株探米国株
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false2023-07-31Q30000009631--10-31Includes interest income on financial assets measured at amortized cost and FVOCI, calculated using the effective interest method, of $14,127 for the three months ended July 31, 2023 (April 30, 2023 – $13,384; July 31, 2022 – $8,624) and for the nine months ended July 31, 2023 – $40,221 (July 31, 2022 – $21,870).Includes Share from associates, Employee benefits and Own credit risk. Includes undistributed retained earnings of $66 (July 31, 2022 - $63) related to a foreign associated corporation, which is subject to local regulatory restriction. Includes changes to non-controlling interests arising from business combinations and related transactions (refer to Note 36 of the consolidated financial statements, in the 2022 Annual Report to Shareholders). Represents amounts on account of share-based payments (refer to Note 13). Represents cash and non-interest-bearing deposits with financial institutions (refer to Note 5). Net of allowances of $5 (April 30, 2023 – $6; October 31, 2022 – $4).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.Change in the difference between the contractual maturity amount and the carrying value.The cumulative change in fair value is measured from the instruments’ date of initial recognition.Balances are net of allowances, which are $1. Allowance for credit losses on acceptances are recorded against the financial asset in the Consolidated Statement of Financial Position.Allowance for credit losses on off-balance sheet exposures is recorded in other liabilities in the Consolidated Statement of Financial Position.Excludes amounts associated with other assets of $(6). The provision for credit losses, net of these amounts, is $2,166.Excludes allowance for credit losses of $201 for other financial assets including acceptances, investment securities, deposits with banks, off-balance sheet credit risks and reverse repos.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.Excludes allowance for credit losses of $148 for other financial assets including acceptances, investment securities, deposits with banks, off-balance sheet credit risks and reverse repos.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.Stage 3 includes purchased or originated credit-impaired loans.Portfolios where the customer account level ‘Probability of Default’ has not been determined have been included in the ‘Loans not graded’ category.Loans past due 30 days or less are not presented in this analysis as they are not administratively considered past due. 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. 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. 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. Represents the date of the most recent financial statements made available to the Bank by the associates’ management. Based on the quoted price on the Shanghai Stock Exchange, the Bank’s Investment in Bank of Xi’an Co. Ltd. was $581 (April 30, 2023 – $570; October 31, 2022 – $489). The market value of the investment has remained below the carrying amount. The Bank performed an impairment test as at July 31, 2023 using a value in use (VIU), discounted cash flow model. The Bank concluded that there is no impairment as at July 31, 2023. 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 July 31, 2023, these reserves amounted to $66 (April 30, 2023 – $69; October 31, 2022 – $67). Deposits payable on demand include all deposits for which we do not have the right to notice of withdrawal, generally chequing accounts. Deposits payable after notice include all deposits for which we require notice of withdrawal, generally savings accounts. All deposits that mature on a specified date, generally term deposits, guaranteed investments certificates and similar instruments. Includes $130 (April 30, 2023 – $134; October 31, 2022 – $156) of non-interest-bearing deposits. Deposits denominated in U.S. dollars amount to $325,622 (April 30, 2023 – $326,922; October 31, 2022 – $326,041), deposits denominated in Chilean pesos amount to $20,797 (April 30, 2023 – $21,593; October 31, 2022 – $18,740), deposits denominated in Mexican pesos amount to $37,662 (April 30, 2023 – $34,709; October 31, 2022 – $29,269) and deposits denominated in other foreign currencies amount to $122,403 (April 30, 2023 – $115,466; October 31, 2022 – $106,817). The majority of foreign term deposits are in excess of $100,000. Represents principal amount owed net of write-offs. The Bank currently does not have an active normal course issuer bid and did not repurchase any common shares during the quarter ended July 31, 2023. The Bank’s previous normal course issuer bid terminated on December 1, 2022. Regulatory ratios and amounts reported as at Q3 2023 and Q2 2023 are under Revised Basel III requirements and are not directly comparable to ratios and amounts reported in Q4 2022.Q3 2023 and 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 year regulatory capital ratios were prepared in accordance with OSFI Guideline – Capital Adequacy Requirements (November 2018).Q3 2023 and Q2 2023 leverage ratios are based on Revised Basel III requirements as determined in accordance with OSFI Guideline – Leverage Requirements (February 2023). Prior year leverage ratios were prepared in accordance with OSFI Guideline – Leverage Requirements (November 2018).Other plans operated by certain subsidiaries of the Bank are not considered material and are not included in this note.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.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. This measure has been disclosed in this document in accordance with OSFI Guideline – Total Loss Absorbing Capacity (September 2018).As at July 31, 2023, CET1, Tier 1, Total Capital and TLAC RWA include a Basel III floor adjustment of $1.4 billion (April 30, 2023 – $8.2 billion and as at October 31, 2022, the Bank did not have a regulatory capital floor add-on for CET1, Tier 1, Total Capital and TLAC RWA).The interest income/expense on financial assets/liabilities are calculated using the effective interest method.Includes dividend income on equity securities.Includes interest on lease liabilities for the three months ended July 31, 2023 – $29 (April 30, 2023 – $29; July 31, 2022 – $27) and for the nine months ended July 31, 2023 – $84 (July 31, 2022 – $80).Regulatory amounts reported as at Q3 2023 and Q2 2023 are under Revised Basel III requirements and are not directly comparable to amounts reported in Q4 2022.Earnings per share calculations are based on full dollar and share 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utr:Month iso4217:CAD xbrli:shares iso4217:USD utr:bbl iso4217:USD utr:lb
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form
6-K
Report of Foreign Private Issuer
Pursuant to Rule
13a-16
or
15d-16
of
the Securities Exchange Act of 1934
For the month of: August, 2023
Commission File Number:
002-09048
THE BANK OF NOVA SCOTIA
(Name of registrant)
40 Temperance Street, Toronto, Ontario, M5H 0B4
(416)
933-4103
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form
20-F
or Form
40-F:
Form
20-F  ☐
                    Form
40-F  ☒
This report on Form
6-K
shall be deemed to be incorporated by reference in The Bank of Nova Scotia’s registration statements on Form
S-8
(File
No. 333-199099)
and Form
F-3
(File
No. 333-261476)
and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
THE BANK OF NOVA SCOTIA
Date: August 29, 2023
 
 
By:
 
/s/ Roula Kataras
 
 
 
Name: Roula Kataras
 
 
 
Title: Senior Vice-President and Chief Accountant
EXHIBIT INDEX
 
Exhibit
  
Description of Exhibit
99.1
  
2023 Third Quarter Report to Shareholders
101
  
Interactive Data File (formatted as Inline XBRL)
104
  
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 
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 third quarter results
 
TORONTO, August
 29, 2023 –
Scotiabank reported third quarter net income of $2,212 million compared to $2,594 million in the same period last year. Diluted earnings per share (EPS) were $1.72, compared to $2.09 in the same period a year ago.
 
Adjusted net income
(1)
for the third quarter was $2,227 million and EPS was $1.73, down from $2.10 last year. Adjusted return on equity was 12.2% compared to 15.4% a year ago.
 
“The Bank delivered another quarter of stable earnings, strengthening our capital and liquidity metrics while prudently increasing loan loss allowances and managing expense growth as we navigate this period of economic uncertainty,” said Scott Thomson, President and CEO of Scotiabank.
 
Canadian Banking delivered adjusted earnings
(1)
of $1,063 million this quarter, as provision for credit losses continued to increase. Strong net interest income in the quarter drove an increase in pre-tax pre-provision earnings
(2)
.
 
International Banking generated adjusted earnings
(1)
of $654 million. Strong revenues more than offset higher non-interest expenses resulting in higher pre-tax pre-provision earnings
(2)
. This was offset by higher provision for credit losses.
 
Global Wealth Management adjusted earnings
(1)
were $375 million. Strong double-digit growth across our international businesses were partly offset by challenging market conditions that continue to impact revenue growth in Canada.
 
Global Banking and Markets reported earnings of $434 million this quarter, an increase of 15% year-over-year. The results reflect solid capital markets performance in a challenging market environment.
 
The Bank reported an increased Common Equity Tier 1 (CET1) capital ratio
(3)
of 12.7%, up from 11.4% last year. The Liquidity Coverage Ratio (LCR)
(4)
was strong at 133%, up from 122% in the prior year.
 
“Our results this quarter demonstrate early progress on our deposit growth initiatives and continued focus on balance sheet strength and stability, key priorities as we position the Bank for our next phase of growth,” said Scott Thomson.
 
(1)
   Refer to
Non-GAAP
Measures section starting on page 4.
(2)
   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
.
(3)
   This measure has been disclosed in this document in accordance with OSFI Guideline – Capital Adequacy Requirements (February 2023).
(4)
   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).
 

    
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
  
    Q3 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.    
48-51
    
 
 
 
  
 
 
 
    
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
       20-23         58    
     b) Reconciliation of the accounting balance sheet to the regulatory balance sheet.  
 
     17-18      
 
  
    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
       82        
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, 36-38, 41-56,

65-69,
73, 85, 91		  
 		      
63-67,
79, 123		       176, 229  
    14      Analysis of the capital requirements for each Basel asset class.  
 
    
15-16, 36-57,

63-69,
73, 78-81		  
 		      
63-67
      
 176,
223-229
  
 
    15      Tabulate credit risk in the Banking Book.     83      
15-16, 36-57, 78-81
        
63-67
       224  
    16      Flow statements reconciling the movements in risk-weighted assets for each risk-weighted asset type.  
 
     58, 72, 84        
63-67
    
 
     17      Discussion of Basel III Back-testing requirement including credit risk model performance and validation.  
 
 
 
     89    
 
 
 
    
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, 36-38,
41-56,

65-69
  
 		      
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.     66       33, 34        
88, 117-118,

120, 121		  
 		     187  
    29      Analysis of counterparty credit risk that arises from derivative transactions.     49-50, 83       90        
83-84
      
174-177
  
 
     30      Discussion of credit risk mitigation, including collateral held for all sources of credit risk.     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 Third 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 July 31, 2023. The MD&A should be read in conjunction with the Bank’s unaudited Condensed Interim Consolidated Financial Statements included in this Report to Shareholders, and the Bank’s 2022 Annual Report. This MD&A is dated August 29, 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.sedarplus.ca 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
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.sedarplus.ca and on the EDGAR section of the SEC’s website at www.sec.gov.
 
Scotiabank Third 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 IFRS Accounting 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:
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 Third 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 nine months ended  
($ millions)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Reported Results
               
Net interest income
   
$
4,580
 
    $ 4,466      $ 4,676     
$
13,615
 
    $ 13,493  
Non-interest
income
   
 
3,510
 
      3,463        3,123     
 
10,384
 
      10,297  
Total revenue
   
 
8,090
 
      7,929        7,799     
 
23,999
 
      23,790  
Provision for credit losses
   
 
819
 
      709        412     
 
2,166
 
      853  
Non-interest
expenses
   
 
4,562
 
      4,576        4,191     
 
13,602
 
      12,573  
Income before taxes
   
 
2,709
 
      2,644        3,196     
 
8,231
 
      10,364  
Income tax expense
   
 
497
 
      485        602     
 
2,088
 
      2,283  
Net income
   
$
2,212
 
    $ 2,159      $ 2,594     
$
6,143
 
    $ 8,081  
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
   
 
21
 
      26        54     
 
87
 
      220  
Net income attributable to equity holders
   
 
2,191
 
      2,133        2,540     
 
6,056
 
      7,861  
Net income attributable to preferred shareholders and other equity instrument holders
   
 
105
 
      104        36     
 
310
 
      154  
Net income attributable to common shareholders
   
$
2,086
 
    $ 2,029      $ 2,504     
$
5,746
 
    $ 7,707  
Diluted earnings per share
(in dollars)
   
$
1.72
 
    $ 1.69      $ 2.09     
$
4.76
 
    $ 6.39  
Weighted average number of diluted common shares outstanding
(millions)
   
 
1,214
 
      1,197        1,203     
 
1,201
 
      1,221  
Adjustments
               
Adjusting items impacting
non-interest
expenses
(Pre-tax)
               
Amortization of acquisition-related intangible assets
   
$
20
 
    $ 21      $ 24     
$
62
 
    $ 73  
Total
non-interest
expense adjusting items
(Pre-tax)
   
 
20
 
      21        24     
 
62
 
      73  
Total impact of adjusting items on net income before taxes
   
 
20
 
      21        24     
 
62
 
      73  
Impact of adjusting items on income tax expense
               
Canada recovery dividend
   
 
–
 
      –        –     
 
579
 
      –  
Amortization of acquisition-related intangible assets
   
 
(5
) 
      (6 )       (7 )    
 
(17
) 
      (20 ) 
Total impact of adjusting items on income tax expense
   
 
(5
) 
      (6 )       (7 )    
 
562
 
      (20 ) 
Total impact of adjusting items on net income
   
$
15
 
    $ 15      $ 17     
$
624
 
    $ 53  
Impact of adjusting items on NCI
   
 
–
 
      –        –     
 
–
 
      –  
Total impact of adjusting items on net income attributable to equity holders and common shareholders
   
$
15
 
    $ 15      $ 17     
$
624
 
    $ 53  
Adjusted Results
               
Net interest income
   
$
4,580
 
    $ 4,466      $ 4,676     
$
13,615
 
    $ 13,493  
Non-interest
income
   
 
3,510
 
      3,463        3,123     
 
10,384
 
      10,297  
Total revenue
   
 
8,090
 
      7,929        7,799     
 
23,999
 
      23,790  
Provision for credit losses
   
 
819
 
      709        412     
 
2,166
 
      853  
Non-interest
expenses
   
 
4,542
 
      4,555        4,167     
 
13,540
 
      12,500  
Income before taxes
   
 
2,729
 
      2,665        3,220     
 
8,293
 
      10,437  
Income tax expense
   
 
502
 
      491        609     
 
1,526
 
      2,303  
Net Income
   
$
2,227
 
    $ 2,174      $ 2,611     
$
6,767
 
    $ 8,134  
Net income attributable to NCI
   
 
21
 
      26        54     
 
87
 
      220  
Net income attributable to equity holders
   
 
2,206
 
      2,148        2,557     
 
6,680
 
      7,914  
Net income attributable to preferred shareholders and other equity instrument holders
   
 
105
 
      104        36     
 
310
 
      154  
Net income attributable to common shareholders
   
$
2,101
 
    $ 2,044      $ 2,521     
$
6,370
 
    $ 7,760  
Diluted earnings per share
(in dollars)
   
$
1.73
 
    $ 1.70      $ 2.10     
$
5.28
 
    $ 6.43  
Impact of adjustments on diluted earnings per share
(in dollars)
   
$
0.01
 
    $ 0.01      $ 0.01     
$
0.52
 
    $ 0.04  
Weighted average number of diluted common shares outstanding
(millions)
   
 
1,214
 
      1,197        1,203     
 
1,212
 
      1,221  
 
Scotiabank Third 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 July 31, 2023
(1)
  
($ millions)
  
Canadian
Banking
    
International
Banking
    
Global
Wealth
Management
    
Global
Banking
and Markets
    
Other
    
Total
  
Reported net income (loss)
  
$
1,062
 
  
$
647
 
  
$
368
 
  
$
434
 
  
$
(299
) 
  
$
2,212
 
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
  
 
–
 
  
 
19
 
  
 
2
 
  
 
–
 
  
 
–
 
  
 
21
 
Reported net income attributable to equity holders
  
 
1,062
 
  
 
628
 
  
 
366
 
  
 
434
 
  
 
(299
) 
  
 
2,191
 
Reported net income attributable to preferred shareholders and other equity instrument holders
  
 
2
 
  
 
1
 
  
 
–
 
  
 
1
 
  
 
101
 
  
 
105
 
Reported net income attributable to common shareholders
  
$
1,060
 
  
$
627
 
  
$
366
 
  
$
433
 
  
$
(400
) 
  
$
2,086
 
Adjustments:
            
Adjusting items impacting
non-interest
expenses
(Pre-tax)
            
Amortization of acquisition-related intangible assets
  
 
1
 
  
 
10
 
  
 
9
 
  
 
–
 
  
 
–
 
  
 
20
 
Total
non-interest
expenses adjustments
(Pre-tax)
  
 
1
 
  
 
10
 
  
 
9
 
  
 
–
 
  
 
–
 
  
 
20
 
Total impact of adjusting items on net income before taxes
  
 
1
 
  
 
10
 
  
 
9
 
  
 
–
 
  
 
–
 
  
 
20
 
Impact of adjusting items on income tax expense
  
 
–
 
  
 
(3
) 
  
 
(2
) 
  
 
–
 
  
 
–
 
  
 
(5
) 
Total impact of adjusting items on net income
  
 
1
 
  
 
7
 
  
 
7
 
  
 
–
 
  
 
–
 
  
 
15
 
Total impact of adjusting items on net income attributable to equity holders and common shareholders
  
 
1
 
  
 
7
 
  
 
7
 
  
 
–
 
  
 
–
 
  
 
15
 
Adjusted net income (loss)
  
$
1,063
 
  
$
654
 
  
$
375
 
  
$
434
 
  
$
(299
) 
  
$
2,227
 
Adjusted net income attributable to equity holders
  
$
1,063
 
  
$
635
 
  
$
373
 
  
$
434
 
  
$
(299
) 
  
$
2,206
 
Adjusted net income attributable to common shareholders
  
$
1,061
 
  
$
634
 
  
$
373
 
  
$
433
 
  
$
(400
) 
  
$
2,101
 
(1)
Refer to Business Segment Review on page 18.
 
    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.
 
6    
Scotiabank Third Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
    For the three months ended July 31, 2022
(1)
  
($ millions)
   Canadian
Banking		     International
Banking		     Global
Wealth
Management		     Global
Banking
and Markets		     Other     Total  
Reported net income (loss)
   $ 1,213     $ 677     $ 378     $ 378     $ (52 )    $ 2,594  
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
     –       52       2       –       –       54  
Reported net income attributable to equity holders
     1,213       625       376       378       (52 )      2,540  
Reported net income attributable to preferred shareholders and other equity instrument holders
     1       –       1       1       33       36  
Reported net income attributable to common shareholders
   $ 1,212     $ 625     $ 375     $ 377     $ (85 )    $ 2,504  
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 )      (4 )      (2 )      –       –       (7 ) 
Total impact of adjusting items on net income
     4       6       7       –       –       17  
Total impact of adjusting items on net income attributable to equity holders and common shareholders
     4       6       7       –       –       17  
Adjusted net income (loss)
   $ 1,217     $ 683     $ 385     $ 378     $ (52 )    $ 2,611  
Adjusted net income attributable to equity holders
   $ 1,217     $ 631     $ 383     $ 378     $ (52 )    $ 2,557  
Adjusted net income attributable to common shareholders
   $ 1,216     $ 631     $ 382     $ 377     $ (85 )    $ 2,521  
(1)
Refer to Business Segment Review on page 18.
 
   
For the nine months ended July 31, 2023
(1)
  
($ millions)
  
Canadian
Banking
    
International
Banking
    
Global
Wealth
Management
    
Global
Banking
and Markets
    
Other
    
Total
  
Reported net income (loss)
  
$
3,209
 
  
$
2,004
 
  
$
1,111
 
  
$
1,354
 
  
$
(1,535
) 
  
$
6,143
 
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
  
 
–
 
  
 
80
 
  
 
7
 
  
 
–
 
  
 
–
 
  
 
87
 
Reported net income attributable to equity holders
  
 
3,209
 
  
 
1,924
 
  
 
1,104
 
  
 
1,354
 
  
 
(1,535
) 
  
 
6,056
 
Reported net income attributable to preferred shareholders and other equity instrument holders
  
 
3
 
  
 
4
 
  
 
2
 
  
 
3
 
  
 
298
 
  
 
310
 
Reported net income attributable to common shareholders
  
$
3,206
 
  
$
1,920
 
  
$
1,102
 
  
$
1,351
 
  
$
(1,833
) 
  
$
5,746
 
Adjustments:
            
Adjusting items impacting
non-interest
expenses
(Pre-tax)
            
Amortization of acquisition-related intangible assets
  
 
4
 
  
 
31
 
  
 
27
 
  
 
–
 
  
 
–
 
  
 
62
 
Total
non-interest
expenses adjustments
(Pre-tax)
  
 
4
 
  
 
31
 
  
 
27
 
  
 
–
 
  
 
–
 
  
 
62
 
Total impact of adjusting items on net income before taxes
  
 
4
 
  
 
31
 
  
 
27
 
  
 
–
 
  
 
–
 
  
 
62
 
Impact of adjusting items on income tax expense
            
Canada recovery dividend
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
579
 
  
 
579
 
Impact of other adjusting items on income tax expense
  
 
(1
) 
  
 
(9
) 
  
 
(7
) 
  
 
–
 
  
 
–
 
  
 
(17
) 
Total impact of adjusting items on income tax expense
  
 
(1
) 
  
 
(9
) 
  
 
(7
) 
  
 
–
 
  
 
579
 
  
 
562
 
Total impact of adjusting items on net income
  
 
3
 
  
 
22
 
  
 
20
 
  
 
–
 
  
 
579
 
  
 
624
 
Total impact of adjusting items on net income attributable to equity holders and common shareholders
  
 
3
 
  
 
22
 
  
 
20
 
  
 
–
 
  
 
579
 
  
 
624
 
Adjusted net income (loss)
  
$
3,212
 
  
$
2,026
 
  
$
1,131
 
  
$
1,354
 
  
$
(956
) 
  
$
6,767
 
Adjusted net income attributable to equity holders
  
$
3,212
 
  
$
1,946
 
  
$
1,124
 
  
$
1,354
 
  
$
(956
) 
  
$
6,680
 
Adjusted net income attributable to common shareholders
  
$
3,209
 
  
$
1,942
 
  
$
1,122
 
  
$
1,351
 
  
$
(1,254
) 
  
$
6,370
 
(1)
Refer to Business Segment Review on page 18.
 
Scotiabank Third Quarter Report 2023
    7
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
    For the nine months ended July 31, 2022
(1)
  
($ millions)
   Canadian
Banking		     International
Banking		     Global
Wealth
Management		     Global
Banking
and Markets		     Other     Total  
Reported net income (loss)
   $ 3,593     $ 1,988     $ 1,202     $ 1,427     $ (129 )    $ 8,081  
Net income attributable to
non-controlling
interests in subsidiaries (NCI)
     –       213       7       –       –       220  
Reported net income attributable to equity holders
     3,593       1,775       1,195       1,427       (129 )      7,861  
Reported net income attributable to preferred shareholders and other equity instrument holders
     5       5       3       4       137       154  
Reported net income attributable to common shareholders
   $ 3,588     $ 1,770     $ 1,192     $ 1,423     $ (266 )    $ 7,707  
Adjustments:
            
Adjusting items impacting
non-interest
expenses
(Pre-tax)
            
Amortization of acquisition-related intangible assets
     16       30       27       –       –       73  
Total
non-interest
expenses adjustments
(Pre-tax)
     16       30       27       –       –       73  
Total impact of adjusting items on net income before taxes
     16       30       27       –       –       73  
Impact of adjusting items on income tax expense
     (4 )      (9 )      (7 )      –       –       (20 ) 
Total impact of adjusting items on net income
     12       21       20       –       –       53  
Total impact of adjusting items on net income attributable to equity holders and common shareholders
     12       21       20       –       –       53  
Adjusted net income (loss)
   $ 3,605     $ 2,009     $ 1,222     $ 1,427     $ (129 )    $ 8,134  
Adjusted net income attributable to equity holders
   $ 3,605     $ 1,796     $ 1,215     $ 1,427     $ (129 )    $ 7,914  
Adjusted net income attributable to common shareholders
   $ 3,600     $ 1,791     $ 1,212     $ 1,423     $ (266 )    $ 7,760  
(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 nine months ended  
($ millions)
   April 30, 2023     July 31, 2022     July 31, 2022  
(Taxable equivalent basis)
   Reported     Foreign
exchange		     Constant
dollar		     Reported     Foreign
exchange		     Constant
dollar		     Reported     Foreign
exchange		     Constant
dollar		  
Net interest income
   $ 2,007     $ (22 )    $ 2,029     $ 1,759     $ (194 )    $ 1,953     $ 5,094     $ (436 )    $ 5,530  
Non-interest
income
     745       (44 )      789       660       (27 )      687       2,129       (12 )      2,141  
Total revenue
     2,752       (66 )      2,818       2,419       (221 )      2,640       7,223       (448 )      7,671  
Provision for credit losses
     436       (10 )      446       325       (31 )      356       875       (63 )      938  
Non-interest
expenses
     1,479       (25 )      1,504       1,295       (122 )      1,417       3,848       (268 )      4,116  
Income tax expense
     172       (8 )      180       122       (4 )      126       512       (10 )      522  
Net income
   $ 665     $ (23 )    $ 688     $ 677     $ (64 )    $ 741     $ 1,988     $ (107 )    $ 2,095  
Net income attributable to
non-controlling
interest in subsidiaries (NCI)
   $ 23     $ 2     $ 21     $ 52     $ (4 )    $ 56     $ 213     $ (11 )    $ 224  
Net income attributable to equity holders of the Bank
   $ 642     $ (25 )    $ 667     $ 625     $ (60 )    $ 685     $ 1,775     $ (96 )    $ 1,871  
Other measures
                  
Average assets
($ billions)
   $ 239     $ (1 )    $ 240     $ 209     $ (20 )    $ 229     $ 203     $ (16 )    $ 219  
Average liabilities
($ billions)
   $ 181     $ (1 )    $ 182     $ 155     $ (17 )    $ 172     $ 149     $ (13 )    $ 162  
 
8    
Scotiabank Third Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Adjusted Results
   For the three months ended     For the nine months ended  
($ millions)
   April 30, 2023     July 31, 2022     July 31, 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
   $ 2,007     $ (22 )    $ 2,029     $ 1,759     $ (194 )    $ 1,953     $ 5,094     $ (436 )    $ 5,530  
Non-interest
income
     745       (44 )      789       660       (27 )      687       2,129       (12 )      2,141  
Total revenue
     2,752       (66 )      2,818       2,419       (221 )      2,640       7,223       (448 )      7,671  
Provision for credit losses
     436       (10 )      446       325       (31 )      356       875       (63 )      938  
Non-interest
expenses
     1,468       (25 )      1,493       1,285       (122 )      1,407       3,818       (267 )      4,085  
Income tax expense
     175       (9 )      184       126       (3 )      129       521       (9 )      530  
Net income
   $ 673     $ (22 )    $ 695     $ 683     $ (65 )    $ 748     $ 2,009     $ (109 )    $ 2,118  
Net income attributable to NCI
   $ 23     $ 3     $ 20     $ 52     $ (3 )    $ 55     $ 213     $ (11 )    $ 224  
Net income attributable to equity holders of the Bank
   $ 650     $ (25 )    $ 675     $ 631     $ (62 )    $ 693     $ 1,796     $ (98 )    $ 1,894  
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 Third 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 nine months ended  
($ millions)
   
