, an increase of $57 million from last quarter, due primarily to higher retail formations. International Banking’s net impaired loans were $2,715 million, an increase of $65 million from last quarter, due primarily to the impact of foreign currency translation and net formations in the retail portfolio. In Global Banking and Markets, net impaired loans were $100 million, a decrease of $20 million from last quarter, due to recoveries and lower formations. In Global Wealth Management, net impaired loans were $15 million, an increase of $2 million from last quarter. Net impaired loans as a percentage of loans and acceptances were 0.45%, an increase of one basis point from 0.44% 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 April 30, 2023, these loans amounted to $472 billion or 60% of the Bank’s total loans and acceptances outstanding (January 31, 2023 – $470 billion or 60%). Of these, $376 billion or 80% are real estate secured loans (January 31, 2023 – $376 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.
T17 Insured and uninsured residential mortgages and HELOCs, by geographic areas
 
    
As at April 30, 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
  
$
5,025
 
  
 
1.7
% 
  
$
6,588
 
  
 
2.2
% 
  
$
11,613
 
  
 
3.9
% 
  
$
–
 
  
 
–
% 
  
$
1,047
 
  
 
4.7
% 
  
$
1,047
 
  
 
4.7
% 
Quebec
  
 
8,032
 
  
 
2.6
 
  
 
12,124
 
  
 
4.0
 
  
 
20,156
 
  
 
6.6
 
  
 
–
 
  
 
–
 
  
 
1,106
 
  
 
4.9
 
  
 
1,106
 
  
 
4.9
 
Ontario
  
 
33,105
 
  
 
11.0
 
  
 
133,085
 
  
 
44.4
 
  
 
166,190
 
  
 
55.4
 
  
 
–
 
  
 
–
 
  
 
13,149
 
  
 
58.5
 
  
 
13,149
 
  
 
58.5
 
Manitoba & Saskatchewan
  
 
5,518
 
  
 
1.8
 
  
 
4,669
 
  
 
1.6
 
  
 
10,187
 
  
 
3.4
 
  
 
–
 
  
 
–
 
  
 
631
 
  
 
2.8
 
  
 
631
 
  
 
2.8
 
Alberta
  
 
16,835
 
  
 
5.6
 
  
 
15,405
 
  
 
5.1
 
  
 
32,240
 
  
 
10.7
 
  
 
–
 
  
 
–
 
  
 
2,306
 
  
 
10.3
 
  
 
2,306
 
  
 
10.3
 
British Columbia & Territories
  
 
11,415
 
  
 
3.9
 
  
 
48,194
 
  
 
16.1
 
  
 
59,609
 
  
 
20.0
 
  
 
–
 
  
 
–
 
  
 
4,221
 
  
 
18.8
 
  
 
4,221
 
  
 
18.8
 
Canada
(4)(5)
  
$
79,930
 
  
 
26.6
% 
  
$
220,065
 
  
 
73.4
% 
  
$
299,995
 
  
 
100
% 
  
$
–
 
  
 
–
% 
  
$
22,460
 
  
 
100
% 
  
$
22,460
 
  
 
100
% 
International
  
 
–
 
  
 
–
 
  
 
53,565
 
  
 
100
 
  
 
53,565
 
  
 
100
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
Total
  
$
79,930
 
  
 
22.6
% 
  
$
273,630
 
  
 
77.4
% 
  
$
353,560
 
  
 
100
% 
  
$
–
 
  
 
-
% 
  
$
22,460
 
  
 
100
% 
  
$
22,460
 
  
 
100
% 
     As at January 31, 2023  
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 $3,703 (January 31, 2023 – $3,737; October 31, 2022 – $3,782) of which $2,496 are insured (January 31, 2023 – $2,512; October 31, 2022 – $2,524).
(5)
Variable rate mortgages account for 36% (January 31, 2023 – 37%; October 31, 2022 – 37%) of the Bank’s total Canadian residential mortgage portfolio.
 
Scotiabank Second Quarter Report 2023
    35
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.
T18 Distribution of residential mortgages by amortization periods, and by geographic areas
 
     
As at April 30, 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
   
 
31.9
% 
  
 
38.9
% 
   
 
28.5
% 
   
 
0.5
% 
  
 
0.2
% 
   
 
100
% 
International
   
 
63.2
% 
  
 
17.9
% 
   
 
18.1
% 
   
 
0.8
% 
  
 
0.0
% 
   
 
100
% 
      As at January 31, 2023  
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 (January 31, 2023 – 73%; October 31, 2022 – 72%). The average
loan-to-value
(LTV) ratio of the uninsured portfolio is 53% (January 31, 2023 – 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.
T19 Loan to value ratios
 
     
Uninsured LTV ratios
  
     
For the three months ended April 30, 2023
  
     
Residential
mortgages
     
Home equity lines of
credit
(2)
  
     
LTV%
     
LTV%
  
Canada:
(3)
      
Atlantic provinces
      58.8 %       63.4 % 
Quebec
      60.5        68.2  
Ontario
      61.1        63.8  
Manitoba & Saskatchewan
      59.7        63.9  
Alberta
      61.6        69.5  
British Columbia & Territories
      59.3        63.5  
Canada
(3)
   
 
60.6
% 
   
 
64.4
% 
International
   
 
72.6
% 
   
 
n/a
 
      For the three months ended January 31, 2023  
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.
Commercial real estate exposures
The Bank’s commercial real estate portfolio was $67.1 billion, or 8.5% of the Bank’s total loans and acceptances outstanding as at April 30, 2023 (January 31, 2023 – $63.3 billion or 8.1%). This portfolio is largely comprised of loans to the residential and industrial sectors (75%), both undersupplied asset classes.
 
36    
Scotiabank Second Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
U.S. regional bank exposures
The Bank’s exposure to U.S. regional banks is not material and mainly short-term or collateralized.
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 (64% 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 $65.9 billion as at April 30, 2023 (January 31, 2023 – $69.5 billion; October 31, 2022 – $60.5 billion), $16.6 billion to banks (January 31, 2023 – $13.2 billion; October 31, 2022 – $16.3 billion) and $133.7 billion to corporates (January 31, 2023 – $131.5 billion; October 31, 2022 – $128.2 billion).
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 $0.3 billion as at April 30, 2023 (January 31, 2023 – $0.4 billion; October 31, 2022 – $0.4 billion).
The Bank’s regional credit exposures are distributed as follows:
T20 Bank’s regional credit exposures distribution
 
     As at                
    
April 30, 2023
     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     Total  
Latin America
(5)
   $ 95,581     $ 8,596     $ 25,335     $ 2,187     $ 131,699     $ 10,610    
$
142,309
 
   $ 146,585     $ 130,858  
Caribbean and Central America
     12,275       3,829       4,049       26       20,179       3,553    
 
23,732
 
     23,553       24,186  
Europe, excluding U.K.
     8,196       2,113       2,464       3,505       16,278       9,410    
 
25,688
 
     23,746       24,298  
U.K.
     8,828       4,727       1,337       4,691       19,583       8,272    
 
27,855
 
     21,098       24,370  
Asia
     13,342       1,324       12,668       233       27,567       8,122    
 
35,689
 
     37,093       37,210  
Other
(6)
     399       4       71       15       489       325    
 
814
 
     1,228       1,499  
Total
   $ 138,621     $ 20,593     $ 45,924     $ 10,657     $ 215,795     $ 40,292    
$
256,087
 
   $ 253,303     $ 242,421  
(1)
Individual allowances for credit losses are $530. 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 $16,382 as at April 30, 2023 (January 31, 2023 – $16,151; 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 $5,193 and collateral held against SFT was $103,800.
(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.
T21 Market Risk Measures
 
      Average for the three months ended  
Risk factor
($ millions)
   
April 30
2023
      January 31
2023		      April 30
2022		  
Credit spread plus interest rate
   
$
15.7
 
    $ 13.8      $ 10.4  
Credit spread
   
 
9.5
 
      7.5        5.7  
Interest rate
   
 
14.0
 
      13.1        9.6  
Equities
   
 
4.6
 
      3.5        4.0  
Foreign exchange
   
 
3.7
 
      2.1        2.0  
Commodities
   
 
6.3
 
      4.6        2.8  
Debt specific
   
 
3.7
 
      3.8        2.1  
Diversification effect
   
 
(16.6
) 
      (12.7 )       (9.4 ) 
Total VaR
   
$
17.4
 
    $ 15.1      $ 11.9  
Total Stressed VaR
   
$
54.9
 
    $ 45.1      $ 26.4  
In Q2 2023, the average
one-day
Total VaR increased from last quarter to $17.4 million, primarily attributed to increased exposure to credit spread and volatile markets driven by the banking sector turmoil in the U.S. and Europe.
In Q2 2023, the Stressed VaR also increased to $54.9 million from last quarter, driven mainly by higher equity and interest rate exposure and was calculated using the 2019/2020 COVID period, same as the prior quarter. In Q2 2022, the stressed VaR was calculated using the 2008/2009 credit crisis period.
There were two 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.
 
Scotiabank Second Quarter Report 2023
    37
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
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.
T22 Structural interest sensitivity
 
                           As at   
    
April 30, 2023
    
   January 31, 2023
     April 30, 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
  
$
(52
) 
  
$
6
 
  
$
(46
) 
  
$
(506
) 
  
$
(741
) 
  
$
(1,247
) 
   $ (304 )    $ (1,689 )      +100 bps     $ (126 )    $ (1,699 ) 
-100 bps
  
 
16
 
  
 
(18
) 
  
 
(2
) 
  
 
272
 
  
 
524
 
  
 
796
 
     233       1,206       -25 bps       –       296  
During the second 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.
T23 Market risk linkage to Consolidated Statement of Financial Position of the Bank
 
As at April 30, 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
  
$
1,191
 
  
$
1,191
 
  
$
–
 
  
$
–
 
  
 
n/a
 
Trading assets
  
 
114,695
 
  
 
114,695
 
  
 
–
 
  
 
–
 
  
 
Interest rate, FX
 
Derivative financial instruments
  
 
44,725
 
  
 
32,063
 
  
 
12,662
 
  
 
–
 
  
 
Interest rate, FX, equity
 
Investment securities
  
 
116,595
 
  
 
–
 
  
 
116,595
 
  
 
–
 
  
 
Interest rate, FX, equity
 
Loans
  
 
764,068
 
  
 
–
 
  
 
764,068
 
  
 
–
 
  
 
Interest rate, FX
 
Assets not subject to market risk
(1)
  
 
331,924
 
  
 
–
 
  
 
–
 
  
 
331,924
 
  
 
n/a
 
Total assets
  
$
1,373,198
 
  
$
147,949
 
  
$
893,325
 
  
$
331,924
 
  
 
 
 
Deposits
  
$
945,538
 
  
$
–
 
  
$
899,145
 
  
$
46,393
 
  
 
Interest rate, FX, equity
 
Financial instruments designated at fair value through profit or loss
  
 
26,935
 
  
 
–
 
  
 
26,935
 
  
 
–
 
  
 
Interest rate, equity
 
Obligations related to securities sold short
  
 
41,310
 
  
 
41,310
 
  
 
–
 
  
 
–
 
  
 
n/a
 
Derivative financial instruments
  
 
50,562
 
  
 
30,753
 
  
 
19,809
 
  
 
–
 
  
 
Interest rate, FX, equity
 
Trading liabilities
(2)
  
 
456
 
  
 
456
 
  
 
–
 
  
 
–
 
  
 
n/a
 
Pension and other benefit liabilities
  
 
1,665
 
  
 
–
 
  
 
1,665
 
  
 
–
 
  
 
Interest rate, credit spread, equity
 
Liabilities not subject to market risk
(3)
 
 
227,982
 
  
 
–
 
  
 
–
 
  
 
227,982
 
  
 
n/a
 
Total liabilities
  
$
1,294,448
 
  
$
72,519
 
  
$
947,554
 
  
$
274,375
 
  
 
 
 
(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.
 
38    
Scotiabank Second Quarter Report 2023
Table of Contents
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 April 30, 2023 unencumbered liquid assets were $288 billion (October 31, 2022 – $260 billion). Securities including National Housing Act (NHA) mortgage-backed securities, comprised 79% 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 21% (October 31, 2022 – 23%). The increase in total unencumbered liquid assets was mainly attributable to an increase in Canadian and foreign government securities, NHA mortgage-backed securities, cash and deposits with central banks and precious metals, 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 April 30, 2023. The liquidity value of the portfolio will vary under different stress events as different assumptions are used for the stress scenarios.
 
Scotiabank Second Quarter Report 2023
    39
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
The Bank’s liquid asset pool is summarized in the following table:
T24 Liquid asset pool
 
     
As at April 30, 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
   
$
57,999
 
   
$
–
 
   
$
57,999
 
   
$
–
 
   
$
5,687
 
   
$
52,312
 
   
$
–
 
Deposits with financial institutions
   
 
5,894
 
   
 
–
 
   
 
5,894
 
   
 
–
 
   
 
67
 
   
 
5,827
 
   
 
–
 
Precious metals
   
 
1,191
 
   
 
–
 
   
 
1,191
 
   
 
–
 
   
 
–
 
   
 
1,191
 
   
 
–
 
Securities:
                     
Canadian government obligations
   
 
54,567
 
   
 
36,491
 
   
 
91,058
 
   
 
31,782
 
   
 
–
 
   
 
59,276
 
   
 
–
 
Foreign government obligations
   
 
105,834
 
   
 
124,435
 
   
 
230,269
 
   
 
112,327
 
   
 
–
 
   
 
117,942
 
   
 
–
 
Other securities
   
 
58,735
 
   
 
92,429
 
   
 
151,164
 
   
 
124,839
 
   
 
–
 
   
 
26,325
 
   
 
–
 
Loans:
                     
NHA mortgage-backed securities
   
 
33,540
 
   
 
–
 
   
 
33,540
 
   
 
8,415
 
   
 
–
 
   
 
25,125
 
   
 
–
 
Total
   
$
317,760
 
   
$
253,355
 
   
$
571,115
 
   
$
277,363
 
   
$
5,754
 
   
$
287,998
 
   
$
–
 
      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:
T25 Total unencumbered liquid assets held by the parent bank and its branches, and domestic and foreign subsidiaries
 
      As at      
($ millions)
   
April 30
2023
     
October 31
2022
  
The Bank of Nova Scotia (Parent)
   
$
213,299
 
    $ 184,848  
Bank domestic subsidiaries
   
 
35,842
 
      26,912  
Bank foreign subsidiaries
   
 
38,857
 
      48,388  
Total
   
$
287,998
 
    $ 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 (87%) 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.
 
40    
Scotiabank Second Quarter Report 2023
Table of Contents
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:
T26 Asset Encumbrance
 
    
As at April 30, 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
  
$
57,999
 
  
$
–
 
  
$
57,999
 
  
$
–
 
  
$
5,687
 
  
$
52,312
 
   
$
–
 
Deposits with financial institutions
  
 
5,894
 
  
 
–
 
  
 
5,894
 
  
 
–
 
  
 
67
 
  
 
5,827
 
   
 
–
 
Precious metals
  
 
1,191
 
  
 
–
 
  
 
1,191
 
  
 
–
 
  
 
–
 
  
 
1,191
 
   
 
–
 
Liquid securities:
               
Canadian government obligations
  
 
54,567
 
  
 
36,491
 
  
 
91,058
 
  
 
31,782
 
  
 
–
 
  
 
59,276
 
   
 
–
 
Foreign government obligations
  
 
105,834
 
  
 
124,435
 
  
 
230,269
 
  
 
112,327
 
  
 
–
 
  
 
117,942
 
   
 
–
 
Other liquid securities
  
 
58,735
 
  
 
92,429
 
  
 
151,164
 
  
 
124,839
 
  
 
–
 
  
 
26,325
 
   
 
–
 
Other securities
  
 
3,019
 
  
 
8,603
 
  
 
11,622
 
  
 
5,711
 
  
 
–
 
  
 
–
 
   
 
5,911
 
Loans classified as liquid assets:
               
NHA mortgage-backed securities
  
 
33,540
 
  
 
–
 
  
 
33,540
 
  
 
8,415
 
  
 
–
 
  
 
25,125
 
   
 
–
 
Other loans
  
 
737,438
 
  
 
–
 
  
 
737,438
 
  
 
4,728
 
  
 
79,699
 
  
 
12,451
 
   
 
640,560
 
Other financial assets
(4)
  
 
256,243
 
  
 
(170,982
) 
  
 
85,261
 
  
 
13,355
 
  
 
–
 
  
 
–
 
   
 
71,906
 
Non-financial
assets
  
 
58,738
 
  
 
–
 
  
 
58,738
 
  
 
–
 
  
 
–
 
  
 
–
 
   
 
58,738
 
Total
  
$
1,373,198
 
  
$
90,976
 
  
$
1,464,174
 
  
$
301,157
 
  
$
85,453
 
  
$
300,449
 
   
$
777,115
 
     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 April 30, 2023 total encumbered assets of the Bank were $387 billion (October 31, 2022 – $377 billion). Of the remaining $1,078 billion (October 31, 2022 – $1,051 billion) of unencumbered assets, $300 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 April 30, 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 $46 million or $353 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 Second Quarter Report 2023
    41
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
The following table presents the Bank’s LCR for the quarter ended April 30, 2023, based on the average daily positions in the quarter:
T27 Bank’s average LCR
(1)
 
For the quarter ended April 30, 2023
($ millions)
(2)
   
Total
unweighted
value
(Average)
(3)
     
Total
weighted
value
(Average)
(4)
  
High-quality liquid assets
      
Total high-quality liquid assets (HQLA)
   
 
*
 
   
$
252,277
 
Cash outflows
      
Retail deposits and deposits from small business customers, of which:
    $ 234,899      $ 21,507  
Stable deposits
      91,726        2,961  
Less stable deposits
      143,173        18,546  
Unsecured wholesale funding, of which:
      305,796        140,634  
Operational deposits (all counterparties) and deposits in networks of cooperative banks
      107,853        26,030  
Non-operational
deposits (all counterparties)
      166,736        83,397  
Unsecured debt
      31,207        31,207  
Secured wholesale funding
   
 
*
 
      43,778  
Additional requirements, of which:
      282,436        55,526  
Outflows related to derivative exposures and other collateral requirements
      45,252        23,582  
Outflows related to loss of funding on debt products
      6,141        6,141  
Credit and liquidity facilities
      231,043        25,803  
Other contractual funding obligations
      5,679        5,658  
Other contingent funding obligations
(5)
      586,086        7,369  
Total cash outflows
   
 
*
 
   
$
274,472
 
Cash inflows
      
Secured lending (e.g. reverse repos)
    $ 251,322      $ 41,886  
Inflows from fully performing exposures
      32,553        19,633  
Other cash inflows
      20,675        20,675  
Total cash inflows
   
$
304,550
 
   
$
82,194
 
              Total
adjusted
value
(6)
  
Total HQLA
   
 
*
 
   
$
252,277
 
Total net cash outflows
   
 
*
 
   
$
192,278
 
Liquidity coverage ratio (%)
   
 
*
 
   
 
131
% 
For the quarter ended January 31, 2023
($ millions)
            Total
adjusted
value
(6)
  
Total HQLA
      *      $ 230,287  
Total net cash outflows
      *      $ 188,170  
Liquidity coverage ratio (%)
      *        122 % 
*
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 61 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 April 30, 2023 versus the average of the previous quarter was attributable to growth in deposits and unsecured wholesale funding, partly offset by growth in loans. 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.
 