July 31
2023
     
April 30
2023
     
July 31
2022
     
July 31
2023
     
July 31
2022
  
Average total assets – Reported
(1)
   
$
1,401,515
 
    $ 1,390,459      $ 1,295,165     
$
1,391,195
 
    $ 1,265,149  
Less:
Non-earning
assets
   
 
109,143
 
      111,261        111,324     
 
113,507
 
      101,933  
Average total earning assets
(1)
   
$
1,292,372
 
    $ 1,279,198      $ 1,183,841     
$
1,277,688
 
    $ 1,163,216  
Less:
               
Trading assets
   
 
124,939
 
      115,611        128,890     
 
120,225
 
      145,395  
Securities purchased under resale agreements and securities borrowed
   
 
191,030
 
      189,757        146,002     
 
185,193
 
      134,869  
Other deductions
   
 
75,717
 
      73,073        62,710     
 
73,191
 
      60,166  
Average core earning assets
(1)
   
$
900,686
 
    $ 900,757      $ 846,239     
$
899,079
 
    $ 822,786  
Net Interest Income – Reported
   
$
4,580
 
    $ 4,466      $ 4,676     
$
13,615
 
    $ 13,493  
Less:
Non-core
net interest income
   
 
(192
) 
      (204 )       (53 )    
 
(601
) 
      (63 ) 
Core net interest income
   
$
4,772
 
    $ 4,670      $ 4,729     
$
14,216
 
    $ 13,556  
Net interest margin
   
 
2.10
% 
      2.13 %       2.22 %    
 
2.11
% 
      2.20 % 
(1)
Average balances represent the average of daily balances for the period.
Canadian Banking
 
      For the three months ended      For the nine months ended  
($ millions)
   
July 31
2023
     
April 30
2023
     
July 31
2022
     
July 31
2023
     
July 31
2022
  
Average total assets – Reported
(1)
   
$
450,192
 
    $ 450,634      $ 437,269     
$
450,285
 
    $ 424,088  
Less:
Non-earning
assets
   
 
4,066
 
      3,957        4,089     
 
4,020
 
      4,085  
Average total earning assets
(1)
   
$
446,126
 
    $ 446,677      $ 433,180     
$
446,265
 
    $ 420,003  
Less:
               
Trading assets
   
 
–
 
      –        –     
 
–
 
      –  
Securities purchased under resale agreements and securities borrowed
   
 
–
 
      –        –     
 
–
 
      –  
Other deductions
   
 
30,123
 
      28,655        24,646     
 
28,688
 
      22,569  
Average core earning assets
(1)
   
$
416,003
 
    $ 418,022      $ 408,534     
$
417,577
 
    $ 397,434  
Net Interest Income – Reported
   
$
2,468
 
    $ 2,340      $ 2,361     
$
7,194
 
    $ 6,638  
Less:
Non-core
net interest income
   
 
–
 
      –        –     
 
–
 
      –  
Core net interest income
   
$
2,468
 
    $ 2,340      $ 2,361     
$
7,194
 
    $ 6,638  
Net interest margin
   
 
2.35
% 
      2.30 %       2.29 %    
 
2.30
% 
      2.23 % 
(1)
Average balances represent the average of daily balances for the period.
International Banking
 
      For the three months ended      For the nine months ended  
($ millions)
   
July 31
2023
     
April 30
2023
     
July 31
2022
     
July 31
2023
     
July 31
2022
  
Average total assets – Reported
(1)
   
$
241,396
 
    $ 238,705      $ 209,076     
$
236,130
 
    $ 203,007  
Less:
Non-earning
assets
   
 
19,611
 
      20,050        18,448     
 
19,582
 
      17,284  
Average total earning assets
(1)
   
$
221,785
 
    $ 218,655      $ 190,628     
$
216,548
 
    $ 185,723  
Less:
               
Trading assets
   
 
6,271
 
      6,059        4,860     
 
5,818
 
      4,846  
Securities purchased under resale agreements and securities borrowed
   
 
3,493
 
      2,868        2,245     
 
3,134
 
      872  
Other deductions
   
 
7,890
 
      7,240        6,616
(2)
 		   
 
7,570
 
      6,679
(2)
 
Average core earning assets
(1)
   
$
204,131
 
    $ 202,488      $ 176,907     
$
200,026
 
    $ 173,326  
Net Interest Income – Reported
   
$
2,118
 
    $ 2,007      $ 1,759     
$
6,024
 
    $ 5,094  
Less:
Non-core
net interest income
   
 
8
 
      (27 )       (1 )    
 
(73
) 
      7  
Core net interest income
   
$
2,110
 
    $ 2,034      $ 1,760     
$
6,097
 
    $ 5,087  
Net interest margin
   
 
4.10
% 
      4.12 %       3.95 %    
 
4.08
% 
      3.92 % 
(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 Third 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 July 31, 2023
  
($ millions)
   
Canadian
Banking
    
International
Banking
     
Global
Wealth
Management
     
Global
Banking
and Markets
    
Other
     
Total
  
Reported
                
Net income attributable to common shareholders
   
$
1,060
 
  
$
627
 
   
$
366
 
   
$
433
 
  
$
(400
) 
   
$
2,086
 
Total average common equity
   
 
18,678
 
  
 
18,493
 
   
 
9,743
 
   
 
13,310
 
  
 
8,305
 
   
 
68,529
 
Return on equity
   
 
22.5
% 
  
 
13.4
% 
   
 
14.9
% 
   
 
12.9
% 
  
 
nm
(1)
 
   
 
12.1
% 
Adjusted
(2)
                
Net income attributable to common shareholders
   
$
1,061
 
  
$
634
 
   
$
373
 
   
$
433
 
  
$
(400
) 
   
$
2,101
 
Return on equity
   
 
22.5
% 
  
 
13.6
% 
   
 
15.2
% 
   
 
12.9
% 
  
 
nm
(1)
 
   
 
12.2
% 
(1)
Not meaningful
(2)
Refer to Tables on page 5.
 
     For the three months ended April 30, 2023     For the three months ended July 31, 2022  
($ millions)
   Canadian
Banking		     International
Banking		     Global
Wealth
Management		     Global
Banking
and Markets		     Other     Total     Canadian
Banking		     International
Banking		     Global
Wealth
Management		     Global
Banking
and Markets		     Other     Total  
Reported
            
 
            
Net income attributable to common shareholders
  
$
1,059
 
  
$
641
 
  
$
352
 
  
$
400
 
  
$
(423
) 
  
$
2,029
 
  
$
1,212
 
  
$
625
 
  
$
375
 
  
$
377
 
  
$
(85
) 
  
$
2,504
 
Total average common equity
  
 
19,077
 
  
 
19,866
 
  
 
9,732
 
  
 
15,587
 
  
 
3,332
 
  
 
67,594
 
  
 
18,433
 
  
 
19,085
 
  
 
9,631
 
  
 
13,488
 
  
 
4,301
 
  
 
64,938
 
Return on equity
  
 
22.8
% 
  
 
13.2
% 
  
 
14.8
% 
  
 
10.5
% 
  
 
nm
(1)
 
  
 
12.3
% 
  
 
26.1
% 
  
 
13.0
% 
  
 
15.5
% 
  
 
11.1
% 
  
 
nm
(1)
 
  
 
15.3
% 
Adjusted
(2)
            
 
            
Net income attributable to common shareholders
  
$
1,060
 
  
$
649
 
  
$
358
 
  
$
400
 
  
$
(423
) 
  
$
2,044
 
  
$
1,216
 
  
$
631
 
  
$
382
 
  
$
377
 
  
$
(85
) 
  
$
2,521
 
Return on equity
  
 
22.8
% 
  
 
13.4
% 
  
 
15.1
% 
  
 
10.5
% 
  
 
nm
(1)
 
  
 
12.4
% 
  
 
26.2
% 
  
 
13.1
% 
  
 
15.7
% 
  
 
11.1
% 
  
 
nm
(1)
 
  
 
15.4
% 
(1)
Not meaningful
(2)
Refer to Tables on page 5.
 
    
For the nine months ended July 31, 2023
     For the nine months ended July 31, 2022  
($ millions)
  
Canadian
Banking
    
International
Banking
    
Global
Wealth
Management
    
Global
Banking
and Markets
    
Other
    
Total
     Canadian
Banking		     International
Banking		     Global
Wealth
Management		     Global
Banking
and Markets		     Other     Total  
Reported
            
 
            
Net income attributable to common shareholders
  
$
3,206
 
  
$
1,920
 
  
$
1,102
 
  
$
1,351
 
  
$
(1,833
) 
  
$
5,746
 
  
$
3,588
 
  
$
1,770
 
  
$
1,192
 
  
$
1,423
 
  
$
(266
) 
  
$
7,707
 
Total average common equity
  
 
18,834
 
  
 
19,214
 
  
 
9,770
 
  
 
14,802
 
  
 
4,460
 
  
 
67,080
 
  
 
17,885
 
  
 
18,482
 
  
 
9,534
 
  
 
13,014
 
  
 
6,285
 
  
 
65,200
 
Return on equity
  
 
22.8
% 
  
 
13.4
% 
  
 
15.1
% 
  
 
12.2
% 
  
 
nm
(1)
 
  
 
11.5
% 
  
 
26.8
% 
  
 
12.8
% 
  
 
16.7
% 
  
 
14.6
% 
  
 
nm
(1)
 
  
 
15.8
% 
Adjusted
(2)
            
 
            
Net income attributable to common shareholders
  
$
3,209
 
  
$
1,942
 
  
$
1,122
 
  
$
1,351
 
  
$
(1,254
) 
  
$
6,370
 
  
$
3,600
 
  
$
1,791
 
  
$
1,212
 
  
$
1,423
 
  
$
(266
) 
  
$
7,760
 
Return on equity
  
 
22.8
% 
  
 
13.5
% 
  
 
15.4
% 
  
 
12.2
% 
  
 
nm
(1)
 
  
 
12.7
% 
  
 
26.9
% 
  
 
13.0
% 
  
 
17.0
% 
  
 
14.6
% 
  
 
nm
(1)
 
  
 
15.9
% 
(1)
Not meaningful
(2)
Refer to Tables on page 5.
 
Scotiabank Third 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 nine months ended  
($ millions)
  
July 31
2023
      April 30
2023		      July 31
2022		    
July 31
2023
      July 31
2022		  
Reported
             
Average common equity – Reported
(1)
  
$
68,529
 
    $ 67,594      $ 64,938    
$
67,080
 
    $ 65,200  
Average goodwill
(1)(2)
  
 
(9,515
) 
      (9,513 )       (9,157 )   
 
(9,425
) 
      (9,195 ) 
Average acquisition-related intangibles (net of deferred tax)
(1)
  
 
(3,737
) 
      (3,747 )       (3,791 )   
 
(3,748
) 
      (3,813 ) 
Average tangible common equity
(1)
  
$
55,277
 
    $ 54,334      $ 51,990    
$
53,907
 
    $ 52,192  
Net income attributable to common shareholders – reported
  
$
2,086
 
    $ 2,029      $ 2,504    
$
5,746
 
    $ 7,707  
Amortization of acquisition-related intangible assets (after tax)
(3)
  
 
15
 
      15        17    
 
45
 
      53  
Net income attributable to common shareholders adjusted for amortization of acquisition-related intangible assets (after tax)
  
$
2,101
 
    $ 2,044      $ 2,521    
$
5,791
 
    $ 7,760  
Return on tangible common equity
(4)
  
 
15.1
% 
      15.4 %       19.2 %   
 
14.4
% 
      19.9 % 
Adjusted
(3)
             
Adjusted net income attributable to common shareholders
  
$
2,101
 
    $ 2,044      $ 2,521    
$
6,370
 
    $ 7,760  
Return on tangible common equity – adjusted
(4)
  
 
15.1
% 
      15.4 %       19.2 %   
 
15.8
% 
      19.9 % 
(1)
Average amounts calculated using methods intended to approximate the daily average balances for the period.
(2)
Includes imputed goodwill from investments in associates.
(3)
Refer to Table on page 5.
(4)
Calculated on full dollar amounts.
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 Third 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 nine months ended  
(Unaudited)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Operating results
($ millions)
               
Net interest income
   
 
4,580
 
      4,466        4,676     
 
13,615
 
      13,493  
Non-interest
income
   
 
3,510
 
      3,463        3,123     
 
10,384
 
      10,297  
Total revenue
   
 
8,090
 
      7,929        7,799     
 
23,999
 
      23,790  
Provision for credit losses
   
 
819
 
      709        412     
 
2,166
 
      853  
Non-interest
expenses
   
 
4,562
 
      4,576        4,191     
 
13,602
 
      12,573  
Income tax expense
   
 
497
 
      485        602     
 
2,088
 
      2,283  
Net income
   
 
2,212
 
      2,159        2,594     
 
6,143
 
      8,081  
Net income attributable to common shareholders
   
 
2,086
 
      2,029        2,504     
 
5,746
 
      7,707  
Operating performance
               
Basic earnings per share
($)
   
 
1.74
 
      1.70        2.10     
 
4.81
 
      6.41  
Diluted earnings per share 
($)
   
 
1.72
 
      1.69        2.09     
 
4.76
 
      6.39  
Return on equity
(%)
(1)
   
 
12.1
 
      12.3        15.3     
 
11.5
 
      15.8  
Return on tangible common equity
(%)
(2)
   
 
15.1
 
      15.4        19.2     
 
14.4
 
      19.9  
Productivity ratio
(%)
(1)
   
 
56.4
 
      57.7        53.7     
 
56.7
 
      52.8  
Net interest margin
(%)
(2)
   
 
2.10
 
      2.13        2.22     
 
2.11
 
      2.20  
Financial position information
($ millions)
               
Cash and deposits with financial institutions
   
 
90,325
 
      63,893        67,715        
Trading assets
   
 
119,301
 
      114,695        118,605        
Loans
   
 
752,205
 
      764,068        713,378        
Total assets
   
 
1,396,098
 
      1,373,198        1,292,102        
Deposits
   
 
957,225
 
      945,538        879,582        
Common equity
   
 
67,982
 
      69,077        65,043        
Preferred shares and other equity instruments
   
 
8,075
 
      8,075        7,052        
Assets under administration
(1)
   
 
690,846
 
      684,170        630,087        
Assets under management
(1)
   
 
331,340
 
      329,502        319,612     
 
 
 
   
 
 
 
Capital and liquidity measures
               
Common Equity Tier 1 (CET1) capital ratio
(%)
(3)
   
 
12.7
 
      12.3        11.4        
Tier 1 capital ratio
(%)
(3)
   
 
14.6
 
      14.1        13.0        
Total capital ratio
(%)
(3)
   
 
16.9
 
      16.2        15.0        
Total loss absorbing capacity (TLAC) ratio
(%)
(4)
   
 
30.5
 
      28.3        28.4        
Leverage ratio
(%)
(5)
   
 
4.1
 
      4.2        4.2        
TLAC Leverage ratio
(%)
(4)
   
 
8.7
 
      8.4        9.3        
Risk-weighted assets
($ millions)
(3)
   
 
439,814
 
      451,063        452,800        
Liquidity coverage ratio (LCR)
(%)
(6)
   
 
133
 
      131        122        
Net stable funding ratio (NSFR)
(%)
(7)
   
 
114
 
      111        109     
 
 
 
   
 
 
 
Credit quality
               
Net impaired loans
($ millions)
   
 
3,667
 
      3,554        2,695        
Allowance for credit losses
($ millions)
(8)
   
 
6,094
 
      5,931        5,295        
Gross impaired loans as a % of loans and acceptances
(1)
   
 
0.70
 
      0.67        0.58        
Net impaired loans as a % of loans and acceptances
(1)
   
 
0.47
 
      0.45        0.36        
Provision for credit losses as a % of average net loans and
acceptances (annualized)
(1)(9)
   
 
0.42
 
      0.37        0.22     
 
0.37
 
      0.16  
Provision for credit losses on impaired loans as a % of average net loans and acceptances (annualized)
(1)(9)
   
 
0.38
 
      0.33        0.21     
 
0.33
 
      0.23  
Net write-offs as a % of average net loans and acceptance (annualized)
(1)
   
 
0.34
 
      0.29        0.21     
 
0.31
 
      0.24  
Adjusted results
(2)
               
Adjusted net income
($ millions)
   
 
2,227
 
      2,174        2,611     
 
6,767
 
      8,134  
Adjusted diluted earnings per share
($)
   
 
1.73
 
      1.70        2.10     
 
5.28
 
      6.43  
Adjusted return on equity
(%)
   
 
12.2
 
      12.4        15.4     
 
12.7
 
      15.9  
Adjusted return on tangible common equity
(%)
   
 
15.1
 
      15.4        19.2     
 
15.8
 
      19.9  
Adjusted productivity ratio
(%)
   
 
56.1
 
      57.5        53.4     
 
56.4
 
      52.5  
Common share information
               
Closing share price
($)
 (TSX)
   
 
66.40
 
      67.63        78.01        
Shares outstanding
(millions)
               
Average – Basic
   
 
1,199
 
      1,192        1,195     
 
1,194
 
      1,201  
Average – Diluted
   
 
1,214
 
      1,197        1,203     
 
1,201
 
      1,221  
End of period
   
 
1,205
 
      1,198        1,193        
Dividends paid per share
($)
   
 
1.06
 
      1.03        1.03     
 
3.12
 
      3.03  
Dividend yield
(%)
(1)
   
 
6.5
 
      6.0        5.2     
 
6.1
 
      4.9  
Market capitalization
($ millions)
(TSX)
   
 
80,034
 
      81,033        93,059        
Book value per common share
($)
(1)
   
 
56.40
 
      57.65        54.52        
Market value to book value multiple
(1)
   
 
1.2
 
      1.2        1.4        
Price to earnings multiple (trailing 4 quarters)
(1)
   
 
10.3
 
      9.9        9.3     
 
 
 
   
 
 
 
Other information
               
Employees (full-time equivalent)
   
 
91,013
 
      91,030        90,978        
Branches and offices
(10)
   
 
2,398
 
      2,398        2,447     
 
 
 
   
 
 
 
(1)
Refer to Glossary on page 53 for the description of the measure.
(2)
Refer to
Non-GAAP
Measures section starting on page 4.
(3)
Q3 2023 and 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)
Q3 2023 and 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 Third 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 $2,212 million, compared to $2,594 million in the same period last year and $2,159 million last quarter. Diluted earnings per share were $1.72 compared to $2.09 in the same period last year and $1.69 last quarter. Return on equity was 12.1%, compared to 15.3% in the same period last year and 12.3% last quarter.
Adjusted net income was $2,227 million compared to $2,611 million last year, a decrease of 15%. The decrease was due mainly to higher provision for credit losses and
non-interest
expenses, partly offset by higher
non-interest
income and a lower provision for income taxes.
Adjusted net income was $2,227 million this quarter compared to $2,174 million last quarter, an increase of 2%. The increase was due mainly to higher revenues, partly offset by a higher provision for credit losses.
Adjusted diluted earnings per share were $1.73 compared to $2.10 last year and $1.70 last quarter. Adjusted return on equity was 12.2% compared to 15.4% a year ago and 12.4% last quarter.
Refer to
non-GAAP
measures starting on page 4 for details of adjustments.
Economic summary and outlook
The global economic outlook is mixed. In Canada and the United States, incoming data suggests households have been more resilient to past interest rate increases, suggesting that these economies are landing softly and will grow more rapidly than earlier forecast. In Europe, economies are slowing more rapidly with a recession there looking to be increasingly likely. There is clear evidence of a significant slowdown in China that is having limited impacts on global markets and commodity prices thus far. The outlook is mixed in the Pacific Alliance countries, where the negative impacts of El Nino are being felt in Peru, economic activity is slowing as expected in Chile and Colombian growth is better than expected so far this year. Mexican growth, as in the United States and Canada, has been stronger than expected as a notable increase in investment is underway.
Inflation continues to be a global challenge and remains well above many central bank targets though recent inflation data generally confirm that inflation is trending down. As a result, some central banks are at the end or nearing the end of the tightening cycle (such as Canada, United States, United Kingdom and Euro Zone), while some are now expected to aggressively cut policy rates this year (Chile, Colombia, Peru and Mexico).
In Canada, the economy is adjusting to higher interest rates and a record population surge. The population surge has contributed to the surprising resilience of the economy in this increasing interest rate cycle. It is also fundamentally raising the economy’s
non-inflationary
growth potential. Accompanying this population surge has been resilient, and rising, household spending. The economy is nevertheless slowing, given past increases in the Bank of Canada’s policy rate. This slowdown is expected to be modest by historical standards, with economic activity essentially stalling near the end of 2023 and into 2024. It is likely that the Bank of Canada is done raising interest rates, and will cut rates very gradually starting mid 2024.
A number of risks continue to cloud the outlook. Geopolitical uncertainty remains high. Inflation could again prove to be more persistent, requiring higher policy rates. Economic growth could weaken materially more than currently expected, leading to an earlier reversal in interest rates, but also weaker household and corporate finances.
 
14    
Scotiabank Third 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   
July 31, 2023
      April 30, 2023      July 31, 2022      July 31, 2023
vs. April 30, 2023		     July 31, 2023
vs. July 31, 2022		  
U.S dollar/Canadian dollar
   
 
0.750
 
      0.738        0.778        1.5 %      (3.6 )% 
Mexican Peso/Canadian dollar
   
 
12.959
 
      13.549        15.678        (4.3 )%      (17.3 )% 
Peruvian Sol/Canadian dollar
   
 
2.733
 
      2.799        2.957        (2.4 )%      (7.6 )% 
Colombian Peso/Canadian dollar
   
 
3,190.607
 
      3,469.331        3,199.898        (8.0 )%      (0.3 )% 
Chilean Peso/Canadian dollar
   
 
602.809
 
      594.071        690.164        1.5 %      (12.7 )% 
         
                      Average exchange rate     % Change  
For the nine months ended                   
July 31, 2023
      July 31, 2022     July 31, 2023
vs. July 31, 2022		  
U.S dollar/Canadian dollar
                     
 
0.743
 
      0.785       (5.4 )% 
Mexican Peso/Canadian dollar
                     
 
13.617
 
      16.044       (15.1 )% 
Peruvian Sol/Canadian dollar
                     
 
2.795
 
      3.022       (7.5 )% 
Colombian Peso/Canadian dollar
                     
 
3,408.549
 
      3,121.586       9.2 % 
Chilean Peso/Canadian dollar
   
 
 
 
   
 
 
 
   
 
614.621
 
      660.947       (7.0 )% 
         
                      For the three months ended     For the
nine months ended		  
Impact on net income
(1)
($ millions except EPS)
                    July 31, 2023
vs. July 31, 2022		      July 31, 2023
vs. April 30, 2023		     July 31, 2023
vs. July 31, 2022		  
Net interest income
                      $ 209      $ 24     $ 496  
Non-interest
income
(2)
                        42        22       –  
Total revenue
                        251        46       496  
Non-interest
expenses
                        (152 )       (20 )      (373 ) 
Other items (net of tax)
(2)
   
 
 
 
   
 
 
 
      (58 )       (18 )      (94 ) 
Net income
   
 
 
 
   
 
 
 
    $ 41      $ 8     $ 29  
Earnings per share (diluted)
   
 
 
 
   
 
 
 
    $ 0.03      $ 0.01     $ 0.02  
Impact by business line
($ millions)
                                            
Canadian Banking
                      $ 1      $ –     $ 4  
International Banking
(2)
                        32        13       25  
Global Wealth Management
                        4        –       18  
Global Banking and Markets
                        11        (5 )      56  
Other
(2)
   
 
 
 
   
 
 
 
      (7 )       –       (74 ) 
Net income
   
 
 
 
   
 
 
 
    $ 41      $ 8     $ 29  
(1)
Includes the impact of all currencies.
(2)
Includes the impact of foreign currency hedges.
 
Scotiabank Third Quarter Report 2023
    15
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Group Financial Performance
Net income
Q3 2023 vs Q3 2022
Net income was $2,212 million compared to $2,594 million. Adjusted net income was $2,227 million compared to $2,611 million, a decrease of 15%, due mainly to higher provision for credit losses and
non-interest
expenses, partly offset by higher
non-interest
income and lower provision for income taxes.
Q3 2023 vs Q2 2023
Net income was $2,212 million compared to $2,159 million. Adjusted net income was $2,227 million compared to $2,174 million, an increase of 2%, due mainly to higher revenues, partly offset by higher provision for credit losses.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Net income was $6,143 million compared to $8,081 million. Adjusted net income was $6,767 million compared to $8,134 million, a decrease of 17%, due mainly to higher provision for credit losses and
non-interest
expenses, partly offset by higher revenues and lower provision for income taxes.
Total revenue
Q3 2023 vs Q3 2022
Revenues were $8,090 million compared to $7,799 million, an increase of $291 million or 4%.
Net interest income was $4,580 million, down $96 million or 2%. Loan growth across corporate, commercial, and retail lending, and the positive impact of foreign currency translation were more than offset by a lower net interest margin. Net interest margin was down 12 basis points to 2.10%, driven primarily by a lower contribution from asset/liability management activities related to higher funding costs. These were partly offset by higher margins in International and Canadian Banking, both benefitting from central bank rate increases.
Non-interest
income was $3,510 million, up $387 million or 12%. The increase was due mainly to higher banking revenues, trading-related revenues in fixed income and equities, underwriting and advisory fees, wealth management revenues, and the positive impact of foreign currency translation.
Q3 2023 vs Q2 2023
Revenues were $8,090 million, compared to $7,929 million, an increase of $161 million or 2%.
Net interest income of $4,580 million was up $114 million or 3% primarily from the impact of three more days in the quarter and the positive impact of foreign currency translation, partly offset by a lower net interest margin. Earning assets were in line with the prior quarter. Net interest margin was down three basis points driven primarily by a lower contribution from asset/liability management activities related to higher funding costs due to central bank rate increases. Partly offsetting were higher margins in Canadian Banking.
Non-interest
income was up $47 million or 1%. The increase was due primarily to higher banking revenues, wealth management revenues, lower unrealized losses on
non-trading
derivatives, and the positive impact of foreign currency translation, partly offset by lower trading revenues and investment gains.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Revenues were $23,999 million compared to $23,790 million, an increase of $209 million or 1%.
Net interest income was $13,615 million, an increase of $122 million or 1%. Strong growth in corporate, commercial, and retail loans, as well as the positive impact of foreign currency translation were partly offset by a lower net interest margin. Net interest margin was down nine basis points to 2.11%, driven primarily by a lower contribution from asset/liability management activities related to higher funding costs. This was partly offset by higher margins in International and Canadian Banking, both benefitting from central bank rate increases.
Non-interest
income was up $87 million or 1% due primarily to higher banking revenues, other fees and commissions, and investment gains, partly offset by lower wealth management revenues, higher unrealized losses on
non-trading
derivatives, and reduced income from associated corporations.
Provision for credit losses
Q3 2023 vs Q3 2022
The provision for credit losses was $819 million, compared to $412 million, an increase of $407 million. The provision for credit losses ratio increased 20 basis points to 42 basis points.
The provision for credit losses on performing loans was $81 million, compared to $23 million. The provision this period was driven primarily by the continued unfavourable macroeconomic outlook, challenging market conditions in Chile and Colombia driven by higher inflation, and by retail portfolio growth.
The provision for credit losses on impaired loans was $738 million, compared to $389 million, an increase of $349 million due primarily to higher formations in Canadian Banking and International retail portfolios. The provision for credit losses ratio on impaired loans was 38 basis points, an increase of 17 basis points.
Q3 2023 vs Q2 2023
The provision for credit losses was $819 million, compared to $709 million, an increase of $110 million or 16%. The provision for credit losses ratio increased five basis points to 42 basis points.
The provision for credit losses on performing loans was $81 million, compared to $88 million, a decrease of $7 million. The provision this period was driven primarily by the continued unfavourable macroeconomic outlook, challenging market conditions in Chile and Colombia driven by higher inflation, and retail portfolio growth.
 