42    
Scotiabank Second Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
The following table presents the Bank’s NSFR as at April 30, 2023:
T28 Bank’s NSFR
(1)
 
     Unweighted Value by Residual Maturity     Weighted
value
(3)
  
As at April 30, 2023
($ millions)
   No maturity
(2)
     < 6 months    
6-12 months
    
≥
 1 year		  
Available Stable Funding (ASF) Item
 
Capital:   $ 87,352     $ –     $ –     $ –     $ 87,352  
Regulatory capital
     87,352       –       –       –       87,352  
Other capital instruments
     –       –       –       –       –  
Retail deposits and deposits from small business customers:     199,299       73,545       32,384       45,563       321,375  
Stable deposits
     83,612       18,981       10,565       11,265       118,764  
Less stable deposits
     115,687       54,564       21,819       34,298       202,611  
Wholesale funding:     182,450       313,762       65,158       127,135       311,019  
Operational deposits
     94,885       –       –       –       47,443  
Other wholesale funding
     87,565       313,762       65,158       127,135       263,576  
Liabilities with matching interdependent assets
(4)
     –       3,605       1,501       17,866       –  
Other liabilities:     63,767       105,799       23,255  
NSFR derivative liabilities
         8,923      
All other liabilities and equity not included in the above categories
     63,767       70,370       6,501       20,005       23,255  
Total ASF
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
$
743,001
 
Required Stable Funding (RSF) Item
 
Total NSFR high-quality liquid assets (HQLA)           $ 14,322  
Deposits held at other financial institutions for operational purposes   $ –     $ 247     $ –     $ –     $ 123  
Performing loans and securities:     100,358       214,571       57,287       522,362       576,381  
Performing loans to financial institutions secured by Level 1 HQLA
     25       48,238       1,375       –       3,577  
Performing loans to financial institutions secured by
non-Level
1 HQLA and unsecured performing loans to financial institutions
     2,625       65,073       12,027       11,123       27,340  
Performing loans to
non-financial
corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and PSEs, of which:
     57,621       85,154       31,101       230,705       297,449  
With a risk weight of less than or equal to 35% under the Basel II standardised approach for credit risk
     –       367       937       1,874       1,870  
Performing residential mortgages, of which:
     21,733       14,886       12,011       273,973       225,841  
With a risk weight of less than or equal to 35% under the Basel II standardised approach for credit risk
     21,733       14,624       11,687       260,031       213,697  
Securities that are not in default and do not qualify as HQLA, including exchange-traded equities
     18,354       1,220       773       6,561       22,174  
Assets with matching interdependent liabilities
(4)
     –       3,605       1,501       17,866       –  
Other assets:     3,416    
 
156,177
 
     56,530  
Physical traded commodities, including gold
     3,416             2,903  
Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs
       10,166       8,641  
NSFR derivative assets
       5,020       –  
NSFR derivative liabilities before deduction of variation margin posted
       25,964       1,298  
All other assets not included in the above categories
     –       71,344       –       43,683       43,688  
Off-balance
sheet items		  
 
 
 
     498,820       19,498  
Total RSF
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
$
666,854
 
Net Stable Funding Ratio (%)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
111
% 
As at January 31, 2023
($ millions)
   Weighted
value
(3)
  
Total ASF
   $ 730,120  
Total RSF
     668,639  
Net stable funding ratio (%)
     109 % 
(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 increase in the Bank’s NSFR as at April 30, 2023 versus the previous quarter was attributable to higher ASF from retail deposits and deposits from small business customers.
 
Scotiabank Second Quarter Report 2023
    43
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Regulatory liquidity developments
OSFI’s changes to the LAR Guideline were 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 $377 billion as at April 30, 2023 (October 31, 2022 – $357 billion
(1)
). 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 $218 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 historically 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 benchmark offerings via 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 April 30, 2023, issued and outstanding liabilities of $77 billion (October 31, 2022 – $73 billion) were subject to conversion under the
bail-in
regime.
 
 
(1)
 
Prior period amount has been restated to conform with current period presentation.
 
 
44    
Scotiabank Second 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
T29 Wholesale funding
(1)
 
    
As at April 30, 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)
  
$
2,743
 
  
$
1,719
 
  
$
670
 
  
$
68
 
  
$
11
 
  
$
5,211
 
  
$
905
 
  
$
–
 
  
$
–
 
  
$
6,116
 
Bearer notes, commercial paper and certificate of deposits
  
 
12,583
 
  
 
23,808
 
  
 
26,642
 
  
 
20,428
 
  
 
9,543
 
  
 
93,004
 
  
 
2,078
 
  
 
274
 
  
 
79
 
  
 
95,435
 
Asset-backed commercial paper
(3)
  
 
4,145
 
  
 
4,200
 
  
 
1,627
 
  
 
–
 
  
 
–
 
  
 
9,972
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
9,972
 
Senior notes
(4)(5)
  
 
391
 
  
 
1,786
 
  
 
5,343
 
  
 
3,282
 
  
 
4,090
 
  
 
14,892
 
  
 
3,193
 
  
 
8,591
 
  
 
11,502
 
  
 
38,178
 
Bail-inable notes
(5)
  
 
5,273
 
  
 
407
 
  
 
5,377
 
  
 
618
 
  
 
9,346
 
  
 
21,021
 
  
 
16,075
 
  
 
24,404
 
  
 
15,179
 
  
 
76,679
 
Asset-backed securities
  
 
–
 
  
 
–
 
  
 
589
 
  
 
–
 
  
 
2
 
  
 
591
 
  
 
8
 
  
 
1,361
 
  
 
847
 
  
 
2,807
 
Covered bonds
  
 
–
 
  
 
–
 
  
 
2,612
 
  
 
1,866
 
  
 
–
 
  
 
4,478
 
  
 
9,273
 
  
 
30,676
 
  
 
5,475
 
  
 
49,902
 
Mortgage securitization
(6)
  
 
–
 
  
 
1,048
 
  
 
2,559
 
  
 
953
 
  
 
548
 
  
 
5,108
 
  
 
5,114
 
  
 
7,972
 
  
 
4,359
 
  
 
22,553
 
Subordinated debt
(7)
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
3
 
  
 
3
 
  
 
44
 
  
 
2,222
 
  
 
8,380
 
  
 
10,649
 
Total wholesale funding sources
  
$
25,135
 
  
$
32,968
 
  
$
45,419
 
  
$
27,215
 
  
$
23,543
 
  
$
154,280
 
  
$
36,690
 
  
$
75,500
 
  
$
45,821
 
  
$
312,291
 
Of Which:
                    
Unsecured funding
  
$
20,989
 
  
$
27,720
 
  
$
38,032
 
  
$
24,396
 
  
$
22,994
 
  
$
134,131
 
  
$
22,295
 
  
$
35,491
 
  
$
35,139
 
  
$
227,056
 
Secured funding
  
 
4,146
 
  
 
5,248
 
  
 
7,387
 
  
 
2,819
 
  
 
549
 
  
 
20,149
 
  
 
14,395
 
  
 
40,009
 
  
 
10,682
 
  
 
85,235
 
     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 $288 billion as at April 30, 2023 (October 31, 2022 – $260 billion) were well in excess of wholesale funding sources which mature in the next twelve months.
 
Scotiabank Second Quarter Report 2023
    45
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 April 30, 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.
T30 Contractual maturities
 
    
As at April 30, 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
  
$
59,495
 
  
$
241
 
  
$
19
 
  
$
19
 
  
$
26
 
  
$
143
 
  
$
216
 
  
$
180
 
  
$
4,745
 
  
$
65,084
 
Trading assets
  
 
3,220
 
  
 
7,812
 
  
 
6,412
 
  
 
1,751
 
  
 
4,165
 
  
 
6,709
 
  
 
18,482
 
  
 
17,978
 
  
 
48,166
 
  
 
114,695
 
Securities purchased under resale agreements and securities
borrowed
  
 
164,928
 
  
 
11,226
 
  
 
7,482
 
  
 
685
 
  
 
119
 
  
 
–
 
  
 
–
 
  
 
244
 
  
 
–
 
  
 
184,684
 
Derivative financial instruments
  
 
2,463
 
  
 
3,537
 
  
 
3,175
 
  
 
3,274
 
  
 
1,973
 
  
 
6,648
 
  
 
11,270
 
  
 
12,385
 
  
 
–
 
  
 
44,725
 
Investment securities – FVOCI
  
 
4,752
 
  
 
5,606
 
  
 
11,968
 
  
 
3,146
 
  
 
6,138
 
  
 
9,414
 
  
 
27,283
 
  
 
15,672
 
  
 
2,580
 
  
 
86,559
 
Investment securities – amortized cost
  
 
158
 
  
 
1,728
 
  
 
832
 
  
 
980
 
  
 
735
 
  
 
2,135
 
  
 
4,982
 
  
 
16,727
 
  
 
–
 
  
 
28,277
 
Investment securities – FVTPL
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
1,759
 
  
 
1,759
 
Loans
  
 
68,627
 
  
 
46,393
 
  
 
35,397
 
  
 
33,638
 
  
 
32,722
 
  
 
112,975
 
  
 
321,591
 
  
 
54,992
 
  
 
57,733
 
  
 
764,068
 
Residential mortgages
  
 
3,242
 
  
 
10,262
 
  
 
11,342
 
  
 
9,986
 
  
 
10,239
 
  
 
54,906
 
  
 
209,696
 
  
 
42,457
 
  
 
1,430
(1)
 
  
 
353,560
 
Personal loans
  
 
3,783
 
  
 
2,515
 
  
 
3,842
 
  
 
3,400
 
  
 
3,773
 
  
 
12,685
 
  
 
24,676
 
  
 
6,940
 
  
 
40,564
 
  
 
102,178
 
Credit cards
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
16,053
 
  
 
16,053
 
Business and government
  
 
61,602
 
  
 
33,616
 
  
 
20,213
 
  
 
20,252
 
  
 
18,710
 
  
 
45,384
 
  
 
87,219
 
  
 
5,595
 
  
 
5,422
(2)
 
  
 
298,013
 
Allowance for credit losses
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
(5,736
) 
  
 
(5,736
) 
Customers’ liabilities under acceptances
  
 
18,002
 
  
 
3,768
 
  
 
75
 
  
 
18
 
  
 
38
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
21,901
 
Other assets
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
61,446
 
  
 
61,446
 
Total assets
  
$
321,645
 
  
$
80,311
 
  
$
65,360
 
  
$
43,511
 
  
$
45,916
 
  
$
138,024
 
  
$
383,824
 
  
$
118,178
 
  
$
176,429
 
  
$
1,373,198
 
Liabilities and equity
                    
Deposits
  
$
109,108
 
  
$
67,734
 
  
$
72,543
 
  
$
57,737
 
  
$
51,642
 
  
$
62,246
 
  
$
85,450
 
  
$
25,593
 
  
$
413,485
 
  
$
945,538
 
Personal
  
 
16,527
 
  
 
14,257
 
  
 
15,495
 
  
 
16,319
 
  
 
16,232
 
  
 
21,061
 
  
 
15,287
 
  
 
452
 
  
 
168,021
 
  
 
283,651
 
Non-personal
  
 
92,581
 
  
 
53,477
 
  
 
57,048
 
  
 
41,418
 
  
 
35,410
 
  
 
41,185
 
  
 
70,163
 
  
 
25,141
 
  
 
245,464
 
  
 
661,887
 
Financial instruments designated at fair value through profit or loss
  
 
401
 
  
 
492
 
  
 
1,254
 
  
 
974
 
  
 
1,580
 
  
 
6,297
 
  
 
3,635
 
  
 
12,302
 
  
 
–
 
  
 
26,935
 
Acceptances
  
 
18,052
 
  
 
3,768
 
  
 
75
 
  
 
18
 
  
 
38
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
21,951
 
Obligations related to securities sold short
  
 
1,762
 
  
 
1,093
 
  
 
1,313
 
  
 
2,345
 
  
 
1,184
 
  
 
2,529
 
  
 
7,234
 
  
 
7,861
 
  
 
15,989
 
  
 
41,310
 
Derivative financial instruments
  
 
2,474
 
  
 
3,386
 
  
 
3,067
 
  
 
3,328
 
  
 
1,806
 
  
 
6,771
 
  
 
12,089
 
  
 
17,641
 
  
 
–
 
  
 
50,562
 
Obligations related to securities sold under repurchase agreements and securities lent
  
 
131,145
 
  
 
824
 
  
 
350
 
  
 
308
 
  
 
4
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
132,631
 
Subordinated debentures
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
35
 
  
 
1,915
 
  
 
6,834
 
  
 
–
 
  
 
8,784
 
Other liabilities
  
 
825
 
  
 
1,392
 
  
 
2,081
 
  
 
1,352
 
  
 
1,190
 
  
 
8,416
 
  
 
5,859
 
  
 
8,170
 
  
 
37,452
 
  
 
66,737
 
Total equity
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
78,750
 
  
 
78,750
 
Total liabilities and equity
  
$
263,767
 
  
$
78,689
 
  
$
80,683
 
  
$
66,062
 
  
$
57,444
 
  
$
86,294
 
  
$
116,182
 
  
$
78,401
 
  
$
545,676
 
  
$
1,373,198
 
Off-balance
sheet commitments
                    
Credit commitments
(3)
  
$
4,918
 
  
$
14,272
 
  
$
20,133
 
  
$
19,722
 
  
$
15,769
 
  
$
47,171
 
  
$
138,083
 
  
$
11,230
 
  
$
7,167
 
  
$
278,465
 
Financial guarantees
(4)
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
48,250
 
  
 
48,250
 
Outsourcing obligations
(5)
  
 
18
 
  
 
36
 
  
 
54
 
  
 
53
 
  
 
53
 
  
 
139
 
  
 
45
 
  
 
34
 
  
 
–
 
  
 
432
 
(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.
 
46    
Scotiabank Second 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 April 30, 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.
 
Scotiabank Second Quarter Report 2023
    47
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Capital Management
The Bank continues to manage its capital in accordance with the capital management framework as described on pages 54 to 67 of the Bank’s 2022 Annual Report.
Effective this quarter, the Bank has adopted the Revised Basel III reforms in accordance with OSFI’s revised Capital Adequacy Requirements Guideline, Leverage Ratio Requirements Guideline, and Pillar 3 Disclosures Guideline for
D-SIBs.
OSFI’s requirements are substantially aligned with the BCBS’ Revised Basel III reforms with some differences, primarily in residential real estate and qualifying revolving retail exposures, and with respect to an acceleration of the
phase-in
period of the aggregate capital output floor to 72.5% by 2026.
In addition, in December 2022 OSFI announced that the Domestic Stability Buffer (DSB) will increase to 3.0% of total risk-weighted assets (RWA), 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 are: 11.0%, 12.5% and 14.5% for Common Equity Tier 1 (CET1), Tier 1 and Total capital ratios, respectively.
As at April 30, 2023, the Bank’s Leverage and TLAC Leverage ratios no longer benefited from OSFI’s temporary exclusion of central bank reserves from its leverage exposures measure, a Leverage ratio impact of approximately 20 basis points.
Revised Basel III reforms
The final Basel III reforms implemented this quarter primarily impact the calculation of risk-weighted assets and include:
 
  •  
a revised standardized approach for credit risk, with increased granularity of prescribed risk weights for credit cards, mortgages and business loans;
  •  
revisions to the internal ratings-based approach for credit risk with new requirements for internally developed model parameters under the Advanced Internal Ratings-Based Approach (AIRB), including scope restrictions which limit certain asset classes to only the Foundation Internal Ratings-Based (FIRB) approach;
  •  
a revised standardized approach for operational risk, which builds on the existing standardized approach including the recognition of an institution’s operational risk loss experience;
  •  
revisions to the measurement of the Leverage ratio and a Leverage ratio buffer, which will take the form of a Tier 1 capital buffer set at 50% of a
D-SIB’s
1.0% risk-weighted surcharge capital buffer; and
  •  
an aggregate output floor, which will ensure that banks’ RWAs generated by internal models are not lower than 72.5% of RWAs as calculated by the Basel III framework’s standardized approaches. There is an international
phase-in
period for the 72.5% aggregate capital output floor from 2023 until 2028, beginning at 65% for Canadian banks this quarter.
Internationally, adoption of the revised Basel III reforms is varied across jurisdictions. Current expectations are that many jurisdictions will implement no earlier than 2025. In addition, the revised credit valuation adjustment framework (CVA) and Fundamental Review of the Trading Book (FRTB) market risk requirements will be effective for the Bank in Q1 2024.
Regulatory capital and total loss absorbing capacity ratios
The Bank’s various regulatory capital and total loss absorbing capacity measures consist of the following:
T31 Regulatory capital and total loss absorbing capacity ratios
 
      As at  
($ millions)
   
April 30
2023
      January 31
2023		      October 31
2022		  
     
Revised
Basel III
      Basel III      Basel III  
Common Equity Tier 1 capital
(1)(2)
   
$
55,520
 
    $ 54,138      $ 53,081  
Tier 1 capital
(1)(2)
   
 
63,688
 
      62,317        61,262  
Total regulatory capital
(1)(2)
   
 
73,197
 
      71,867        70,710  
Total loss absorbing capacity (TLAC)
(3)
   
 
127,815
 
      131,433        126,565  
Risk-weighted assets
(1)(2)(4)
   
$
451,063
 
    $ 471,528      $ 462,448  
Capital ratios (%)
(1)(2)
:
         
Common Equity Tier 1 capital ratio
   
 
12.3
 
      11.5        11.5  
Tier 1 capital ratio
   
 
14.1
 
      13.2        13.2  
Total capital ratio
   
 
16.2
 
      15.2        15.3  
Total loss absorbing capacity ratio
(3)
   
 
28.3
 
      27.9        27.4  
Leverage
(5)
:
         
Leverage exposures
   
$
1,530,107
 
    $ 1,468,559      $ 1,445,619  
Leverage ratio (%)
   
 
4.2
 
      4.2        4.2  
Total loss absorbing capacity leverage ratio (%)
(3)
   
 
8.4
 
      8.9        8.8  
(1)
Regulatory ratios and amounts reported as at Q2 2023 are under Revised Basel III requirements and are not directly comparable to ratios and amounts reported in prior quarters.
(2)
Q2 2023 regulatory capital ratios are based on Revised Basel III requirements as determined in accordance with OSFI Guideline – Capital Adequacy Requirements (February 2023). Prior period regulatory capital ratios were prepared in accordance with OSFI Guideline – Capital Adequacy Requirements (November 2018).
(3)
This measure has been disclosed in this document in accordance with OSFI Guideline – Total Loss Absorbing Capacity (September 2018).
(4)
As at April 30, 2023, CET1, Tier 1, Total Capital and TLAC RWA include a Basel III floor adjustment of $8.2 billion (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, Tier 1, Total Capital and TLAC RWA).
(5)
Q2 2023 leverage ratios are based on Revised Basel III requirements as determined in accordance with OSFI Guideline – Leverage Requirements (February 2023). Prior period leverage ratios were prepared in accordance with OSFI Guideline – Leverage Requirements (November 2018).
The Bank’s CET1 capital ratio was 12.3% as at April 30, 2023, an increase of approximately 80 basis points from the prior quarter. The ratio benefited from the adoption of OSFI’s revised Basel III requirements, internal capital generation, net share issuances from the Bank’s Shareholder Dividend and Share Purchase Plan and gains from the revaluation of FVOCI securities.
The Bank’s Tier 1 capital ratio was 14.1% as at April 30, 2023, an increase of approximately 90 basis points from the prior quarter, due primarily to the above noted impacts to the CET1 ratio.
The Bank’s Total capital ratio was 16.2% as at April 30, 2023, an increase of approximately 100 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 April 30, 2023 approximately in line with the prior quarter, as OSFI’s reversal of its temporary exclusion of central bank reserves within its leverage exposures measure was partly offset by lower off balance sheet leverage exposures.
The TLAC ratio was 28.3% as at April 30, 2023, an increase of approximately 40 basis points from the prior quarter, mainly from the above noted impacts to the Total capital ratio.
 