16    
Scotiabank Third Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
The provision for credit losses on impaired loans was $738 million, compared to $621 million, an increase of $117 million or 19% due primarily to higher formations in the Canadian Banking and International retail portfolios. The provision for credit losses ratio on impaired loans was 38 basis points, an increase of five basis points.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
The provision for credit losses was $2,166 million, compared to $853 million, an increase of $1,313 million. The provision for credit losses ratio increased 21 basis points to 37 basis points.
Provision for credit losses on performing loans was $245 million, compared to a net reversal of $347 million. The provision this period was driven primarily by the continued unfavourable macroeconomic outlook and retail portfolio growth across markets.
Provision for credit losses on impaired loans was $1,921 million compared to $1,200 million, an increase of $721 million or 60% due primarily to higher formations in the Canadian and International retail portfolios. The provision for credit losses ratio on impaired loans increased 10 basis points to 33 basis points.
Non-interest expenses
Q3 2023 vs Q3 2022
Non-interest
expenses were $4,562 million, up $371 million or 9%. Adjusted
non-interest
expenses were $4,542 million, up $375 million or 9%, driven by higher personnel costs, performance-based compensation, technology and advertising costs to support business growth, as well as the unfavourable impact of foreign currency translation.
The productivity ratio was 56.4% compared to 53.7%. The adjusted productivity ratio was 56.1% compared to 53.4%.
Q3 2023 vs Q2 2023
Non-interest
expenses were down $14 million, while adjusted
non-interest
expenses were down $13 million. The decrease was driven by lower share-based compensation, other employee benefits and performance-based compensation. This was mostly offset by the impact of three additional days in the quarter and the unfavourable impact of foreign currency translation.
The productivity ratio was 56.4% compared to 57.7%. The adjusted productivity ratio was 56.1% compared to 57.5%.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Non-interest
expenses were $13,602 million, up $1,029 million or 8%. Adjusted
non-interest
expenses were $13,540 million, up $1,040 million or 8%, driven by higher personnel costs, advertising, and technology costs to support business growth, business and capital taxes, and the unfavourable impact of foreign currency translation. Partly offsetting were lower professional fees and share-based compensation.
The productivity ratio was 56.7% compared to 52.8%. The adjusted productivity ratio was 56.4% compared to 52.5%.
Operating leverage was negative 7.3% on a reported basis and negative 7.4% on an adjusted basis.
Taxes
Q3 2023 vs Q3 2022
The effective tax rate was 18.4% compared to 18.8% due primarily to higher income from lower tax rate jurisdictions and higher
tax-exempt
income, partly offset by lower inflationary adjustments in the current period.
Q3 2023 vs Q2 2023
The effective tax rate of 18.4% was in line with the prior quarter.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
The effective tax rate was 25.4% compared to 22.0% due primarily to the impact of the CRD in the current year. On an adjusted basis, the effective rate was 18.4% compared to 22.1%, due primarily to higher income from lower tax rate jurisdictions and higher
tax-exempt
income, partly offset by lower inflationary adjustments in the current year.
 
Scotiabank Third 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 nine months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Reported Results
               
Net interest income
   
$
2,468
 
    $ 2,340      $ 2,361     
$
7,194
 
    $ 6,638  
Non-interest
income
(1)
   
 
748
 
      794        758     
 
2,320
 
      2,258  
Total revenue
   
 
3,216
 
      3,134        3,119     
 
9,514
 
      8,896  
Provision for credit losses
   
 
307
 
      218        93     
 
743
 
      46  
Non-interest
expenses
   
 
1,448
 
      1,457        1,385     
 
4,354
 
      3,991  
Income tax expense
   
 
399
 
      399        428     
 
1,208
 
      1,266  
Net income
   
$
1,062
 
    $ 1,060      $ 1,213     
$
3,209
 
    $ 3,593  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –     
$
–
 
    $ –  
Net income attributable to equity holders of the Bank
   
$
1,062
 
    $ 1,060      $ 1,213     
$
3,209
 
    $ 3,593  
Other financial data and measures
               
Return on equity
(2)
   
 
22.5
% 
      22.8 %       26.1 %    
 
22.8
% 
      26.8 % 
Net interest margin
(2)
   
 
2.35
% 
      2.30 %       2.29 %    
 
2.30
% 
      2.23 % 
Provision for credit losses – performing (Stage 1 and 2)
   
$
49
 
    $ (5 )     $ (50 )    
$
75
 
    $ (353 ) 
Provision for credit losses – impaired (Stage 3)
   
$
258
 
    $ 223      $ 143     
$
668
 
    $ 399  
Provision for credit losses as a percentage of average net loans and acceptances (annualized)
(3)
   
 
0.27
% 
      0.20 %       0.09 %    
 
0.22
% 
      0.01 % 
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)
(3)
   
 
0.23
% 
      0.21 %       0.13 %    
 
0.20
% 
      0.13 % 
Net write-offs as a percentage of average net loans and acceptances (annualized)
(3)
   
 
0.20
% 
      0.18 %       0.12 %    
 
0.18
% 
      0.13 % 
Average assets
($ billions)
   
$
450
 
    $ 451      $ 437     
$
450
 
    $ 424  
Average liabilities
($ billions)
   
$
376
 
    $ 367      $ 337     
$
367
 
    $ 328  
(1)
Includes income (on a taxable equivalent basis) from associated corporations for the three months ended July 31, 2023 – $8 (April 30, 2023 – $25; July 31, 2022 – $15) and for the nine months ended July 31, 2023 – $48 (July 31, 2022 – $41).
(2)
Refer to
Non-GAAP
Measures starting on page 4 for the description of the measure.
(3)
Refer to Glossary on page 53 for the description of the measure.
 
T8A Adjusted Canadian Banking financial performance
                                   
      For the three months ended      For the nine months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Adjusted Results
(1)
               
Net interest income
   
$
2,468
 
    $ 2,340      $ 2,361     
$
7,194
 
    $ 6,638  
Non-interest
income
   
 
748
 
      794        758     
 
2,320
 
      2,258  
Total revenue
   
 
3,216
 
      3,134        3,119     
 
9,514
 
      8,896  
Provision for credit losses
   
 
307
 
      218        93     
 
743
 
      46  
Non-interest
expenses
(2)
   
 
1,447
 
      1,456        1,380     
 
4,350
 
      3,975  
Income tax expense
   
 
399
 
      399        429     
 
1,209
 
      1,270  
Net income
   
$
1,063
 
    $ 1,061      $ 1,217     
$
3,212
 
    $ 3,605  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –     
$
–
 
    $ –  
Net income attributable to equity holders of the Bank
   
$
1,063
 
    $ 1,061      $ 1,217     
$
3,212
 
    $ 3,605  
(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 July 31, 2023 – $1 (April 30, 2023 – $1; July 31, 2022 – $5) and for the nine months ended July 31, 2023 – $4 (July 31, 2022 – $16).
 
18    
Scotiabank Third Quarter Report 2023
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Net income
Q3 2023 vs Q3 2022
Net income attributable to equity holders was $1,062 million, compared to $1,213 million. Adjusted net income attributable to equity holders was $1,063 million, down $154 million or 13%. The decline was due primarily to higher provision for credit losses and
non-interest
expenses, partly offset by higher revenue.
Q3 2023 vs Q2 2023
Net income attributable to equity holders and adjusted net income attributable to equity holders increased by $2 million. Higher revenue and lower
non-interest
expenses were largely offset by higher provision for credit losses.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Net income attributable to equity holders was $3,209 million, compared to $3,593 million. Adjusted net income attributable to equity holders was $3,212 million, down $393 million or 11%. The decline was due primarily to higher provision for credit losses and
non-interest
expenses, partly offset by higher revenue.
Average assets
Q3 2023 vs Q3 2022
Average assets were $450 billion, an increase of $13 billion or 3%. The growth included $10 billion or 13% in business loans and acceptances, $3 billion or 4% in personal loans, and $1 billion or 17% in credit cards, offset by a decline of $1 billion or 1% in residential mortgages.
Q3 2023 vs Q2 2023
Average assets were in line with the prior quarter. The growth of $2 billion or 3% in business loans and acceptances, and $1 billion or 1% in personal loans, was offset by a decline of $4 billion or 1% in residential mortgages.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Average assets were $450 billion, an increase of $26 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 5% in personal loans, and $1 billion or 15% in credit cards.
Average liabilities
Q3 2023 vs Q3 2022
Average liabilities were $376 billion, an increase of $39 billion or 12%. The growth included $26 billion or 13% in personal deposits, primarily in term products, and $7 billion or 6% in
non-personal
deposits.
Q3 2023 vs Q2 2023
Average liabilities increased $9 billion or 3%. The growth included $4 billion or 3% in
non-personal
deposits, and $3 billion or 2% in personal deposits, primarily in term products.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Average liabilities were $367 billion, an increase of $39 billion or 12%. The growth included $27 billion or 14% in personal deposits, primarily in term products, and $6 billion or 5% in
non-personal
deposits.
Total revenue
Q3 2023 vs Q3 2022
Revenues were $3,216 million, up $97 million or 3%.
Net interest income of $2,468 million increased $107 million or 4% due primarily to solid loan and deposit growth, as well as margin expansion. The net interest margin increased six basis points to 2.35% due mainly to the impact of the Bank of Canada rate increases on deposit margins, partly offset by lower loan margins.
Non-interest
income of $748 million declined $10 million or 1%. The decline was due to lower card revenues and reduced income from investment in associates.
Q3 2023 vs Q2 2023
Revenues increased $82 million or 3%.
Net interest income increased $128 million or 5% due primarily to strong deposit growth, margin expansion, and the impact of three more days in the quarter. The net interest margin increased five basis points to 2.35% due to the impact of the Bank of Canada rate increases on deposit margins.
Non-interest
income was down $46 million or 6%. The decline was due primarily to elevated private equity gains in the prior period, and lower income from investment in associates, card revenues, foreign exchange fees, and insurance revenue.
 
Scotiabank Third Quarter Report 2023
    19
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Revenues were $9,514 million, up $618 million or 7%.
Net interest income of $7,194 million increased $556 million or 8% due primarily to strong loan and deposit growth, as well as margin expansion. The net interest margin increased seven basis points to 2.30% due mainly to the impact of the Bank of Canada rate increases on deposit margins, partly offset by lower loan margins.
Non-interest
income of $2,320 million increased $62 million or 3%. The increase was due primarily to elevated private equity gains, higher deposit fee revenues, insurance revenue, foreign exchange fees and income from investment in associates, partly offset by lower card revenues and mutual fund distribution fees.
Provision for credit losses
Q3 2023 vs Q3 2022
The provision for credit losses was $307 million, compared to $93 million, an increase of $214 million. The provision for credit losses ratio increased 18 basis points to 27 basis points.
The provision for credit losses on performing loans was $49 million, compared to a net reversal of $50 million. The provision this period was primarily driven by the continued unfavourable macroeconomic outlook, and portfolio growth, primarily in retail.
Provision for credit losses on impaired loans was $258 million, compared to $143 million, an increase of $115 million due primarily to higher retail and commercial formations. The provision for credit losses ratio on impaired loans was 23 basis points, an increase of ten basis points.
Q3 2023 vs Q2 2023
The provision for credit losses was $307 million, compared to $218 million, an increase of $89 million. The provision for credit losses ratio increased seven basis points to 27 basis points.
The provision for credit losses on performing loans was $49 million, compared to a net reversal of $5 million. The provision this period was primarily driven by the continued unfavourable macroeconomic outlook, and portfolio growth, primarily in retail.
Provision for credit losses on impaired loans was $258 million, compared to $223 million, an increase of $35 million or 16% due primarily to higher commercial and retail formations. The provision for credit losses ratio on impaired loans was 23 basis points, an increase of two basis points.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
The provision for credit losses was $743 million, an increase of $697 million. The provision for credit losses ratio was 22 basis points, an increase of 21 basis points.
Provision for credit losses on performing loans was $75 million, compared to a net reversal of $353 million. The provision for credit losses this period was driven primarily by commercial provisions due to a less favourable macroeconomic outlook and portfolio growth, primarily in retail.
Provision for credit losses on impaired loans was $668 million compared to $399 million, an increase of $269 million due primarily to higher retail formations. The provision for credit losses ratio on impaired loans was 20 basis points, an increase of seven basis points.
Non-interest
expenses
Q3 2023 vs Q3 2022
Non-interest
expenses were $1,448 million compared to $1,385 million, up 5%. Adjusted
non-interest
expenses were $1,447 million, up $67 million or 5% due primarily to higher personnel costs from increased client-facing staffing levels and inflationary adjustments, partly offset by lower technology expenses.
Q3 2023 vs Q2 2023
Non-interest
expenses were down $9 million or 1% due largely to lower technology and performance-based compensation, partly offset by the impact of three more days in the quarter.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Non-interest
expenses were $4,354 million compared to $3,991 million, up 9%. Adjusted
non-interest
expenses were $4,350 million, up $375 million or 9% due primarily to higher personnel costs from increased client-facing staffing levels and inflationary adjustments, and higher technology, advertising, and business development costs to support business growth.
Taxes
Q3 2023 vs Q3 2022
The effective tax rate was 27.3% compared to 26.1% driven mainly by the higher Canadian statutory tax rate effective fiscal 2023.
Q3 2023 vs Q2 2023
The effective tax rate was 27.3%, compared to 27.4% in line with the prior quarter.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
The effective tax rate was 27.4% compared to 26.1% driven mainly by the higher Canadian statutory tax rate effective fiscal 2023.
 
20    
Scotiabank Third Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
International Banking
                                   
T9 International Banking financial performance
                                   
      For the three months ended      For the nine months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Reported Results
               
Net interest income
   
$
2,118
 
    $ 2,007      $ 1,759     
$
6,024
 
    $ 5,094  
Non-interest
income
(1)
   
 
728
 
      745        660     
 
2,275
 
      2,129  
Total revenue
   
 
2,846
 
      2,752        2,419     
 
8,299
 
      7,223  
Provision for credit losses
   
 
516
 
      436        325     
 
1,356
 
      875  
Non-interest
expenses
   
 
1,491
 
      1,479        1,295     
 
4,406
 
      3,848  
Income tax expense
   
 
192
 
      172        122     
 
533
 
      512  
Net income
   
$
647
 
    $ 665      $ 677     
$
2,004
 
    $ 1,988  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
19
 
    $ 23      $ 52     
$
80
 
    $ 213  
Net income attributable to equity holders of the Bank
   
$
628
 
    $ 642      $ 625     
$
1,924
 
    $ 1,775  
Other financial data and measures
               
Return on equity
(2)
   
 
13.4
% 
      13.2 %       13.0 %    
 
13.4
% 
      12.8 % 
Net interest margin
(2)(3)
   
 
4.10
% 
      4.12 %       3.95 %    
 
4.08
% 
      3.92 % 
Provision for credit losses – performing (Stage 1 and 2)
   
$
27
 
    $ 40      $ 63     
$
96
 
    $ 49  
Provision for credit losses – impaired (Stage 3)
   
$
489
 
    $ 396      $ 262     
$
1,260
 
    $ 826  
Provision for credit losses as a percentage of average net loans and acceptances (annualized)
(4)
   
 
1.18
% 
      1.03 %       0.84 %    
 
1.05
% 
      0.80 % 
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)
(4)
   
 
1.11
% 
      0.94 %       0.68 %    
 
0.98
% 
      0.75 % 
Net write-offs as a percentage of average net loans and acceptances (annualized)
(4)
   
 
0.98
% 
      0.83 %       0.74 %    
 
0.90
% 
      0.79 % 
Average assets
($ billions)
   
$
241
 
    $ 239      $ 209     
$
236
 
    $ 203  
Average liabilities
($ billions)
   
$
184
 
    $ 181      $ 155     
$
178
 
    $ 149  
(1)
Includes income (on a taxable equivalent basis) from associated corporations for the three months ended July 31, 2023 – $62 (April 30, 2023 – $69; July 31, 2022 – $54) and for the nine months ended July 31, 2023 – $194 (July 31, 2022 – $199).
(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 53 for the description of the measure.
 
T9A Adjusted International Banking financial performance
                     
      For the three months ended      For the nine months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Adjusted Results
(1)
               
Net interest income
   
$
2,118
 
    $ 2,007      $ 1,759     
$
6,024
 
    $ 5,094  
Non-interest
income
   
 
728
 
      745        660     
 
2,275
 
      2,129  
Total revenue
   
 
2,846
 
      2,752        2,419     
 
8,299
 
      7,223  
Provision for credit losses
   
 
516
 
      436        325     
 
1,356
 
      875  
Non-interest
expenses
(2)
   
 
1,481
 
      1,468        1,285     
 
4,375
 
      3,818  
Income tax expense
   
 
195
 
      175        126     
 
542
 
      521  
Net income
   
$
654
 
    $ 673      $ 683     
$
2,026
 
    $ 2,009  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
19
 
    $ 23      $ 52     
$
80
 
    $ 213  
Net income attributable to equity holders of the Bank
   
$
635
 
    $ 650      $ 631     
$
1,946
 
    $ 1,796  
(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 July 31, 2023 – $10 (April 30, 2023 – $11; July 31, 2022 – $10) and for the nine months ended July 31, 2023 – $31 (July 31, 2022 – $30).
Net income
Q3 2023 vs Q3 2022
Net income attributable to equity holders of $628 million and adjusted net income attributable to equity holders at $635 million were in line with the prior period. Higher net interest income and
non-interest
income, and the positive impact of foreign currency translation, were mostly offset by higher
non-interest
expenses, provision for credit losses and provision for income taxes.
Q3 2023 vs Q2 2023
Net income attributable to equity holders decreased by $14 million or 2%. Adjusted net income attributable to equity holders decreased by $15 million or 2%. The decrease was due primarily to higher provision for credit losses, provision for income taxes and
non-interest
expenses, and lower non-interest income, partly offset by higher net interest income and the positive impact of foreign currency translation.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Net income attributable to equity holders was $1,924 million, an increase of 8% from $1,775 million. Adjusted net income attributable to equity holders was $1,946 million, an increase of $150 million or 8%. The increase was driven by higher net interest income and
non-interest
income, and the positive impact of foreign currency translation, partly offset by higher
non-interest
expenses, provision for credit losses and provision for income taxes.
 
Scotiabank Third Quarter Report 2023
    21
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
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 nine months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Constant dollars – Reported
(1)
               
Net interest income
   
$
2,118
 
    $ 2,029      $ 1,953     
$
6,024
 
    $ 5,530  
Non-interest
income
(2)
   
 
728
 
      789        687     
 
2,275
 
      2,141  
Total revenue
   
 
2,846
 
      2,818        2,640     
 
8,299
 
      7,671  
Provision for credit losses
   
 
516
 
      446        356     
 
1,356
 
      938  
Non-interest
expenses
   
 
1,491
 
      1,504        1,417     
 
4,406
 
      4,116  
Income tax expense
   
 
192
 
      180        126     
 
533
 
      522  
Net income
   
$
647
 
    $ 688      $ 741     
$
2,004
 
    $ 2,095  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
19
 
    $ 21      $ 56     
$
80
 
    $ 224  
Net income attributable to equity holders of the Bank
   
$
628
 
    $ 667      $ 685     
$
1,924
 
    $ 1,871  
Other financial data and measures
               
Average assets
($ billions)
   
$
241
 
    $ 240      $ 229     
$
236
 
    $ 219  
Average liabilities
($ billions)
   
$
184
 
    $ 182      $ 172     
$
178
 
    $ 162  
(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 July 31, 2023 – $62 (April 30, 2023 – $67; July 31, 2022 – $55) and for the nine months ended July 31, 2023 – $194 (July 31, 2022 – $204).
 
T10A International Banking financial performance on adjusted and constant dollar basis
                       
      For the three months ended      For the nine months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Constant dollars – Adjusted
(1)
               
Net interest income
   
$
2,118
 
    $ 2,029      $ 1,953     
$
6,024
 
    $ 5,530  
Non-interest
income
   
 
728
 
      789        687     
 
2,275
 
      2,141  
Total revenue
   
 
2,846
 
      2,818        2,640     
 
8,299
 
      7,671  
Provision for credit losses
   
 
516
 
      446        356     
 
1,356
 
      938  
Non-interest
expenses
   
 
1,481
 
      1,493        1,407     
 
4,375
 
      4,085  
Income tax expense
   
 
195
 
      184        129     
 
542
 
      530  
Net income
   
$
654
 
    $ 695      $ 748     
$
2,026
 
    $ 2,118  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
19
 
    $ 20      $ 55     
$
80
 
    $ 224  
Net income attributable to equity holders of the Bank
   
$
635
 
    $ 675      $ 693     
$
1,946
 
    $ 1,894  
Other financial data and measures
               
Average assets
($ billions)
   
$
241
 
    $ 240      $ 229     
$
236
 
    $ 219  
Average liabilities
($ billions)
   
$
184
 
    $ 182      $ 172     
$
178
 
    $ 162  
(1)
Refer to
Non-GAAP
Measures starting on page 4 for adjusted results.
Net income
Q3 2023 vs Q3 2022
Net income attributable to equity holders was $628 million, down $57 million or 8%. Adjusted net income attributable to equity holders was $635 million, down $58 million or 8%. The decrease was driven by higher provision for credit losses,
non-interest
expenses and provision for income taxes, partly offset by higher net interest income and
non-interest
income.
Q3 2023 vs Q2 2023
Net income attributable to equity holders decreased by $39 million or 6%. Adjusted net income attributable to equity holders decreased by $40 million or 6%. The decrease was due primarily to higher provision for credit losses, lower
non-interest
income, and higher provision for income taxes, partly offset by higher net interest income and lower
non-interest
expenses.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Net income attributable to equity holders was $1,924 million, an increase of 3% from $1,871 million. Adjusted net income attributable to equity holders was $1,946 million, an increase of $52 million or 3%. The increase was driven by higher net interest income and
non-interest
income, partly offset by higher provision for credit losses,
non-interest
expenses and provision for income taxes.
 
22    
Scotiabank Third Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Average assets
Q3 2023 vs Q3 2022
Average assets were $241 billion, an increase of $12 billion or 5%. Total loan growth was 5%, due primarily to growth in Chile and Mexico. The growth included 10% in residential mortgages, 3% in personal loans and credit cards, and 3% in business loans.
Q3 2023 vs Q2 2023
Average assets increased by $1 billion or 1%. Total loans were in line with the prior quarter, with residential mortgages increasing by 2%, mainly in Mexico and Chile.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Average assets were $236 billion, an increase of $17 billion or 8%. Total loan growth was 9%, due primarily to growth in Chile and Mexico. The growth included 12% in residential mortgages, 8% in business loans, and 7% in personal loans and credit cards.
Average liabilities
Q3 2023 vs Q3 2022
Average liabilities were $184 billion, an increase of $12 billion or 7%. Total deposits increased by $9 billion or 8% primarily in Mexico, Brazil, and Chile. The growth included 10% in
non-personal
deposits and 4% in personal deposits. Term deposits increased by $12 billion or 20% while
non-term
deposits decreased by 4%.
Q3 2023 vs Q2 2023
Average liabilities were $184 billion, an increase of $2 billion. Total deposits increased by $1 billion or 1%, primarily in Mexico and Brazil. Personal deposits increased by 2% and
non-personal
deposits increased by 1%.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Average liabilities were $178 billion, an increase of $16 billion. Total deposits increased by $11 billion or 10%, primarily in Mexico and Chile.
Non-personal
deposits increased by 12% and personal deposits increased by 4%. Term deposits increased by $14 billion or 27%, mainly in Chile and Mexico, while
non-term
deposits decreased by 5%.
Total revenue
Q3 2023 vs Q3 2022
Revenues were $2,846 million, an increase of $206 million or 8%.
Net interest income was $2,118 million, an increase of $165 million or 8%, driven by growth in residential mortgages, business loans, personal loans and credit cards. Net interest margin increased by 15 basis points to 4.10%, from central bank rate increases and a strong deposit base mainly in the Caribbean, partly offset by lower inflation benefits, mainly in Chile.
Non-interest
income was $728 million an increase of $41 million or 6%, driven by higher trading revenues, banking fees and insurance revenues.
Q3 2023 vs Q2 2023
Revenues increased by $28 million or 1%.
Net interest income increased by $89 million or 4%, driven by growth in residential mortgages, partly offset by decrease in business loans, personal loans and credit cards. Net interest margin decreased by two basis points to 4.10%, driven by lower inflation benefits in Chile and Uruguay, partly offset by central bank rate increases.
Non-interest
income decreased by $61 million or 8%, driven by lower trading revenues, partly offset by higher banking fees.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Revenues were $8,299 million, an increase of $628 million or 8%.
Net interest income was $6,024 million, an increase of $494 million or 9%, driven by growth in business loans, residential mortgages, personal loans, and credit cards. Net interest margin increased by 16 basis points to 4.08%, driven by central bank rate increases, partly offset by lower inflation benefits in Chile.
Non-interest
income was $2,275 million an increase of $134 million, driven mainly by higher trading revenues, banking fees and insurance revenues.
Provision for credit losses
Q3 2023 vs Q3 2022
The provision for credit losses was $516 million compared to $356 million, an increase of $160 million or 45%. The provision for credit losses ratio increased 34 basis points to 118 basis points.
Provision for credit losses on performing loans was $27 million, compared to $68 million. The provision this period was driven by higher retail provisions due to challenging market conditions in Chile and Colombia driven by higher inflation, portfolio growth across markets and the continued unfavourable macroeconomic outlook. This was partly offset by reversals and credit migration to impaired, primarily in Mexico.
Provision for credit losses on impaired loans was $489 million, compared to $288 million, an increase of $201 million or 70%. This increase was due primarily to higher retail provisions, driven by higher formations across the Pacific Alliance markets. The provision for credit losses ratio on impaired loans was 111 basis points, an increase of 43 basis points.
 
Scotiabank Third Quarter Report 2023
    23
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Q3 2023 vs Q2 2023
The provision for credit losses was $516 million, compared to $446 million, an increase of $70 million or 16%. The provision for credit losses ratio increased by 15 basis points to 118 basis points.
Provision for credit losses on performing loans was $27 million compared to $40 million, a decrease of $13 million. The decrease was primarily from lower retail provisions due to credit migration to impaired, offset by higher provisions for challenging market conditions in Chile driven by higher inflation, portfolio growth mostly in Pacific Alliance markets, and the continued unfavourable macroeconomic outlook impacting primarily the commercial portfolio.
Provision for credit losses on impaired loans was $489 million compared to $406 million, an increase of $83 million or 20% due partly to higher retail formations, primarily in Chile and Colombia. The provision for credit losses ratio on impaired loans increased by 17 basis points to 111 basis points.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
The provision for credit losses was $1,356 million, an increase of $418 million or 45%. The provision for credit losses ratio was 105 basis points, an increase of 25 basis points.
Provision for credit losses on performing loans was $96 million, compared to $55 million. The increase related mainly to higher retail provisions due to challenging market conditions in Chile and Colombia driven by higher inflation, portfolio growth across markets, and the less favourable macroeconomic outlook impacting primarily the commercial portfolio.
Provision for credit losses on impaired loans was $1,260 million, compared to $883 million, an increase of $377 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 98 basis points, an increase of 23 basis points.
Non-interest
expenses
Q3 2023 vs Q3 2022
Non-interest
expenses were $1,491 million, an increase of $74 million or 5%. Adjusted
non-interest
expenses were $1,481 million, up 5%, driven mainly by inflationary impacts on salaries and benefits and higher technology expenses, partly offset by the benefits realized from efficiency initiatives executed in the prior year.
Q3 2023 vs Q2 2023
Non-interest
expenses were $1,491 million, a decrease of 1%. Adjusted
non-interest
expenses decreased by $12 million or 1% from $1,493 million last quarter, driven mainly by lower personnel costs, partly offset by higher technology expenses.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Non-interest
expenses were $4,406 million, an increase of $290 million or 7%. On an adjusted basis,
non-interest
expenses were $4,375 million, an increase of 7%, driven by inflationary impacts on salaries and benefits, partly offset by the benefits realized from efficiency initiatives executed in the prior year.
Taxes
Q3 2023 vs Q3 2022
The effective tax rate was 22.9%, compared to 15.4%. On an adjusted basis, the effective tax rate was 22.9% compared to 15.5%, due primarily to lower inflationary adjustments in Chile and Mexico and changes in earnings mix across jurisdictions.
Q3 2023 vs Q2 2023
The effective tax rate was 22.9%, compared to 20.6%. On an adjusted basis, the effective tax rate was 22.9% compared to 20.7%, due primarily to lower inflationary adjustments in Chile and Mexico.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
The effective tax rate was 21.0% compared to 20.5%. On an adjusted basis, the effective tax rate was 21.1% compared to 20.6% in the prior year due primarily to lower inflationary adjustments in Chile and Mexico and changes in earnings mix across jurisdictions.
 
24    
Scotiabank Third Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Global Wealth Management
                                   
T11 Global Wealth Management financial performance
                                   
      For the three months ended      For the nine months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Reported Results
               
Net interest income
   
$
207
 
    $ 209      $ 200     
$
629
 
    $ 558  
Non-interest
income
   
 
1,129
 
      1,091        1,112     
 
3,330
 
      3,534  
Total revenue
   
 
1,336
 
      1,300        1,312     
 
3,959
 
      4,092  
Provision for credit losses
   
 
2
 
      2        5     
 
5
 
      5  
Non-interest
expenses
   
 
843
 
      818        796     
 
2,463
 
      2,461  
Income tax expense
   
 
123
 
      124        133     
 
380
 
      424  
Net income
   
$
368
 
    $ 356      $ 378     
$
1,111
 
    $ 1,202  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
2
 
    $ 3      $ 2     
$
7
 
    $ 7  
Net income attributable to equity holders of the Bank
   
$
366
 
    $ 353      $ 376     
$
1,104
 
    $ 1,195  
Other financial data and measures
               
Return on equity
(1)
   
 
14.9
% 
      14.8 %       15.5 %    
 
15.1
% 
      16.7 % 
Assets under administration
($ billions)
(2)
   
$
631
 
    $ 624      $ 581     
$
631
 
    $ 581  
Assets under management
($ billions)
(2)
   
$
331
 
    $ 330      $ 320     
$
331
 
    $ 320  
Average assets
($ billions)
   
$
34
 
    $ 34      $ 33     
$
34
 
    $ 32  
Average liabilities
($ billions)
   
$
40
 
    $ 41      $ 48     
$
41
 
    $ 48  
(1)
Refer to
Non-GAAP
Measures starting on page 4 for the description of the measure.
(2)
Refer to Glossary on page 53 for the description of the measure.
 
T11A Adjusted Global Wealth Management financial performance
              
      For the three months ended      For the nine months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Adjusted Results
(1)
               
Net interest income
   
$
207
 
    $ 209      $ 200     
$
629
 
    $ 558  
Non-interest
income
   
 
1,129
 
      1,091        1,112     
 
3,330
 
      3,534  
Total revenue
   
 
1,336
 
      1,300        1,312     
 
3,959
 
      4,092  
Provision for credit losses
   
 
2
 
      2        5     
 
5
 
      5  
Non-interest
expenses
(2)
   
 
834
 
      809        787     
 
2,436
 
      2,434  
Income tax expense
   
 
125
 
      127        135     
 
387
 
      431  
Net income
   
$
375
 
    $ 362      $ 385     
$
1,131
 
    $ 1,222  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
2
 
    $ 3      $ 2     
$
7
 
    $ 7  
Net income attributable to equity holders of the Bank
   
$
373
 
    $ 359      $ 383     
$
1,124
 
    $ 1,215  
(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 July 31, 2023 – $9 (April 30, 2023 – $9; July 31, 2022 – $9) and for the nine months ended July 31, 2023 – $27 (July 31, 2022 – $27).
Net income
Q3 2023 vs Q3 2022
Net income attributable to equity holders was $366 million, compared to $376 million. Adjusted net income attributable to equity holders was $373 million, down $10 million or 3%. The decline was due primarily to higher
non-interest
expenses, partly offset by strong revenue growth in the international businesses and higher brokerage revenues in Canada.
Q3 2023 vs Q2 2023
Net income attributable to equity holders increased $13 million or 4%. Adjusted net income attributable to equity holders increased $14 million or 4%, due primarily to higher brokerage revenues and mutual fund fees, partly offset by higher
non-interest
expenses.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Net income attributable to equity holders was $1,104 million, compared to $1,195 million. Adjusted net income attributable to equity holders was $1,124 million, down $91 million or 7%. The decline was due primarily to lower brokerage revenues and mutual fund fees, partly offset by higher net interest income.
Assets under management (AUM) and assets under administration (AUA)
Q3 2023 vs Q3 2022
Assets under management of $331 billion increased $11 billion or 4% driven by market appreciation partly offset by net redemptions. Assets under administration of $631 billion increased $50 billion or 9% due primarily to market appreciation and higher net sales.
 
Scotiabank Third Quarter Report 2023
    25
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Q3 2023 vs Q2 2023
Assets under management increased $1 billion or 1% due primarily to market appreciation partly offset by net redemptions. Assets under administration increased $7 billion or 1% due primarily to market appreciation and higher net sales.
Total revenue
Q3 2023 vs Q3 2022
Revenues were $1,336 million, up $24 million or 2% due primarily to higher revenues in the international businesses driven by strong volume growth, and higher brokerage revenues in Canada.
Q3 2023 vs Q2 2023
Revenues were up $36 million or 3% due primarily to higher brokerage revenues and mutual fund fees.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Revenues were $3,959 million, down $133 million or 3% 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
Q3 2023 vs Q3 2022
The provision for credit losses was $2 million, a decrease of $3 million. The provision for credit losses ratio decreased five basis points to three basis points.
Q3 2023 vs Q2 2023
The provision for credit losses was $2 million, unchanged from last quarter. The provision for credit losses ratio decreased two basis points to three basis points.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
The provision for credit losses was $5 million, unchanged from last year. The provision for credit losses ratio was three basis points, unchanged from last year.
Non-interest
expenses
Q3 2023 vs Q3 2022
Non-interest
expenses of $843 million were up $47 million or 6%, driven largely by the expansion of the revenue-generating salesforce and technology costs to support business growth.
Q3 2023 vs Q2 2023
Non-interest
expenses were up $25 million or 3%, driven largely by higher volume-related expenses.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Non-interest
expenses of $2,463 million were in line with prior year.
Taxes
The effective tax rate was 25.0% compared to 26.1% in the prior year and 25.8% in the prior quarter due mainly to change in earnings mix across jurisdictions.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
The effective tax rate was 25.5% compared to 26.1% in the prior year due mainly to change in earnings mix across jurisdictions.
 
26    
Scotiabank Third Quarter Report 2023
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Global Banking and Markets
T12 Global Banking and Markets financial performance
 
      For the three months ended      For the nine months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
July 31
2023
(1)
      April 30
2023
(1)
      July 31
2022
(1)
     
July 31
2023
(1)
      July 31
2022
(1)
  
Reported Results
               
Net interest income
   
$
337
 
    $ 384      $ 405     
$
1,175
 
    $ 1,138  
Non-interest
income
   
 
1,006
 
      968        747     
 
3,023
 
      2,680  
Total revenue
   
 
1,343
 
      1,352        1,152     
 
4,198
 
      3,818  
Provision for credit losses
   
 
(6
) 
      53        (15 )    
 
62
 
      (77 ) 
Non-interest
expenses
   
 
758
 
      752        655     
 
2,283
 
      1,978  
Income tax expense
   
 
157
 
      146        134     
 
499
 
      490  
Net income
   
$
434
 
    $ 401      $ 378     
$
1,354
 
    $ 1,427  
Net income attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –     
$
–
 
    $ –  
Net income attributable to equity holders of the Bank
   
$
434
 
    $ 401      $ 378     
$
1,354
 
    $ 1,427  
Other financial data and measures
               
Return on equity
(2)
   
 
12.9
% 
      10.5 %       11.1 %    
 
12.2
% 
      14.6 % 
Provision for credit losses – performing (Stage 1 and 2)
   
$
4
 
    $ 54      $ 3     
$
71
 
    $ (47 ) 
Provision for credit losses – impaired (Stage 3)
   
$
(10
) 
    $ (1 )     $ (18 )    
$
(9
) 
    $ (30 ) 
Provision for credit losses as a percentage of average net loans and acceptances (annualized)
(3)
   
 
(0.02
)% 
      0.15 %       (0.05 )%    
 
0.06
% 
      (0.09 )% 
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)
(3)
   
 
(0.03
)% 
      – %       (0.06 )%    
 
(0.01
)% 
      (0.03 )% 
Net write-offs as a percentage of average net loans and acceptances (annualized)
(3)
   
 
(0.01
)% 
      – %       (0.11 )%    
 
–
% 
      (0.03 )% 
Average assets
($ billions)
   
$
493
 
    $ 488      $ 443     
$
487
 
    $ 440  
Average liabilities
($ billions)
   
$
450
 
    $ 446      $ 419     
$
450
 
    $ 409  
(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 July 31, 2023 – $110 (April 30, 2023 – $109; July 31, 2022 – $81) and for the nine months ended July 31, 2023 – $329 (July 31, 2022 – $246).
(2)
Refer to
Non-GAAP
Measures starting on page 4 for the description of the measure.
(3)
Refer to Glossary on page 53 for the description of the measure.
Net income
Q3 2023 vs Q3 2022
Net income attributable to equity holders was $434 million, an increase of $56 million or 15% due to higher revenue and the positive impact of foreign currency translation, partly offset by higher
non-interest
expenses.
Q3 2023 vs Q2 2023
Net income attributable to equity holders increased by $33 million or 8% due mainly to lower provision for credit losses.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Net income attributable to equity holders was $1,354 million, a decrease of $73 million or 5% due to higher
non-interest
expenses and higher provision for credit losses, partly offset by higher revenue and the positive impact of foreign currency translation.
Average assets
Q3 2023 vs Q3 2022
Average assets were $493 billion, an increase of $50 billion or 11% due mainly to increases in securities purchased under resale agreements, higher loans and acceptances, and the impact of foreign currency translation, partly offset by lower trading securities.
Q3 2023 vs Q2 2023
Average assets increased $5 billion or 1% due mainly to increases in trading securities, partly offset by lower loans and acceptances, and the impact of foreign currency translation.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Average assets were $487 billion, an increase of $47 billion or 11% due mainly to increases in securities purchased under resale agreements, higher loans and acceptances, and the impact of foreign currency translation, partly offset by lower trading securities.
Average liabilities
Q3 2023 vs Q3 2022
Average liabilities were $450 billion, an increase of $31 billion or 7% due mainly to increases in securities sold under repurchase agreements, increases in deposits, and the impact of foreign currency translation.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Q3 2023 vs Q2 2023
Average liabilities increased $4 billion or 1% due mainly to increases in securities sold under repurchase agreements, partly offset by lower deposits and the impact of foreign currency translation.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Average liabilities were $450 billion, an increase of $41 billion or 10% due mainly to increases in securities sold under repurchase agreements, increases in deposits, and the impact of foreign currency translation.
Total revenue
Q3 2023 vs Q3 2022
Revenues were $1,343 million, an increase of $191 million or 17%.
Net interest income was $337 million, a decrease of $68 million or 17% due mainly to lower corporate lending and deposit margins and lower loan fees.
Non-interest
income was $1,006 million, an increase of $259 million or 35% due mainly to higher trading-related revenue in fixed income and equities, higher underwriting and advisory fees, and the positive impact of foreign currency translation.
Q3 2023 vs Q2 2023
Revenues decreased by $9 million or 1%.
Net interest income decreased by $47 million or 12% due mainly to lower loan fees and lower corporate lending margins.
Non-interest
income increased by $38 million or 4%, due mainly to higher trading-related revenue in fixed income and equities.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Revenues increased by $380 million or 10%.
Net interest income was $1,175 million, an increase of $37 million or 3%, due mainly to growth in business loans, partly offset by decreased corporate lending and deposit margins and lower loan fees.
Non-interest
income was $3,023 million, an increase of $343 million or 13%, due mainly to higher underwriting and advisory fees, banking revenue and the positive impact of foreign currency translation.
Provision for credit losses
Q3 2023 vs Q3 2022
The provision for credit losses was a net reversal of $6 million compared to a net reversal of $15 million. The provision for credit losses ratio was negative two basis points, an increase of three basis points.
Provision for credit losses on performing loans was $4 million, compared to $3 million.
Provision for credit losses on impaired loans was a net reversal of $10 million, compared to a net reversal of $18 million. The net reversal this period related primarily to recovery on one account in the mining sector. The provision for credit losses ratio on impaired loans was a negative three basis points, an increase of three basis points.
Q3 2023 vs Q2 2023
The provision for credit losses was a net reversal of $6 million, compared to a provision of $53 million, a decrease of $59 million. The provision for credit losses ratio was negative two basis points, a decrease of 17 basis points.
Provision for credit losses on performing loans was $4 million compared to $54 million.
Provision for credit losses on impaired loans was a net reversal of $10 million, related primarily to recovery on one account in the mining sector, compared to a net reversal of $1 million in the prior quarter. The provision for credit losses ratio on impaired loans was negative three basis points, a decrease of three basis points.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
The provision for credit losses was $62 million compared to a net reversal of $77 million. The provision for credit losses ratio was six basis points, an increase of 15 basis points.
Provision for credit losses on performing loans was $71 million, compared to a net reversal of $47 million.
Provision for credit losses on impaired loans was a net reversal of $9 million, compared to a net reversal of $30 million. The provision for credit losses ratio on impaired loans increased by two basis points.
Non-interest
expenses
Q3 2023 vs Q3 2022
Non-interest
expenses of $758 million, were up $103 million or 16%, due mainly to higher personnel and technology costs to support business growth, and the negative impact of foreign currency translation.
Q3 2023 vs Q2 2023
Non-interest
expenses increased $6 million or 1% due mainly to increases in performance-related compensation.
 
28    
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Non-interest
expenses of $2,283 million increased $305 million or 15% due mainly to increases in personnel and technology costs to support business growth, and the negative impact of foreign currency translation.
Taxes
Q3 2023 vs Q3 2022
The effective tax rate was 26.5% compared to 26.1% due mainly to the change in earnings mix across jurisdictions.
Q3 2023 vs Q2 2023
The effective tax rate was 26.5% compared to 26.7% due mainly to the change in earnings mix across jurisdictions.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
The effective tax rate was 26.9% compared to 25.6% due mainly to an increase in the Canadian statutory tax rate effective fiscal 2023 and the change in earnings mix across jurisdictions.
Other
(1)
T13 Other financial performance
 
      For the three months ended      For the nine months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Reported Results
               
Net interest income
(2)
   
$
(550
) 
    $ (474 )     $ (49 )    
$
(1,407
) 
    $ 65  
Non-interest
income
(2)(3)
   
 
(101
) 
      (135 )       (154 )    
 
(564
) 
      (304 ) 
Total revenue
   
 
(651
) 
      (609 )       (203 )    
 
(1,971
) 
      (239 ) 
Provision for credit losses
   
 
–
 
      –        4     
 
–
 
      4  
Non-interest
expenses
   
 
22
 
      70        60     
 
96
 
      295  
Income tax expense/(benefit)
(2)
   
 
(374
) 
      (356 )       (215 )    
 
(532
) 
      (409 ) 
Net income (loss)
   
$
(299
) 
    $ (323 )     $ (52 )    
$
(1,535
) 
    $ (129 ) 
Net income (loss) attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –     
$
–
 
    $ –  
Net income (loss) attributable to equity holders
   
$
(299
) 
    $ (323 )     $ (52 )    
$
(1,535
) 
    $ (129 ) 
Other measures
               
Average assets
($ billions)
   
$
184
 
    $ 178      $ 173     
$
184
 
    $ 166  
Average liabilities
($ billions)
   
$
273
 
    $ 278      $ 263     
$
278
 
    $ 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 July 31, 2023 – $119 (April 30, 2023 – $119; July 31, 2022 – $92) and for nine months ended July 31, 2023 – $358 (July 31, 2022 – $276) 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 July 31, 2023 – $(20) (April 30, 2023 – $(35); July 31, 2022 – $(28)) and for the nine months ended July 31, 2023 – $(120) (July 31, 2022 – $(30)).
T13A Adjusted Other financial performance
 
      For the three months ended      For the nine months ended  
(Unaudited) ($ millions)

(Taxable equivalent basis)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Adjusted Results
(1)
               
Net interest income
   
$
(550
) 
    $ (474 )     $ (49 )    
$
(1,407
) 
    $ 65  
Non-interest
income
   
 
(101
) 
      (135 )       (154 )    
 
(564
) 
      (304 ) 
Total revenue
   
 
(651
) 
      (609 )       (203 )    
 
(1,971
) 
      (239 ) 
Provision for credit losses
   
 
–
 
      –        4     
 
–
 
      4  
Non-interest
expenses
   
 
22
 
      70        60     
 
96
 
      295  
Income tax expense/(benefit)
(2)
   
 
(374
) 
      (356 )       (215 )    
 
(1,111
) 
      (409 ) 
Net income (loss)
   
$
(299
) 
    $ (323 )     $ (52 )    
$
(956
) 
    $ (129 ) 
Net income (loss) attributable to
non-controlling
interest in subsidiaries
   
$
–
 
    $ –      $ –     
$
–
 
    $ –  
Net income (loss) attributable to equity holders
   
$
(299
) 
    $ (323 )     $ (52 )    
$
(956
) 
    $ (129 ) 
(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.
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.
 
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    29
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
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.
Q3 2023 vs Q3 2022
Net income attributable to equity holders was a net loss of $299 million, compared to a $52 million net loss in the prior year. The decline was due mainly to lower revenues primarily related to higher funding costs and lower income from investment gains. This was partly offset by lower
non-interest
expenses and provision for income taxes.
Q3 2023 vs Q2 2023
Net income attributable to equity holders improved $24 million from the prior quarter, due to lower
non-interest
expenses and lower provision for income taxes, partly offset by lower revenues primarily related to higher funding costs.
Year-to-date
Q3 2023 vs
Year-to-date
Q3 2022
Net income attributable to equity holders was a net loss of $1,535 million, compared to a net loss of $129 million. Adjusted net income attributable to equity holders was a net loss of $956 million, due mainly to lower revenues, partly offset by lower provision for income taxes and
non-interest
expenses. Lower revenues were due primarily to treasury activities related to higher funding costs and lower income from hedges. This was partly offset by higher income from liquid assets. Also contributing to the lower revenue was lower income from associated corporations.
 
30    
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Geographic Highlights
T14 Geographic highlights
 
     
For the three months ended July 31, 2023
  
(Unaudited) ($ millions)
   
Canada
     
U.S.
     
Mexico
     
Peru
     
Chile
     
Colombia
     
Caribbean
and Central
America
     
Other
     
Total
  
Reported results
                           
Net interest income
   
$
2,099
 
   
$
223
 
   
$
568
 
   
$
334
 
   
$
495
 
   
$
150
 
   
$
437
 
   
$
274
 
   
$
4,580
 
Non-interest
income
   
 
2,137
 
   
 
368
 
   
 
239
 
   
 
105
 
   
 
136
 
   
 
110
 
   
 
195
 
   
 
220
 
   
 
3,510
 
Total revenue
   
 
4,236
 
   
 
591
 
   
 
807
 
   
 
439
 
   
 
631
 
   
 
260
 
   
 
632
 
   
 
494
 
   
 
8,090
 
Provision for credit losses
   
 
304
 
   
 
1
 
   
 
66
 
   
 
96
 
   
 
193
 
   
 
111
 
   
 
26
 
   
 
22
 
   
 
819
 
Non-interest
expenses
   
 
2,519
 
   
 
311
 
   
 
382
 
   
 
188
 
   
 
260
 
   
 
162
 
   
 
354
 
   
 
386
 
   
 
4,562
 
Income tax expense
   
 
179
 
   
 
75
 
   
 
95
 
   
 
43
 
   
 
30
 
   
 
(3
) 
   
 
48
 
   
 
30
 
   
 
497
 
Net income
   
 
1,234
 
   
 
204
 
   
 
264
 
   
 
112
 
   
 
148
 
   
 
(10
) 
   
 
204
 
   
 
56
 
   
 
2,212
 
Net income attributable to
non-controlling
interests in subsidiaries
   
 
–
 
   
 
–
 
   
 
6
 
   
 
–
 
   
 
(5
) 
   
 
(9
) 
   
 
29
 
   
 
–
 
   
 
21
 
Net income attributable to equity holders of the Bank
   
$
1,234
 
   
$
204
 
   
$
258
 
   
$
112
 
   
$
153
 
   
$
(1
) 
   
$
175
 
   
$
56
 
   
$
2,191
 
Adjusted results
(1)
                           
Adjustments
   
 
7
 
   
 
–
 
   
 
–
 
   
 
1
 
   
 
5
 
   
 
–
 
   
 
1
 
   
 
1
 
   
 
15
 
Adjusted net income (loss) attributable to equity holders of the Bank
   
$
1,241
 
   
$
204
 
   
$
258
 
   
$
113
 
   
$
158
 
   
$
(1
) 
   
$
176
 
   
$
57
 
   
$
2,206
 
Average Assets
($ billions)
   
$
843
 
   
$
217
 
   
$
60
 
   
$
28
 
   
$
63
 
   
$
14
 
   
$
33
 
   
$
144
 
   
$
1,402
 
 
     For the three months ended April 30, 2023     For the three months ended July 31, 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
   $ 2,067     $ 249     $ 512     $ 323     $ 470     $ 134     $ 448     $ 263     $ 4,466     $ 2,571     $ 236     $ 429     $ 304     $ 415     $ 151     $ 367     $ 203     $ 4,676  
Non-interest
income
     2,109       334       219       122       147       100       206       226       3,463       1,956       235       195       81       106       89       184       277       3,123  
Total revenue
     4,176       583       731       445       617       234       654       489       7,929       4,527       471       624       385       521       240       551       480       7,799  
Provision for credit losses
     238       34       58       83       153       104       25       14       709       64       29       60       92       49       60       53       5       412  
Non-interest
expenses
     2,555       306       366       177       265       163       358       386       4,576       2,429       254       314       153       214       162       333       332       4,191  
Income tax expense
     189       68       76       45       27       (16 )      58       38       485       381       49       37       39       12       7       32       45       602  
Net income
     1,194       175       231       140       172       (17 )      213       51       2,159       1,653       139       213       101       246       11       133       98       2,594  
Net income attributable to
non-controlling
interests in subsidiaries
     –       –       6       –       4       (11 )      27       –       26       –       –       6       1       16       6       25       –       54  
Net income attributable to equity holders of the Bank
   $ 1,194     $ 175     $ 225     $ 140     $ 168     $ (6 )    $ 186     $ 51     $ 2,133     $ 1,653     $ 139     $ 207     $ 100     $ 230     $ 5     $ 108     $ 98     $ 2,540  
Adjusted results
(1)
                                    
Adjustments
     6       –       –       2       5       –       1       1       15       10       –       –       1       4       –       1       1       17  
Adjusted net income (loss) attributable to equity holders of the Bank
   $ 1,200     $ 175     $ 225     $ 142     $ 173     $ (6 )    $ 187     $ 52     $ 2,148     $ 1,663     $ 139     $ 207     $ 101     $ 234     $ 5     $ 109     $ 99     $ 2,557  
Average Assets
($ billions)
   $ 837     $ 217     $ 57     $ 28     $ 64     $ 14     $ 34     $ 139     $ 1,390     $ 777     $ 203     $ 47     $ 28     $ 52     $ 14     $ 32     $ 142     $ 1,295  
                                                                                                             
    
For the nine months ended July 31, 2023
     For the nine months ended July 31, 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
  
$
6,398
 
  
$
768
 
  
$
1,594
 
  
$
988
 
  
$
1,344
 
  
$
418
 
  
$
1,313
 
  
$
792
 
  
$
13,615
 
   $ 7,437     $ 644     $ 1,262     $ 878     $ 1,230     $ 488     $ 1,021     $ 533     $ 13,493  
Non-interest
income
  
 
6,251
 
  
 
1,012
 
  
 
663
 
  
 
361
 
  
 
490
 
  
 
306
 
  
 
602
 
  
 
699
 
  
 
10,384
 
     6,459       767       560       308       386       296       561       960       10,297  
Total revenue
  
 
12,649
 
  
 
1,780
 
  
 
2,257
 
  
 
1,349
 
  
 
1,834
 
  
 
724
 
  
 
1,915
 
  
 
1,491
 
  
 
23,999
 
     13,896       1,411       1,822       1,186       1,616       784       1,582       1,493       23,790  
Provision for credit losses
  
 
770
 
  
 
38
 
  
 
180
 
  
 
277
 
  
 
468
 
  
 
289
 
  
 
87
 
  
 
57
 
  
 
2,166
 
     (8 )      1       171       256       126       159       132       16       853  
Non-interest
expenses
  
 
7,543
 
  
 
930
 
  
 
1,099
 
  
 
543
 
  
 
765
 
  
 
481
 
  
 
1,073
 
  
 
1,168
 
  
 
13,602
 
     7,312       768       890       458       657       506       986       996       12,573  
Income tax expense
  
 
1,179
 
  
 
225
 
  
 
238
 
  
 
133
 
  
 
90
 
  
 
(16
) 
  
 
155
 
  
 
84
 
  
 
2,088
 
     1,455       165       151       133       95       45       115       124       2,283  
Net income
  
 
3,157
 
  
 
587
 
  
 
740
 
  
 
396
 
  
 
511
 
  
 
(30
) 
  
 
600
 
  
 
182
 
  
 
6,143
 
     5,137       477       610       339       738       74       349       357       8,081  
Net income attributable to
non-controlling
interests in subsidiaries
  
 
–
 
  
 
–
 
  
 
17
 
  
 
1
 
  
 
10
 
  
 
(24
) 
  
 
83
 
  
 
–
 
  
 
87
 
     (1 )      –       14       6       100       33       68       –       220  
Net income attributable to equity holders of the Bank
  
$
3,157
 
  
$
587
 
  
$
723
 
  
$
395
 
  
$
501
 
  
$
(6
) 
  
$
517
 
  
$
182
 
  
$
6,056
 
   $ 5,138     $ 477     $ 596     $ 333     $ 638     $ 41     $ 281     $ 357     $ 7,861  
Adjusted results
(1)
                                    
Adjustments
  
 
599
 
  
 
–
 
  
 
–
 
  
 
4
 
  
 
15
 
  
 
–
 
  
 
3
 
  
 
3
 
  
 
624
 
     29       –       –       4       14       –       3       3       53  
Adjusted net income (loss) attributable to equity holders of the Bank
  
$
3,756
 
  
$
587
 
  
$
723
 
  
$
399
 
  
$
516
 
  
$
(6
) 
  
$
520
 
  
$
185
 
  
$
6,680
 
   $ 5,167     $ 477     $ 596     $ 337     $ 652     $ 41     $ 284     $ 360     $ 7,914  
Average Assets
($ billions)
  
$
838
 
  
$
216
 
  
$
57
 
  
$
28
 
  
$
62
 
  
$
14
 
  
$
34
 
  
$
142
 
  
$
1,391
 
   $ 748     $ 209     $ 45     $ 26     $ 52     $ 14     $ 31     $ 140     $ 1,265  
(1)
Refer to
Non-GAAP
Measures section starting on page 4.
 