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The TLAC Leverage ratio was 8.4%, a decrease of approximately 50 basis points, due primarily to OSFI’s reversal of its temporary exclusion of central bank reserves within its leverage exposure measure.
As at April 30, 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 (February 2023).
Changes in regulatory capital
The Bank’s Common Equity Tier 1 capital was $55.5 billion, as at April 30, 2023, an increase of approximately $1.4 billion from the prior quarter, due primarily to internal capital generation of $802 million and higher net accumulated other comprehensive income of $633 million, net of changes from cashflow hedges and own credit risk, and net share issuances of $428 million mainly from the Shareholder Dividend and Share Purchase Plan, partly offset by higher regulatory capital deductions of $498 million.
Risk-weighted assets
CET1 risk-weighted assets (RWA) decreased during the quarter by $20.5 billion (or -4.3%) to $451.1 billion, due primarily to the adoption of OSFI’s revised Basel III requirements, partly offset by growth in business lending, increased market risk RWA and the 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 April 30, 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 May 23, 2023, approved a dividend of $1.06 per share, an increase of 3 cents. This quarterly dividend is payable to shareholders of record as of July 5, 2023, on July 27, 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 and Share Purchase Plan (the “Plan”). The Bank has determined that, in respect of the dividend declared on May 24, 2023, and to be paid on July 27, 2023, and until further announcement, the Bank will continue to issue the common shares from treasury with a discount of 2% to the average market price (as defined in the Plan). Prior to the dividend paid on April 26, 2023, common shares received by participants under the Plan were shares purchased from the open market at prevailing market prices.
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 $8,180 billion as at April 30, 2023, compared to $7,960 billion as at January 31, 2023 (October 31, 2022 – $7,597 billion). The quarterly increase was due primarily to the impact of foreign currency translation and the volume of interest rate contracts. The
 
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total notional amount of
over-the-counter
derivatives was $7,649 billion compared to $7,510 billion as at January 31, 2023 (October 31, 2022 – $7,290 billion), of which $5,697 billion was settled through central counterparties as at April 30, 2023 (January 31, 2023 – $5,625 billion; October 31, 2022 – $5,474 billion). The credit equivalent amount, after taking master netting arrangements into account, was $38.8 billion, compared to $38.0 billion at January 31, 2023. The increase was primarily attributable to the higher exposure of interest rate and other commodities contracts offset by a decrease in foreign exchange 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 $6.7 billion as at April 30, 2023 (October 31, 2022 – $6.4 billion). As at April 30, 2023, total commercial paper outstanding for these conduits was $4.8 billion (October 31, 2022 – $3.8 billion). Funded assets purchased and held by these conduits as at April 30, 2023, as reflected at original cost, were $4.7 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.
Securitizations
The Bank securitizes a portion of its Canadian personal and small business credit card receivables (receivables) through Trillium Credit Card Trust II (Trillium), a Bank-sponsored structured entity. Trillium issues senior and subordinated notes to investors. The proceeds of such issuances are used to purchase
co-ownership
interests in the receivables originated by the Bank. The sale of such
co-ownership
interests does not qualify for derecognition and therefore the receivables continue to be recognized on the Bank’s Consolidated Statement of Financial Position. Recourse of the noteholders is limited to the purchased
co-ownership
interests. During the quarter, $1.5 billion receivables were securitized through Trillium (October 31, 2022 – nil). As at April 30, 2023, there were no outstanding Bank-held subordinated notes issued by Trillium.
Other
off-balance
sheet arrangements
Guarantees and other indirect commitments increased by 1.9% 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 $145 million for the three months ended April 30, 2023, compared to $178 million in the previous quarter, and $162 million in the same period last year.
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, an Act to Modernize Legislative Provisions respecting the Protection of Personal Information (Quebec) received royal assent. The second series of amendments come into force on September 22, 2023, with the remainder coming into force in 2024. This law reforms the Act Respecting the Protection of Personal Information in the Private Sector (Quebec). It was 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 an enterprise-wide project under which it has engaged business stakeholders and key groups to consider the statute’s application.
Bill
C-27
(Consumer Privacy Protection Act, Personal Information and Data Protection Tribunal Act and Artificial Intelligence and Data Act) passed on second reading on April 24, 2023, and the Bill in its entirety has been referred to the Standing Committee on Industry and Technology. 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.
It includes the Artificial Intelligence and Data Act (AIDA), the first law in Canada regulating the use of artificial intelligence systems. Its objective is to establish common requirements across Canada for the design, development and deployment of artificial intelligence systems that are consistent with national and international standards. Discussions with the industry (Canadian Bankers Association) is underway with regard to CBA recommendations to the Committee. The Bank is actively monitoring developments under this Bill.
 
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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. Parliament completed its second reading of Bill C-26 on March 27, 2023 and the Bill has been referred to the Standing Committee on Public Safety and National Security. The Bank continues to monitor developments under this Bill.
OSFI Guideline B-13: Technology and Cyber Risk Management
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.
OSFI Guideline
B-10:
Third Party Risk Management
On April 24, 2023, the Office of the Superintendent of Financial Institutions (OSFI) issued its final revised Guideline
B-10:
Third Party Risk Management (Guideline
B-10),
which sets out third party risk management expectations for federally regulated financial institutions (FRFIs), including the Bank. This revised guideline places an expectation on FRFIs to take a principled-based approach, with an emphasis on risk, to manage third party arrangements in a manner that is proportionate to the level of risk and criticality of each arrangement as well as the size, nature, scope, complexity of operations, and risk profile of the FRFI. The expectation is that third party arrangements commencing on or after May 1, 2024 will adhere to the revised Guideline
B-10
and those entered into prior to this date will be updated at the earliest opportunity. The Bank has established a working group to consider the application of this newly released revised Guideline
B-10.
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 has developed and implemented controls intended to comply with the aforementioned CFTC rules on the January 1, 2023 effective date.
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.
Disclosure of Climate-Related Matters
The Office of the Superintendent of Financial Institutions (OSFI) published its final Guideline
B-15
– Climate Risk Management on March 7, 2023. The guideline articulates the supervisory expectations related to the management of climate-related risks by federally regulated financial institutions (FRFIs). The final guideline incorporates the key advocacy points that were submitted in response to the consultation. The Bank has established a governance structure and an enterprise-wide program on the implementation of the guideline.
OSFI has indicated that the guideline will be updated once the International Sustainability Standards Board (ISSB) publish their final climate and sustainability-related disclosure standards which are expected in June 2023.
OSFI has also identified climate risk among the nine key risks in their Annual Risk Outlook for Fiscal Year 2023-2024. OSFI is planning to develop a standardized climate scenario analysis exercise that all FRFIs will undertake in 2024. This scenario exercise will incorporate learnings from two ongoing joint projects with the Bank of Canada: one on transition risk and one on a single-peril physical risk (flooding). The Bank will participate in this exercise.
Interest rate benchmark reform
The global financial markets continue to transition away from US Dollar London Interbank Offered Rate (USD LIBOR) and other interbank offered rates (IBORs), including the Canadian Dollar Offered Rate (CDOR), to alternative risk-free rates.
As of June 30, 2023, USD LIBOR will cease to be published or become
non-representative,
although the Financial Conduct Authority (FCA) announced on April 3, 2023, that the
one-month,
three-month, and
six-month
tenors of USD LIBOR will be published on a ‘synthetic’ basis until September 30, 2024, to allow market participants to use such rates in legacy contracts.
The Bank has transitioned a significant portion of its USD LIBOR portfolio to alternative risk-free rates and continues its remediation effort to transition any outstanding contracts before June 30, 2023. For derivatives, the Bank has been participating in central clearing houses’ conversion processes to transition its cleared portfolio and engaging with counterparties and customers to remediate bilateral, uncleared trades before June 30, 2023.
As previously announced by Refinitiv Benchmark Services (UK) Limited,
one-month,
two-month,
and three-month CDOR tenors will continue to be published until June 28, 2024. The Canadian Alternative Reference Rate (CARR) committee has published a detailed transition roadmap with milestones to guide market participants to 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 expects FRFIs to transition CDOR linked transactions to new reference rates before the cessation date.
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
The 2023 Federal Budget released on March 28, 2023 included certain tax measures affecting the Bank. Of particular note were proposals to eliminate the deduction for dividends received on shares of Canadian corporations that are categorized as
mark-to-market
property for tax purposes; impose a 2% tax on the net value of share repurchases; and impose GST/HST on payment card clearing services with the potential to reassess prior years for GST/HST amounts owing.
The 2023 Federal Budget also reconfirms the Government of Canada’s commitment to implement the Organisation for Economic Co-operation and Development’s Pillar Two model rules, which will impose a 15% minimum tax on global operations.
 
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The impact of these proposed measures has not been recognized in the Bank’s financial results as at April 30, 2023 as they are not substantively enacted, which would only occur after the third legislative reading. If enacted, these proposed measures would result in increased tax expense for the Bank; however, their impact cannot be accurately assessed at this time due to uncertainties around the final rules and their application by the Canada Revenue Agency.
Housing
The Office of the Superintendent of Financial Institutions (OSFI) consultation on Guideline
B-20
– Residential Mortgage Underwriting Practices and Procedures (Guideline
B-20)
closed in April 2023. The consultation seeks inputs into exploring complementary measures to mitigate risks to Federally Regulated Financial Institutions (FRFI’s) from high consumer indebtedness. Specifically, OSFI proposed the review of existing debt serviceability measures and put forward some potential new options and tools to manage debt serviceability risk. The Bank responded through the Canadian Bankers Association and through a bilateral submission.
The Financial Consumer Agency of Canada (FCAC) published a draft Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances, with comments due by May 5, 2023. The guideline sets out FCAC’s expectations for banks to support consumers who are vulnerable to mortgage delinquency because of exceptional circumstances, such as combined effects of high consumer indebtedness, rising rates, inflation and the pandemic. The guideline follows the FCAC’s October 2022 industry communication regarding variable rate mortgage holders. The FCAC expects banks to be proactive in identifying potential concerns, to ensure consumers are well-informed and to minimize negative consequences for consumers. The draft guideline is referenced in the 2023 Federal Budget.
Off Platform Communications
On May 11, 2023, it was announced that Scotiabank entered into resolutions, including monetary penalties of US $22.5 million, with the U.S. Securities and Exchange Commission (SEC) (US $7.5 million), and the Commodity Futures Trading Commission (CFTC) (US $15 million), relating to electronic communications on unauthorized mobile devices and communications channels by certain personnel of the Bank’s U.S. broker-dealer, U.S. swap dealer and U.S. futures commission merchant. This amount was previously fully provisioned. In addition, the Bank has agreed to retain a compliance consultant who will review, among other things, the Bank’s policies and procedures, training, surveillance, technological solutions, and disciplinary framework related to communication channels and the preservation of electronic communications. Reports on these subjects will be provided to both the SEC and the CFTC. The resolutions also require the Bank to report – for a period of two years – to the SEC and CFTC any discipline imposed on personnel of the Bank’s U.S. broker-dealer, U.S. swap dealer and U.S. futures commission merchant for violations of the Bank’s policies and procedures concerning the preservation of electronic communications, including those found on personal devices.
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 audited consolidated financial statements in the 2022 Annual Report.
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 April 30, 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
T32 Shares and other instruments
 
April 30, 2023
   
Amount
($ millions)
     
Dividends
declared per
share
(1)
     
Number
outstanding
(000s)
     
Conversion
feature
  
Common Shares
(2)
    $ 19,160      $ 1.06        1,198,175        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$ 19.8326        7.84586        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        4.500  
Subordinated debentures due January 2029
          $ 1,750        3.890  
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)
   
 
 
 
   
 
 
 
   
 
 
 
      11,797  
(1)
Dividends are paid quarterly, if and when declared. Represents dividends announced on May 24, 2023. The Board of Directors, at its meeting on May 23, 2023, approved a dividend payable on July 27, 2023 to shareholders of record as of July 5, 2023.
(2)
As at May 12, 2023, the number of outstanding common shares and options were 1,198,175 thousand and 11,797 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 April 30, 2023 would be 4,666 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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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 Revised 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.
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.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
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 Revised Basel III Framework in accordance with OSFI Guideline – Capital Adequacy Requirements (February 2023). Risk-weighted assets for credit risk are calculated using modelled parameters, formulas and risk-weight requirements as specified by the Revised 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.
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.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
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 III 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 2023, the capital floor
add-on
is determined under the Revised Basel III Framework by comparing RWA generated for IRB and standardized portfolios to RWA calculated under a standardized approach at the required capital floor calibration. A shortfall to the capital floor RWA requirement is added to the Bank’s RWA.
 
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Condensed Interim Consolidated Financial Statements (unaudited)
TABLE OF CONTENTS
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Consolidated Statement of Financial Position
 
            As at  
(Unaudited) ($ millions)
    Note   
April 30
2023
      January 31
2023		      October 31
2022		  
Assets
                                
Cash and deposits with financial institutions
    5   
$
63,893
 
    $ 81,386      $ 65,895  
Precious metals
        
 
1,191
 
      725        543  
Trading assets
                                
Securities
        
 
105,560
 
      106,735        103,547  
Loans
        
 
6,910
 
      7,642        7,811  
Other
   
 
   
 
2,225
 
      1,969        1,796  
         
 
114,695
 
      116,346        113,154  
Securities purchased under resale agreements and securities borrowed
        
 
184,684
 
      178,690        175,313  
Derivative financial instruments
        
 
44,725
 
      44,820        55,699  
Investment securities
    6   
 
116,595
 
      111,004        110,008  
Loans
                                
Residential mortgages
    7   
 
353,560
 
      353,527        349,279  
Personal loans
    7   
 
102,178
 
      101,041        99,431  
Credit cards
    7   
 
16,053
 
      15,494        14,518  
Business and government
    7   
 
298,013
 
      290,608        287,107  
         
 
769,804
 
      760,670        750,335  
Allowance for credit losses
    7(c)   
 
5,736
 
      5,513        5,348  
         
 
764,068
 
      755,157        744,987  
Other
                                
Customers’ liability under acceptances, net of allowance
        
 
21,901
 
      21,872        19,494  
Property and equipment
        
 
5,646
 
      5,699        5,700  
Investments in associates
    9   
 
2,708
 
      2,684        2,633  
Goodwill and other intangible assets
        
 
17,396
 
      17,170        16,833  
Deferred tax assets
        
 
2,193
 
      2,508        1,903  
Other assets
   
 
   
 
33,503
 
      36,377        37,256  
 
   
 
   
 
83,347
 
      86,310        83,819  
Total assets
   
 
   
$
1,373,198
 
    $ 1,374,438      $ 1,349,418  
Liabilities
                                
Deposits
                                
Personal
    10   
$
283,651
 
    $ 274,879      $ 265,892  
Business and government
    10   
 
611,376
 
      621,740        597,617  
Financial institutions
    10   
 
50,511
 
      53,268        52,672  
         
 
945,538
 
      949,887        916,181  
Financial instruments designated at fair value through profit or loss
    18(b)   
 
26,935
 
      26,583        22,421  
Other
                                
Acceptances
        
 
21,951
 
      21,912        19,525  
Obligations related to securities sold short
        
 
41,310
 
      43,439        40,449  
Derivative financial instruments
        
 
50,562
 
      52,746        65,900  
Obligations related to securities sold under repurchase agreements and securities lent
        
 
132,631
 
      132,206        139,025  
Subordinated debentures
    11   
 
8,784
 
      8,713        8,469  
Other liabilities
   
 
   
 
66,737
 
      63,201        62,699  
 
   
 
   
 
321,975
 
      322,217        336,067  
Total liabilities
   
 
   
 
1,294,448
 
      1,298,687        1,274,669  
Equity
                                
Common equity
                                
Common shares
    11   
 
19,160
 
      18,732        18,707  
Retained earnings
        
 
54,967
 
      54,165        53,761  
Accumulated other comprehensive income (loss)
        
 
(4,906
) 
      (6,640 )       (7,166 ) 
Other reserves
   
 
   
 
(144
) 
      (145 )       (152 ) 
Total common equity
        
 
69,077
 
      66,112        65,150  
Preferred shares and other equity instruments
   
 
   
 
8,075
 
      8,075        8,075  
Total equity attributable to equity holders of the Bank
        
 
77,152
 
      74,187        73,225  
Non-controlling interests in subsidiaries
   
 
   
 
1,598
 
      1,564        1,524  
Total equity
   
 
   
 
78,750
 
      75,751        74,749  
Total liabilities and equity
   
 
   
$
1,373,198
 
    $ 1,374,438      $ 1,349,418  
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
 
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Consolidated Statement of Income
 
            For the three months ended      For the six months ended  
(Unaudited) ($ millions)
    Note   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Revenue
                                                  
Interest income
(1)
                                                  
Loans
        
$
 11,076
 
    $ 10,619      $ 6,418     
$
 21,695
 
    $ 12,412  
Securities
        
 
1,645
 
      1,458        500     
 
3,103
 
      858  
Securities purchased under resale agreements and securities borrowed
        
 
368
 
      336        71     
 
704
 
      118  
Deposits with financial institutions
   
 
   
 
781
 
      743        103     
 
1,524
 
      167  
 
    16   
 
13,870
 
      13,156        7,092     
 
27,026
 
      13,555  
Interest expense
                                                  
Deposits
        
 
8,652
 
      7,834        2,024     
 
16,486
 
      3,597  
Subordinated debentures
        
 
110
 
      105        55     
 
215
 
      100  
Other
   
 
   
 
642
 
      648        540     
 
1,290
 
      1,041  
 
    16   
 
9,404
 
      8,587        2,619     
 
17,991
 
      4,738  
Net interest income
   
 
   
 
4,466
 
      4,569        4,473     
 
9,035
 
      8,817  
Non-interest income
                                                  
Card revenues
        
 
190
 
      201        207     
 
391
 
      397  
Banking services fees
        
 
462
 
      469        430     
 
931
 
      867  
Credit fees
        
 
447
 
      466        397     
 
913
 
      798  
Mutual funds
        
 
527
 
      532        575     
 
1,059
 
      1,203  
Brokerage fees
        
 
269
 
      279        287     
 
548
 
      585  
Investment management and trust
        
 
256
 
      253        254     
 
509
 
      510  
Underwriting and advisory fees
        
 
154
 
      102        137     
 
256
 
      309  
Non-trading foreign exchange
        
 
227
 
      232        216     
 
459
 
      441  
Trading revenues
        
 
389
 
      634        453     
 
1,023
 
      1,062  
Net gain on sale of investment securities
        
 
56
 
      44        1     
 
100
 
      3  
Net income from investments in associated corporations
        
 
64
 
      16        84     
 
80
 
      175  
Insurance underwriting income, net of claims
        
 
123
 
      112        105     
 
235
 
      206  
Other fees and commissions
        
 
282
 
      186        145     
 
468
 
      301  
Other
   
 
   
 
17
 
      (115 )       178     
 
(98
) 
      317  
 
   
 
   
 
3,463
 
      3,411        3,469     
 
6,874
 
      7,174  
Total revenue
        
 
7,929
 
      7,980        7,942     
 
15,909
 
      15,991  
Provision for credit losses
   
 
   
 
709
 
      638        219     
 
1,347
 
      441  
 
   
 
   
 
7,220
 
      7,342        7,723     
 
14,562
 
      15,550  
Non-interest expenses
                                                  
Salaries and employee benefits
        
 
2,425
 
      2,340        2,175     
 
4,765
 
      4,455  
Premises and technology
        
 
657
 
      640        590     
 
1,297
 
      1,176  
Depreciation and amortization
        
 
412
 
      406        381     
 
818
 
      756  
Communications
        
 
101
 
      94        93     
 
195
 
      183  
Advertising and business development
        
 
139
 
      136        108     
 
275
 
      217  
Professional
        
 
187
 
      175        195     
 
362
 
      387  
Business and capital taxes
        
 
158
 
      161        132     
 
319
 
      272  
Other
   
 
   
 
497
 
      512        485     
 
1,009
 
      936  
 
   
 
   
 
4,576
 
      4,464        4,159     
 
9,040
 
      8,382  
Income before taxes
        
 
2,644
 
      2,878        3,564     
 
5,522
 
      7,168  
Income tax expense
    19   
 
485
 
      1,106        817     
 
1,591
 
      1,681  
Net income
        
$
2,159
 
    $ 1,772      $ 2,747     
$
3,931
 
    $ 5,487  
Net income attributable to non-controlling interests in subsidiaries
   
 
   
 
26
 
      40        78     
 
66
 
      166  
Net income attributable to equity holders of the Bank
        
$
2,133
 
    $ 1,732      $ 2,669     
$
3,865
 
    $ 5,321  
Preferred shareholders and other equity instrument holders
        
 
104
 
      101        74     
 
205
 
      118  
Common shareholders
   
 
   
$
2,029
 
    $ 1,631      $ 2,595     
$
3,660
 
    $ 5,203  
Earnings per common share
(in dollars)
                                                  
Basic
    17   
$
1.70
 
    $ 1.37      $ 2.16     
$
3.07
 
    $ 4.32  
Diluted
    17   
 
1.69
 
      1.36        2.16     
 
3.04
 
      4.30  
Dividends paid per common share
(in dollars)
   
 
   
 
1.03
 
      1.03        1.00     
 
2.06
 
      2.00  
(1)
Includes interest income on financial assets measured at amortized cost and FVOCI, calculated using the effective interest method, of $13,384 for the three months ended April 30, 2023 (January 31, 2023 – $12,710; April 30, 2022 – $6,915) and for the six months ended April 30, 2023 – $26,094 (April 30, 2022 – $13,246).
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
 
60    
Scotiabank Second Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Consolidated Statement of Comprehensive Income
 
      For the three months ended      For the six months ended  
(Unaudited) ($ millions)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Net income
   
$
2,159
 
    $ 1,772      $ 2,747     
$
3,931
 
    $ 5,487  
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)
   
 
1,073
 
      543        74     
 
1,616
 
      1,574  
Net gains (losses) on hedges of net investments in foreign operations
   
 
(556
) 
      16        (190 )    
 
(540
) 
      (749 ) 
Income tax expense (benefit):
                                             
Net unrealized foreign currency translation gains (losses)
   
 
–
 
      8        (4 )    
 
8
 
      8  
Net gains (losses) on hedges of net investments in foreign operations
   
 
(157
) 
      (6 )       (50 )    
 
(163
) 
      (197 ) 
    
 
674
 
      557        (62 )    
 
1,231
 
      1,014  
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
   
 
352
 
      1,234        (1,794 )    
 
1,586
 
      (2,115 ) 
Reclassification of net (gains) losses to net income
   
 
(89
) 
      (791 )       1,154     
 
(880
) 
      1,271  
Income tax expense (benefit):
                                             
Net gains (losses) in fair value
   
 
114
 
      288        (465 )    
 