Scotiabank Third 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)
     
July 31
2023
     April 30
2023		      January 31
2023		      October 31
2022		      July 31
2022		      April 30
2022		      January 31
2022		      October 31
2021		  
Reported results
          
 
            
 
   
Net interest income
     
$
4,580
 
   $ 4,466      $ 4,569      $ 4,622      $ 4,676      $ 4,473      $ 4,344      $ 4,217  
Non-interest
income
     
 
3,510
 
     3,463        3,411        3,004        3,123        3,469        3,705        3,470  
Total revenue
     
$
8,090
 
   $ 7,929      $ 7,980      $ 7,626      $ 7,799      $ 7,942      $ 8,049      $ 7,687  
Provision for credit losses
     
 
819
 
     709        638        529        412        219        222        168  
Non-interest
expenses
     
 
4,562
 
     4,576        4,464        4,529        4,191        4,159        4,223        4,271  
Income tax expense
     
 
497
 
     485        1,106        475        602        817        864        689  
Net income
     
$
2,212
 
   $ 2,159      $ 1,772      $ 2,093      $ 2,594      $ 2,747      $ 2,740      $ 2,559  
Basic earnings per share
($)
     
 
1.74
 
     1.70        1.37        1.64        2.10        2.16        2.15        1.98  
Diluted earnings per share
($)
     
 
1.72
 
     1.69        1.36        1.63        2.09        2.16        2.14        1.97  
Net interest margin
(%)
(1)
     
 
2.10
 
     2.13        2.11        2.18        2.22        2.23        2.16        2.17  
Effective tax rate
(%)
(2)
     
 
18.4
 
     18.4        38.4        18.5        18.8        22.9        24.0        21.2  
Adjusted results
(1)
          
 
            
 
   
Adjusting items impacting
non-interest
income and total revenue
(Pre-tax)
          
 
            
 
   
Net loss on divestitures and wind-down of operations
     
$
–
 
   $ –      $ –      $ 361      $ –      $ –      $ –      $ –  
Adjusting items impacting
non-interest
expenses
(Pre-tax)
          
 
            
 
   
Amortization of acquisition-related intangible assets
     
 
20
 
     21        21        24        24        24        25        25  
Restructuring and other provisions
     
 
–
 
     –        –        85        –        –        –        188
(3)
 
Support costs for the Scene+ loyalty program
     
 
–
 
     –        –        133        –        –        –        –  
Total
non-interest
expenses adjustments
(Pre-tax)
     
 
20
 
     21        21        242        24        24        25        213  
Total impact of adjusting items on net income before taxes
     
 
20
 
     21        21        603        24        24        25        213  
Impact of adjusting items on income tax expense:
          
 
            
 
   
Canada recovery dividend
     
 
–
 
     –        579        –        –        –        –        –  
Impact of other adjusting items on income tax expense
     
 
(5
) 
     (6 )       (6 )       (81 )       (7 )       (6 )       (7 )       (56 ) 
Total impact of adjusting items on net income
     
 
15
 
     15        594        522        17        18        18        157  
Adjusted net income
     
$
2,227
 
   $ 2,174      $ 2,366      $ 2,615      $ 2,611      $ 2,765      $ 2,758      $ 2,716  
Adjusted diluted earnings per share
($)
     
 
1.73
 
     1.70        1.85        2.06        2.10        2.18        2.15        2.10  
(1)
Refer to
Non-GAAP
Measures section starting on page 4.
(2)
Refer to Glossary on page 53 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 and margin expansion, as recent quarters have benefited 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 increases. Non-interest income for Canadian Banking and International Banking is stable over the period. Global Wealth Management
fee-based
revenues continue to be impacted by market conditions. 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-related activities.
Provision for credit losses
Provision for credit losses trended upward during the period driven by an unfavourable macroeconomic forecast and portfolio growth, and higher impaired loan provisions due to credit migration.
 
32    
Scotiabank Third Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
Non-interest
expenses
Non-interest
expenses reflect the Bank’s continued investment in personnel and technology to support business growth as well as the impact of inflation. This was partly offset by expense management and efficiency initiatives. The impact of foreign currency translation has 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 22.6% over the period and was impacted by the recognition of the CRD in Q1 2023, increased statutory tax rates, 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)
   
July 31
2023
      October 31
2022		      Change      Volume
Change		      FX
Change		  
Assets
               
Cash, deposits with financial institutions and precious metals
   
$
91.3
 
    $ 66.4        37.5 %       37.5 %       – % 
Trading assets
   
 
119.3
 
      113.2        5.4        5.2        0.2  
Securities purchased under resale agreements and securities borrowed
   
 
198.4
 
      175.3        13.1        13.5        (0.4 ) 
Investment securities
   
 
110.2
 
      110.0        0.2        0.7        (0.5 ) 
Loans
   
 
752.2
 
      745.0        1.0        0.2        0.8  
Other
   
 
124.7
 
      139.5        (10.6 )       (13.9 )       3.3  
Total assets
   
$
1,396.1
 
    $ 1,349.4        3.5 %       2.8 %       0.7 % 
Liabilities
               
Deposits
   
$
957.2
 
    $ 916.2        4.5 %       4.2 %       0.3 % 
Obligations related to securities sold under repurchase agreements and securities lent
   
 
147.4
 
      139.0        6.0        5.8        0.2  
Other liabilities
   
 
204.2
 
      211.0        (3.2 )       (6.2 )       3.0  
Subordinated debentures
   
 
9.6
 
      8.5        13.0        14.5        (1.5 ) 
Total liabilities
   
$
1,318.4
 
    $ 1,274.7        3.4 %       2.7 %       0.7 % 
Equity
               
Common equity
(1)
   
$
68.0
 
    $ 65.1        4.3 %       3.7 %       0.6 % 
Preferred shares and other equity instruments
   
 
8.1
 
      8.1        –        –        –  
Non-controlling
interests in subsidiaries
   
 
1.6
 
      1.5        9.0        6.0        3.0  
Total equity
   
$
77.7
 
    $ 74.7        4.0 %       3.4 %       0.6 % 
Total liabilities and equity
   
$
1,396.1
 
    $ 1,349.4        3.5 %       2.8 %       0.7 % 
(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 $1,396 billion as at July 31, 2023, up $47 billion or 3% from October 31, 2022. Cash and deposits with financial institutions increased $24 billion due primarily to higher balances with central banks. Trading securities increased $5 billion due mainly to higher client activity. Loans increased $7 billion. Personal loans and credit cards increased $6 billion reflecting increased consumer spending. Business and government loans increased $3 billion mainly in Canada and Mexico. Residential mortgages decreased $2 billion, with lower mortgages in Canada partly offset by growth in Mexico and Chile. Securities purchased under resale agreements and securities borrowed increased $23 billion due to higher client demand. Derivative instrument assets decreased by $11 billion due to changes in foreign exchange rates, interest rates and lower activity. Other assets decreased $6 billion due mainly to lower derivative collateral requirements.
Total liabilities were $1,318 billion as at July 31, 2023, up $44 billion or 3% from October 31, 2022. Total deposits increased $41 billion. Personal deposits of $285 billion increased $19 billion due primarily to growth in term deposits in Canada. Business and government deposits grew by $18 billion mainly in Canada and Mexico. Deposits by financial institutions increased $4 billion. Financial instruments designated at fair value through profit or loss increased $6 billion, due mainly to the issuance of senior note liabilities. Obligations related to securities sold under repurchase agreements and securities lent increased by $8 billion. Other liabilities increased $4 billion due mainly to accrued interest and debt issuance by subsidiaries. Derivative instrument liabilities decreased $15 billion due to changes in interest rates, foreign exchange rates and lower activity.
Total shareholders’ equity was $78 billion, an increase of $3 billion from October 31, 2022. Equity was higher due to current year earnings of $6,143 million and net share issuances of $917 million primarily related to the Shareholder Dividend and Share Purchase Plan. Partly offsetting these items were dividends paid of $4,035 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 Third 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 is 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 economic growth in 2023 for Canada and the U.S. compared to last quarter, as both economies remained resilient in the face of monetary policy tightening, driven largely by resilient labour markets, strong consumption and
pent-up
demand. This economic resilience and resulting inflationary pressures, combined with implicit guidance on the path of future policy rates by the two countries’ central banks, resulted in an upward revision to monetary policy rates in both countries, with rates now higher for longer compared to last quarter.
The optimistic scenario features somewhat stronger economic activity relative to the base case. The pessimistic scenario is based on the recent banking sector turmoil in the U.S. and Europe, and features deteriorating private sector financial conditions and confidence. 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 scenario features a strong stagflationary impulse that leads to a protracted period of financial market uncertainty. This results in higher inflation, 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 67 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 slowdown occurs in Canada and the U.S. in the second half of 2023 and into 2024 owing to the impacts of monetary tightening on both economies. In Canada, the economy is expected to grow by about 1.3% in 2023 despite the expected technical recession in the second half of the year. The economy is then expected to slow to a moderate growth path in 2024. Similarly, an economic expansion is expected in the U.S. of about 1.3% in 2023 before slowing to a more moderate pace 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 slowdown in economic activity 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 in 2023 are similar to last quarter with a slight downward revision for Canada in 2023, reflecting a more resilient labour market than expected. Both countries’ unemployment rates were revised up in 2024, in line with weaker growth and, in the case of Canada, higher labour force participation owing to stronger population growth, leading to a larger and more persistent upward revision to the Canadian unemployment rate.
 
   
 
34    
Scotiabank Third Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
The total allowance for credit losses as at July 31, 2023 was $6,094 million compared to $5,931 million last quarter. The allowance for credit losses ratio was 78 basis points, an increase of three basis points. The allowance for credit losses on loans was $5,893 million, up $157 million from the prior quarter. The increase was due to the impact of the continued unfavourable macroeconomic outlook and higher provisions on retail portfolios.
The allowance against performing loans was higher at $4,073 million compared to $3,985 million as at April 30, 2023. The allowance for performing loans ratio was 55 basis points, an increase of three basis points. The increase was due primarily to the continued unfavourable macroeconomic outlook.
The allowance on impaired loans increased to $1,820 million from $1,751 million last quarter. The allowance for impaired loans ratio was 23 basis points, unchanged from the prior quarter. The increase was due primarily to higher retail provisions.
Impaired loans
Gross impaired loans increased to $5,487 million as at July 31, 2023, from $5,305 million last quarter. The increase was due primarily to the net formations in retail portfolios. The gross impaired loan ratio was 70 basis points, an increase of three basis points from last quarter.
Net impaired loans in Canadian Banking were $872 million, an increase of $148 million from last quarter, due primarily to higher commercial and retail formations. International Banking’s net impaired loans were $2,704 million, a decrease of $11 million from last quarter, due to lower commercial impaired loans due primarily to repayment on one account in the utility sector, partly offset by higher retail formations. In Global Banking and Markets, net impaired loans were $79 million, a decrease of $21 million from last quarter, due mainly to repayment on one account in the mining sector. In Global Wealth Management, net impaired loans were $12 million, a decrease of $3 million from last quarter. Net impaired loans as a percentage of loans and acceptances were 0.47%, an increase of two basis points from 0.45% 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 July 31, 2023, these loans amounted to $468 billion or 60% of the Bank’s total loans and acceptances outstanding (April 30, 2023 – $472 billion or 60%). Of these, $370 billion or 79% are real estate secured loans (April 30, 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 July 31, 2023
  
    
Residential mortgages
    
Home equity lines of credit
  
    
Insured
(2)
    
Uninsured
    
Total
    
Insured
(2)
    
Uninsured
    
Total
  
($ millions)
  
Amount
    
%
    
Amount
    
%
    
Amount
    
%
    
Amount
    
%
    
Amount
    
%
    
Amount
    
%
  
Canada:
(3)
                        
Atlantic provinces
  
$
4,846
 
  
 
1.6
% 
  
$
6,567
 
  
 
2.2
% 
  
$
11,413
 
  
 
3.8
% 
  
$
–
 
  
 
–
% 
  
$
1,060
 
  
 
4.7
% 
  
$
1,060
 
  
 
4.7
% 
Quebec
  
 
7,702
 
  
 
2.5
 
  
 
12,049
 
  
 
4.1
 
  
 
19,751
 
  
 
6.6
 
  
 
–
 
  
 
–
 
  
 
1,120
 
  
 
4.9
 
  
 
1,120
 
  
 
4.9
 
Ontario
  
 
31,629
 
  
 
10.8
 
  
 
131,767
 
  
 
44.8
 
  
 
163,396
 
  
 
55.6
 
  
 
–
 
  
 
–
 
  
 
13,193
 
  
 
58.7
 
  
 
13,193
 
  
 
58.7
 
Manitoba & Saskatchewan
  
 
5,299
 
  
 
1.8
 
  
 
4,580
 
  
 
1.6
 
  
 
9,879
 
  
 
3.4
 
  
 
–
 
  
 
–
 
  
 
619
 
  
 
2.8
 
  
 
619
 
  
 
2.8
 
Alberta
  
 
16,211
 
  
 
5.5
 
  
 
15,172
 
  
 
5.2
 
  
 
31,383
 
  
 
10.7
 
  
 
–
 
  
 
–
 
  
 
2,263
 
  
 
10.1
 
  
 
2,263
 
  
 
10.1
 
British Columbia & Territories
  
 
10,925
 
  
 
3.8
 
  
 
47,371
 
  
 
16.1
 
  
 
58,296
 
  
 
19.9
 
  
 
–
 
  
 
–
 
  
 
4,219
 
  
 
18.8
 
  
 
4,219
 
  
 
18.8
 
Canada
(4)(5)
  
$
76,612
 
  
 
26.0
% 
  
$
217,506
 
  
 
74.0
% 
  
$
294,118
 
  
 
100
% 
  
$
–
 
  
 
–
% 
  
$
22,474
 
  
 
100
% 
  
$
22,474
 
  
 
100
% 
International
  
 
–
 
  
 
–
 
  
 
53,589
 
  
 
100
 
  
 
53,589
 
  
 
100
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
Total
  
$
76,612
 
  
 
22.0
% 
  
$
271,095
 
  
 
78.0
% 
  
$
347,707
 
  
 
100
% 
  
$
–
 
  
 
–
% 
  
$
22,474
 
  
 
100
% 
  
$
22,474
 
  
 
100
% 
     As at April 30, 2023  
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 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 $3,683 (April 30, 2023 – $3,703; October 31, 2022 – $3,782) of which $2,484 are insured (April 30, 2023 – $2,496; October 31, 2022 – $2,524).
(5)
Variable rate mortgages account for 34% (April 30, 2023 – 36%; October 31, 2022 – 37%) of the Bank’s total Canadian residential mortgage portfolio.
 
Scotiabank Third 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 July 31, 2023
  
     
Residential mortgages by amortization period
  
     
Less than
20 years
    
20-24

years
     
25-29

years
     
30-34

years
    
35 years
and
greater
     
Total
residential
mortgages
  
Canada
   
 
33.5
% 
  
 
37.6
% 
   
 
27.9
% 
   
 
0.8
% 
  
 
0.2
% 
   
 
100
% 
International
   
 
63.5
% 
  
 
17.7
% 
   
 
17.8
% 
   
 
1.0
% 
  
 
0.0
% 
   
 
100
% 
      As at April 30, 2023  
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 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 74% uninsured (April 30, 2023 – 73%; October 31, 2022 – 72%). The average
loan-to-value
(LTV) ratio of the uninsured portfolio is 51% (April 30, 2023 – 53%; 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 July 31, 2023
  
     
Residential
mortgages
     
Home equity lines of
credit
(2)
  
     
LTV%
     
LTV%
  
Canada:
(3)
      
Atlantic provinces
      57.5 %       62.5 % 
Quebec
      59.0        67.9  
Ontario
      58.2        61.3  
Manitoba & Saskatchewan
      59.9        60.7  
Alberta
      59.9        68.4  
British Columbia & Territories
      57.1        60.6  
Canada
(3)
   
 
58.2
% 
   
 
62.0
% 
International
   
 
71.7
% 
   
 
n/a
 
      For the three months ended April 30, 2023  
Canada
(3)
      60.6 %       64.4 % 
International
      72.6 %       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 $66.2 billion, or 8.5% of the Bank’s total loans and acceptances outstanding as at July 31, 2023 (April 30, 2023 – $67.1 billion or 8.5%). This portfolio is largely comprised of loans to the residential and industrial sectors (72%), both undersupplied asset classes. Total exposure to the Office subsector represents approximately 10% of the commercial real estate portfolio, of which two thirds are investment grade facilities.
 
36    
Scotiabank Third Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
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 $59.8 billion as at July 31, 2023 (April 30, 2023 – $65.9 billion; October 31, 2022 – $60.5 billion), $17.8 billion to banks (April 30, 2023 – $16.6 billion; October 31, 2022 – $16.3 billion) and $129.4 billion to corporates (April 30, 2023 – $133.7 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 $0.4 billion as at July 31, 2023 (April 30, 2023 – $0.3 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                
    
July 31, 2023
     April 30
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)
   $ 91,786     $ 12,264     $ 19,392     $ 3,276     $ 126,718     $ 7,866    
$
134,584
 
   $ 142,309     $ 130,858  
Caribbean and Central America
     11,794       3,793       3,668       17       19,272       3,466    
 
22,738
 
     23,732       24,186  
Europe, excluding U.K.
     7,974       1,713       2,356       3,241       15,284       9,703    
 
24,987
 
     25,688       24,298  
U.K.
     8,416       4,657       1,014       5,160       19,247       7,838    
 
27,085
 
     27,855       24,370  
Asia
     12,221       922       12,285       248       25,676       8,439    
 
34,115
 
     35,689       37,210  
Other
(6)
     467       3       86       30       586       227    
 
813
 
     814       1,499  
Total
   $ 132,658     $ 23,352     $ 38,801     $ 11,972     $ 206,783     $ 37,539    
$
244,322
 
   $ 256,087     $ 242,421  
(1)
Individual allowances for credit losses are $547. 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 $15,877 as at July 31, 2023 (April 30, 2023 – $16,382; 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 $5,334 and collateral held against SFT was $112,310.
(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)
   
July 31
2023
      April 30
2023		      July 31
2022		  
Credit spread plus interest rate
   
$
15.0
 
    $ 15.7      $ 13.5  
Credit spread
   
 
7.6
 
      9.5        5.8  
Interest rate
   
 
11.5
 
      14.0        12.5  
Equities
   
 
4.0
 
      4.6        4.5  
Foreign exchange
   
 
2.9
 
      3.7        2.5  
Commodities
   
 
4.7
 
      6.3        4.5  
Debt specific
   
 
3.3
 
      3.7        2.2  
Diversification effect
   
 
(14.4
) 
      (16.6 )       (11.7 ) 
Total VaR
   
$
15.5
 
    $ 17.4      $ 15.5  
Total Stressed VaR
   
$
32.0
 
    $ 54.9      $ 28.6  
In Q3 2023, the average
one-day
Total VaR decreased from last quarter to $15.5 million due to reduced interest rate and equity exposure as market volatility subsided from Q2.
In Q3 2023, the Stressed VaR reduced to $32.0 million from last quarter, also due to the reduced exposure. Stressed VaR is calculated using the largest loss across historical periods as applied to the current portfolio. Both Q2 and Q3 2023 were calculated using the 2019/2020 COVID period, and Q3 2022 using the 2008/2009 credit crisis period.
There were no trading loss days this quarter. The quality and accuracy of the VaR models is validated by backtesting, which compares daily actual and theoretical profit and loss with the daily output of the VaR model.
 
Scotiabank Third 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. 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  
    
July 31, 2023
     April 30, 2023     July 31, 2022  
    
Net interest income
    
Economic value of equity
                              
($ millions)
  
Canadian
dollar
    
Other
currencies
    
Total
    
Canadian
dollar
    
Other
currencies
    
Total
    
Net
interest
income
     Economic
value of
equity		    
Net
interest
income
     Economic
value of
equity		  
+100 bps
  
$
(194
) 
  
$
166
 
  
$
(28
) 
  
$
(542
) 
  
$
(487
) 
  
$
(1,029
) 
   $ (46 )    $ (1,247 )    $ (267 )    $ (1,579 ) 
-100 bps
  
 
179
 
  
 
(175
) 
  
 
4
 
  
 
349
 
  
 
277
 
  
 
626
 
     (2 )      796       231       1,027  
During the third 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 July 31, 2023
  
Market risk measure
  
($ millions)
  
Consolidated
Statement of
Financial Position
    
Trading
risk
    
Non-trading

risk
    
Not subject to
market risk
    
Primary risk sensitivity of
non-trading
risk
  
Precious metals
  
$
1,009
 
  
$
1,009
 
  
$
–
 
  
$
–
 
  
 
n/a
 
Trading assets
  
 
119,301
 
  
 
119,146
 
  
 
155
 
  
 
–
 
  
 
Interest rate, FX
 
Derivative financial instruments
  
 
44,655
 
  
 
31,669
 
  
 
12,986
 
  
 
–
 
  
 
Interest rate, FX, equity
 
Investment securities
  
 
110,195
 
  
 
–
 
  
 
110,195
 
  
 
–
 
  
 
Interest rate, FX, equity
 
Loans
  
 
752,205
 
  
 
–
 
  
 
752,205
 
  
 
–
 
  
 
Interest rate, FX
 
Assets not subject to market risk
(1)
  
 
368,733
 
  
 
–
 
  
 
–
 
  
 
368,733
 
  
 
n/a
 
Total assets
  
$
1,396,098
 
  
$
151,824
 
  
$
875,541
 
  
$
368,733
 
  
 
 
 
Deposits
  
$
957,225
 
  
$
–
 
  
$
912,471
 
  
$
44,754
 
  
 
Interest rate, FX, equity
 
Financial instruments designated at fair value through profit or loss
  
 
28,893
 
  
 
–
 
  
 
28,893
 
  
 
–
 
  
 
Interest rate, equity
 
Obligations related to securities sold short
  
 
37,522
 
  
 
37,522
 
  
 
–
 
  
 
–
 
  
 
n/a
 
Derivative financial instruments
  
 
50,848
 
  
 
29,269
 
  
 
21,579
 
  
 
–
 
  
 
Interest rate, FX, equity
 
Trading liabilities
(2)
  
 
432
 
  
 
432
 
  
 
–
 
  
 
–
 
  
 
n/a
 
Pension and other benefit liabilities
  
 
1,609
 
  
 
–
 
  
 
1,609
 
  
 
–
 
  
 
Interest rate, credit spread, equity
 
Liabilities not subject to market risk
(3)
  
 
241,851
 
  
 
–
 
  
 
–
 
  
 
241,851
 
  
 
n/a
 
Total liabilities
  
$
1,318,380
 
  
$
67,223
 
  
$
964,552
 
  
$
286,605
 
  
 
 
 
(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 Third Quarter Report 2023
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
As at October 31, 2022   Market risk measure  
($ millions)
   Consolidated
Statement of
Financial Position		     Trading risk    
Non-trading

risk		     Not subject to
market risk		    
Primary risk sensitivity of
non-trading
risk
  
Precious metals
   $ 543     $ 543     $ –     $ –       n/a  
Trading assets
     113,154       113,117       37       –       Interest rate, FX  
Derivative financial instruments
     55,699       43,436       12,263       –       Interest rate, FX, equity  
Investment securities
     110,008       –       110,008       –       Interest rate, FX, equity  
Loans
     744,987       –       744,987       –       Interest rate, FX  
Assets not subject to market risk
(1)
     325,027       –       –       325,027       n/a  
Total assets
   $ 1,349,418     $ 157,096     $ 867,295     $ 325,027    
 
 
 
Deposits
   $ 916,181     $ –     $ 869,219     $ 46,962       Interest rate, FX, equity  
Financial instruments designated at fair value through profit or loss
     22,421       –       22,421       –       Interest rate, equity  
Obligations related to securities sold short
     40,449       40,449       –       –       n/a  
Derivative financial instruments
     65,900       40,685       25,215       –       Interest rate, FX, equity  
Trading liabilities
(2)
     372       372       –       –       n/a  
Pension and other benefit liabilities
     1,557       –       1,557       –       Interest rate, credit spread, equity  
Liabilities not subject to market risk
(3)
     227,789       –       –       227,789       n/a  
Total liabilities
   $ 1,274,669     $ 81,506     $ 918,412     $ 274,751    
 
 
 
(1)
Includes goodwill, intangibles, other assets and securities purchased under resale agreements and securities borrowed.
(2)
Gold and silver certificates and bullion included in other liabilities.
(3)
Includes obligations related to securities sold under repurchase agreements and securities lent and other liabilities.
Liquidity risk
Effective liquidity risk management is essential to maintain the confidence of depositors and counterparties, manage the Bank’s cost of funds and to support core business activities, even under adverse circumstances.
Liquidity risk is managed within a framework of policies and limits that are approved by the Board of Directors, as outlined in Note 18 to the Condensed Interim Consolidated Financial Statements and in Note 35 to the Consolidated Financial Statements in the Bank’s 2022 Annual Report.
Liquid assets are a key component of this framework. The determination of the appropriate levels for liquid asset portfolios is based on the amount of liquidity the Bank might need to fund expected cash flows in the normal course of business, as well as what might be required in periods of stress to meet cash outflows. Stress events include periods when there are disruptions in the capital markets or events which may impair the Bank’s access to funding markets or liquidity. The Bank uses stress testing to assess the impact of stress events and to assess the amount of liquid assets that would be required in various stress scenarios.
Liquid assets
Liquid assets are a key component of liquidity management and the Bank holds these types of assets in sufficient quantity to meet potential needs.
Liquid assets can be used to generate cash either through sale, repurchase transactions or other transactions where these assets can be used as collateral to generate cash, or by allowing the asset to mature. Liquid assets include unrestricted deposits with central banks, deposits with financial institutions, 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 July 31, 2023 unencumbered liquid assets were $317 billion (October 31, 2022 – $260 billion). Securities including National Housing Act (NHA) mortgage-backed securities, comprised 73% of liquid assets (October 31, 2022 – 77%). Other unencumbered liquid assets, comprising cash and deposits with central banks, deposits with financial institutions and precious metals were 27% (October 31, 2022 – 23%). The increase in total unencumbered liquid assets to support enterprise liquidity metrics was attributable to an increase in Canadian and foreign government securities, cash and deposits with central banks, NHA mortgage-backed securities 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 July 31, 2023. The liquidity value of the portfolio will vary under different stress events as different assumptions are used for the stress scenarios.
 
Scotiabank Third 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 July 31, 2023
  
    
Bank-owned
liquid assets
     
Securities received
as collateral from
securities financing
and derivative
transactions
     
Total liquid
assets
     
Encumbered
liquid assets
     
Unencumbered
liquid assets
  
($ millions)
   
Pledged as
collateral
     
Other
(1)
     
Available as
collateral
     
Other
  
Cash and deposits with central banks
   
$
81,580
 
   
$
–
 
   
$
81,580
 
   
$
–
 
   
$
6,016
 
   
$
75,564
 
   
$
–
 
Deposits with financial institutions
   
 
8,745
 
   
 
–
 
   
 
8,745
 
   
 
–
 
   
 
357
 
   
 
8,388
 
   
 
–
 
Precious metals
   
 
1,009
 
   
 
–
 
   
 
1,009
 
   
 
–
 
   
 
–
 
   
 
1,009
 
   
 
–
 
Securities:
                     
Canadian government obligations
   
 
53,460
 
   
 
42,522
 
   
 
95,982
 
   
 
37,032
 
   
 
–
 
   
 
58,950
 
   
 
–
 
Foreign government obligations
   
 
100,280
 
   
 
129,657
 
   
 
229,937
 
   
 
106,378
 
   
 
–
 
   
 
123,559
 
   
 
–
 
Other securities
   
 
61,916
 
   
 
101,898
 
   
 
163,814
 
   
 
140,197
 
   
 
–
 
   
 
23,617
 
   
 
–
 
NHA mortgage-backed securities
   
 
34,009
 
   
 
–
 
   
 
34,009
 
   
 
8,546
 
   
 
–
 
   
 
25,463
 
   
 
–
 
Total
   
$
340,999
 
   
$
274,077
 
   
$
615,076
 
   
$
292,153
 
   
$
6,373
 
   
$
316,550
 
   
$
–
 
      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        –  
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)
   
July 31
2023
      October 31
2022		  
The Bank of Nova Scotia (Parent)
   
$
237,487
 
    $ 184,848  
Bank domestic subsidiaries
   
 
38,537
 
      26,912  
Bank foreign subsidiaries
   
 
40,526
 
      48,388  
Total
   
$
316,550
 
    $ 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 increase in unencumbered assets in the parent supports the maintenance of strong liquidity metrics this quarter. 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 Third Quarter Report 2023
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Encumbered assets
In the course of the Bank’s
day-to-day
activities, securities and other assets are pledged to secure an obligation, participate in clearing or settlement systems, or operate in a foreign jurisdiction. Securities are also pledged under repurchase agreements. A summary of encumbered and unencumbered assets is presented below:
T26 Asset Encumbrance
 
    
As at July 31, 2023
  
   
Bank-owned
assets
    
Securities received as
collateral from
securities financing and
derivative transactions
    
Total assets
    
Encumbered assets
    
Unencumbered assets
  
($ millions)
  
Pledged as
collateral
    
Other
(1)
    
Available as
collateral
(2)
     
Other
(3)
  
Cash and deposits with central banks
  
$
81,580
 
  
$
–
 
  
$
81,580
 
  
$
–
 
  
$
6,016
 
  
$
75,564
 
   
$
–
 
Deposits with financial institutions
  
 
8,745
 
  
 
–
 
  
 
8,745
 
  
 
–
 
  
 
357
 
  
 
8,388
 
   
 
–
 
Precious metals
  
 
1,009
 
  
 
–
 
  
 
1,009
 
  
 
–
 
  
 
–
 
  
 
1,009
 
   
 
–
 
Liquid securities:
               
Canadian government obligations
  
 
53,460
 
  
 
42,522
 
  
 
95,982
 
  
 
37,032
 
  
 
–
 
  
 
58,950
 
   
 
–
 
Foreign government obligations
  
 
100,280
 
  
 
129,657
 
  
 
229,937
 
  
 
106,378
 
  
 
–
 
  
 
123,559
 
   
 
–
 
Other liquid securities
  
 
61,916
 
  
 
101,898
 
  
 
163,814
 
  
 
140,197
 
  
 
–
 
  
 
23,617
 
   
 
–
 
Other securities
  
 
2,849
 
  
 
7,644
 
  
 
10,493
 
  
 
5,316
 
  
 
–
 
  
 
–
 
   
 
5,177
 
Loans classified as liquid assets:
               
NHA mortgage-backed securities
  
 
34,009
 
  
 
–
 
  
 
34,009
 
  
 
8,546
 
  
 
–
 
  
 
25,463
 
   
 
–
 
Other loans
  
 
726,616
 
  
 
–
 
  
 
726,616
 
  
 
4,591
 
  
 
84,526
 
  
 
12,773
 
   
 
624,726
 
Other financial assets
(4)
  
 
268,616
 
  
 
(184,161
) 
  
 
84,455
 
  
 
12,732
 
  
 
–
 
  
 
–
 
   
 
71,723
 
Non-financial
assets
  
 
57,018
 
  
 
–
 
  
 
57,018
 
  
 
–
 
  
 
–
 
  
 
–
 
   
 
57,018
 
Total
  
$
1,396,098
 
  
$
97,560
 
  
$
1,493,658
 
  
$
314,792
 
  
$
90,899
 
  
$
329,323
 
   
$
758,644
 
     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 July 31, 2023 total encumbered assets of the Bank were $406 billion (October 31, 2022 – $377 billion). Of the remaining $1,088 billion (October 31, 2022 – $1,051 billion) of unencumbered assets, $329 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 July 31, 2023 the potential adverse impact on derivatives collateral that would result from a
one-notch
or
two-notch
downgrade of the Bank’s rating below its lowest current rating was $35 million or $679 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 Third Quarter Report 2023
    41
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
The following table presents the Bank’s LCR for the quarter ended July 31, 2023, based on the average daily positions in the quarter:
T27 Bank’s average LCR
(1)
 
For the quarter ended July 31, 2023
($ millions)
(2)
   
Total
unweighted
value
(Average)
(3)
     
Total
weighted
value
(Average)
(4)
  
High-quality liquid assets
      
Total high-quality liquid assets (HQLA)
   
 
*
 
   
$
264,014
 
Cash outflows
      
Retail deposits and deposits from small business customers, of which:
    $ 242,032      $ 22,595  
Stable deposits
      92,546        2,988  
Less stable deposits
      149,486        19,607  
Unsecured wholesale funding, of which:
      302,054        139,755  
Operational deposits (all counterparties) and deposits in networks of cooperative banks
      97,786        23,537  
Non-operational
deposits (all counterparties)
      173,151        85,101  
Unsecured debt
      31,117        31,117  
Secured wholesale funding
   
 
*
 
      51,283  
Additional requirements, of which:
      277,173        60,423  
Outflows related to derivative exposures and other collateral requirements
      42,752        22,487  
Outflows related to loss of funding on debt products
      4,139        4,139  
Credit and liquidity facilities
      230,282        33,797  
Other contractual funding obligations
      1,582        1,556  
Other contingent funding obligations
(5)
      592,079        7,579  
Total cash outflows
   
 
*
 
   
$
283,191
 
Cash inflows
      
Secured lending (e.g. reverse repos)
    $ 259,656      $ 43,458  
Inflows from fully performing exposures
      33,148        20,309  
Other cash inflows
      20,379        20,379  
Total cash inflows
   
$
313,183
 
   
$
84,146
 
              Total
adjusted
value
(6)
  
Total HQLA
   
 
*
 
   
$
264,014
 
Total net cash outflows
   
 
*
 
   
$
199,045
 
Liquidity coverage ratio (%)
   
 
*
 
   
 
133
% 
For the quarter ended April 30, 2023
($ millions)
            Total
adjusted
value
(6)
  
Total HQLA
      *      $ 252,277  
Total net cash outflows
      *      $ 192,278  
Liquidity coverage ratio (%)
      *        131 % 
*
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 64 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 July 31, 2023 versus the average of the previous quarter was mainly attributable to growth in retail deposits and deposits from small business customers. 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 Third Quarter Report 2023
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
The following table presents the Bank’s NSFR as at July 31, 2023:
T28 Bank’s NSFR
(1)
 
     Unweighted Value by Residual Maturity     Weighted
value
(3)
  
As at July 31, 2023
($ millions)
   No maturity
(2)
     < 6 months    
6-12 months
    
≥
 1 year		  
Available Stable Funding (ASF) Item
 
Capital:   $ 88,796     $ –     $ –     $ –     $ 88,796  
Regulatory capital
     88,796       –       –       –       88,796  
Other capital instruments
     –       –       –       –       –  
Retail deposits and deposits from small business customers:     195,988       79,647       29,537       47,216       322,436  
Stable deposits
     81,119       20,710       9,742       12,506       118,498  
Less stable deposits
     114,869       58,937       19,795       34,710       203,938  
Wholesale funding:     185,026       306,520       68,182       132,382       328,033  
Operational deposits
     101,194       –       –       –       50,597  
Other wholesale funding
     83,832       306,520       68,182       132,382       277,436  
Liabilities with matching interdependent assets
(4)
     –       3,510       2,295       16,669       –  
Other liabilities:     66,647       124,999       21,394  
NSFR derivative liabilities
       9,336    
All other liabilities and equity not included in the above categories
     66,647       91,592       5,354       18,717       21,394  
Total ASF
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
$
760,659
 
Required Stable Funding (RSF) Item
 
Total NSFR high-quality liquid assets (HQLA)           $ 16,206  
Deposits held at other financial institutions for operational purposes   $ 1,868     $ 1,158     $ –     $ –     $ 1,513  
Performing loans and securities:     103,941       190,255       60,092       518,185       571,546  
Performing loans to financial institutions secured by Level 1 HQLA
     2       35,454       2,098       –       3,317  
Performing loans to financial institutions secured by
non-Level
1 HQLA and unsecured performing loans to financial institutions
     2,671       65,915       12,030       11,031       27,332  
Performing loans to
non-financial
corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and PSEs, of which:
     58,628       75,650       31,368       230,092       293,244  
With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk
     –       369       798       1,679       1,674  
Performing residential mortgages, of which:
     22,150       12,158       14,365       270,636       224,120  
With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk
     22,150       12,002       14,105       255,840       211,336  
Securities that are not in default and do not qualify as HQLA, including exchange-traded equities
     20,490       1,078       231       6,426       23,533  
Assets with matching interdependent liabilities
(4)
     –       3,510       2,295       16,669       –  
Other assets:     3,579    
 
178,844
 
     57,483  
Physical traded commodities, including gold
     3,579             3,042  
Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs
       9,469       8,048  
NSFR derivative assets
       5,862       –  
NSFR derivative liabilities before deduction of variation margin posted
       26,627       1,331  
All other assets not included in the above categories
     –       91,825       –       45,061       45,062  
Off-balance
sheet items		  
 
 
 
     477,735       18,371  
Total RSF
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
$
665,119
 
Net Stable Funding Ratio (%)
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
114
% 
As at April 30, 2023   Weighted
value
(3)
  
Total ASF
   $ 743,001  
Total RSF
     666,854  
Net stable funding ratio (%)
     111 % 
(1)
This measure has been disclosed in this document in accordance with OSFI Guideline – Net Stable Funding Ratio Disclosure Requirements (January 2021).
(2)
Items in the “no maturity” time bucket do not have a stated maturity. These may include, but are not limited to, items such as capital with perpetual maturity,
non-maturity
deposits, short positions, open maturity positions,
non-HQLA
equities, and physical traded commodities.
(3)
Weighted values represent balances calculated after the application of ASF and RSF rates, as prescribed by the OSFI LAR Guideline.
(4)
Interdependent assets and liabilities are primarily comprised of transactions related to the Canada Mortgage Bond program.
Available stable funding is primarily provided by the Bank’s large pool of retail, small business and corporate customer deposits; secured and unsecured wholesale funding and capital. Required stable funding primarily originates from the Bank’s loan and mortgage portfolio, securities holdings,
off-balance
sheet items and other assets.
The increase in the Bank’s NSFR as at July 31, 2023 versus the previous quarter was mainly attributable to higher ASF from wholesale funding and lower RSF for loans and mortgages.
 
Scotiabank Third Quarter Report 2023
    43
Table of Contents
MANAGEMENT’S DISCUSSION & ANALYSIS
 
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 $380 billion as at July 31, 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 $222 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 July 31, 2023, issued and outstanding liabilities of $76 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 Third 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 July 31, 2023
  
($ millions)
  
Less than
1 month
    
1-3
months
    
3-6
months
    
6-9
months
    
9-12
months
    
Sub-Total
≤
1 Year
    
1-2
years
    
2-5
years
    
>5
years
    
Total
  
Deposit by banks
(2)
  
$
2,621
 
  
$
1,111
 
  
$
404
 
  
$
11
 
  
$
648
 
  
$
4,795
 
  
$
533
 
  
$
–
 
  
$
–
 
  
$
5,328
 
Bearer notes, commercial paper and certificate of deposits
  
 
10,562
 
  
 
18,971
 
  
 
25,291
 
  
 
15,244
 
  
 
10,784
 
  
 
80,852
 
  
 
1,665
 
  
 
348
 
  
 
62
 
  
 
82,927
 
Asset-backed commercial paper
(3)
  
 
1,334
 
  
 
5,112
 
  
 
4,540
 
  
 
165
 
  
 
–
 
  
 
11,151
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
11,151
 
Senior notes
(4)(5)
  
 
1,603
 
  
 
3,658
 
  
 
3,206
 
  
 
4,026
 
  
 
7,690
 
  
 
20,183
 
  
 
2,300
 
  
 
7,708
 
  
 
11,891
 
  
 
42,082
 
Bail-inable notes
(5)
  
 
–
 
  
 
5,234
 
  
 
614
 
  
 
9,103
 
  
 
2,163
 
  
 
17,114
 
  
 
19,328
 
  
 
24,804
 
  
 
14,812
 
  
 
76,058
 
Asset-backed securities
  
 
–
 
  
 
574
 
  
 
–
 
  
 
1
 
  
 
–
 
  
 
575
 
  
 
7
 
  
 
1,321
 
  
 
818
 
  
 
2,721
 
Covered bonds
  
 
–
 
  
 
2,537
 
  
 
1,812
 
  
 
–
 
  
 
–
 
  
 
4,349
 
  
 
11,051
 
  
 
29,321
 
  
 
5,929
 
  
 
50,650
 
Mortgage securitization
(6)
  
 
1
 
  
 
2,558
 
  
 
953
 
  
 
548
 
  
 
1,752
 
  
 
5,812
 
  
 
4,228
 
  
 
7,834
 
  
 
4,160
 
  
 
22,034
 
Subordinated debt
(7)
  
 
–
 
  
 
–
 
  
 
–
 
  
 
3
 
  
 
–
 
  
 
3
 
  
 
336
 
  
 
1,890
 
  
 
9,226
 
  
 
11,455
 
Total wholesale funding sources
  
$
16,121
 
  
$
39,755
 
  
$
36,820
 
  
$
29,101
 
  
$
23,037
 
  
$
144,834
 
  
$
39,448
 
  
$
73,226
 
  
$
46,898
 
  
$
304,406
 
Of Which:
                    
Unsecured funding
  
$
14,786
 
  
$
28,974
 
  
$
29,516
 
  
$
28,387
 
  
$
21,285
 
  
$
122,948
 
  
$
24,161
 
  
$
34,750
 
  
$
35,991
 
  
$
217,850
 
Secured funding
  
 
1,335
 
  
 
10,781
 
  
 
7,304
 
  
 
714
 
  
 
1,752
 
  
 
21,886
 
  
 
15,287
 
  
 
38,476
 
  
 
10,907
 
  
 
86,556
 
     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 $317 billion as at July 31, 2023 (October 31, 2022 – $260 billion) were well in excess of wholesale funding sources which mature in the next twelve months.
 
Scotiabank Third 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 July 31, 2023, based on the contractual maturity date. From a liquidity risk perspective the Bank considers factors other than contractual maturity in the assessment of liquid assets or in determining expected future cash flows. In particular, for securities with a fixed maturity date, the ability and time horizon to raise cash from these securities is more relevant to liquidity management than contractual maturity. For other assets and deposits the Bank uses assumptions about rollover rates to assess liquidity risk for normal course and stress scenarios. Similarly, the Bank uses assumptions to assess the potential drawdown of credit commitments in various scenarios.
T30 Contractual maturities
 
    
As at July 31, 2023
  
($ millions)
  
Less
than one
month
    
One to
three
months
    
Three
to six
months
    
Six to
nine
months
    
Nine to
twelve
months
    
One to
two
years
    
Two
to five
years
    
Over
five
years
    
No
specific
maturity
    
Total
  
Assets
                    
Cash and deposits with financial institutions and precious metals
  
$
81,343
 
  
$
148
 
  
$
283
 
  
$
60
 
  
$
47
 
  
$
160
 
  
$
287
 
  
$
227
 
  
$
8,779
 
  
$
91,334
 
Trading assets
  
 
3,962
 
  
 
4,990
 
  
 
4,946
 
  
 
5,122
 
  
 
2,491
 
  
 
9,139
 
  
 
19,208
 
  
 
17,592
 
  
 
51,851
 
  
 
119,301
 
Securities purchased under resale agreements and securities
borrowed
  
 
177,938
 
  
 
13,307
 
  
 
6,732
 
  
 
285
 
  
 
96
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
198,358
 
Derivative financial instruments
  
 
2,458
 
  
 
3,305
 
  
 
4,562
 
  
 
2,482
 
  
 
2,153
 
  
 
6,509
 
  
 
11,245
 
  
 
11,941
 
  
 
–
 
  
 
44,655
 
Investment securities – FVOCI
  
 
5,820
 
  
 
10,113
 
  
 
3,441
 
  
 
6,529
 
  
 
3,273
 
  
 
8,838
 
  
 
26,086
 
  
 
13,918
 
  
 
2,206
 
  
 
80,224
 
Investment securities – amortized cost
  
 
38
 
  
 
767
 
  
 
938
 
  
 
764
 
  
 
1,053
 
  
 
2,313
 
  
 
5,278
 
  
 
17,041
 
  
 
–
 
  
 
28,192
 
Investment securities – FVTPL
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
1,779
 
  
 
1,779
 
Loans
  
 
65,018
 
  
 
37,199
 
  
 
37,848
 
  
 
32,605
 
  
 
38,437
 
  
 
118,202
 
  
 
311,376
 
  
 
52,395
 
  
 
59,125
 
  
 
752,205
 
Residential mortgages
  
 
3,822
 
  
 
6,492
 
  
 
11,155
 
  
 
10,113
 
  
 
12,635
 
  
 
62,744
 
  
 
198,940
 
  
 
39,997
 
  
 
1,809
(1)
 
  
 
347,707
 
Personal loans
  
 
3,535
 
  
 
2,742
 
  
 
3,558
 
  
 
3,901
 
  
 
3,721
 
  
 
12,692
 
  
 
25,282
 
  
 
6,867
 
  
 
41,435
 
  
 
103,733
 
Credit cards
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
16,607
 
  
 
16,607
 
Business and government
  
 
57,661
 
  
 
27,965
 
  
 
23,135
 
  
 
18,591
 
  
 
22,081
 
  
 
42,766
 
  
 
87,154
 
  
 
5,531
 
  
 
5,167
(2)
 
  
 
290,051
 
Allowance for credit losses
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
(5,893
) 
  
 
(5,893
) 
Customers’ liabilities under acceptances
  
 
16,416
 
  
 
3,931
 
  
 
38
 
  
 
35
 
  
 
5
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
20,425
 
Other assets
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
59,625
 
  
 
59,625
 
Total assets
  
$
352,993
 
  
$
73,760
 
  
$
58,788
 
  
$
47,882
 
  
$
47,555
 
  
$
145,161
 
  
$
373,480
 
  
$
113,114
 
  
$
183,365
 
  
$
1,396,098
 
Liabilities and equity
                    
Deposits
  
$
103,893
 
  
$
81,204
 
  
$
71,103
 
  
$
54,895
 
  
$
53,324
 
  
$
67,654
 
  
$
86,197
 
  
$
24,309
 
  
$
414,646
 
  
$
957,225
 
Personal
  
 
15,971
 
  
 
14,454
 
  
 
18,764
 
  
 
15,889
 
  
 
13,616
 
  
 
24,284
 
  
 
16,105
 
  
 
379
 
  
 
165,276
 
  
 
284,738
 
Non-personal
  
 
87,922
 
  
 
66,750
 
  
 
52,339
 
  
 
39,006
 
  
 
39,708
 
  
 
43,370
 
  
 
70,092
 
  
 
23,930
 
  
 
249,370
 
  
 
672,487
 
Financial instruments designated at fair value through profit or loss
  
 
386
 
  
 
909
 
  
 
985
 
  
 
1,431
 
  
 
1,171
 
  
 
6,467
 
  
 
4,180
 
  
 
13,364
 
  
 
–
 
  
 
28,893
 
Acceptances
  
 
16,469
 
  
 
3,931
 
  
 
38
 
  
 
35
 
  
 
5
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
20,478
 
Obligations related to securities sold short
  
 
641
 
  
 
1,143
 
  
 
2,391
 
  
 
1,908
 
  
 
1,417
 
  
 
4,094
 
  
 
6,974
 
  
 
7,500
 
  
 
11,454
 
  
 
37,522
 
Derivative financial instruments
  
 
2,273
 
  
 
3,350
 
  
 
4,554
 
  
 
1,953
 
  
 
2,141
 
  
 
6,795
 
  
 
12,082
 
  
 
17,700
 
  
 
–
 
  
 
50,848
 
Obligations related to securities sold under repurchase agreements and securities lent
  
 
145,761
 
  
 
1,324
 
  
 
343
 
  
 
4
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
147,432
 
Subordinated debentures
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
247
 
  
 
1,642
 
  
 
7,677
 
  
 
–
 
  
 
9,566
 
Other liabilities
  
 
526
 
  
 
2,161
 
  
 
1,644
 
  
 
1,175
 
  
 
1,285
 
  
 
8,094
 
  
 
5,008
 
  
 
8,546
 
  
 
37,977
 
  
 
66,416
 
Total equity
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
77,718
 
  
 
77,718
 
Total liabilities and equity
  
$
269,949
 
  
$
94,022
 
  
$
81,058
 
  
$
61,401
 
  
$
59,343
 
  
$
93,351
 
  
$
116,083
 
  
$
79,096
 
  
$
541,795
 
  
$
1,396,098
 
Off-balance
sheet commitments
                    
Credit commitments
(3)
  
$
6,978
 
  
$
11,304
 
  
$
18,557
 
  
$
17,185
 
  
$
19,934
 
  
$
46,069
 
  
$
137,106
 
  
$
12,429
 
  
$
–
 
  
$
269,562
 
Guarantees and letters of credit
(4)
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
44,701
 
  
 
44,701
 
Outsourcing obligations
(5)
  
 
18
 
  
 
35
 
  
 
53
 
  
 
52
 
  
 
52
 
  
 
88
 
  
 
33
 
  
 
27
 
  
 
–
 
  
 
358
 
(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 Third 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  
Guarantees and letters of credit
(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 July 31, 2023, all rating agencies have a Stable outlook on the Bank. There were no changes made to the Bank’s credit ratings or outlooks during the quarter.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Capital Management
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 last quarter, the Bank 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 domestic systematically important banks
(D-SIBs).
OSFI’s requirements are substantially aligned with the Basel Committee on Banking Supervision’s (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 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
D-SIB
1.0% surcharge and its DSB are: 11.0%, 12.5% and 14.5% for Common Equity Tier 1 (CET1), Tier 1 and Total capital ratios, respectively. In addition, in June 2023 OSFI announced an additional 0.5% increase to its DSB, resulting in a DSB of 3.5% of total RWA, effective November 1, 2023.
Revised Basel III reforms
The final Basel III reforms implemented last 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 last 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)
   