402
 
      (545 ) 
Reclassification of net (gains) losses to net income
   
 
(52
) 
      (178 )       320     
 
(230
) 
      355  
    
 
201
 
      333        (495 )    
 
534
 
      (654 ) 
Net change in gains (losses) on derivative instruments designated as cash flow hedges:
                                             
Net gains (losses) on derivative instruments designated as cash flow hedges
   
 
1,425
 
      3,476        (5,692 )    
 
4,901
 
      (6,668 ) 
Reclassification of net (gains) losses to net income
   
 
(1,573
) 
      (2,756 )       2,528     
 
(4,329
) 
      3,197  
Income tax expense (benefit):
                                             
Net gains (losses) on derivative instruments designated as cash flow hedges
   
 
414
 
      983        (1,532 )    
 
1,397
 
      (1,783 ) 
Reclassification of net (gains) losses to net income
   
 
(462
) 
      (798 )       699     
 
(1,260
) 
      870  
 
   
 
(100
) 
      535        (2,331 )    
 
435
 
      (2,558 ) 
Other comprehensive income (loss) from investments in associates
   
 
1
 
      (13 )       17     
 
(12
) 
      21  
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
   
 
(225
) 
      (219 )       1,055     
 
(444
) 
      1,203  
Income tax expense (benefit)
   
 
(63
) 
      (69 )       279     
 
(132
) 
      348  
    
 
(162
) 
      (150 )       776     
 
(312
) 
      855  
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
   
 
(48
) 
      101        35     
 
53
 
      229  
Income tax expense (benefit)
   
 
(15
) 
      10        (9 )    
 
(5
) 
      59  
    
 
(33
) 
      91        44     
 
58
 
      170  
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
   
 
1,661
 
      (1,090 )       787     
 
571
 
      1,018  
Income tax expense (benefit)
   
 
461
 
      (284 )       206     
 
177
 
      267  
 
   
 
1,200
 
      (806 )       581     
 
394
 
      751  
Other comprehensive income (loss) from investments in associates
   
 
–
 
      2        1     
 
2
 
      2  
Other comprehensive income (loss)
   
 
1,781
 
      549        (1,469 )    
 
2,330
 
      (399 ) 
Comprehensive income
   
$
3,940
 
    $ 2,321      $ 1,278     
$
  6,261
 
    $ 5,088  
Comprehensive income (loss) attributable to non-controlling interests
   
 
73
 
      63        56     
 
136
 
      205  
Comprehensive income attributable to equity holders of the Bank
   
 
3,867
 
      2,258        1,222     
 
6,125
 
      4,883  
Preferred shareholders and other equity instrument holders
   
 
104
 
      101        74     
 
205
 
      118  
Common shareholders
   
$
    3,763
 
    $    2,157      $   1,148     
$
5,920
 
    $   4,765  
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
 
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    61
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
  
 
–
 
  
 
3,660
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
3,660
 
  
 
205
 
  
 
3,865
 
  
 
66
 
  
 
3,931
 
Other comprehensive income (loss)
  
 
–
 
  
 
–
 
  
 
1,156
 
  
 
534
 
  
 
43
 
  
 
439
 
  
 
88
 
  
 
–
 
  
 
2,260
 
  
 
–
 
  
 
2,260
 
  
 
70
 
  
 
2,330
 
Total comprehensive income
  
$
–
 
  
$
3,660
 
  
$
1,156
 
  
$
534
 
  
$
43
 
  
$
439
 
  
$
88
 
  
$
–
 
  
$
5,920
 
  
$
205
 
  
$
6,125
 
  
$
136
 
  
$
6,261
 
Shares issued
  
 
453
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
(3
) 
  
 
450
 
  
 
–
 
  
 
450
 
  
 
–
 
  
 
450
 
Shares repurchased/redeemed
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
Dividends and distributions paid to equity holders
  
 
–
 
  
 
(2,455
) 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
(2,455
) 
  
 
(205
) 
  
 
(2,660
) 
  
 
(61
) 
  
 
(2,721
) 
Share-based payments
(3)
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
11
 
  
 
11
 
  
 
–
 
  
 
11
 
  
 
–
 
  
 
11
 
Other
  
 
–
 
  
 
1
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
1
 
  
 
–
 
  
 
1
 
  
 
(1
) 
  
 
–
 
Balance as at April 30, 2023
  
$
19,160
 
  
$
54,967
 
  
$
(1,322
) 
  
$
(948
) 
  
$
259
 
  
$
(4,347
) 
  
$
1,452
 
  
$
(144
) 
  
$
69,077
 
  
$
8,075
 
  
$
77,152
 
  
$
1,598
 
  
$
78,750
 
                           
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
     –       5,203       –       –       –       –       –       –       5,203       118       5,321       166       5,487  
Other comprehensive income (loss)
     –       –       940       (654 )      190       (2,540 )      1,626       –       (438 )      –       (438 )      39       (399 ) 
Total comprehensive income
   $ –     $ 5,203     $ 940     $ (654 )    $ 190     $ (2,540 )    $ 1,626     $ –     $ 4,765     $ 118     $ 4,883     $ 205     $ 5,088  
Shares issued
     694       –       –       –       –       –       –       (17 )      677       –       677       –       677  
Shares repurchased/redeemed
     (402 )      (1,934 )      –       –       –       –       –       –       (2,336 )      (500 )      (2,836 )      –       (2,836 ) 
Dividends and distributions paid to equity holders
     –       (2,402 )      –       –       –       –       –       –       (2,402 )      (118 )      (2,520 )      (76 )      (2,596 ) 
Share-based payments
(3)
     –       –       –       –       –       –       –       8       8       –       8       –       8  
Other
     –       (12 )      (174 )      –       (39 )      (50 )      –       (354 )
(4)
 		     (629 )      –       (629 )      (637 )
(4)
 		     (1,266 ) 
Balance as at April 30, 2022
   $ 18,799     $ 52,209     $ (3,943 )    $ (924 )    $ 442     $ (2,804 )    $ 1,195     $ (141 )    $ 64,833     $ 5,552     $ 70,385     $ 1,582     $ 71,967  
(1)
Includes undistributed retained earnings of $69 (April 30, 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).
(4)
Includes changes to non-controlling interests arising from business combinations and related transactions (refer to Note 36 of the consolidated financial s
t
atements, in the 2022 Annual Report to Shareholders).
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
 
62    
Scotiabank Second Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Consolidated Statement of Cash Flows
 
(Unaudited) ($ millions)
    For the three months ended      For the six months ended  
Sources (uses) of cash flows
   
April 30
2023
      April 30
2022		     
April 30
2023
      April 30
2022		  
Cash flows from operating activities
                                    
Net income
   
$
2,159
 
    $ 2,747     
$
3,931
 
    $ 5,487  
Adjustment for:
                                    
Net interest income
   
 
(4,466
) 
      (4,473 )    
 
(9,035
) 
      (8,817 ) 
Depreciation and amortization
   
 
412
 
      381     
 
818
 
      756  
Provision for credit losses
   
 
709
 
      219     
 
1,347
 
      441  
Equity-settled share-based payment expense
   
 
2
 
      2     
 
11
 
      8  
Net gain on sale of investment securities
   
 
(56
) 
      (1 )    
 
(100
) 
      (3 ) 
Net income from investments in associated corporations
   
 
(64
) 
      (84 )    
 
(80
) 
      (175 ) 
Income tax expense
   
 
485
 
      817     
 
1,591
 
      1,681  
Changes in operating assets and liabilities:
                                    
Trading assets
   
 
2,938
 
      19,095     
 
(279
) 
      14,598  
Securities purchased under resale agreements and securities borrowed
   
 
(2,895
) 
      (16,739 )    
 
(6,580
) 
      (19,514 ) 
Loans
   
 
(2,906
) 
      (24,271 )    
 
(8,961
) 
      (49,092 ) 
Deposits
   
 
(14,032
) 
      26,137     
 
21,550
 
      72,635  
Obligations related to securities sold short
   
 
(2,594
) 
      (1,280 )    
 
392
 
      3,563  
Obligations related to securities sold under repurchase agreements and securities lent
   
 
(2,209
) 
      10,007     
 
(9,186
) 
      7,555  
Net derivative financial instruments
   
 
(517
) 
      (2,047 )    
 
968
 
      (4,010 ) 
Other, net
   
 
5,228
 
      (4,938 )    
 
(2,974
) 
      (2,786 ) 
Dividends received
   
 
332
 
      289     
 
656
 
      573  
Interest received
   
 
13,599
 
      6,657     
 
26,217
 
      13,210  
Interest paid
   
 
(8,257
) 
      (2,330 )    
 
(15,511
) 
      (4,507 ) 
Income tax paid
   
 
(571
) 
      (914 )    
 
(1,124
) 
      (2,372 ) 
Net cash from/(used in) operating activities
   
 
(12,703
) 
      9,274     
 
3,651
 
      29,231  
Cash flows from investing activities
                                    
Interest-bearing deposits with financial institutions
   
 
19,859
 
      13,432     
 
933
 
      3,203  
Purchase of investment securities
   
 
(29,700
) 
      (35,179 )    
 
(48,262
) 
      (57,757 ) 
Proceeds from sale and maturity of investment securities
   
 
25,928
 
      14,748     
 
44,663
 
      31,657  
Acquisition/divestiture of subsidiaries, associated corporations or business units, net of cash acquired
   
 
–
 
      (652 )    
 
–
 
      (652 ) 
Property and equipment, net of disposals
   
 
(16
) 
      (153 )    
 
(72
) 
      (198 ) 
Other, net
   
 
(302
) 
      (153 )    
 
(564
) 
      (380 ) 
Net cash from/(used in) investing activities
   
 
15,769
 
      (7,957 )    
 
(3,302
) 
      (24,127 ) 
Cash flows from financing activities
                                    
Proceeds from issue of subordinated debentures
   
 
–
 
      3,356     
 
337
 
      3,356  
Redemption of subordinated debentures
   
 
(2
) 
      (1,250 )    
 
(2
) 
      (1,250 ) 
Redemption of preferred shares
   
 
–
 
      –     
 
–
 
      (500 ) 
Proceeds from common shares issued
   
 
428
 
      21     
 
453
 
      125  
Common shares purchased for cancellation
   
 
–
 
      (1,250 )    
 
–
 
      (2,336 ) 
Cash dividends and distributions paid
   
 
(1,331
) 
      (1,269 )    
 
(2,660
) 
      (2,520 ) 
Distributions to non-controlling interests
   
 
(38
) 
      (59 )    
 
(61
) 
      (76 ) 
Payment of lease liabilities
   
 
(85
) 
      (81 )    
 
(170
) 
      (170 ) 
Other, net
   
 
(1,147
) 
      (706 )    
 
(256
) 
      (930 ) 
Net cash from/(used in) financing activities
   
 
(2,175
) 
      (1,238 )    
 
(2,359
) 
      (4,301 ) 
Effect of exchange rate changes on cash and cash equivalents
   
 
100
 
      1     
 
237
 
      147  
Net change in cash and cash equivalents
   
 
991
 
      80     
 
(1,773
) 
      950  
Cash and cash equivalents at beginning of period
(1)
   
 
8,301
 
      10,563     
 
11,065
 
      9,693  
Cash and cash equivalents at end of period
(1)
   
$
9,292
 
    $ 10,643     
$
9,292
 
    $ 10,643  
(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 Second Quarter Report 2023
    63
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 April 30, 2023 have been approved by the Board of Directors for issue on May 24, 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 audited consolidated financial statements in the 2022 Annual Report.
 
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.
 
64    
Scotiabank Second Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
5.
Cash and deposits with financial institutions
 
      As at  
($ millions)
   
April 30
2023
      January 31
2023		      October 31
2022		  
Cash and non-interest-bearing deposits with financial institutions
   
$
9,292
 
    $ 8,301      $ 11,065  
Interest-bearing deposits with financial institutions
   
 
54,601
 
      73,085        54,830  
Total
   
$
   63,893
(1)
 
    $    81,386
(1)
 		    $    65,895
(1)
 
  (1)
Net of allowances of $6 (January 31, 2023 – $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 $6,041 million (January 31, 2023 – $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)
   
April 30
2023
      January 31
2023		      October 31
2022		  
Debt investment securities measured at FVOCI
   
$
83,920
 
    $ 82,431      $ 81,271  
Debt investment securities measured at amortized cost
   
 
28,277
 
      24,195        23,610  
Equity investment securities designated at FVOCI
   
 
2,639
 
      2,679        3,439  
Equity investment securities measured at FVTPL
   
 
1,697
 
      1,636        1,626  
Debt investment securities measured at FVTPL
   
 
62
 
      63        62  
Total investment securities
   
$
  116,595
 
    $   111,004      $   110,008  
(a) Debt investment securities measured at fair value through other comprehensive income (FVOCI)
 
As at April 30, 2023 ($ millions)
   
Cost
     
Gross
unrealized
gains
     
Gross
unrealized
losses
     
Fair value
  
Canadian federal government issued or guaranteed debt
   
$
9,520
 
   
$
8
 
   
$
239
 
   
$
9,289
 
Canadian provincial and municipal debt
   
 
7,914
 
   
 
29
 
   
 
292
 
   
 
7,651
 
U.S. treasury and other U.S. agency debt
   
 
34,925
 
   
 
54
 
   
 
1,522
 
   
 
33,457
 
Other foreign government debt
   
 
32,142
 
   
 
100
 
   
 
789
 
   
 
31,453
 
Other debt
   
 
2,131
 
   
 
4
 
   
 
65
 
   
 
2,070
 
Total
   
$
 86,632
 
   
$
  195
 
   
$
 2,907
 
   
$
 83,920
 
 
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  
(b) Debt investment securities measured at amortized cost
 
      As at  
     
April 30, 2023
      January 31, 2023      October 31, 2022  
($ millions)
   
Fair value
     
Carrying
value
(1)
      Fair value     
Carrying
value
(1)
      Fair value      Carrying
value
(1)
  
Canadian federal and provincial government issued or guaranteed debt
   
$
9,229
 
   
$
9,455
 
    $ 8,719      $ 8,987      $ 8,684      $ 9,024  
U.S. treasury and other U.S. agency debt
   
 
16,357
 
   
 
17,141
 
      12,874        13,600        12,212        13,042  
Other foreign government debt
   
 
1,595
 
   
 
1,598
 
      1,493        1,497        1,459        1,470  
Corporate debt
   
 
89
 
   
 
83
 
      120        111        88        74  
Total
   
$
  27,270
 
   
$
  28,277
 
    $   23,206      $   24,195      $   22,443      $   23,610  
 
  (1)
Balances are net of allowances which are $1, and includes the impact of fair value hedge adjustments.
 
Scotiabank Second Quarter Re
po
rt 2023
    65
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
(c) Equity investment securities designated at fair value through other comprehensive income (FVOCI)
 
As at April 30, 2023 ($ millions)
   
Cost
     
Gross
unrealized
gains
     
Gross
unrealized
losses
     
Fair value
  
Common shares
   
$
2,321
 
   
$
480
 
   
$
162
 
   
$
2,639
 
Total
   
$
2,321
 
   
$
480
 
   
$
162
 
   
$
2,639
 
         
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  
Dividend income earned on equity securities designated at FVOCI of $42 million for the three months ended April 30, 2023 (January 31, 2023 – $33 million; April 30, 2022 – $42 million) and for the six months ended April 30, 2023 – $75 million (April 30, 2022 – $80 million) has been recognized in interest income.
During the three months ended April 30, 2023, the Bank has disposed of certain equity securities designated at FVOCI with a fair value of $20 million (January 31, 2023 – $788 million; April 30, 2022 – $196 million) and for the six months ended April 30, 2023 – $808 million (April 30, 2022 – $577 million). This has resulted in a realized loss of $3 million in the three months ended April 30, 2023 (January 31, 2023 –
 
realized loss of $64 million; A
pri
l 30, 2022 – realized gain of $43 million) and for the six months ended a realized loss of $67 million (April 30, 2022 – realized gain of $79 million).
 
7.
Loans, i
mpaired
loans and
allowance
for credit losses
(a) Loans at amortized cost
 
      As at  
     
April 30, 2023
  
($ millions)
   
Gross
carrying
amount
     
Allowance
for credit
losses
     
Net
carrying
amount
  
Residential mortgages
   
$
353,560
 
   
$
981
 
   
$
352,579
 
Personal loans
   
 
102,178
 
   
 
2,267
 
   
 
99,911
 
Credit cards
   
 
16,053
 
   
 
1,135
 
   
 
14,918
 
Business and government
   
 
298,013
 
   
 
1,353
 
   
 
296,660
 
Total
   
$
  769,804
 
   
$
  5,736
 
   
$
  764,068
 
 
      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  
 
66    
Scotiabank Second Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
(b) Impaired loans
(1)
 
      As at  
     
April 30, 2023
  
($ millions)
   
Gross
impaired
loans
     
Allowance
for credit
losses
     
Net
carrying
amount
  
Residential mortgages
   
$
1,659
 
   
$
455
 
   
$
1,204
 
Personal loans
   
 
1,040
 
   
 
608
 
   
 
432
 
Credit cards
   
 
–
 
   
 
–
 
   
 
–
 
Business and government
   
 
2,606
 
   
 
688
 
   
 
1,918
 
Total
   
$
5,305
 
   
$
1,751
 
   
$
3,554
 
By geography:
                           
Canada
   
$
1,293
 
   
$
459
 
   
$
834
 
United States
   
 
–
 
   
 
–
 
   
 
–
 
Mexico
   
 
1,115
 
   
 
320
 
   
 
795
 
Peru
   
 
736
 
   
 
375
 
   
 
361
 
Chile
   
 
990
 
   
 
254
 
   
 
736
 
Colombia
   
 
305
 
   
 
80
 
   
 
225
 
Other international
   
 
866
 
   
 
263
 
   
 
603
 
Total
   
$
  5,305
 
   
$
  1,751
 
   
$
  3,554
 
 
      As at  
      January 31, 2023      October 31, 2022  
($ millions)
    Gross
impaired
loans		      Allowance
for credit
losses		      Net
carrying
amount		      Gross
impaired
loans		      Allowance
for credit
losses		      Net
carrying
amount		  
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 April 30, 2023 was $14 (January 31, 2023 – $12; October 31, 2022 – $11).
 
  (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.
 
Scotiabank Second Quarter Report 2023
    67
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
  (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 scenario shows stronger inflation pressures in both Canada and the U.S. compared to last quarter, which brings monetary policy rates to higher than forecasted levels. Rising interest rates, combined with the negative impact from the banking sector turmoil in the U.S. (and Europe to a lesser extent), are leading to a technical recession in Canada and the U.S., with their real GDP declining mildly in both the second and third quarter of this year. Despite this modest recession, GDP will still grow in 2023 in both economies – albeit at a slower pace than in the previous year – given a good starting point.
The optimistic scenario features somewhat stronger economic activity relative to the base case. The pessimistic scenario is now based on the recent banking sector turmoil in the U.S. and Europe and features deteriorating private sector financial conditions and confidence (unlike a stagflation shock in the previous quarter). These are reducing economic activity and inflation worldwide from the base case scenario, requiring central banks to reduce their monetary policy rates to mitigate the decline in economic activity and prevent inflation from falling below targeted ranges. Lastly, the very pessimistic (stagflation) scenario features further supply chain disruptions also leading to a protracted period of financial market uncertainty. This results in higher inflation rates, requiring central banks to raise their policy rate to higher levels than in the base case in order to bring inflation under control, which is dampening economic activity.
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.
 
      Base Case Scenario      Alternative Scenario -
Optimistic		      Alternative Scenario -
Pessimistic		      Alternative Scenario -
Very Pessimistic		  
As at April 30, 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
   
 
0.3
 
  
 
2.6
 
   
 
1.2
 
  
 
4.0
 
   
 
-2.5
 
  
 
3.3
 
   
 
-3.7
 
  
 
3.5
 
Consumer price index, y/y %
   
 
3.4
 
  
 
1.8
 
   
 
3.5
 
  
 
2.4
 
   
 
2.4
 
  
 
1.5
 
   
 
6.3
 
  
 
2.0
 
Unemployment rate, average %
   
 
5.6
 
  
 
5.8
 
   
 
5.2
 
  
 
4.2
 
   
 
7.2
 
  
 
6.4
 
   
 
8.4
 
  
 
6.6
 
Bank of Canada overnight rate target, average %
   
 
4.4
 
  
 
2.5
 
   
 
4.5
 
  
 
3.4
 
   
 
3.2
 
  
 
1.1
 
   
 
5.3
 
  
 
3.0
 
HPI - Housing Price Index, y/y % change
   
 
-16.9
 
  
 
-0.2
 
   
 
-16.3
 
  
 
1.2
 
   
 
-20.0
 
  
 
0.6
 
   
 
-20.3
 
  
 
-0.2
 
USD/CAD exchange rate, average
   
 
1.31
 
  
 
1.24
 
   
 
1.31
 
  
 
1.24
 
   
 
1.44
 
  
 
1.27
 
   
 
1.46
 
  
 
1.28
 
U.S.
                                                                    
Real GDP growth, y/y % change
   
 
0.6
 
  
 
1.9
 
   
 
1.1
 
  
 
2.7
 
   
 
-2.4
 
  
 
2.7
 
   
 
-3.2
 
  
 
2.8
 
Consumer price index, y/y %
   
 
4.5
 
  
 
2.4
 
   
 
4.8
 
  
 
2.8
 
   
 
3.2
 
  
 
1.9
 
   
 
7.6
 
  
 
2.6
 
Target federal funds rate, upper limit, average %
   
 
5.1
 
  
 
2.8
 
   
 
5.4
 
  
 
3.7
 
   
 
4.0
 
  
 
0.9
 
   
 
6.0
 
  
 
3.3
 
Unemployment rate, average %
   
 
3.8
 
  
 
4.6
 
   
 
3.7
 
  
 
4.2
 
   
 
5.4
 
  
 
5.2
 
   
 
6.3
 
  
 
5.3
 
Mexico
                                                                    
Real GDP growth, y/y % change
   
 
0.7
 
  
 
2.3
 
   
 
1.2
 
  
 
3.1
 
   
 
-1.2
 
  
 
2.8
 
   
 
-2.9
 
  
 
3.1
 
Unemployment rate, average %
   
 
3.8
 
  
 
3.9
 
   
 
3.7
 
  
 
3.2
 
   
 
4.7
 
  
 
4.1
 
   
 
6.2
 
  
 
4.7
 
Chile
                                                                    
Real GDP growth, y/y % change
   
 
-0.2
 
  
 
2.9
 
   
 
1.1
 
  
 
4.1
 
   
 
-2.4
 
  
 
3.5
 
   
 
-3.7
 
  
 
3.8
 
Unemployment rate, average %
   
 
8.7
 
  
 
7.2
 
   
 
8.3
 
  
 
6.3
 
   
 
9.9
 
  
 
7.4
 
   
 
11.2
 
  
 
7.7
 
Peru
                                                                    
Real GDP growth, y/y % change
   
 
2.2
 
  
 
2.6
 
   
 
2.9
 
  
 
4.0
 
   
 
0.9
 
  
 
3.1
 
   
 
-0.4
 
  
 
3.3
 
Unemployment rate, average %
   
 
7.4
 
  
 
7.1
 
   
 
7.1
 
  
 
5.3
 
   
 
8.7
 
  
 
7.4
 
   
 
9.3
 
  
 
7.9
 
Colombia
                                                                    
Real GDP growth, y/y % change
   
 
1.7
 
  
 
2.9
 
   
 
3.5
 
  
 
3.9
 
   
 
0.5
 
  
 
3.3
 
   
 
-0.8
 
  
 
3.6
 
Unemployment rate, average %
   
 
11.2
 
  
 
10.2
 
   
 
10.3
 
  
 
8.2
 
   
 
13.2
 
  
 
10.7
 
   
 
14.0
 
  
 
11.3
 
Caribbean
                                                                    
Real GDP growth, y/y % change
   
 
3.8
 
  
 
3.9
 
   
 
4.3
 
  
 
4.7
 
   
 
2.5
 
  
 
4.3
 
   
 
1.2
 
  
 
4.6
 
Global
                                                                    
WTI oil price, average USD/bbl
   
 
79
 
  
 
69
 
   
 
84
 
  
 
86
 
   
 
68
 
  
 
66
 
   
 
65
 
  
 
65
 
Copper price, average USD/lb
   
 
3.60
 
  
 
4.80
 
   
 
3.72
 
  
 
5.36
 
   
 
3.35
 
  
 
4.69
 
   
 
3.30
 
  
 
4.66
 
Global GDP, y/y % change
   
 
2.67
 
  
 
2.42
 
   
 
3.59
 
  
 
3.42
 
   
 
0.02
 
  
 
3.08
 
   
 
-0.71
 
  
 
3.22
 
 
68    
Scotiabank
Second
Quarter Report 2023
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  

Scotiabank Second Quarter Report 2023
    69
 
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
  (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 $4,164 million (January 31, 2023 – $3,998 million; October 31, 2022 – $3,847 million) from $4,035 million (January 31, 2023 – $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 woul
d be $498 million (January 31, 2023 – $538 million; October 31, 2022 – $1,096 million) higher than the reported allowance for credit losses as at April 30,
2023,
excluding
the consideration of
changes in 
qualitative overlays or expert credit judgement. 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.
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 $500 million (January 31, 2023 – $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
April 30,
2023
  
Residential mortgages
    $ 899      $ 55      $ (30 )     $ 57     
$
981
 
Personal loans
      2,137        578        (528 )       80     
 
2,267
 
Credit cards
      1,083        403        (401 )       50     
 
1,135
 
Business and government
      1,368        311        (156 )       9     
 
1,532
 
 
    $   5,487      $   1,347      $   (1,115 )     $ 196     
$
  5,915
 
Presented as:
                                             
Allowance for credit losses on loans
    $ 5,348                                
$
5,736
 
Allowance for credit losses on acceptances
(1)
      31                                
 
50
 
Allowance for credit losses on off-balance sheet exposures
(2)
      108     
 
 
 
   
 
 
 
   
 
 
 
   
 
129
 
  (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
April 30,
2022		  
Residential mortgages
    $ 802      $ 32      $ (23 )     $ 23      $ 834  
Personal loans
      2,341        235        (451 )       46        2,171  
Credit cards
      1,211        159        (277 )       14        1,107  
Business and government
      1,374        15        (128 )       (3 )       1,258  
 
    $   5,728      $   441      $   (879 )     $   80      $   5,370  
Presented as:
                                             
Allowance for credit losses on loans
    $ 5,626                                 $ 5,294  
Allowance for credit losses on acceptances
(1)
      37                                   27  
Allowance for credit losses on off-balance sheet exposures
(2)
      65     
 
 
 
   
 
 
 
   
 
 
 
      49  
  (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 April 30, 2023
  
($ millions)
   
Stage 1
     
Stage 2
     
Stage 3
     
Total
  
Residential mortgages
   
$
220
 
   
$
306
 
   
$
455
 
   
$
981
 
Personal loans
   
 
677
 
   
 
982
 
   
 
608
 
   
 
2,267
 
Credit cards
   
 
425
 
   
 
710
 
   
 
–
 
   
 
1,135
 
Business and government
   
 
375
 
   
 
290
 
   
 
688
 
   
 
1,353
 
Total
(1)
   
$
  1,697
 
   
$
  2,288
 
   
$
  1,751
 
   
$
  5,736
 
  (1)
Excludes allowance for credit losses of $195 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.
 
70    
Scotiabank
Second Quarter Report 2023
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
      As at April 30, 2022  
($ millions)
    Stage 1      Stage 2      Stage 3      Total  
Residential mortgages
    $ 168      $ 273      $ 393      $ 834  
Personal loans
      655        950        566        2,171  
Credit cards
      419        688        –        1,107  
Business and government
      202        335        645        1,182  
Total
(1)
    $   1,444      $   2,246      $   1,604      $   5,294  
  (1)
Excludes allowance for credit losses of $81 for other financial assets including acceptances, investment securities, deposits with banks, off-balance sheet credit risks and reverse repos.
 
Scotiabank Second Quarter
Report 
2023
    71
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
The following table presents the changes to the allowance for credit losses on loans.
 
    As at and for the three months ended  
    
April 30, 2023
     April 30, 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
  
$
209
 
  
$
301
 
  
$
428
 
  
$
938
 
   $ 161     $ 279     $ 395     $ 835  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(42
) 
  
 
8
 
  
 
57
 
  
 
23
 
     (15 )      7       9       1  
Newly originated or purchased financial assets
  
 
7
 
  
 
–
 
  
 
–
 
  
 
7
 
     10       –       –       10  
Derecognition of financial assets and maturities
  
 
(2
) 
  
 
(4
) 
  
 
–
 
  
 
(6
) 
     (1 )      (4 )      –       (5 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
47
 
  
 
(34
) 
  
 
(13
) 
  
 
–
 
     14       (12 )      (2 )      –  
Stage 2
  
 
(8
) 
  
 
39
 
  
 
(31
) 
  
 
–
 
     (2 )      9       (7 )      –  
Stage 3
  
 
–
 
  
 
(13
) 
  
 
13
 
  
 
–
 
     –       (3 )      3       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(21
) 
  
 
(21
) 
     –       –       (16 )      (16 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
6
 
  
 
6
 
     –       –       7       7  
Foreign exchange and other movements
  
 
9
 
  
 
9
 
  
 
16
 
  
 
34
 
     1       (3 )      4       2  
Balance at end of period
  
$
220
 
  
$
306
 
  
$
455
 
  
$
981
 
   $ 168     $ 273     $ 393     $ 834  
Personal loans
                                                                
Balance at beginning of period
  
$
673
 
  
$
968
 
  
$
563
 
  
$
2,204
 
   $ 655     $ 1,020     $ 574     $ 2,249  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(191
) 
  
 
224
 
  
 
238
 
  
 
271
 
     (162 )      94       161       93  
Newly originated or purchased financial assets
  
 
94
 
  
 
–
 
  
 
–
 
  
 
94
 
     75       –       –       75  
Derecognition of financial assets and maturities
  
 
(21
) 
  
 
(42
) 
  
 
–
 
  
 
(63
) 
     (17 )      (27 )      –       (44 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
162
 
  
 
(158
) 
  
 
(4
) 
  
 
–
 
     127       (125 )      (2 )      –  
Stage 2
  
 
(50
) 
  
 
72
 
  
 
(22
) 
  
 
–
 
     (26 )      39       (13 )      –  
Stage 3
  
 
(2
) 
  
 
(98
) 
  
 
100
 
  
 
–
 
     (1 )      (49 )      50       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(335
) 
  
 
(335
) 
     –       –       (275 )      (275 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
57
 
  
 
57
 
     –       –       64       64  
Foreign exchange and other movements
  
 
12
 
  
 
16
 
  
 
11
 
  
 
39
 
     4       (2 )      7       9  
Balance at end of period
  
$
677
 
  
$
982
 
  
$
608
 
  
$
2,267
 
   $ 655     $ 950     $ 566     $ 2,171  
Credit cards
                                                                
Balance at beginning of period
  
$
436
 
  
$
664
 
  
$
–
 
  
$
1,100
 
   $ 399     $ 766     $ –     $ 1,165  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(81
) 
  
 
150
 
  
 
134
 
  
 
203
 
     (37 )      3       106       72  
Newly originated or purchased financial assets
  
 
44
 
  
 
–
 
  
 
–
 
  
 
44
 
     32       –       –       32  
Derecognition of financial assets and maturities
  
 
(17
) 
  
 
(18
) 
  
 
–
 
  
 
(35
) 
     (10 )      (8 )      –       (18 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
68
 
  
 
(68
) 
  
 
–
 
  
 
–
 
     52       (52 )      –       –  
Stage 2
  
 
(34
) 
  
 
34
 
  
 
–
 
  
 
–
 
     (13 )      13       –       –  
Stage 3
  
 
–
 
  
 
(63
) 
  
 
63
 
  
 
–
 
     –       (33 )      33       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(269
) 
  
 
(269
) 
     –       –       (186 )      (186 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
72
 
  
 
72
 
     –       –       48       48  
Foreign exchange and other movements
  
 
9
 
  
 
11
 
  
 
–
 
  
 
20
 
     (4 )      (1 )      (1 )      (6 ) 
Balance at end of period
  
$
425
 
  
$
710
 
  
$
–
 
  
$
1,135
 
   $ 419     $ 688     $ –     $ 1,107  
Total retail loans
                                                                
Balance at beginning of period
  
$
1,318
 
  
$
1,933
 
  
$
991
 
  
$
4,242
 
   $ 1,215     $ 2,065     $ 969     $ 4,249  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(314
) 
  
 
382
 
  
 
429
 
  
 
497
 
     (214 )      104       276       166  
Newly originated or purchased financial assets
  
 
145
 
  
 
–
 
  
 
–
 
  
 
145
 
     117       –       –       117  
Derecognition of financial assets and maturities
  
 
(40
) 
  
 
(64
) 
  
 
–
 
  
 
(104
) 
     (28 )      (39 )      –       (67 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
277
 
  
 
(260
) 
  
 
(17
) 
  
 
–
 
     193       (189 )      (4 )      –  
Stage 2
  
 
(92
) 
  
 
145
 
  
 
(53
) 
  
 
–
 
     (41 )      61       (20 )      –  
Stage 3
  
 
(2
) 
  
 
(174
) 
  
 
176
 
  
 
–
 
     (1 )      (85 )      86       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(625
) 
  
 
(625
) 
     –       –       (477 )      (477 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
135
 
  
 
135
 
     –       –       119       119  
Foreign exchange and other movements
  
 
30
 
  
 
36
 
  
 
27
 
  
 
93
 
     1       (6 )      10       5  
Balance at end of period
  
$
  1,322
 
  
$
  1,998
 
  
$
  1,063
 
  
$
  4,383
 
   $   1,242     $   1,911     $   959     $   4,112  
Non-retail loans:
                                                                
Business and government
                                                                
Balance at beginning of period
  
$
380
 
  
$
312
 
  
$
679
 
  
$
1,371
 
   $ 233     $ 411     $ 654     $ 1,298  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
46
 
  
 
18
 
  
 
99
 
  
 
163
 
     (23 )      (9 )      72       40  
Newly originated or purchased financial assets
  
 
94
 
  
 
–
 
  
 
–
 
  
 
94
 
     65       –       –       65  
Derecognition of financial assets and maturities
  
 
(81
) 
  
 
(7
) 
  
 
(9
) 
  
 
(97
) 
     (55 )      (36 )      (7 )      (98 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     (1 )      2       –       1  
Transfer to (from):
                                                                
Stage 1
  
 
20
 
  
 
(20
) 
  
 
–
 
  
 
–
 
     19       (19 )      –       –  
Stage 2
  
 
(9
) 
  
 
14
 
  
 
(5
) 
  
 
–
 
     (4 )      4       –       –  
Stage 3
  
 
–
 
  
 
(1
) 
  
 
1
 
  
 
–
 
     –       (3 )      3       –  
Gross write-offs  
 
–
 
  
 
–
 
  
 
(71
 )
 
  
 
(71
 )
 
     –       –       (73 )      (73 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
9
 
  
 
9
 
     –       –       9       9  
Foreign exchange and other movements
  
 
6
 
  
 
6
 
  
 
1
 
  
 
13
 
     –       2       (13 )      (11 ) 
Balance at end of period including off-balance sheet exposures
  
$
456
 
  
$
322
 
  
$
704
 
  
$
1,482
 
   $ 234     $ 352     $ 645     $ 1,231  
Less: Allowance for credit losses on off-balance sheet exposures
(2)
  
 
(81
) 
  
 
(32
) 
  
 
(16
) 
  
 
(129
) 
     (32 )      (17 )      –       (49 ) 
Balance at end of period
  
$
375
 
  
$
290
 
  
$
688
 
  
$
1,353
 
   $ 202     $ 335     $ 645     $ 1,182  
 
72    
Scotiabank
Second
Quarter Report 2023
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
      As at and for the six months ended  
    
April 30, 2023
     April 30, 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)
  
 
(73
) 
  
 
17
 
  
 
106
 
  
 
50
 
     (34 )      18       38       22  
Newly originated or purchased financial assets
  
 
16
 
  
 
–
 
  
 
–
 
  
 
16
 
     20       –       –       20  
Derecognition of financial assets and maturities
  
 
(4
) 
  
 
(7
) 
  
 
–
 
  
 
(11
) 
     (3 )      (7 )      –       (10 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
84
 
  
 
(63
) 
  
 
(21
) 
  
 
–
 
     33       (29 )      (4 )      –  
Stage 2
  
 
(15
) 
  
 
70
 
  
 
(55
) 
  
 
–
 
     (4 )      16       (12 )      –  
Stage 3
  
 
–
 
  
 
(26
) 
  
 
26
 
  
 
–
 
     –       (6 )      6       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(43
) 
  
 
(43
) 
     –       –       (37 )      (37 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
13
 
  
 
13
 
     –       –       14       14  
Foreign exchange and other movements
  
 
15
 
  
 
19
 
  
 
23
 
  
 
57
 
     4       5       14       23  
Balance at end of period
  
$
220
 
  
$
306
 
  
$
455
 
  
$
981
 
   $ 168     $ 273     $ 393     $ 834  
Personal loans
                                                                
Balance at beginning of period
  
$
665
 
  
$
921
 
  
$
551
 
  
$
2,137
 
   $ 644     $ 1,071     $ 626     $ 2,341  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(372
) 
  
 
466
 
  
 
421
 
  
 
515
 
     (318 )      189       305       176  
Newly originated or purchased financial assets
  
 
184
 
  
 
–
 
  
 
–
 
  
 
184
 
     150       –       –       150  
Derecognition of financial assets and maturities
  
 
(42
) 
  
 
(79
) 
  
 
–
 
  
 
(121
) 
     (35 )      (56 )      –       (91 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
319
 
  
 
(312
) 
  
 
(7
) 
  
 
–
 
     257       (252 )      (5 )      –  
Stage 2
  
 
(96
) 
  
 
135
 
  
 
(39
) 
  
 
–
 
     (56 )      83       (27 )      –  
Stage 3
  
 
(4
) 
  
 
(182
) 
  
 
186
 
  
 
–
 
     (2 )      (99 )      101       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(642
) 
  
 
(642
) 
     –       –       (582 )      (582 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
114
 
  
 
114
 
     –       –       131       131  
Foreign exchange and other movements
  
 
23
 
  
 
33
 
  
 
24
 
  
 
80
 
     15       14       17       46  
Balance at end of period
  
$
677
 
  
$
982
 
  
$
608
 
  
$
2,267
 
   $ 655     $ 950     $ 566     $ 2,171  
Credit cards
                                                                
Balance at beginning of period
  
$
436
 
  
$
647
 
  
$
–
 
  
$
1,083
 
   $ 352     $ 859     $ –     $ 1,211  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(155
) 
  
 
261
 
  
 
274
 
  
 
380
 
     (89 )      8       215       134  
Newly originated or purchased financial assets
  
 
91
 
  
 
–
 
  
 
–
 
  
 
91
 
     60       –       –       60  
Derecognition of financial assets and maturities
  
 
(34
) 
  
 
(34
) 
  
 
–
 
  
 
(68
) 
     (20 )      (15 )      –       (35 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
135
 
  
 
(135
) 
  
 
–
 
  
 
–
 
     139       (139 )      –       –  
Stage 2
  
 
(69
) 
  
 
69
 
  
 
–
 
  
 
–
 
     (26 )      26       –       –  
Stage 3
  
 
–
 
  
 
(123
) 
  
 
123
 
  
 
–
 
     –       (61 )      61       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(510
) 
  
 
(510
) 
     –       –       (378 )      (378 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
109
 
  
 
109
 
     –       –       101       101  
Foreign exchange and other movements
  
 
21
 
  
 
25
 
  
 
4
 
  
 
50
 
     3       10       1       14  
Balance at end of period
  
$
425
 
  
$
710
 
  
$
–
 
  
$
1,135
 
   $ 419     $ 688     $ –     $ 1,107  
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)
  
 
(600
) 
  
 
744
 
  
 
801
 
  
 
945
 
     (441 )      215       558       332  
Newly originated or purchased financial assets
  
 
291
 
  
 
–
 
  
 
–
 
  
 
291
 
     230       –       –       230  
Derecognition of financial assets and maturities
  
 
(80
) 
  
 
(120
) 
  
 
–
 
  
 
(200
) 
     (58 )      (78 )      –       (136 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
538
 
  
 
(510
) 
  
 
(28
) 
  
 
–
 
     429       (420 )      (9 )      –  
Stage 2
  
 
(180
) 
  
 
274
 
  
 
(94
) 
  
 
–
 
     (86 )      125       (39 )      –  
Stage 3
  
 
(4
) 
  
 
(331
) 
  
 
335
 
  
 
–
 
     (2 )      (166 )      168       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(1,195
) 
  
 
(1,195
) 
     –       –       (997 )      (997 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
236
 
  
 
236
 
     –       –       246       246  
Foreign exchange and other movements
  
 
59
 
  
 
77
 
  
 
51
 
  
 
187
 
     22       29       32       83  
Balance at end of period
  
$
1,322
 
  
$
1,998
 
  
$
1,063
 
  
$
4,383
 
   $ 1,242     $ 1,911     $ 959     $ 4,112  
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)
  
 
66
 
  
 
29
 
  
 
184
 
  
 
279
 
     (53 )      (23 )      148       72  
Newly originated or purchased financial assets
  
 
191
 
  
 
–
 
  
 
–
 
  
 
191
 
     121       –       –       121  
Derecognition of financial assets and maturities
  
 
(154
) 
  
 
(15
) 
  
 
(12
) 
  
 
(181
) 
     (96 )      (56 )      (18 )      (170 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     (1 )      2       –       1  
Transfer to (from):
                                                                
Stage 1
  
 
42
 
  
 
(42
) 
  
 
–
 
  
 
–
 
     61       (61 )      –       –  
Stage 2
  
 
(17
) 
  
 
22
 
  
 
(5
) 
  
 
–
 
     (12 )      12       –       –  
Stage 3
  
 
–
 
  
 
(2
) 
  
 
2
 
  
 
–
 
     –       (3 )      3       –  
Gross write-offs  
 
–
 
  
 
–
 
  
 
(177
 )
 
  
 
(177
 )
 
     –       –       (146 )      (146 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
21
 
  
 
21
 
     –       –       18       18  
Foreign exchange and other movements
  
 
6
 
  
 
10
 
  
 
(4
 )
 
  
 
12
 
     2       11       (15 )      (2 ) 
Balance at end of period including off-balance sheet exposures
  
$
456
 
  
$
322
 
  
$
704
 
  
$
1,482
 
   $ 234     $ 352     $ 645     $ 1,231  
Less: Allowance for credit losses on off-balance sheet exposures
(2)
  
 
(81
) 
  
 
(32
) 
  
 
(16
) 
  
 
(129
) 
     (32 )      (17 )      –       (49 ) 
Balance at end of period
  
$
375
 
  
$
290
 
  
$
688
 
  
$
1,353
 
   $ 202     $ 335     $ 645     $ 1,182  
  (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)
Allowance for credit losses on off-balance sheet exposures is recorded in other liabilities in the Consolidated Statement of
Financial
Position.
 