July 31
2023
      April 30
2023		      October 31
2022		  
     
Revised
Basel III
     
Revised
Basel III
      Basel III  
Common Equity Tier 1 capital
(1)(2)
   
$
55,832
 
    $ 55,520      $ 53,081  
Tier 1 capital
(1)(2)
   
 
64,016
 
      63,688        61,262  
Total regulatory capital
(1)(2)
   
 
74,332
 
      73,197        70,710  
Total loss absorbing capacity (TLAC)
(3)
   
 
134,207
 
      127,815        126,565  
Risk-weighted assets
(1)(2)(4)
   
$
439,814
 
    $ 451,063      $ 462,448  
Capital ratios (%)
(1)(2)
         
Common Equity Tier 1 capital ratio
   
 
12.7
 
      12.3        11.5  
Tier 1 capital ratio
   
 
14.6
 
      14.1        13.2  
Total capital ratio
   
 
16.9
 
      16.2        15.3  
Total loss absorbing capacity ratio
(3)
   
 
30.5
 
      28.3        27.4  
Leverage
(5)
:
         
Leverage exposures
   
$
1,551,344
 
    $ 1,530,107      $ 1,445,619  
Leverage ratio (%)
   
 
4.1
 
      4.2        4.2  
Total loss absorbing capacity leverage ratio (%)
(3)
   
 
         8.7
 
      8.4        8.8  
(1)
Regulatory ratios and amounts reported as at Q3 2023 and Q2 2023 are under Revised Basel III requirements and are not directly comparable to ratios and amounts reported in Q4 2022.
(2)
Q3 2023 and 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 year 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 July 31, 2023, CET1, Tier 1, Total Capital and TLAC RWA include a Basel III floor adjustment of $1.4 billion (April 30, 2023 – $8.2 billion and as at 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)
Q3 2023 and Q2 2023 leverage ratios are based on Revised Basel III requirements as determined in accordance with OSFI Guideline – Leverage Requirements (February 2023). Prior year leverage ratios were prepared in accordance with OSFI Guideline – Leverage Requirements (November 2018).
The Bank’s CET1 capital ratio was 12.7% as at July 31, 2023, an increase of approximately 40 basis points from the prior quarter, due primarily to internal capital generation, lower RWA including the benefit of a risk transfer transaction, and share issuances from the Bank’s Shareholder Dividend and Share Purchase Plan.
The Bank’s Tier 1 capital ratio was 14.6% as at July 31, 2023, an increase of approximately 50 basis points from the prior quarter, due primarily to the above noted impacts to the CET1 ratio.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
The Bank’s Total capital ratio was 16.9% as at July 31, 2023, an increase of approximately 70 basis points from the prior quarter, mainly due to the above noted impacts to the Tier 1 capital ratio and a $1 billion issuance of subordinated debentures.
The Leverage ratio was 4.1% as at July 31, 2023, a decrease of approximately 10 basis points from the prior quarter, due primarily to growth in on-balance sheet assets.
The TLAC ratio was 30.5% as at July 31, 2023, an increase of approximately 220 basis points from the prior quarter, mainly from TLAC issuances during the quarter and the above noted impacts to the Total capital ratio.
The TLAC Leverage ratio was 8.7%, an increase of approximately 30 basis points, due primarily to TLAC issuances during the quarter.    
As at July 31, 2023, the CET1, Tier 1, Total capital, Leverage, TLAC and TLAC Leverage ratios were well above OSFI’s minimum capital ratios.
Continuity of Common Equity Tier 1 ratio
(1)
 
 
 
(1)
This measure has been disclosed in this document in accordance with OSFI Guideline – Capital Adequacy Requirements (February 2023).
Changes in regulatory capital
The Bank’s Common Equity Tier 1 capital was $55.8 billion, as at July 31, 2023, an increase of $312 million from the prior quarter, due primarily to quarterly earnings less dividends of $816 million and share issuances of $467 million from the Shareholder Dividend and Share Purchase Plan, partly offset by lower net accumulated other comprehensive income included for regulatory capital of $683 million and regulatory capital deductions of $350 million.
Risk-weighted assets
CET1 risk-weighted assets (RWA) decreased during the quarter by $11.2 billion (or
-2.5%)
to $439.8 billion, due primarily to lower RWA from the revised Basel III standardized output floor 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 July 31, 2023. The Bank’s previous normal course issuer bid terminated on December 1, 2022. Under this program, the Bank repurchased and cancelled approximately 32.9 million common shares at a volume weighted average price of $87.28 per share for a total amount of $2,873 million. These repurchases were carried out prior to October 31, 2022.
Common dividend
The Board of Directors, at its meeting on August 28, 2023, approved a dividend of $1.06 per share, unchanged from last quarter. This quarterly dividend is payable to shareholders of record as of October 3, 2023, on October 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 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).
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Total derivative notional amounts were $8,349 billion as at July 31, 2023, compared to $8,180 billion as at April 30, 2023 (October 31, 2022 – $7,597 billion). The quarterly increase was due primarily to higher volume of interest rate contracts, partly offset by foreign currency translation. The total notional amount of
over-the-counter
derivatives was $7,792 billion compared to $7,649 billion as at April 30, 2023 (October 31, 2022 – $7,290 billion), of which $5,867 billion was settled through central counterparties as at July 31, 2023 (April 30, 2023 – $5,697 billion; October 31, 2022 – $5,474 billion). The credit equivalent amount, after taking master netting arrangements into account, was $36.1 billion, compared to $38.8 billion at April 30, 2023. The decrease was primarily attributable to the lower exposure of commodity contracts offset by an increase 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 $7.2 billion as at July 31, 2023 (October 31, 2022 – $6.4 billion). As at July 31, 2023, total commercial paper outstanding for these conduits was $4.9 billion (October 31, 2022 – $3.8 billion). Funded assets purchased and held by these conduits as at July 31, 2023, as reflected at original cost, were $4.8 billion (October 31, 2022 – $3.8 billion). The fair value of these assets approximates original cost. There has been no significant change in the composition or risk profile of these conduits since October 31, 2022.
Other
off-balance
sheet arrangements
The Bank uses capital vehicles to transfer credit exposure on certain loan assets and purchases credit protection against eligible credit events from these vehicles. The vehicles collateralize their obligation using cash proceeds received through the issuance of guarantee-linked notes. Loan assets are not sold or assigned to the vehicles and remain on the Bank’s Consolidated Statement of Financial Position. During the quarter, $949 million of guarantee-linked notes (April 30, 2023 – nil; October 31, 2022 – nil) were issued by these vehicles and included in Deposits – Business and government on the Bank’s Consolidated Statement of Financial Position.
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 may impact 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. In May 2023, the Quebec Privacy Regulator published its draft consent guidelines. A final consent guideline is expected to be available in October.
Climate Regulatory Update
OSFI published its final Guideline
B-15
– Climate Risk Management (Guideline
B-15)
on March 7, 2023 with disclosure expectations beginning October 31, 2024.
The International Sustainability Standards Board (ISSB) published its final climate and sustainability-related disclosure standards on June 26, 2023. OSFI is expected to review the ISSB standards and assess whether any updates to Guideline
B-15
are required.
The Bank is currently assessing the impact of Guideline B-15 and will continue to monitor any updates and future developments. On June 28, 2023, OSFI announced a consultation period for a draft Climate Risk Regulatory Return due on September 30, 2023. Per the consultation, the effective date is the end of fiscal year 2024 with the returns due within 90 days of fiscal year end.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Interest rate benchmark reform
The publication of the overnight and 12-month US Dollar London Interbank Offered Rate (USD LIBOR) tenors has ceased, and the
one-month,
three-month
and
six-month
USD LIBOR tenors became
non-representative
as of June 30, 2023. These
non-representative
tenors 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 successfully transitioned a significant portion of its USD LIBOR contracts to alternative risk-free rates, and the remaining contracts will be remediated through fallback provisions.
As previously announced by Refinitiv Benchmark Services (UK) Limited,
one-month,
two-month,
and three-month Canadian Dollar Offered Rate (CDOR) tenors will continue to be published until June 28, 2024 (the cessation date). 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. After June 30, 2023, all new derivatives and securities transactions are referencing Canadian Overnight Repo Rate Average (CORRA) benchmarks with permissible exceptions. The CARR has recently announced that after November 1, 2023, all new loan contracts must reference only Overnight CORRA, Term CORRA, or Prime Rate instead of CDOR or a bankers’ acceptance rate.
The CARR, CanDeal Benchmark Solutions and TMX Datalinx have announced that the
one-month
and three-month Term CORRA benchmark will be launched on September 5, 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 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; to impose a 2% tax on the net value of share repurchases; and to impose GST/HST on payment card clearing services with the potential to reassess prior years for GST/HST amounts owing. The Federal Budget also reconfirmed 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.
On June 22, 2023, Bill
C-47
(an Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023) containing the proposed Federal Budget tax measure relating to GST/HST on payment card clearing services passed all readings in Parliament and received royal assent to become law.
The impact of the enacted legislation has been recognized in the Bank’s financial results as of July 31, 2023 and is not material for the Bank. The remaining Federal Budget proposals, if enacted, 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.
On August 4, 2023, the Department of Finance Canada released draft legislation for public consultation, which includes, among other things, the Pillar Two global minimum tax rules and 2% tax on the net value of all types of share repurchases by public corporations in Canada.
Housing
The Financial Consumer Agency of Canada (FCAC) published a guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances on July 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 Federal Budget.
In the Federal Budget, the government announced that it is considering consolidating Canada Mortgage Bonds into the regular Government of Canada (GoC) borrowing program. If this action is taken, it may impact the Bank’s fixed income business by removing a source of funding, potentially impacting fees for some business lines and reducing investment options for investors. On June 6, 2023, the GoC launched their consultation on the subject and are expected to provide an update in the 2023 Fall Economic Statement.
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 IFRS Accounting 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
IFRS 17 –
Insurance Contracts
On May 18, 2017, the IASB issued IFRS 17
Insurance contracts
to replace IFRS 4
Insurance contracts
, to provide a comprehensive principle-based framework for the recognition, measurement, presentation, and disclosure of insurance contracts. The standard is to be applied on a full retrospective basis unless impractical, when either the modified retrospective or fair value method may be used.
IFRS 17 is effective for the Bank on November 1, 2023, and the Bank plans to adopt the standard by restating the comparative year results from the transition date of November 1, 2022.
Under IFRS 17, groups of insurance contracts will be measured using current probability-weighted fulfilment cash flows and revenue will be recognised as the service is provided over the coverage period based on the three measurement models as applicable: the general measurement model, the variable fee approach, and the premium allocation approach.
Adoption of IFRS 17 will result in the recognition of the contractual service margin as a component of the carrying amount for groups of contracts measured under the general measurement model and the variable fee approach. The contractual service margin represents unearned profits to be recognized as coverage is provided in future.
The Bank has a formal program in place to implement the new requirements. The Bank is modifying its processes, controls and insurance accounting systems, and continues to assess decisions required in the key areas of judgment.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
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 July 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.
Related party transactions
There were no changes to the Bank’s procedures and policies for related party transactions from those outlined in the Bank’s 2022 Annual Report. All transactions with related parties continued to be at market terms and conditions.
Share Data
T32 Shares and other instruments
 
July 31, 2023
   
Amount
($ millions)
     
Dividends
declared per
share
(1)
     
Number
outstanding
(000s)
     
Conversion
feature
  
Common Shares
(2)
    $ 19,627      $ 1.06        1,205,333        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
(7)
    US$ 1,250      US$ 20.9788        8.20911        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 August 2033
          $ 1,000        5.679  
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
(8)
    $ 750      $ 28.25        5.650        750  
Options
                           
Number
outstanding
(000s)
  
Outstanding options granted under the Stock Option Plans to purchase common shares
(2)
   
 
 
 
   
 
 
 
   
 
 
 
      11,660  
(1)
Dividends are paid quarterly, if and when declared. Represents dividends announced on August 29, 2023. The Board of Directors, at its meeting on August 28, 2023, approved a dividend payable on October 27, 2023 to shareholders of record as of October 3, 2023.
(2)
As at August 18, 2023, the number of outstanding common shares and options were 1,205,341 thousand and 11,604 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 July 31, 2023 would be 4,897 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)
In respect of these securities, on June 28, 2023, the Bank announced the interest rate transition from three-month USD LIBOR to three-month Term SOFR, plus a spread adjustment of 26.161 bps, for interest periods commencing on or after July 12, 2023.
(8)
These securities have exchange features. Refer to Table 29 in the Bank’s 2022 Annual Report for further details.
For further details on outstanding securities of the Bank, including convertibility features, refer to Notes 21, 24 and 26 of the Bank’s consolidated financial statements in the 2022 Annual Report.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Glossary
Allowance for Credit Losses:
An allowance set aside which, in management’s opinion, is adequate to absorb credit-related losses on all financial assets and
off-balance
sheet exposures subject to impairment assessment. It includes allowances for performing financial assets and impaired financial assets.
Allowance for Credit Losses Ratio:
The ratio of period end total allowance for credit losses (excluding debt securities and deposits with financial institutions) divided by gross loans and acceptances.
Allowance for Impaired Loans Ratio:
The ratio of period end impaired allowance for credit losses (excluding debt securities and deposits with financial institutions) divided by gross loans and acceptances.
Allowance for Performing Loans Ratio:
The ratio of period end performing allowance for credit losses (excluding debt securities and deposits with financial institutions) divided by gross loans and acceptances.
Allowance against Impaired Loans as a % of Gross Impaired Loans:
The ratio of allowance against impaired loans to gross impaired loans.
Assets Under Administration (AUA):
Assets administered by the Bank which are beneficially owned by clients and therefore not reported on the Bank’s Consolidated Statement of Financial Position. Services provided for AUA are of an administrative nature, such as trusteeship, custodial, safekeeping, income collection and distribution, securities trade settlements, customer reporting, and other similar services.
Assets Under Management (AUM):
Assets managed by the Bank on a discretionary basis and in respect of which the Bank earns investment management fees. AUM are beneficially owned by clients and are therefore not reported on the Bank’s Consolidated Statement of Financial Position. Some AUM are also administered assets and are therefore included in assets under administration.
Bankers’ Acceptances (BAs):
Negotiable, short-term debt securities, guaranteed for a fee by the issuer’s bank.
Basis Point:
A unit of measure defined as
one-hundredth
of one per cent.
Book Value per Common Share:
Common shareholders equity divided by the number of outstanding common shares at the end of the period.
Canadian Overnight Repo Rate Average (CORRA):
CORRA measures the cost of overnight general collateral funding in Canadian dollars using Government of Canada treasury bills and bonds as collateral for repurchase transactions.
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.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Liquidity Coverage Ratio (LCR):
The ratio of high quality liquid assets to stressed net cash outflows over a 30 calendar day time horizon, as defined within the OSFI Liquidity Adequacy Requirements Guideline.
Marked-To-Market:
The valuation of certain financial instruments at fair value as of the Consolidated Statement of Financial Position date.
Market Value to Book Value Multiple:
This financial valuation metric is calculated by dividing the current closing share price of the period by the book value per common share.
Net Impaired Loans as a % of Loans and Acceptances:
The ratio of net impaired loans, debt investments and
off-balance
sheet exposures expressed as a percentage of loans and acceptances.
Net Interest Margin:
Net interest margin is calculated as core net interest income for the business line divided by average core earning assets.
Net Stable Funding Ratio (NSFR):
The ratio of available stable funding to required stable funding, as defined within the OSFI Liquidity Adequacy Requirements Guideline.
Net Write-offs as a % of Average Net Loans and Acceptances:
The ratio of net write-offs expressed as a percentage of average net loans and acceptances.
Notional Principal Amounts:
The contract or principal amounts used to determine payments for certain
off-balance
sheet instruments and derivatives, such as FRAs, interest rate swaps and cross-currency swaps. The amounts are termed “notional” because they are not usually exchanged themselves, serving only as the basis for calculating amounts that do change hands.
Off-Balance
Sheet Instruments:
These are indirect credit commitments, including undrawn commitments to extend credit and derivative instruments, which are not recorded on the Bank’s balance sheet under IFRS.
Operating Leverage:
This financial metric measures the rate of growth in total revenue less the rate of growth in
non-interest
expenses.
Options:
Contracts between buyer and seller giving the buyer of the option the right, but not the obligation, to buy (call) or sell (put) a specified commodity, financial instrument or currency at a set price or rate on or before a specified future date.
OSFI:
The Office of the Superintendent of Financial Institutions Canada, the regulator of Canadian banks.
Pacific Alliance:
Comprises the countries of Chile, Colombia, Mexico and Peru.
Price to Earnings Multiple (Trailing 4 Quarters):
Closing share price at period end divided by cumulative basic earnings per common share (EPS) of the past 4 quarters.
Productivity Ratio:
Management uses the productivity ratio as a measure of the Bank’s efficiency. This ratio represents
non-interest
expenses as a percentage of total revenue.
Provision for Credit Losses (PCL) as a % of Average Net Loans and Acceptances:
The ratio of PCL on loans, acceptances and
off-balance
sheet exposures expressed as a percentage of average net loans and acceptances.
Provision for Credit Losses (PCL) on Impaired Loans as a % of Average Net Loans and Acceptances:
PCL on impaired loans ratio under IFRS 9 is calculated using PCL on impaired loans, acceptances and
off-balance
sheet exposures as a percentage of average net loans and acceptances.
Repos:
Repos is short for “obligations related to securities sold under repurchase agreements” – a short-term transaction where the Bank sells assets, normally government bonds, to a client and simultaneously agrees to repurchase them on a specified date and at a specified price. It is a form of short-term funding.
Return on Assets (ROA):
Net income expressed as a percentage of total average assets.
Return on Equity (ROE):
Net income attributable to common shareholders, expressed as a percentage of average common shareholders’ equity. The Bank attributes capital to its business lines on a basis that approximates 10.5% of Basel III common equity capital requirements which includes credit, market and operational risks and leverage inherent in each business segment. Return on equity for the business segments is calculated as a ratio of net income attributable to common shareholders of the business segment and the capital attributed.
Return on Tangible Common Equity (ROTCE):
Return on Tangible Common Equity is calculated by dividing the net income attributable to common shareholders, adjusted for the amortization of intangibles (excluding software), by average tangible common equity. Tangible common equity is defined as common shareholders’ equity adjusted for goodwill and acquisition-related intangible assets (excluding software), net of deferred taxes.
Reverse Repos:
Reverse repos is short for “securities purchased under resale agreements” – a short-term transaction where the Bank purchases assets, normally government bonds, from a client and simultaneously agrees to resell them on a specified date and at a specified price. It is a form of short-term collateralized lending.
Risk-Weighted Assets:
Comprised of three broad categories including credit risk, market risk and operational risk, which are computed under the 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.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Swaps:
Interest rate swaps are agreements to exchange streams of interest payments, typically one at a floating rate, the other at a fixed rate, over a specified period of time, based on notional principal amounts. Cross-currency swaps are agreements to exchange payments in different currencies over predetermined periods of time.
Taxable Equivalent Basis (TEB):
The Bank analyzes net interest income,
non-interest
income, and total revenue on a taxable equivalent basis (TEB). This methodology grosses up
tax-exempt
income earned on certain securities reported in either net interest income or
non-interest
income to an equivalent before tax basis. A corresponding increase is made to the provision for income taxes; hence, there is no impact on net income. Management believes that this basis for measurement provides a uniform comparability of net interest income and
non-interest
income arising from both taxable and
non-taxable
sources and facilitates a consistent basis of measurement. While other banks also use TEB, their methodology may not be comparable to the Bank’s methodology. For purposes of segmented reporting, a segment’s revenue and provision for income taxes are grossed up by the taxable equivalent amount. The elimination of the TEB gross up is recorded in the Other segment.
Total Annual Shareholder Return (TSR):
Total annual shareholder return is calculated as the overall appreciation in share price, plus any dividends paid during the year; this sum is then divided by the share price at the beginning of the year to arrive at the TSR. Total annual shareholder return assumes reinvestment of quarterly dividends.
Total Loss Absorbing Capacity (TLAC):
The aggregate of NVCC Tier 1 capital, NVCC Tier 2 capital, and other TLAC instruments that are subject to conversion in whole or in part into common shares under the CDIC Act and meet all of the eligibility criteria under the OSFI guideline – Total Loss Absorbing Capacity (September 2018).
Other TLAC Instruments include prescribed shares and liabilities that are subject to conversion into common shares pursuant to the CDIC Act and which meet all of the eligibility criteria set out in the Total Loss Absorbing Capacity (TLAC) Guidelines.
Value At Risk (VaR):
An estimate of the potential loss that might result from holding a position for a specified period of time, with a given level of statistical confidence.
Yield Curve:
A graph showing the term structure of interest rates, plotting the yields of similar quality bonds by term to maturity.
 
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MANAGEMENT’S DISCUSSION & ANALYSIS
 
Basel III Glossary
Credit Risk Parameters
Exposure at Default (EAD):
Generally represents the expected gross exposure – outstanding amount for
on-balance
sheet exposure and loan equivalent amount for
off-balance
sheet exposure at default.
Probability of Default (PD):
Measures the likelihood that a borrower will default within a
one-year
time horizon, expressed as a percentage.
Loss Given Default (LGD):
Measures the severity of loss on a facility in the event of a borrower’s default, expressed as a percentage of exposure at default.
Exposure Types
Non-retail
Corporate:
Defined as a debt obligation of a corporation, partnership, or proprietorship.
Bank:
Defined as a debt obligation of a bank or bank equivalent (including certain public sector entities (PSEs) treated as bank equivalent exposures).
Sovereign:
Defined as a debt obligation of a sovereign, central bank, certain multi development banks and certain PSEs treated as sovereign.
Securitization:
On-balance
sheet investments in asset-backed securities, mortgage-backed securities, collateralized loan obligations and collateralized debt obligations,
off-balance
sheet liquidity lines to the Bank’s own sponsored and third-party conduits and credit enhancements.
Retail
Residential Mortgage:
Loans to individuals against residential property (four units or less).
Secured Lines Of Credit:
Revolving personal lines of credit secured by residential real estate.
Qualifying Revolving Retail Exposures:
Credit cards and unsecured lines of credit for individuals.
Other Retail:
All other personal loans.
Exposure
Sub-types
Drawn:
Outstanding amounts for loans, leases, acceptances, deposits with banks and FVOCI debt securities.
Undrawn:
Unutilized portion of authorized committed credit lines.
Other Exposures
Repo-Style Transactions:
Reverse repurchase agreements (reverse repos) and repurchase agreements (repos), securities lending and borrowing.
OTC Derivatives:
Over-the-counter
derivatives contracts refers to financial instruments which are traded through a dealer network rather than through an exchange.
Other
Off-balance
Sheet:
Direct credit substitutes, such as standby letters of credit and guarantees, trade letters of credit, and performance letters of credit and guarantees.
Exchange-Traded Derivative Contracts:
Exchange-traded derivative contracts are derivative contracts (e.g., futures contracts and options) that are transacted on an organized futures exchange. These include futures contracts (both long and short positions), purchased options and written options.
Qualifying Central Counterparty (QCCP):
A licensed central counterparty is considered “qualifying” when it is compliant with the International Organization of Securities Commissions (IOSCO) standards and is able to assist clearing member banks in properly capitalizing for CCP exposures.
Asset Value Correlation Multiplier (AVC):
Basel III has increased the risk-weights on exposures to certain Financial Institutions (FIs) relative to the
non-financial
corporate sector by introducing an AVC. The correlation factor in the risk-weight formula is multiplied by this AVC factor of 1.25 for all exposures to regulated FIs whose total assets are greater than or equal to US $100 billion and all exposures to unregulated FIs.
Specific
Wrong-Way
Risk (WWR):
Specific
Wrong-Way
Risk arises when the exposure to a particular counterparty is positively correlated with the probability of default of the counterparty due to the nature of the transactions with the counterparty.
Basel 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   
July 31
2023
      April 30
2023		      October 31
2022		  
Assets
            
Cash and deposits with financial institutions
    5   
$
90,325
 
    $ 63,893      $ 65,895  
Precious metals
      
 
1,009
 
      1,191        543  
Trading assets
            
Securities
      
 
108,310
 
      105,560        103,547  
Loans
      
 
8,420
 
      6,910        7,811  
Other
   
 
   
 
2,571
 
      2,225        1,796  
     
 
119,301
 
      114,695        113,154  
Securities purchased under resale agreements and securities borrowed
      
 
198,358
 
      184,684        175,313  
Derivative financial instruments
      
 
44,655
 
      44,725        55,699  
Investment securities
    6   
 
110,195
 
      116,595        110,008  
Loans
            
Residential mortgages
    7   
 
347,707
 
      353,560        349,279  
Personal loans
    7   
 
103,733
 
      102,178        99,431  
Credit cards
    7   
 
16,607
 
      16,053        14,518  
Business and government
    7   
 
290,051
 
      298,013        287,107  
     
 
758,098
 
      769,804        750,335  
Allowance for credit losses
    7(c)   
 
5,893
 
      5,736        5,348  
     
 
752,205
 
      764,068        744,987  
Other
            
Customers’ liability under acceptances, net of allowance
      
 
20,425
 
      21,901        19,494  
Property and equipment
      
 
5,685
 
      5,646        5,700  
Investments in associates
    9   
 
2,607
 
      2,708        2,633  
Goodwill and other intangible assets
      
 
17,262
 
      17,396        16,833  
Deferred tax assets
      
 
3,159
 
      2,193        1,903  
Other assets
   
 
   
 
30,912
 
      33,503        37,256  
 
   
 
   
 
80,050
 
      83,347        83,819  
Total assets
   
 
   
$
1,396,098
 
    $ 1,373,198      $ 1,349,418  
Liabilities
            
Deposits
            
Personal
    10   
$
284,738
 
    $ 283,651      $ 265,892  
Business and government
    10   
 
615,431
 
      611,376        597,617  
Financial institutions
    10   
 
57,056
 
      50,511        52,672  
     
 
957,225
 
      945,538        916,181  
Financial instruments designated at fair value through profit or loss
    18(b)   
 
28,893
 
      26,935        22,421  
Other
            
Acceptances
      
 
20,478
 
      21,951        19,525  
Obligations related to securities sold short
      
 
37,522
 
      41,310        40,449  
Derivative financial instruments
      
 
50,848
 
      50,562        65,900  
Obligations related to securities sold under repurchase agreements and securities lent
      
 
147,432
 
      132,631        139,025  
Subordinated debentures
    11   
 
9,566
 
      8,784        8,469  
Other liabilities
   
 
   
 
66,416
 
      66,737        62,699  
 
   
 