Scotiabank Second Quarter Report 2023
    73
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
  (d)
Carrying value of exposures by risk rating
 
Residential
mortgages
  
As at April 30, 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
  
$
206,190
 
  
$
622
 
  
$
–
 
  
$
206,812
 
   $ 208,526     $ 635     $ –     $ 209,161  
Low
  
 
94,930
 
  
 
926
 
  
 
–
 
  
 
95,856
 
     90,745       1,172       –       91,917  
Medium
  
 
20,345
 
  
 
1,144
 
  
 
–
 
  
 
21,489
 
     18,399       1,032       –       19,431  
High
  
 
3,453
 
  
 
3,080
 
  
 
–
 
  
 
6,533
 
     2,759       2,680       –       5,439  
Very high
  
 
66
 
  
 
1,931
 
  
 
–
 
  
 
1,997
 
     53       1,429       –       1,482  
Loans not graded
(2)
  
 
18,100
 
  
 
1,114
 
  
 
–
 
  
 
19,214
 
     19,276       1,187       –       20,463  
Default
  
 
–
 
  
 
–
 
  
 
1,659
 
  
 
1,659
 
     –       –       1,386       1,386  
Total
  
$
343,084
 
  
$
8,817
 
  
$
1,659
 
  
$
353,560
 
   $   339,758     $   8,135     $ 1,386     $   349,279  
Allowance for credit losses
  
 
220
 
  
 
306
 
  
 
455
 
  
 
981
 
     197       296       406       899  
Carrying value
  
$
342,864
 
  
$
8,511
 
  
$
1,204
 
  
$
352,579
 
   $ 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 April 30, 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
  
$
29,705
 
  
$
156
 
  
$
–
 
  
$
29,861
 
   $ 30,098     $ 285     $ –     $ 30,383  
Low
  
 
28,036
 
  
 
530
 
  
 
–
 
  
 
28,566
 
     27,284       685       –       27,969  
Medium
  
 
9,200
 
  
 
555
 
  
 
–
 
  
 
9,755
 
     8,789       1,464       –       10,253  
High
  
 
7,936
 
  
 
3,052
 
  
 
–
 
  
 
10,988
 
     7,059       2,275       –       9,334  
Very high
  
 
100
 
  
 
1,870
 
  
 
–
 
  
 
1,970
 
     81       1,655       –       1,736  
Loans not graded
(2)
  
 
18,349
 
  
 
1,649
 
  
 
–
 
  
 
19,998
 
     17,371       1,537       –       18,908  
Default
  
 
–
 
  
 
–
 
  
 
1,040
 
  
 
1,040
 
     –       –       848       848  
Total
  
$
  93,326
 
  
$
7,812
 
  
$
1,040
 
  
$
102,178
 
   $     90,682     $   7,901     $    848     $     99,431  
Allowance for credit losses
  
 
677
 
  
 
982
 
  
 
608
 
  
 
2,267
 
     665       921       551       2,137  
Carrying value
  
$
92,649
 
  
$
6,830
 
  
$
432
 
  
$
99,911
 
   $ 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 April 30, 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
  
$
1,786
 
  
$
43
 
  
$
–
 
  
$
1,829
 
   $ 1,813     $ 47     $ –     $ 1,860  
Low
  
 
3,137
 
  
 
68
 
  
 
–
 
  
 
3,205
 
     2,756       159       –       2,915  
Medium
  
 
3,913
 
  
 
91
 
  
 
–
 
  
 
4,004
 
     3,434       190       –       3,624  
High
  
 
3,332
 
  
 
1,094
 
  
 
–
 
  
 
4,426
 
     3,042       998       –       4,040  
Very high
  
 
35
 
  
 
810
 
  
 
–
 
  
 
845
 
     36       587       –       623  
Loans not graded
(1)
  
 
1,229
 
  
 
515
 
  
 
–
 
  
 
1,744
 
     997       459       –       1,456  
Default
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Total
  
$
  13,432
 
  
$
2,621
 
  
$
–
 
  
$
  16,053
 
   $     12,078     $   2,440     $ –     $     14,518  
Allowance for credit losses
  
 
425
 
  
 
710
 
  
 
–
 
  
 
1,135
 
     436       647       –       1,083  
Carrying value
  
$
13,007
 
  
$
1,911
 
  
$
–
 
  
$
14,918
 
   $ 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 April 30, 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
  
$
103,483
 
  
$
4
 
  
$
–
 
  
$
103,487
 
   $ 98,973     $ 6     $ –     $ 98,979  
Low
  
 
19,483
 
  
 
1
 
  
 
–
 
  
 
19,484
 
     19,196       9       –       19,205  
Medium
  
 
7,894
 
  
 
14
 
  
 
–
 
  
 
7,908
 
     7,880       44       –       7,924  
High
  
 
3,634
 
  
 
393
 
  
 
–
 
  
 
4,027
 
     3,700       307       –       4,007  
Very high
  
 
33
 
  
 
351
 
  
 
–
 
  
 
384
 
     34       354       –       388  
Loans not graded
(1)
  
 
8,804
 
  
 
1,650
 
  
 
–
 
  
 
10,454
 
     8,316       1,667       –       9,983  
Default
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Carrying value
  
$
143,331
 
  
$
2,413
 
  
$
–
 
  
$
145,744
 
   $   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.
 
74    
Scotiabank Second Quarter Report 2023
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Total retail loans
  
As at April 30, 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
  
$
341,164
 
  
$
825
 
  
$
–
 
  
$
341,989
 
   $ 339,410     $ 973     $ –     $ 340,383  
Low
  
 
145,586
 
  
 
1,525
 
  
 
–
 
  
 
147,111
 
     139,981       2,025       –       142,006  
Medium
  
 
41,352
 
  
 
1,804
 
  
 
–
 
  
 
43,156
 
     38,502       2,730       –       41,232  
High
  
 
18,355
 
  
 
7,619
 
  
 
–
 
  
 
25,974
 
     16,560       6,260       –       22,820  
Very high
  
 
234
 
  
 
4,962
 
  
 
–
 
  
 
5,196
 
     204       4,025       –       4,229  
Loans not graded
(2)
  
 
46,482
 
  
 
4,928
 
  
 
–
 
  
 
51,410
 
     45,960       4,850       –       50,810  
Default
  
 
–
 
  
 
–
 
  
 
2,699
 
  
 
2,699
 
     –       –       2,234       2,234  
Total
  
$
593,173
 
  
$
21,663
 
  
$
2,699
 
  
$
617,535
 
   $ 580,617     $ 20,863     $ 2,234     $ 603,714  
Allowance for credit losses
  
 
1,322
 
  
 
1,998
 
  
 
1,063
 
  
 
4,383
 
     1,298       1,864       957       4,119  
Carrying value
  
$
591,851
 
  
$
19,665
 
  
$
1,636
 
  
$
613,152
 
   $   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 April 30, 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
  
$
167,429
 
  
$
1,143
 
  
$
–
 
  
$
168,572
 
   $ 162,696     $ 1,775     $ –     $ 164,471  
Non-investment grade
  
 
114,038
 
  
 
7,755
 
  
 
–
 
  
 
121,793
 
     105,251       9,563       –       114,814  
Watch list
  
 
32
 
  
 
2,580
 
  
 
–
 
  
 
2,612
 
     22       2,890       –       2,912  
Loans not graded
(2)
  
 
2,415
 
  
 
15
 
  
 
–
 
  
 
2,430
 
     2,346       12       –       2,358  
Default
  
 
–
 
  
 
–
 
  
 
2,606
 
  
 
2,606
 
     –       –       2,552       2,552  
Total
  
$
283,914
 
  
$
11,493
 
  
$
2,606
 
  
$
298,013
 
   $ 270,315     $ 14,240     $ 2,552     $ 287,107  
Allowance for credit losses
  
 
375
 
  
 
290
 
  
 
688
 
  
 
1,353
 
     255       296       678       1,229  
Carrying value
  
$
283,539
 
  
$
11,203
 
  
$
1,918
 
  
$
296,660
 
   $   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 April 30, 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
  
$
230,214
 
  
$
1,872
 
  
$
–
 
  
$
232,086
 
   $ 222,734     $ 1,502     $ –     $ 224,236  
Non-investment grade
  
 
62,418
 
  
 
4,161
 
  
 
–
 
  
 
66,579
 
     62,827       4,534       –       67,361  
Watch list
  
 
4
 
  
 
719
 
  
 
–
 
  
 
723
 
     4       604       –       608  
Loans not graded
(2)
  
 
4,836
 
  
 
–
 
  
 
–
 
  
 
4,836
 
     4,573       –       –       4,573  
Default
  
 
–
 
  
 
–
 
  
 
145
 
  
 
145
 
     –       –       139       139  
Total
  
$
297,472
 
  
$
6,752
 
  
$
145
 
  
$
304,369
 
   $ 290,138     $ 6,640     $ 139     $ 296,917  
Allowance for credit losses
  
 
81
 
  
 
32
 
  
 
16
 
  
 
129
 
     67       24       17       108  
Carrying value
  
$
297,391
 
  
$
6,720
 
  
$
129
 
  
$
304,240
 
   $   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 April 30, 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
  
$
397,643
 
  
$
3,015
 
  
$
–
 
  
$
400,658
 
   $ 385,430     $ 3,277     $ –     $ 388,707  
Non-investment grade
  
 
176,456
 
  
 
11,916
 
  
 
–
 
  
 
188,372
 
     168,078       14,097       –       182,175  
Watch list
  
 
36
 
  
 
3,299
 
  
 
–
 
  
 
3,335
 
     26       3,494       –       3,520  
Loans not graded
(2)
  
 
7,251
 
  
 
15
 
  
 
–
 
  
 
7,266
 
     6,919       12       –       6,931  
Default
  
 
–
 
  
 
–
 
  
 
2,751
 
  
 
2,751
 
     –       –       2,691       2,691  
Total
  
$
581,386
 
  
$
18,245
 
  
$
2,751
 
  
$
602,382
 
   $ 560,453     $ 20,880     $ 2,691     $ 584,024  
Allowance for credit losses
  
 
456
 
  
 
322
 
  
 
704
 
  
 
1,482
 
     322       320       695       1,337  
Carrying value
  
$
580,930
 
  
$
17,923
 
  
$
2,047
 
  
$
600,900
 
   $   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.
 
Scotiabank Second Quarter Report 2023
    75
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
  (e)
Loans past due but not impaired
(1)
A loan is considered past due when 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 April 30, 2023
(2)
  
($ millions)
   
31-60
days
     
61-90
days
     
91 days
and greater
(3)
     
Total
  
Residential mortgages
   
$
1,173
 
   
$
567
 
   
$
–
 
   
$
1,740
 
Personal loans
   
 
556
 
   
 
306
 
   
 
–
 
   
 
862
 
Credit cards
   
 
228
 
   
 
155
 
   
 
312
 
   
 
695
 
Business and government
   
 
134
 
   
 
64
 
   
 
–
 
   
 
198
 
Total
   
$
2,091
 
   
$
1,092
 
   
$
312
 
   
$
3,495
 
   
      As at January 31, 2023
(2)
  
($ millions)
    31-60
days		      61-90
days		      91 days
and greater
(3)
      Total  
Residential mortgages
    $ 1,034      $ 509      $ –      $ 1,543  
Personal loans
      525        300        –        825  
Credit cards
      192        129        270        591  
Business and government
      121        64        –        185  
Total
    $   1,872      $   1,002      $   270      $   3,144  
   
      As at October 31, 2022
(2)
  
($ millions)
    31-60
days		      61-90
days		      91 days
and greater
(3)
      Total  
Residential mortgages
    $ 1,015      $ 482      $ –      $ 1,497  
Personal loans
      505        254        –        759  
Credit cards
      173        113        249        535  
Business and government
      122        47        –        169  
Total
    $   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)
   
April 30
2023
      January 31
2023		      October 31
2022		  
Unpaid principal balance
(1)
   
$
305
 
    $ 311      $ 309  
Credit related fair value adjustments
   
 
(79
) 
      (74 )       (70 ) 
Carrying value
   
 
226
 
      237        239  
Stage 3 allowance
   
 
(2
) 
      (2 )       (2 ) 
Carrying value net related allowance
   
$
  224
 
    $   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.
 
76    
Scotiabank Second Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
The following table provides the carrying amount of transferred assets that do not qualify for derecognition and the associated liabilities:
 
      As at    
($ millions)
   
April 30
2023
(1)
      January 31
2023
(1)
      October 31
2022
(1)
  
Assets
                           
Carrying value of residential mortgage loans
   
$
14,970
 
    $ 14,898      $ 15,032  
Other related assets
(2)
   
 
9,594
 
      9,458        9,854  
Liabilities
                           
Carrying value of associated liabilities
   
$
    22,780
 
    $     22,892      $     24,173  
  (1)
The fair value of the transferred assets is $22,753
 
(January 31, 2023 – $22,833; October 31, 2022 – $23,379) and the fair value of the associated liabilities is $22,153 (January 31, 2023 – $22,207; October 31, 2022 – $23,254) for a net position of $600
 
(January 31, 2023 – $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,
$1,462
million (January 31, 2023 – nil; October 31, 2022 – nil) of the Bank’s Canadian credit card receivables were securitized, on a revolving basis through Trillium Credit Card Trust II (Trillium), a Bank-sponsored consolidated structured entity. As at April 30, 2023,
US $1,087 million ($1,473
million Canadian
dollar equivalent) Class A senior notes and Class B and Class C subordinated notes were outstanding in respect of Series 2023-1 and 2023-2 and included in Deposits – Business and government on the Consolidated Statement of Financial Position. As at April 30, 2023, assets pledged in relation to these notes were credit card receivables, denominated in Canadian dollars, of
$1,620
million (January 31, 2023 – nil; October 31, 2022 – nil). 
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)
   
April 30
2023
(1)
      January 31
2023
(1)
      October 31
2022
(1)
  
Carrying value of securities associated with:
                           
Repurchase agreements
(2)
   
$
114,423
 
    $ 111,534      $ 122,552  
Securities lending agreements
   
 
59,028
 
      60,896        52,178  
Total
   
 
173,451
 
      172,430        174,730  
Carrying value of associated liabilities
(3)
   
$
  132,631
 
    $   132,206      $   139,025  
  (1)
The fair value of transferred assets is $173,451 (January 31, 2023 – $172,430; October 31, 2022 – $174,730) and the fair value of the associated liabilities is $132,631 (January 31, 2023 – $132,206; October 31, 2022 – $139,025) for a net position of $40,820 (January 31, 2023 – $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
derec
ognition
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 April 30, 2023, the Bank has derecognized $3.7 billion CEBA loans (January 31, 2023 – $3.8 billion; 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  
                                     
April 30
2023
      January 31
2023		      October 31
2022		  
($ millions)
    Country of
incorporation		      Nature of
business		      Ownership
percentage		      Date of financial
statements
(1)
     
Carrying
value
      Carrying
value		      Carrying
value		  
Canadian Tire Financial Services business (CTFS)
(2)
      Canada        Financial
Services		  
 		      20.00 %       March 31, 2023     
$
  558
 
    $ 565      $ 579  
Bank of Xi’an Co. Ltd.
(3)
      China        Banking        18.11 %       March 31, 2023     
 
1,099
 
        1,077          1,007  
Maduro & Curiel’s Bank N.V.
(4)
      Curacao        Banking        48.10 %       March 31, 2023     
 
459
 
      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 $570 (January 31, 2023 – $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 April 30, 2023 using a value in use (VIU), discounted cash flow model. The Bank concluded that there is no impairment as at April 30, 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 April 30, 2023, these reserves amounted to $69 (January 31, 2023 – $66; October 31, 2022 – $67).
 
Scotiabank Second Quarter Report 2023
    77
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
10.
Deposits
 
     As at  
    
April 30, 2023
     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     Total  
Personal
  
$
5,718
 
  
$
10,714
 
  
$
151,589
 
  
$
115,630
 
  
$
283,651
 
   $   274,879     $   265,892  
Business and government
  
 
151,563
 
  
 
34,183
 
  
 
43,404
 
  
 
382,226
 
  
 
611,376
 
     621,740       597,617  
Financial institutions
  
 
13,129
 
  
 
1,362
 
  
 
1,823
 
  
 
34,197
 
  
 
50,511
 
     53,268       52,672  
 
  
$
170,410
 
  
$
46,259
 
  
$
196,816
(4)
 
  
$
532,053
 
  
$
945,538
 
   $ 949,887     $ 916,181  
Recorded in:
                                                        
Canada
  
$
121,628
 
  
$
26,252
 
  
$
162,927
 
  
$
362,330
 
  
$
673,137
 
   $ 670,629     $ 642,977  
United States
  
 
38,469
 
  
 
66
 
  
 
206
 
  
 
56,597
 
  
 
95,338
 
     104,270       104,984  
United Kingdom
  
 
–
 
  
 
–
 
  
 
398
 
  
 
24,922
 
  
 
25,320
 
     25,359       24,243  
Mexico
  
 
–
 
  
 
7,196
 
  
 
11,244
 
  
 
19,241
 
  
 
37,681
 
     34,125       31,841  
Peru
  
 
5,167
 
  
 
168
 
  
 
5,103
 
  
 
5,711
 
  
 
16,149
 
     15,920       16,439  
Chile
  
 
1,266
 
  
 
5,260
 
  
 
174
 
  
 
18,764
 
  
 
25,464
 
     25,130       22,105  
Colombia
  
 
23
 
  
 
444
 
  
 
3,950
 
  
 
4,132
 
  
 
8,549
 
     9,020       8,211  
Other International
  
 
3,857
 
  
 
6,873
 
  
 
12,814
 
  
 
40,356
 
  
 
63,900
 
     65,434       65,381  
Total
(5)
  
$
  170,410
 
  
$
  46,259
 
  
$
  196,816
 
  
$
  532,053
 
  
$
  945,538
 
   $ 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 $134 (January 31, 2023 – $138; October 31, 2022 – $156) of non-interest-bearing deposits.
  (5)
Deposits denominated in U.S. dollars amount to $326,922 (January 31, 2023 – $335,247; October 31, 2022 – $326,041), deposits denominated in Chilean pesos amount to $21,593 (January 31, 2023 – $21,103; October 31, 2022 – $18,740), deposits denominated in Mexican pesos amount to $34,709 (January 31, 2023 – $31,034; October 31, 2022 – $29,269) and deposits denominated in other foreign currencies amount to $115,466 (January 31, 2023 – $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 April 30, 2023
   
$
64,875
 
   
$
37,468
 
   
$
73,025
 
   
$
123,485
 
   
$
18,795
 
   
$
317,648
 
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.
 
11.
Capital and financing transactions
Common shares
 
  
 
For the three months ended
 
  
 
April 30, 2023
 
 
April 30, 2022
 
($ millions)
 
Number of shares
 
 
Amount
 
 
Number of shares
 
 
Amount
 
Outstanding at beginning of period
   
 
1,191,751,567
 
   
$
18,732
 
      1,204,394,204      $   18,421  
Issued in relation to share-based payments, net
   
 
21,931
 
   
 
2
 
      286,079        21  
Issued in relation to the acquisition of a subsidiary or associated corporation
   
 
–
 
   
 
–
 
      7,000,000        569  
Issued in relation to the Shareholder Dividend and Share Purchase Plan
(1)
   
 
6,401,014
 
   
 
426
 
      –        –  
Repurchased for cancellation under the Normal Course Issuer Bid
(2)
   
 
–
 
   
 
–
 
      (13,882,300 )      (212 )
Outstanding at end of period
   
 
1,198,174,512
 
   
$
19,160
 
      1,197,797,983      $   18,799  
  
 
For the six months ended
 
  
 
April 30, 2023
 
 
April 30, 2022
 
($ millions)
 
Number of shares
 
 
Amount
 
 
Number of shares
 
 
Amount
 
Outstanding at beginning of period
   
 
1,191,375,095
 
   
$
 
 
18,707
 
      1,215,337,523      $ 18,507  
Issued in relation to share-based payments, net
   
 
398,403
 
   
 
27
 
      1,780,360        125  
Issued in relation to the acquisition of a subsidiary or associated corporation
   
 
–
 
   
 
–
 
      7,000,000        569  
Issued in relation to the Shareholder Dividend and Share Purchase Plan
(1)
   
 
6,401,014
 
   
 
426
 
      –        –  
Repurchased for cancellation under the Normal Course Issuer Bid
(2)
   
 
–
 
   
 
–
 
      (26,319,900 )      (402 )
Outstanding at end of period
   
 
1,198,174,512
 
   
$
19,160
 
      1,197,797,983      $   18,799  
 
(1)
Commencing with the dividend declared on February 28, 2023 and paid on April 26, 2023, the Bank issued to participants of the Shareholder Dividend and Share Purchase Plan (the “Plan”), common shares from treasury with a discount of 2% to the average market price (as defined in the Plan). Prior to the dividend paid on April 26, 2023, common shares received by participants under the Plan were shares purchased from the open market at prevailing market prices.
 
(2)
The Bank currently does not have an active normal course issuer bid and did not repurchase any common shares during the quarter ended April 30, 2023. The Bank’s previous normal course issuer bid terminated on December 1, 2022.
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 is 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.
 
78    
Scotiabank Second Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
12.
Capital management
The Bank’s regulatory capital, total loss absorbing capacity and leverage measures were as follows:
 
  
  
   As at
 
($ millions)
  
April 30
2023
 
  
January 31
2023
 
  
October 31
2022
 
  
  
Revised
Basel III
 
  
Basel III
 
  
Basel III
 
Capital
(1)(2)
                           
Common Equity Tier 1 capital
   
$
55,520
 
    $ 54,138      $ 53,081  
Net Tier 1 capital
   
 
63,688
 
      62,317        61,262  
Total regulatory capital
   
 
73,197
 
      71,867        70,710  
Total loss absorbing capacity
(3)
   
 
127,815
 
      131,433        126,565  
Risk-weighted assets/exposures used in calculation of capital ratios
                           
Risk-weighted assets
(1)(2)(4)
   
$
451,063
 
    $ 471,528      $ 462,448  
Leverage exposures
(5)
   
 
1,530,107
 
      1,468,559        1,445,619  
Regulatory ratios
(1)(2)
                           
Common Equity Tier 1 capital ratio
   
 
12.3
% 
      11.5 %       11.5 % 
Tier 1 capital ratio
   
 
14.1
% 
      13.2 %       13.2 % 
Total capital ratio
   
 
16.2
% 
      15.2 %       15.3 % 
Total loss absorbing capacity ratio
(3)
   
 
28.3
% 
      27.9 %       27.4 % 
Leverage ratio
(5)
   
 
4.2
% 
      4.2 %       4.2 % 
Total loss absorbing capacity leverage ratio
(3)
   
 
8.4
% 
      8.9 %       8.8 % 
 
(1)
Regulatory ratios and amounts reported as at Q2 2023 are under Revised Basel III requirements and are not directly comparable to ratios and amounts reported in prior quarters.
 
(2)
Q2 2023 regulatory capital ratios are based on Revised Basel III requirements as determined in accordance with OSFI Guideline – Capital Adequacy Requirements (February 2023). Prior period regulatory capital ratios were prepared in accordance with OSFI Guideline – Capital Adequacy Requirements (November 2018).
 
(3)
This measure has been disclosed in this document in accordance with OSFI Guideline – Total Loss Absorbing Capacity (September 2018).
 
(4)
As at April 30, 2023, CET1, Tier 1, Total Capital and TLAC RWA include a Basel III floor adjustment of $8.2 billion (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
C
apital and TLAC RWA).
 
(5)
Q2 2023 leverage ratios are based on Revised Basel III requirements as determined in accordance with OSFI Guideline - Leverage Requirements (February 2023). Prior period leverage ratios were prepared in accordance with OSFI Guideline – Leverage Requirements (November 2018).
The Bank substantially exceeded the OSFI minimum regulatory capital and TLAC ratios as at April 30, 2023, including the Domestic Stability Buffer requirement. In addition, the Bank substantially exceeded OSFI minimum leverage and TLAC leverage ratios as at April 30, 2023.

 
13.
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 $2 million and $11 million for the three months and six months ended April 30, 2023 (April 30, 2022 – $2 million and $8 million), respectively, as a result of equity-classified share-based payment expense.
 
14.
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)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      January 31
2023		      April 30
2022		  
Defined benefit service cost
   
$
55
 
    $ 55      $ 78     
$
5
 
    $ 5      $ 6  
Interest on net defined benefit (asset) liability
   
 
(8
) 
      (9 )       (2 )    
 
  16
 
      16        11  
Other
   
 
3
 
      3        4     
 
–
 
      2        (5 ) 
Defined benefit expense
   
$
50
 
    $ 49      $ 80     
$
21
 
    $ 23      $ 12  
Defined contribution expense
   
$
40
 
    $ 37      $ 31     
$
–
 
    $ –      $ –  
Increase (decrease) in other comprehensive income related to employee benefits
(2)
   
$
  (222
) 
    $   (170 )     $   936     
$
(3
) 
    $   (49 )     $   119  
 
      For the six months ended  
      Pension plans      Other benefit plans  
($ millions)
   
April 30
2023
      April 30
2022		     
April 30
2023
      April 30
2022		  
Defined benefit service cost
   
$
110
 
    $ 157     
$
10
 
    $ 11  
Interest on net defined benefit (asset) liability
   
 
(17
) 
      (3 )    
 
32
 
      23  
Other
   
 
6
 
      8     
 
2
 
      (7 ) 
Defined benefit expense
   
$
99
 
    $ 162     
$
44
 
    $ 27  
Defined contribution expense
   
$
77
 
    $ 61     
$
–
 
    $ –  
Increase (decrease) in other comprehensive income related to employee benefits
(2)
   
$
  (392
) 
    $   1,045     
$
  (52
) 
    $   158  
  (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.
 
Scotiabank Second Quarter Report 2023
    79
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
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.
 
  
  
For the three months ended April 30, 2023
 
($ millions)
  
Canadian
Banking
(1)
 
  
International
Banking
(1)
 
  
Global
Wealth
Management
(1)
 
  
Global
Banking and
Markets
(1)
 
  
Other
(2)
 
  
Total
 
Net interest income
(3)
   
$
  2,340
 
   
$
  2,007
 
   
$
209
 
   
$
384
 
   
$
  (474
) 
   
$
  4,466
 
Non-interest income
(4)(5)
   
 
794
 
   
 
745
 
   
 
  1,091
 
   
 
968
 
   
 
(135
) 
   
 
3,463
 
Total revenues
   
 
3,134
 
   
 
2,752
 
   
 
1,300
 
   
 
  1,352
 
   
 
(609)
 
   
 
7,929
 
Provision for credit losses
   
 
218
 
   
 
436
 
   
 
2
 
   
 
53
 
   
 
–
 
   
 
709
 
Non-interest expenses
   
 
1,457
 
   
 
1,479
 
   
 
818
 
   
 
752
 
   
 
70
 
   
 
4,576
 
Provision for income taxes
   
 
399
 
   
 
172
 
   
 
124
 
   
 
146
 
   
 
(356
) 
   
 
485
 
Net income
   
$
1,060
 
   
$
665
 
   
$
356
 
   
$
401
 
   
$
(323
) 
   
$
2,159
 
Net income attributable to non-controlling interests in subsidiaries
   
$
–
 
   
$
23
 
   
$
3
 
   
$
–
 
   
$
–
 
   
$
26
 
Net income attributable to equity holders of the Bank
   
$
1,060
 
   
$
642
 
   
$
353
 
   
$
401
 
   
$
(323
) 
   
$
2,133
 
Average assets
($ billions)
  
$
451
 
   
$
239
 
   
$
34
 
   
$
488
 
   
$
178
 
   
$
1,390
 
Average liabilities
($ billions)
  
$
367
 
   
$
181
 
   
$
41
 
   
$
446
 
   
$
278
 
   
$
1,313
 
  (1)
Business line revenues and provision for income taxes are reported on a tax equivalent basis. 
 
(2)
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 $119 to arrive at the amounts reported in the Consolidated Statement of Income, differences in the actual amount of costs incurred and charged to the operating segments.
  (
3
)
Interest income is reported net of interest expense as management relies primarily on net interest income as a performance measure.
  (
4
)
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.
  (
5
)
Includes income (on a taxable equivalent basis) from associated corporations for Canadian Banking – $25, International Banking – $69, Global Wealth Management – $5, and Other – $(35).
 
  
  
For the three months ended January 31, 2023
 
($ millions)
  
Canadian
Banking
(1)
 
  
International
Banking
(1)
 
  
Global
Wealth
Management
(1)
 
  
Global
Banking and
Markets
(1)
 
  
Other
(2)
 
  
Total
 
Net interest income
(3)
    $   2,386      $   1,899      $ 213      $ 454      $   (383 )     $   4,569  
Non-interest income
(4)(5)
      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)
Business line revenues and provision for income taxes are reported on a tax equivalent basis. 
 
(
2
)
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, differences in the actual amount of costs incurred and charged to the operating segments.
  (
3
)
Interest income is reported net of interest expense as management relies primarily on net interest income as a performance measure.
  (
4
)
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.
  (
5
)
Includes income (on a taxable equivalent basis) from associated corporations for Canadian Banking – $15, International Banking – $63, Global Wealth Management – $3, and Other – $(65).
 
80    
Scotiabank Second Quarter Report 2023
CONDENSED
INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
 
  
  
For the three months ended April 30, 2022
 
($ millions)
  
Canadian
Banking
(1)
 
  
International
Banking
(1)
 
  
 Global
Wealth
Management
(1)
 
  
Global
Banking and
Markets
(1)
 
  
Other
(2)
 
  
Total
 
Net interest income
(
3
)
    $   2,144      $   1,687      $ 184      $ 360      $ 98      $   4,473  
Non-interest income
(
4
)(
5
)
      759        720          1,174        902        (86 )       3,469  
Total revenues
      2,903        2,407        1,358          1,262        12        7,942  
Provision for credit losses
      (12 )       276        1        (46 )       –        219  
Non-interest expenses
      1,324        1,268        803        653              111        4,159  
Provision for income taxes
      412        182        145        167        (89 )       817  
Net income
    $ 1,179      $ 681      $ 409      $ 488      $ (10 )     $ 2,747  
Net income attributable to non-controlling interests in subsidiaries
    $ –      $ 76      $ 2      $ –      $ –      $ 78  
Net income attributable to equity holders of the Bank
    $ 1,179      $ 605      $ 407      $ 488      $ (10 )     $ 2,669  
Average assets
($ billions)
   $ 423      $ 204      $ 32      $ 431      $ 174      $ 1,264  
Average liabilities
($ billions)
    $ 326      $ 149      $ 48      $ 400      $ 269      $ 1,192  
  (1)
Business line revenues and provision for income taxes are reported on a tax equivalent basis. 
 
(2)
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, differences in the actual amount of costs incurred and charged to the operating segments.
  (
3
)
Interest income is reported net of interest expense as management relies primarily on net interest income as a performance measure.
  (
4
)
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.
  (
5
)
Includes income (on a taxable equivalent basis) from associated corporations for Canadian Banking – $18, International Banking – $77, Global Wealth Management – $5, and Other – $(16).
 
     
For the six months ended April 30, 2023
  
($ millions)
  
Canadian
Banking
(1)
 
  
International
Banking
(1)
 
  
Global
Wealth
Management
(1)
 
  
Global
Banking and
Markets
(1)
 
  
Other
(2)
 
  
Total
 
Net interest income
(
3
)
   
$
  4,726
 
   
$
  3,906
 
   
$
422
 
   
$
838
 
   
$
(857
) 
   
$
9,035
 
Non-interest income
(
4
)(
5
)
   
 
1,572
 
   
 
1,547
 
   
 
  2,201
 
   
 
  2,017
 
   
 
(463
) 
   
 
6,874
 
Total revenues
   
 
6,298
 
   
 
5,453
 
   
 
2,623
 
   
 
2,855
 
   
 
  (1,320
) 
   
 
  15,909
 
Provision for credit losses
   
 
436
 
   
 
840
 
   
 
3
 
   
 
68
 
   
 
–
 
   
 
1,347
 
Non-interest expenses
   
 
2,906
 
   
 
2,915
 
   
 
1,620
 
   
 
1,525
 
   
 
74
 
   
 
9,040
 
Provision for income taxes
   
 
809
 
   
 
341
 
   
 
257
 
   
 
342
 
   
 
(158
) 
   
 
1,591
 
Net income
   
$
2,147
 
   
$
1,357
 
   
$
743
 
   
$
920
 
   
$
(1,236
) 
   
$
3,931
 
Net income attributable to non-controlling interests in subsidiaries
   
$
–
 
   
$
61
 
   
$
5
 
   
$
–
 
   
$
–
 
   
$
66
 
Net income attributable to equity holders of the Bank
   
$
2,147
 
   
$
1,296
 
   
$
738
 
   
$
920
 
   
$
(1,236
) 
   
$
3,865
 
Average assets
($ billions)
  
$
450
 
   
$
233
 
   
$
34
 
   
$
484
 
   
$
185
 
   
$
1,386
 
Average liabilities
($ billions)
  
$
362
 
   
$
175
 
   
$
42
 
   
$
450
 
   
$
280
 
   
$
1,309
 
  (1)
Business line revenues and provision for income taxes are reported on a tax equivalent basis. 
 
(2)
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 $239 to arrive at the amounts reported in the Consolidated Statement of Income, differences in the actual amount of costs incurred and charged to the operating segments.
  (
3
)
Interest income is reported net of interest expense as management relies primarily on net interest income as a performance measure.
  (
4
)
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.
  (
5
)
Includes income (on a taxable equivalent basis) from associated corporations for Canadian Banking – $40, International Banking – $132, Global Wealth Management – $8, and Other – $(100).
 
      For the six months ended April 30, 2022  
($ millions)
  
Canadian
Banking
(1)
 
  
International
Banking
(1)
 
  
 Global
Wealth
Management
(1)
 
  
Global
Banking and
Markets
(1)
 
  
Other
(2)
 
  
Total
 
Net interest income
(
3
)
    $   4,277      $   3,335      $ 358      $ 733      $ 114      $ 8,817  
Non-interest income
(
4
)(
5
)
      1,500        1,469          2,422          1,933             (150 )       7,174  
Total revenues
      5,777        4,804        2,780        2,666        (36 )         15,991  
Provision for credit losses
      (47 )       550        –        (62 )       –        441  
Non-interest expenses
      2,606        2,553        1,665        1,323        235        8,382  
Provision for income taxes
      838        390        291        356        (194 )       1,681  
Net income
    $ 2,380      $ 1,311      $ 824      $ 1,049      $ (77 )     $ 5,487  
Net income attributable to non-controlling interests in subsidiaries
    $ –      $ 161      $ 5      $ –      $ –      $ 166  
Net income attributable to equity holders of the Bank
    $ 2,380      $ 1,150      $ 819      $ 1,049      $ (77 )     $ 5,321  
Average assets
($ billions)
   $ 417      $ 200      $ 32      $ 438      $ 164      $ 1,251  
Average liabilities
($ billions)
    $ 323      $ 146      $ 48      $ 403      $ 258      $ 1,178  
  (1)
Business line revenues and provision for income taxes are reported on a tax equivalent basis. 
 
(2)
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 $184 to arrive at the amounts reported in the Consolidated Statement of Income, differences in the actual amount of costs incurred and charged to the operating segments.
  (
3
)
Interest income is reported net of interest expense as management relies primarily on net interest income as a performance measure.
  (
4
)
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.
  (
5
)
Includes income (on a taxable equivalent basis) from associated corporations for Canadian Banking – $26, International Banking – $145, Global W
ealt
h Management – $6, and Other – $(2).
 
Scotiabank Second Quarter Report 2023
    81
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
16.
Interest income and expense
 
     For the three months ended     For the six months ended  
    
April 30, 2023
     January 31, 2023     April 30, 2022    
April 30, 2023
     April 30, 2022  
($ millions)
  
Interest
income
    
Interest
expense
     Interest
income		     Interest
expense		     Interest
income		     Interest
expense		    
Interest
income
    
Interest
expense
     Interest
income		     Interest
expense		  
Measured at amortized cost
(1)
  
$
 12,463
 
  
$
 9,357
 
   $  11,897     $  8,545     $  6,654     $  2,581    
$
 24,360
 
  
$
 17,902
 
   $  12,804     $  4,650  
Measured at FVOCI
(1)
  
 
921
 
  
 
–
 
     813       –       261       –    
 
1,734
 
  
 
–
 
     442       –  
   
 
13,384
 
  
 
9,357
 
     12,710       8,545       6,915       2,581    
 
26,094
 
  
 
17,902
 
     13,246       4,650  
Other
  
 
486
(2)
 
  
 
47
(3)
 
     446
(2)
 		     42
(3)
 		     177
(2)
 		     38
(3)
 		  
 
932
(2)
 
  
 
89
(3)
 
     309
(2)
 		     88
(3)
 
Total
  
$
13,870
 
  
$
9,404
 
   $ 13,156     $ 8,587     $ 7,092     $ 2,619    
$
27,026
 
  
$
17,991
 
   $ 13,555     $ 4,738  
  (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 April 30, 2023 – $29 (January 31, 2023 – $26; April 30, 2022 – $26) and for the six months ended April 30, 2023 – $55 (April 30, 2022 – $53).
 
17.
Earnings per share
 
      For the three months ended      For the six months ended  
($ millions)
   
April 30
2023
      January 31
2023		      April 30
2022		     
April 30
2023
      April 30
2022		  
Basic earnings per common share
                                             
Net income attributable to common shareholders
   
$
  2,029
 
    $   1,631      $   2,595     
$
  3,660
 
    $   5,203  
Weighted average number of common shares outstanding
(millions)
   
 
1,192
 
      1,192        1,199     
 
1,192
 
      1,205  
Basic earnings per common share
(1)
(in dollars)
   
$
1.70
 
    $ 1.37      $ 2.16     
$
3.07
 
    $ 4.32  
Diluted earnings per common share
                                             
Net income attributable to common shareholders
   
$
2,029
 
    $ 1,631      $ 2,595     
$
3,660
 
    $ 5,203  
Dilutive impact of share-based payment options and others
(2)
   
 
(11
) 
      (4 )       –     
 
(15
) 
      67  
Net income attributable to common shareholders (diluted)
   
$
2,018
 
    $ 1,627      $ 2,595     
$
3,645
 
    $ 5,270  
Weighted average number of common shares outstanding
(millions)
   
 
1,192
 
      1,192        1,199     
 
1,192
 
      1,205  
Dilutive impact of share-based payment options and others
(2)
(millions)
   
 
5
 
      7        2     
 
7
 
      20  
Weighted average number of diluted common shares outstanding
(millions)
   
 
1,197
 
      1,199        1,201     
 
1,199
 
      1,225  
Diluted earnings per common share
(1)
(in dollars)
   
$
1.69
 
    $ 1.36      $ 2.16     
$
3.04
 
    $ 4.30  
  (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.
 
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 Internal Ratings-Based approach (IRB) 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 IRB approach, the Bank uses internal risk parameter estimates, based on historical experience.
 
82    
Scotiabank Second Quarter Report 2023
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
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)(2)
  
                       As at
 
  
  
April 30, 2023
 
  
January 31
2023
 
  
October 31
2022
 
  
  
Revised Basel III
 
  
Basel III
 
  
Basel III
 
($ millions)
  
IRB
 
  
Standardized
 
  
Total
 
  
Total
 
  
Total
 
By exposure sub-type
                                             
Non-retail
                                             
Drawn
(
3
)(
4
)
   
$
  472,619
 
   
$
  73,605
 
   
$
  546,224
 
    $   553,504      $   534,978  
Undrawn commitments
   
 
99,457
 
   
 
7,220
 
   
 
106,677
 
      132,184        132,195  
Other exposures
(
5
)
   
 
108,718
 
   
 
6,135
 
   
 
114,853
 
      131,983        130,471  
Total non-retail
   
$
680,794
 
   
$
86,960
 
   
$
767,754
 
    $ 817,671      $ 797,644  
Retail
(
6
)
                                             
Drawn
   
$
291,925
 
   
$
114,270
 
   
$
406,195
 
    $ 400,268      $ 392,143  
Undrawn commitments and other exposures
   
 
96,283
 
   
 
8,893
 
   
 
105,176
 
      59,193        57,913  
Total retail
   
$
388,208
 
   
$
123,163
 
   
$
511,371
 
    $ 459,461      $ 450,056  
Total
   
$
 
 
1,069,002
 
   
$
 
 
 
 
 
    210,123
 
   
$
 
 
1,279,125
 
    $   1,277,132      $   1,247,700  
 
(1)
Regulatory amounts reported as at Q2 2023 are under Revised Basel III requirements and are not directly comparable to amounts reported in prior quarters.
 
(2)
After credit risk mitigation and excludes equity securities and other assets.
 
(3)
Non-retail drawn exposures include government guaranteed and privately insured mortgages
 and retail loans
.
 
(4)
Non-retail drawn includes loans, bankers’ acceptances, deposits with financial institutions and FVOCI debt securities.
 
(5)
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.
 
(6)
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 April 30, 2023, 27% (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 53% (January 31, 2023 – 52%; October 31, 2022 – 49%).
Retail standardized portfolio
The retail standardized portfolio of $123 billion as at April 30, 2023 (January 31, 2023 – $117 billion; 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, $65 billion (January 31, 2023 – $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.
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, for
ei
gn exchange rates and commodity prices), the correlations among them, and their levels of
volatility.
 
Scotiabank Second Quarter Report 2023
    83
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
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 April 30, 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 $71 million (January 31, 2023 – $59 million; April 30, 2022 – $39 million) in the absence of hedging activity, due primarily from exposure to U.S. dollars.
A similar change in the Canadian dollar as at April 30, 2023, would increase (decrease) the unrealized foreign currency translation losses in the accumulated other comprehensive income section of shareholders’ equity by approximately $325 million (January 31, 2023 – $316 million; April 30, 2022 – $331 million), net of hedging.
Non-trading equity risk
Equity risk is the risk of loss due to adverse 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 6.
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
 
 
  
April 30, 2023
(1)
 
  
 
 
  
April 30
 
  
January 31
 
  
April 30
 
($ millions)
  
Average
 
  
High
 
  
Low
 
  
  
 
  
2023
 
  
2023
 
  
2022
 
Credit spread plus interest rate
   
$
  15.7
 
   
$
  24.1
 
   
$
  9.9
 
            
$
  19.1
 
    $ 10.8      $ 10.2  
Credit spread
   
 
9.5
 
   
 
16.3
 
   
 
5.0
 
            
 
7.4
 
      6.1        5.5  
Interest rate
   
 
14.0
 
   
 
21.9
 
   
 
9.3
 
            
 
17.4
 
      11.4        9.6  
Equities
   
 
4.6
 
   
 
7.8
 
   
 
3.6
 
            
 
4.3
 
      4.7        5.1  
Foreign exchange
   
 
3.7
 
   
 
8.1
 
   
 
1.4
 
            
 
4.2
 
      4.9        1.8  
Commodities
   
 
6.3
 
   
 
8.1
 
   
 
4.2
 
            
 
4.6
 
      6.5        5.6  
Debt specific
   
 
3.7
 
   
 
4.8
 
   
 
3.0
 
            
 
3.2
 
      3.0        2.0  
Diversification effect
   
 
(16.6
) 
   
 
–
 
   
 
–
 
   
 
 
 
   
 
(13.5
) 
      (17.2 )       (12.0 ) 
Total VaR
   
$
17.4
 
   
$
25.2
 
   
$
12.3
 
   
 
 
 
   
$
21.9
 
    $   12.7      $   12.7  
Total Stressed VaR
   
$
54.9
 
   
$
87.3
 
   
$
38.9
 
   
 
 
 
   
$
47.5
 
    $ 40.7      $ 25.7  
  (1)
Effective 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 B
an
k’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.
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)
  
April 30
2023
     January 31
2023		     April 30
2022		    
April 30
2023
     January 31
2023		     April 30
2022		    
April 30
2023
     January 31
2023		     April 30
2022		  
Liabilities
                                                                        
Senior note liabilities
(2)
  
$
  26,935
 
   $   26,583     $   21,927    
$
  2,104
 
   $ (3,524 )    $   3,913    
$
  6,473
 
   $   4,369     $   4,108  
 
(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.

84    
Scotiabank Second Quarter Report 2023
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
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		  
 
 
 
 
 
 		     






 		 Change in fair value
for the three
month period
attributable to
change in own
credit risk
recorded in other
comprehensive
income		  
 
 
 
 
 
 
 
 		     

 		 Cumulative change
in fair value due to
change in own
credit risk
(1)
  
 
 
 
As at April 30, 2023
   
$
33,408
 
   
$
26,935
 
   
$
6,473
 
   
$
   1,661
 
   
$
  1,800
 
As at January 31, 2023
    $   30,952      $   26,583      $   4,369        $  (1,090 )     $   139  
As at April 30, 2022
    $ 26,035      $ 21,927      $ 4,108        $
 
 
 
 
 
 
787		      $ 289  
  (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  
     
April 30, 2023
      January 31, 2023      October 31, 2022  
($ millions)
   
Total fair
value
     
Total
carrying
value
      Total fair
value		      Total
carrying
value		      Total fair
value		      Total
carrying
value		  
Assets:
                                                      
Cash and deposits with financial institutions
   
$
63,893
 
   
$
63,893
 
    $ 81,386      $ 81,386      $ 65,895      $ 65,895  
Trading assets
   
 
  114,695
 
   
 
   114,695
 
        116,346          116,346          113,154          113,154  
Securities purchased under resale agreements and securities borrowed
   
 
184,684
 
   
 
184,684
 
      178,690        178,690        175,313        175,313  
Derivative financial instruments
   
 
44,725
 
   
 
44,725
 
      44,820        44,820        55,699        55,699  
Investment securities – FVOCI and FVTPL
   
 
88,318
 
   
 
88,318
 
      86,809        86,809        86,398        86,398  
Investment securities – amortized cost
   
 
27,270
 
   
 
28,277
 
      23,206        24,195        22,443        23,610  
Loans
   
 
749,544
 
   
 
764,068
 
      739,659        755,157        729,149        744,987  
Customers’ liability under acceptances
   
 
21,901
 
   
 
21,901
 
      21,872        21,872        19,494        19,494  
Other financial assets
   
 
24,918
 
   
 
24,918
 
      25,049        25,049        27,394        27,394  
Liabilities:
                                                      
Deposits
   
 
936,437
 
   
 
945,538
 
      940,543        949,887        904,033        916,181  
Financial instruments designated at fair value through profit or loss
   
 
26,935
 
   
 
26,935
 
      26,583        26,583        22,421        22,421  
Acceptances
   
 
21,951
 
   
 
21,951
 
      21,912        21,912        19,525        19,525  
Obligations related to securities sold short
   
 
41,310
 
   
 
41,310
 
      43,439        43,439        40,449        40,449  
Derivative financial instruments
   
 
50,562
 
   
 
50,562
 
      52,746        52,746        65,900        65,900  
Obligations related to securities sold under repurchase agreements and securities lent
   
 
132,631
 
   
 
132,631
 
      132,206        132,206        139,025        139,025  
Subordinated debentures
   
 
8,574
 
   
 
8,784
 
      8,524        8,713        8,038        8,469  
Other financial liabilities
   
 
50,182
 
   
 
51,486
 
      47,862        48,697        45,723        46,682  
(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 o
bse
rvable 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.

 
Scotiabank Second Quarter Report 2023
    85
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
The following table outlines the fair value hierarchy and instruments carried at fair value on a recurring basis.
 
  
 
As at      
 
  
 
April 30, 2023
 
 
January 31, 2023
 
($ 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)
  
$
–
 
  
$
1,191
 
  
$
–
 
  
$
1,191
 
   $ –     $ 725     $ –     $ 725  
Trading assets
                                                                
Loans
  
 
–
 
  
 
6,905
 
  
 
5
 
  
 
6,910
 
     –       7,641       1       7,642  
Canadian federal government and government guaranteed debt
  
 
15,145
 
  
 
2,944
 
  
 
–
 
  
 
18,089
 
     11,541       4,407       –       15,948  
Canadian provincial and municipal debt
  
 
4,673
 
  
 
4,470
 
  
 
–
 
  
 
9,143
 
     4,497       4,798       –       9,295  
U.S. treasury and other U.S. agencies’ debt
  
 
11,911
 
  
 
536
 
  
 
–
 
  
 
12,447
 
     11,488       –       –       11,488  
Other foreign governments’ debt
  
 
15
 
  
 
9,295
 
  
 
–
 
  
 
9,310
 
     187       8,676       –       8,863  
Corporate and other debt
  
 
2,513
 
  
 
8,117
 
  
 
–
 
  
 
10,630
 
     2,643       7,992       6       10,641  
Equity securities
  
 
45,852
 
  
 
88
 
  
 
1
 
  
 
45,941
 
     50,362       110       28       50,500  
Other
  
 
–
 
  
 
2,225
 
  
 
–
 
  
 
2,225
 
     –       1,969       –       1,969  
 
  
$
   80,109
 
  
$
   34,580
 
  
$
  6
 
  
$
   114,695
 
   $   80,718     $   35,593     $ 35     $   116,346  
Investment securities
(2)
                                                                
Canadian federal government and government guaranteed debt
  
$
4,569
 
  
$
4,720
 
  
$
–
 
  
$
9,289
 
   $ 5,008     $ 4,854     $ –     $ 9,862  
Canadian provincial and municipal debt
  
 
3,729
 
  
 
3,922
 
  
 
–
 
  
 
7,651
 
     2,480       3,945       –       6,425  
U.S. treasury and other U.S. agencies’ debt
  
 
31,318
 
  
 
2,139
 
  
 
–
 
  
 
33,457
 
     32,223       2,612       –       34,835  
Other foreign governments’ debt
  
 
3,352
 
  
 
28,117
 
  
 
–
 
  
 
31,469
 
     3,153       26,155       –       29,308  
Corporate and other debt
  
 
–
 
  
 
2,061
 
  
 
55
 
  
 
2,116
 
     –       2,011       53       2,064  
Equity securities
  
 
2,383
 
  
 
219
 
  
 
1,734
 
  
 
4,336
 
     2,442       217       1,656       4,315  
 
  
$
45,351
 
  
$
41,178
 
  
$
1,789
 
  
$
88,318
 
   $ 45,306     $ 39,794     $   1,709     $ 86,809  
Derivative financial instruments
                                                                
Interest rate contracts
  
$
–
 
  
$
13,478
 
  
$
–
 
  
$
13,478
 
   $ –     $ 13,698     $ 12     $ 13,710  
Foreign exchange and gold contracts
  
 
–
 
  
 
25,792
 
  
 
–
 
  
 
25,792
 
     –       25,406       –       25,406  
Equity contracts
  
 
38
 
  
 
2,451
 
  
 
32
 
  
 
2,521
 
     62       2,309       25       2,396  
Credit contracts
  
 
–
 
  
 
481
 
  
 
3
 
  
 
484
 
     –       517       4       521  
Commodity contracts
  
 
–
 
  
 
2,435
 
  
 
15
 
  
 
2,450
 
     –       2,774       13       2,787  
 
  
$
38
 
  
$
44,637
 
  
$
50
 
  
$
44,725
 
   $ 62     $ 44,704     $ 54     $ 44,820  
Liabilities:
                                                                
Deposits
  
$
–
 
  
$
116
 
  
$
–
 
  
$
116
 
   $ –     $ 104     $ –     $ 104  
Financial liabilities designated at fair value through profit or loss
  
 
–
 
  
 
26,935
 
  
 
–
 
  
 
26,935
 
     –       26,583       –       26,583  
Obligations related to securities sold short
  
 
35,613
 
  
 
5,696
 
  
 
1
 
  
 
41,310
 
     38,104       5,329       6       43,439  
                 
Derivative financial instruments
                                                                
Interest rate contracts
  
 
–
 
  
 
19,520
 
  
 
–
 
  
 
19,520
 
     –       19,865       12       19,877  
Foreign exchange and gold contracts
  
 
–
 
  
 
25,813
 
  
 
–
 
  
 
25,813
 
     –       28,000       –       28,000  
Equity contracts
  
 
185
 
  
 
2,578
 
  
 
22
 
  
 
2,785
 
     152       2,834       22       3,008  
Credit contracts
  
 
–
 
  
 
24
 
  
 
1
 
  
 
25
 
     –       20       2       22  
Commodity contracts
  
 
–
 
  
 
2,415
 
  
 
4
 
  
 
2,419
 
     –       1,833       6       1,839  
 
  
$
185
 
  
$
50,350
 
  
$
27
 
  
$
50,562
 
   $ 152     $ 52,552     $ 42     $ 52,746  
  (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 $28,277 (January 31, 2023 – $24,195).
 
 
 
 
86    
Scotiabank Second Quarter Report 2023
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
      As at October 31, 2022  
($ millions)
    Level 1      Level 2      Level 3      Total  
Instruments carried at fair value on a recurring basis:
                                    
Assets:
                                    
Precious metals
(1)
    $ –      $ 543      $ –      $ 543  
Trading assets
                                    
Loans
      –        7,811        –        7,811  
Canadian federal government and government guaranteed debt
      10,139        4,595        –        14,734  
Canadian provincial and municipal debt
      4,299        5,978        –        10,277  
U.S. treasury and other U.S. agencies’ debt
      11,957        –        –        11,957  
Other foreign governments’ debt
      15        8,287        –        8,302  
Corporate and other debt
      2,367        8,976       
1
        11,344  
Equity securities
      46,698        224        11        46,933  
Other
      –        1,796        –        1,796  
 
    $   75,475      $   37,667      $ 12      $   113,154  
Investment securities
(2)
                                    
Canadian federal government and government guaranteed debt
    $ 4,947      $ 6,055      $ –      $ 11,002  
Canadian provincial and municipal debt
      2,029        3,400        –        5,429  
U.S. treasury and other U.S. agencies’ debt
      32,412        2,824        –        35,236  
Other foreign governments’ debt
      3,217        24,487        –        27,704  
Corporate and other debt
      40        1,874        48        1,962  
Equity securities
      3,210        215        1,640        5,065  
 
    $ 45,855      $ 38,855      $   1,688      $ 86,398  
Derivative financial instruments
                                    
Interest rate contracts
    $ –      $ 15,193      $ 17      $ 15,210  
Foreign exchange and gold contracts
      –        32,223        –        32,223  
Equity contracts
      332        2,209        20        2,561  
Credit contracts
      –        780        –        780  
Commodity contracts
      –        4,912        13        4,925  
 
    $ 332      $ 55,317      $ 50      $ 55,699  
Liabilities:
                                    
Deposits
    $ –      $ 15      $ –      $ 15  
Financial liabilities designated at fair value through profit or loss
      –        22,421        –        22,421  
Obligations related to securities sold short
      35,059        5,387        3        40,449  
         
Derivative financial instruments
                                    
Interest rate contracts
      –        22,842        12        22,854  
Foreign exchange and gold contracts
      –        35,634        –        35,634  
Equity contracts
      636        3,063        21        3,720  
Credit contracts
      –        25        –        25  
Commodity contracts
      –        3,660        7        3,667  
 
    $ 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 inv
est
ment securities measured at amortized cost of $23,610.
 
Scotiabank Second Quarter Report 2023
    87
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Level 3 instrument fair value changes
Financial instruments categorized as Level 3 as at April 30, 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 April 30, 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 April 30, 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     $ –     $ –     $ 5     $ –     $ (1 )  
$
5
 
   $ –  
Corporate and other debt
     6       –       –       –       –       (6 )  
 
–
 
     –  
Equity securities
     28       –       –       1       (28 )     –    
 
1
 
     –  
      35       –       –       6       (28 )     (7 )  
 
6
 
     –  
Investment securities
                                                      
 
        
Corporate and other debt
     53       1       1       –       –       –    
 
55
 
     1  
Equity securities
     1,656       44       1       54       (19 )     (2 )  
 
1,734
 
     44  
      1,709       45       2       54       (19 )     (2 )  
 
1,789
 
     45  
Derivative financial instruments – assets
                                                      
 
        
Interest rate contracts
     12       –       –       –       (3 )     (9 )  
 
–
 
     –  
Equity contracts
     25       (3 )     –       2       (1 )     9    
 
32
 
     (3 )
(2
)
 
Credit contracts
     4       (1 )     –       –       –       –    
 
3
 
     (1 )
Commodity contracts
     13       2       –       –       –       –    
 
15
 
     2  
                 
Derivative financial instruments – liabilities
                                                      
 
        
Interest rate contracts
     (12 )      –       –       –       3       9    
 
–
 
     –  
Equity contracts
     (22 )      (3 )     –       (4 )     3       4    
 
(22
)
 
     (3 )
(2
)
 
Credit contracts
     (2 )      1       –       –       –       –    
 
(1
)
 
     1  
Commodity contracts
     (6 )      2       –       –       –       –    
 
(4
)
 
     2  
      12       (2 )     –       (2 )     2       13    
 
23
 
     (2 )
                 
Obligations related to securities sold short
     (6 )      –       –       –       –       5    
 
(1
)
 
     –  
Total
   $    1,750     $    43     $    2     $    58     $   (45)     $    9    
$
   1,817
 
   $    43  
  (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.
The following tab
les
summarize the changes in Level
3
instruments carried at fair value for the
three
months ended January 
31
,
2023
and October 
31
,
2022
.
 
      As at January 31, 2023  
($ 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
    $ 12      $ –      $ –      $ –      $ (5 )     $   28      $ 35  
Investment securities
        1,688          10          10          47          (49 )       3          1,709  
Derivative financial instruments
      10        2        –        (4 )       (3 )       7        12  
Obligations related to securities sold short
      (3 )       –        –        –        2        (5 )       (6 ) 
  (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.
 
88    
Scotiabank Second Quarter Report 2023
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
      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.
During the three months ended April 30, 2023:
 
  •  
Trading assets of $1,143 million, investment securities of $612 million and obligations related to securities sold short of $67 million were transferred out of Level 2 into Level 1.
 
  •  
Trading assets of $1,546 million, investment securities of $505 million and obligations related to securities sold short of $312 million were transferred out of Level 1 into Level 2.
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 April 30, 2023 and 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. In addition, a subsidiary of the Bank received reassessments on the same matter in respect of its 2018 taxation year totaling $1.7 million of tax and interest.
A subsidiary of the Bank received withholding tax assessments from the CRA in respect of certain of its securities lending transactions for its 2014-2018 taxation years totaling $551 million of tax, penalties and interest. The subsidiary has filed a Notice of Appeal with the Tax Court of Canada against the federal assessment in respect of its 2014-2017 taxation years.
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 1
5, 2022, certain Canadian federal tax measures impacti
ng
the Bank were enacted into law including the Canada Recovery Dividend (CRD), a one-time
15
% tax on taxable income in excess of $
1
billion, as well as an increase of
1.5
% to the federal corpo
rate
income tax rate on taxable income above $
100
million.
 
Scotiabank Second Quarter Report 2023
    89
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
The impact
 of these enacted tax measures was recognized in the Bank’s financial results for the quarter ended 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 difference will accrete as interest expense over the remaining
four
-year period. The increase in the Canadian statutory tax rate resulted in a benefit of $
39
million
related to the
2022
taxation year,
recorded in Q1 2023. This included
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.
 
90    
Scotiabank Second Quarter Report 2023
Table of Contents
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 Shareholder Dividend 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
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 May 24, 2023, at 7:15 am ET 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 8016393# (please call shortly before 7:15 am ET). In addition, an audio webcast, with accompanying slide presentation, may be accessed via the Investor Relations page at www.scotiabank.com/ca/en/about/investors-shareholders.html.
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 May 24, 2023, to June 30, 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
 
Scotiabank Second Quarter Report 2023
    91
Table of Contents
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 avec les investisseurs, La Banque de Nouvelle-Écosse, 40, rue Temperance, Toronto (Ontario), Canada M5H 0B4, en joignant, si possible, l’étiquette d’adresse, afin que nous puissions prendre note du changement.
 
 

   

 
The Bank of Nova Scotia is a chartered bank under the Bank Act
(Canada) and is a public company incorporated in Canada.