   
 
332,262
 
      321,975        336,067  
Total liabilities
   
 
   
 
1,318,380
 
      1,294,448        1,274,669  
Equity
            
Common equity
            
Common shares
    11   
 
19,627
 
      19,160        18,707  
Retained earnings
      
 
55,783
 
      54,967        53,761  
Accumulated other comprehensive income (loss)
      
 
(7,340
) 
      (4,906 )       (7,166 ) 
Other reserves
   
 
   
 
(88
) 
      (144 )       (152 ) 
Total common equity
      
 
67,982
 
      69,077        65,150  
Preferred shares and other equity instruments
   
 
   
 
8,075
 
      8,075        8,075  
Total equity attributable to equity holders of the Bank
      
 
76,057
 
      77,152        73,225  
Non-controlling
interests in subsidiaries
   
 
   
 
1,661
 
      1,598        1,524  
Total equity
   
 
   
 
77,718
 
      78,750        74,749  
Total liabilities and equity
   
 
   
$
1,396,098
 
    $ 1,373,198      $ 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 nine months ended
 
(Unaudited) ($ millions)
  
Note
  
July 31
2023
 
  
April 30
2023
 
  
July 31
2022
 
  
July 31
2023
 
  
July 31
2022
 
Revenue
                                                  
Interest income
(1)
                                                  
Loans
        
$
 11,525
 
    $ 11,076      $   7,707     
$
 33,220
 
    $ 20,119  
Securities
        
 
1,831
 
      1,645        802     
 
4,934
 
      1,660  
Securities purchased under resale agreements and securities borrowed
        
 
397
 
      368        132     
 
1,101
 
      250  
Deposits with financial institutions
   
 
   
 
936
 
      781        244     
 
2,460
 
      411  
 
    16   
 
14,689
 
      13,870        8,885     
 
41,715
 
      22,440  
Interest expense
                                                  
Deposits
        
 
9,438
 
      8,652        3,475     
 
25,924
 
      7,072  
Subordinated debentures
        
 
123
 
      110        77     
 
338
 
      177  
Other
   
 
   
 
548
 
      642        657     
 
1,838
 
      1,698  
 
    16   
 
10,109
 
      9,404        4,209     
 
28,100
 
      8,947  
Net interest income
   
 
   
 
4,580
 
      4,466        4,676     
 
13,615
 
      13,493  
Non-interest
income
                                                  
Card revenues
        
 
188
 
      190        187     
 
579
 
      584  
Banking services fees
        
 
474
 
      462        447     
 
1,405
 
      1,314  
Credit fees
        
 
469
 
      447        398     
 
1,382
 
      1,196  
Mutual funds
        
 
541
 
      527        538     
 
1,600
 
      1,741  
Brokerage fees
        
 
285
 
      269        276     
 
833
 
      861  
Investment management and trust
        
 
261
 
      256        247     
 
770
 
      757  
Underwriting and advisory fees
        
 
146
 
      154        98     
 
402
 
      407  
Non-trading
foreign exchange
        
 
213
 
      227        209     
 
672
 
      650  
Trading revenues
        
 
360
 
      389        311     
 
1,383
 
      1,373  
Net gain on sale of investment securities
        
 
30
 
      56        –     
 
130
 
      3  
Net income from investments in associated corporations
        
 
55
 
      64        44     
 
135
 
      219  
Insurance underwriting income, net of claims
        
 
113
 
      123        113     
 
348
 
      319  
Other fees and commissions
        
 
283
 
      282        143     
 
751
 
      444  
Other
   
 
   
 
92
 
      17        112     
 
(6
) 
      429  
 
   
 
   
 
3,510
 
      3,463        3,123     
 
10,384
 
      10,297  
Total revenue
        
 
8,090
 
      7,929        7,799     
 
23,999
 
      23,790  
Provision for credit losses
   
 
   
 
819
 
      709        412     
 
2,166
 
      853  
 
   
 
   
 
7,271
 
      7,220        7,387     
 
21,833
 
      22,937  
Non-interest
expenses
                                                  
Salaries and employee benefits
        
 
2,379
 
      2,425        2,194     
 
7,144
 
      6,649  
Premises and technology
        
 
661
 
      657        612     
 
1,958
 
      1,788  
Depreciation and amortization
        
 
412
 
      412        381     
 
1,230
 
      1,137  
Communications
        
 
101
 
      101        88     
 
296
 
      271  
Advertising and business development
        
 
142
 
      139        123     
 
417
 
      340  
Professional
        
 
199
 
      187        200     
 
561
 
      587  
Business and capital taxes
        
 
154
 
      158        135     
 
473
 
      407  
Other
   
 
   
 
514
 
      497        458     
 
1,523
 
      1,394  
 
   
 
   
 
4,562
 
      4,576        4,191     
 
13,602
 
      12,573  
Income before taxes
        
 
2,709
 
      2,644        3,196     
 
8,231
 
      10,364  
Income tax expense
    19   
 
497
 
      485        602     
 
2,088
 
      2,283  
Net income
   
 
   
$
2,212
 
    $ 2,159      $ 2,594     
$
6,143
 
    $ 8,081  
Net income attributable to
non-controlling
interests in subsidiaries
   
 
   
 
21
 
      26        54     
 
87
 
      220  
Net income attributable to equity holders of the Bank
        
$
2,191
 
    $ 2,133      $ 2,540     
$
6,056
 
    $ 7,861  
Preferred shareholders and other equity instrument holders
        
 
105
 
      104        36     
 
310
 
      154  
Common shareholders
   
 
   
$
2,086
 
    $ 2,029      $ 2,504     
$
5,746
 
    $ 7,707  
Earnings per common share
(in dollars)
                                                  
Basic
    17   
$
1.74
 
    $ 1.70      $ 2.10     
$
4.81
 
    $ 6.41  
Diluted
    17   
 
1.72
 
      1.69        2.09     
 
4.76
 
      6.39  
Dividends paid per common share
(in dollars)
   
 
   
 
1.06
 
      1.03        1.03     
 
3.12
 
      3.03  
(1)
Includes interest income on financial assets measured at amortized cost and FVOCI, calculated using the effective interest method, of $14,127 for the three months ended July 31, 2023 (April 30, 2023 – $13,384; July 31, 2022 – $8,624) and for the nine months ended July 31, 2023 – $40,221 (July 31, 2022 – $21,870).
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
 
Scotiabank Third Quarter Report 2023
    59
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Consolidated Statement of Comprehensive Income
 
      For the three months ended      For the nine months ended  
(Unaudited) ($ millions)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Net income
   
$
    2,212
 
    $    2,159      $   2,594     
$
   6,143
 
    $   8,081  
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)
   
 
(946
) 
      1,073        (977 )    
 
670
 
      597  
Net gains (losses) on hedges of net investments in foreign operations
   
 
298
 
      (556 )       234     
 
(242
) 
      (515 ) 
Income tax expense (benefit):
               
Net unrealized foreign currency translation gains (losses)
   
 
(14
) 
      –        (7 )    
 
(6
) 
      1  
Net gains (losses) on hedges of net investments in foreign operations
   
 
82
 
      (157 )       62     
 
(81
) 
      (135 ) 
  
 
(716
) 
      674        (798 )    
 
515
 
      216  
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
   
 
(559
) 
      352        242     
 
1,027
 
      (1,873 ) 
Reclassification of net (gains) losses to net income
   
 
711
 
      (89 )       (321 )    
 
(169
) 
      950  
Income tax expense (benefit):
               
Net gains (losses) in fair value
   
 
(149
) 
      114        56     
 
253
 
      (489 ) 
Reclassification of net (gains) losses to net income
   
 
199
 
      (52 )       (109 )    
 
(31
) 
      246  
  
 
102
 
      201        (26 )    
 
636
 
      (680 ) 
Net change in gains (losses) on derivative instruments designated as cash flow hedges:
               
Net gains (losses) on derivative instruments designated as cash flow hedges
   
 
(1,601
) 
      1,425        (1,700 )    
 
3,300
 
      (8,368 ) 
Reclassification of net (gains) losses to net income
   
 
1,025
 
      (1,573 )       1,620     
 
(3,304
) 
      4,817  
Income tax expense (benefit):
               
Net gains (losses) on derivative instruments designated as cash flow hedges
   
 
(424
) 
      414        (482 )    
 
973
 
      (2,265 ) 
Reclassification of net (gains) losses to net income
   
 
257
 
      (462 )       452     
 
(1,003
) 
      1,322  
 
   
 
(409
) 
      (100 )       (50 )    
 
26
 
      (2,608 ) 
Other comprehensive income (loss) from investments in associates
   
 
7
 
      1        17     
 
(5
) 
      38  
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
   
 
245
 
      (225 )       (231 )    
 
(199
) 
      972  
Income tax expense (benefit)
   
 
68
 
      (63 )       (70 )    
 
(64
) 
      278  
  
 
177
 
      (162 )       (161 )    
 
(135
) 
      694  
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
   
 
(181
) 
      (48 )       (175 )    
 
(128
) 
      54  
Income tax expense (benefit)
   
 
(32
) 
      (15 )       (45 )    
 
(37
) 
      14  
  
 
(149
) 
      (33 )       (130 )    
 
(91
) 
      40  
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
   
 
(1,848
) 
      1,661        567     
 
(1,277
) 
      1,585  
Income tax expense (benefit)
   
 
(513
) 
      461        149     
 
(336
) 
      416  
 
   
 
(1,335
) 
      1,200        418     
 
(941
) 
      1,169  
Other comprehensive income (loss) from investments in associates
   
 
–
 
      –        –     
 
2
 
      2  
Other comprehensive income (loss)
   
 
(2,323
) 
      1,781        (730 )    
 
7
 
        (1,129 ) 
Comprehensive income (loss)
   
$
(111
) 
    $ 3,940      $ 1,864     
$
6,150
 
    $ 6,952  
Comprehensive income (loss) attributable to
non-controlling
interests
   
 
89
 
      73        (32 )    
 
225
 
      173  
Comprehensive income (loss) attributable to equity holders of the Bank
   
 
(200
) 
      3,867        1,896     
 
5,925
 
      6,779  
Preferred shareholders and other equity instrument holders
   
 
105
 
      104        36     
 
310
 
      154  
Common shareholders
   
$
(305
) 
    $ 3,763      $ 1,860     
$
5,615
 
    $ 6,625  
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
 
60    
Scotiabank Third Quarter Report 2023
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
  
 
–
 
  
 
5,746
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
5,746
 
  
 
310
 
  
 
6,056
 
  
 
87
 
  
 
6,143
 
Other comprehensive income (loss)
  
 
–
 
  
 
–
 
  
 
387
 
  
 
635
 
  
 
(114
) 
  
 
23
 
  
 
(1,062
) 
  
 
–
 
  
 
(131
) 
  
 
–
 
  
 
(131
) 
  
 
138
 
  
 
7
 
Total comprehensive income
  
$
–
 
  
$
5,746
 
  
$
387
 
  
$
635
 
  
$
(114
) 
  
$
23
 
  
$
(1,062
) 
  
$
–
 
  
$
5,615
 
  
$
310
 
  
$
5,925
 
  
$
225
 
  
$
6,150
 
Shares issued
  
 
920
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
(3
) 
  
 
917
 
  
 
–
 
  
 
917
 
  
 
–
 
  
 
917
 
Shares repurchased/redeemed
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
Dividends and distributions paid to equity holders
  
 
–
 
  
 
(3,725
) 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
(3,725
) 
  
 
(310
) 
  
 
(4,035
) 
  
 
(75
) 
  
 
(4,110
) 
Share-based payments
(3)
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
12
 
  
 
12
 
  
 
–
 
  
 
12
 
  
 
–
 
  
 
12
 
Other
  
 
–
 
  
 
1
 
  
 
(43
) 
  
 
–
 
  
 
(1
) 
  
 
1
 
  
 
–
 
  
 
55
 
  
 
13
 
  
 
–
 
  
 
13
 
  
 
(13
) 
  
 
–
 
Balance as at July 31, 2023
  
$
19,627
 
  
$
55,783
 
  
$
(2,134
) 
  
$
(847
) 
  
$
101
 
  
$
(4,762
) 
  
$
302
 
  
$
(88
) 
  
$
67,982
 
  
$
8,075
 
  
$
76,057
 
  
$
1,661
 
  
$
77,718
 
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
     –       7,707       –       –       –       –       –       –       7,707       154       7,861       220       8,081  
Other comprehensive income (loss)
     –       –       193       (680 )      69       (2,590 )      1,926       –       (1,082 )      –       (1,082 )      (47 )      (1,129 ) 
Total comprehensive income
   $ –     $ 7,707     $ 193     $ (680 )    $ 69     $ (2,590 )    $ 1,926     $ –     $ 6,625     $ 154     $ 6,779     $ 173     $ 6,952  
Shares issued
     701       –       –       –       –       –       –       (17 )      684       1,500       2,184       –       2,184  
Shares repurchased/redeemed
     (480 )      (2,265 )      –       –       –       –       –       –       (2,745 )      (500 )      (3,245 )      –       (3,245 ) 
Dividends and distributions paid to equity holders
     –       (3,631 )      –       –       –       –       –       –       (3,631 )      (154 )      (3,785 )      (89 )      (3,874 ) 
Share-based payments
(3)
     –       –       –       –       –       –       –       9       9       –       9       –       9  
Other
     –       (14 )      (180 )      –       (40 )      (49 )      –       (366 )
(4)
 		     (649 )      –       (649 )      (684 )
(4)
 		     (1,333 ) 
Balance as at July 31, 2022
   $ 18,728     $ 53,151     $ (4,696 )    $ (950 )    $ 320     $ (2,853 )    $ 1,495     $ (152 )    $ 65,043     $ 7,052     $ 72,095     $ 1,490     $ 73,585  
(1)
Includes undistributed retained earnings of $66 (July 31, 2022 - $63) 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 statements, in the 2022 Annual Report to Shareholders).
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
 
Scotiabank Third Quarter Report 2023
    61
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Consolidated Statement of Cash Flows
 
(Unaudited) ($ millions)
    For the three months ended       For the nine months ended   
Sources (uses) of cash flows
   
July 31
2023
      July 31
2022		     
July 31
2023
      July 31
2022		  
Cash flows from operating activities
            
Net income
   
$
2,212
 
    $ 2,594     
$
6,143
 
    $ 8,081  
Adjustment for:
            
Net interest income
   
 
(4,580
) 
      (4,676 )    
 
(13,615
) 
      (13,493 ) 
Depreciation and amortization
   
 
412
 
      381     
 
1,230
 
      1,137  
Provision for credit losses
   
 
819
 
      412     
 
2,166
 
      853  
Equity-settled share-based payment expense
   
 
1
 
      1     
 
12
 
      9  
Net gain on sale of investment securities
   
 
(30
) 
      –     
 
(130
) 
      (3 ) 
Net income from investments in associated corporations
   
 
(55
) 
      (44 )    
 
(135
) 
      (219 ) 
Income tax expense
   
 
497
 
      602     
 
2,088
 
      2,283  
Changes in operating assets and liabilities:
            
Trading assets
   
 
(5,568
) 
      14,409     
 
(5,847
) 
      29,007  
Securities purchased under resale agreements and securities borrowed
   
 
(17,220
) 
      (8,060 )    
 
(23,800
) 
      (27,574 ) 
Loans
   
 
6,727
 
      (28,266 )    
 
(2,234
) 
      (77,358 ) 
Deposits
   
 
22,047
 
      9,445     
 
43,597
 
      82,080  
Obligations related to securities sold short
   
 
(3,341
) 
      (155 )    
 
(2,949
) 
      3,408  
Obligations related to securities sold under repurchase agreements and securities lent
   
 
17,261
 
      (2,497 )    
 
8,075
 
      5,058  
Net derivative financial instruments
   
 
(1,433
) 
      5,692     
 
(465
) 
      1,682  
Other, net
   
 
616
 
      (4,494 )    
 
(2,358
) 
      (7,280 ) 
Dividends received
   
 
335
 
      284     
 
991
 
      857  
Interest received
   
 
14,547
 
      8,284     
 
40,764
 
      21,494  
Interest paid
   
 
(9,419
) 
      (3,444 )    
 
(24,930
) 
      (7,951 ) 
Income tax paid
   
 
(501
) 
      (389 )    
 
(1,625
) 
      (2,761 ) 
Net cash from/(used in) operating activities
   
 
23,327
 
      (9,921 )    
 
26,978
 
      19,310  
Cash flows from investing activities
            
Interest-bearing deposits with financial institutions
   
 
(23,830
) 
      16,618     
 
(22,897
) 
      19,821  
Purchase of investment securities
   
 
(20,121
) 
      (23,386 )    
 
(68,383
) 
      (81,143 ) 
Proceeds from sale and maturity of investment securities
   
 
23,723
 
      14,985     
 
68,386
 
      46,642  
Acquisition/divestiture of subsidiaries, associated corporations or business units, net of cash
acquired
   
 
–
 
      (62 )    
 
–
 
      (714 ) 
Property and equipment, net of disposals
   
 
(217
) 
      (196 )    
 
(289
) 
      (394 ) 
Other, net
   
 
26
 
      (169 )    
 
(538
) 
      (549 ) 
Net cash from/(used in) investing activities
   
 
(20,419
) 
      7,790     
 
(23,721
) 
      (16,337 ) 
Cash flows from financing activities
            
Proceeds from issue of subordinated debentures
   
 
1,000
 
      –     
 
1,337
 
      3,356  
Redemption of subordinated debentures
   
 
–
 
      (2 )    
 
(2
) 
      (1,252 ) 
Redemption of preferred shares
   
 
–
 
      –     
 
–
 
      (500 ) 
Proceeds from preferred shares and other equity instruments issued
   
 
–
 
      1,500     
 
–
 
      1,500  
Proceeds from common shares issued
   
 
467
 
      7     
 
920
 
      132  
Common shares purchased for cancellation
   
 
–
 
      (409 )    
 
–
 
      (2,745 ) 
Cash dividends and distributions paid
   
 
(1,375
) 
      (1,265 )    
 
(4,035
) 
      (3,785 ) 
Distributions to
non-controlling
interests
   
 
(14
) 
      (13 )    
 
(75
) 
      (89 ) 
Payment of lease liabilities
   
 
(78
) 
      (83 )    
 
(248
) 
      (253 ) 
Other, net
   
 
582
 
      1,317     
 
326
 
      387  
Net cash from/(used in) financing activities
   
 
582
 
      1,052     
 
(1,777
) 
      (3,249 ) 
Effect of exchange rate changes on cash and cash equivalents
   
 
(147
) 
      (151 )    
 
90
 
      (4 ) 
Net change in cash and cash equivalents
   
 
3,343
 
      (1,230 )    
 
1,570
 
      (280 ) 
Cash and cash equivalents at beginning of period
(1)
   
 
9,292
 
      10,643     
 
11,065
 
      9,693  
Cash and cash equivalents at end of period
(1)
   
$
12,635
 
    $ 9,413     
$
12,635
 
    $ 9,413  
(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.
 
62    
Scotiabank Third Quarter Report 2023
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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 IFRS Accounting 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 July 31, 2023 have been approved by the Board of Directors for issue on August 29, 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, re
quire
s 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 fina
ncial
statements in the 2022 Annual Report.
 
4.
Future accounting developments
IFRS 17 –
Insurance Contracts
On May 18, 2017, the IASB issued IFRS 17
Insurance contracts
to replace IFRS 4
Insurance contracts
, to provide a comprehensive principle-based framework for the recognition, measurement, presentation, and disclosure of insurance contracts. The standard is to be applied on a full retrospective basis unless impractical, when either the modified retrospective or fair value method may be used.
IFRS 17 is effective for the Bank on November 1, 2023, and the Bank plans to adopt the standard by restating the comparative year results from the transition date of November 1, 2022.
Under IFRS 17, groups of insurance contracts will be measured using current probability-weighted fulfilment cash flows and revenue will be recognised as the service is provided over the coverage period based on the three measurement models as applicable: the general measurement model, the variable fee approach, and the premium allocation approach.
 
Scotiabank Third Quarter Report 2023
    63
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Adoption of IFRS 17 will result in the recognition of the contractual service margin as a component of the carrying amount for groups of contracts measured under the general measurement model and the variable fee approach. The contractual service margin represents unearned profits to be recognized as coverage is provided in future.
The Bank has a formal program in place to implement the new requirements. The Bank is modifying its processes, controls and insurance accounting systems, and continues to assess decisions required in the key areas of judgment.
 
5.
Cash and deposits with financial institutions
 
      As at  
($ millions)
   
July 31
2023
      April 30
2023		      October 31
2022		  
Cash and
non-interest-bearing
deposits with financial institutions
   
$
12,635
 
    $ 9,292      $ 11,065  
Interest-bearing deposits with financial institutions
   
 
77,690
 
      54,601        54,830  
Total
   
$
   90,325
(1)
 
    $    63,893
(1)
 		    $    65,895
(1)
 
  (1)
Net of allowances of $5 (April 30, 2023 – $6; October 31, 2022 – $4).
The Bank is required to maintain balances with central banks, other regulatory authorities and certain counterparties and these amounted to $7,877 million (April 30, 2023 – $6,041 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)
   
July 31
2023
      April 30
2023		      October 31
2022		  
Debt investment securities measured at FVOCI
   
$
77,966
 
    $ 83,920      $ 81,271  
Debt investment securities measured at amortized cost
   
 
28,192
 
      28,277        23,610  
Equity investment securities designated at FVOCI
   
 
2,258
 
      2,639        3,439  
Equity investment securities measured at FVTPL
   
 
1,727
 
      1,697        1,626  
Debt investment securities measured at FVTPL
   
 
52
 
      62        62  
Total investment securities
   
$
   110,195
 
    $    116,595      $    110,008  
(a) Debt investment securities measured at fair value through other comprehensive income (FVOCI)
 
As at July 31, 2023 ($ millions)
   
Cost
     
Gross
unrealized
gains
     
Gross
unrealized
losses
     
Fair value
  
Canadian federal government issued or guaranteed debt
   
$
11,338
 
   
$
7
 
   
$
359
 
   
$
10,986
 
Canadian provincial and municipal debt
   
 
6,696
 
   
 
–
 
   
 
420
 
   
 
6,276
 
U.S. treasury and other U.S. agency debt
   
 
32,160
 
   
 
28
 
   
 
1,660
 
   
 
30,528
 
Other foreign government debt
   
 
28,622
 
   
 
152
 
   
 
748
 
   
 
28,026
 
Other debt
   
 
2,224
 
   
 
1
 
   
 
75
 
   
 
2,150
 
Total
   
$
  81,040
 
   
$
  188
 
   
$
  3,262
 
   
$
  77,966
 
 
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 October 31, 2022 ($ millions)
    Cost      Gross
unrealized
gains		      Gross
unrealized
losses		      Fair value  
Canadian federal government issued or guaranteed debt
    $ 11,372      $ 4      $ 374      $ 11,002  
Canadian provincial and municipal debt
      5,860        1        432        5,429  
U.S. treasury and other U.S. agency debt
      37,690        80        2,534        35,236  
Other foreign government debt
      28,794        27        1,135        27,686  
Other debt
      1,989        1        72        1,918  
Total
    $   85,705      $   113      $   4,547      $   81,271  
 
64    
Scotiabank Third Quarter Report 2023
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
(b) Debt investment securities measured at amortized cost
 
      As at  
     
July 31, 2023
      April 30, 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
   
$
9,338
 
   
$
9,636
 
    $ 9,229      $ 9,455      $ 8,684      $ 9,024  
U.S. treasury and other U.S. agency debt
   
 
15,570
 
   
 
16,626
 
      16,357        17,141        12,212        13,042  
Other foreign government debt
   
 
1,827
 
   
 
1,834
 
      1,595        1,598        1,459        1,470  
Corporate debt
   
 
99
 
   
 
96
 
      89        83        88        74  
Total
   
$
26,834
 
   
$
  28,192
 
    $   27,270      $   28,277      $   22,443      $   23,610  
 
  (1)
Balances are net of allowances, which are $1.
(c) Equity investment securities designated at fair value through other comprehensive income (FVOCI)
 
As at July 31, 2023 ($ millions)
   
Cost
     
Gross
unrealized
gains
     
Gross
unrealized
losses
     
Fair value
  
Common shares
   
$
1,927
 
   
$
418
 
   
$
87
 
   
$
2,258
 
Total
   
$
1,927
 
   
$
418
 
   
$
87
 
   
$
2,258
 
         
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 October 31, 2022 ($ millions)
    Cost      Gross
unrealized
gains		      Gross
unrealized
losses		      Fair value  
Common shares
    $ 3,175      $ 487      $ 223      $ 3,439  
Total
    $   3,175      $   487      $   223      $   3,439  
Dividend income earned on equity securities designated at FVOCI of $37 million for the three months ended July 31, 2023 (April 30, 2023 – $42 million; July 31, 2022 – $43 million) and for the nine months ended July 31, 2023 – $112 million (July 31, 2022 – $123 million) has been recognized in interest income.
During the three months ended July 31, 2023, the Bank has disposed of certain equity securities designated at FVOCI with a fair value of $778 million (April 30, 2023 – $20 million; July 31, 2022 – $80 million) and for the nine months ended July 31, 2023 – $1,586 million (July 31, 2022 – $657 million). This has resulted in a realized loss of $126 million in the three months ended July 31, 2023 (April 30, 2023 – realized loss of $3 million; July 31, 2022 – realized gain of $30 million) and for the nine months ended a realized loss of $193 million (July 31, 2022 – realized gain of $109 million).
 
7.
Loans, impaired loans and allowance for credit losses
(a) Loans at amortized cost
 
      As at  
     
July 31, 2023
  
($ millions)
   
Gross
carrying
amount
     
Allowance
for credit
losses
     
Net
carrying
amount
  
Residential mortgages
   
$
347,707
 
   
$
1,009
 
   
$
346,698
 
Personal loans
   
 
103,733
 
   
 
2,291
 
   
 
101,442
 
Credit cards
   
 
16,607
 
   
 
1,176
 
   
 
15,431
 
Business and government
   
 
290,051
 
   
 
1,417
 
   
 
288,634
 
Total
   
$
758,098
 
   
$
  5,893
 
   
$
752,205
 
 
      As at  
      April 30, 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
    $ 353,560      $ 981      $ 352,579      $ 349,279      $ 899      $ 348,380  
Personal loans
      102,178        2,267        99,911        99,431        2,137        97,294  
Credit cards
      16,053        1,135        14,918        14,518        1,083        13,435  
Business and government
      298,013        1,353        296,660        287,107        1,229        285,878  
Total
    $   769,804      $   5,736      $   764,068      $   750,335      $   5,348      $   744,987  
 
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
(b) Impaired loans
(1)
 
      As at  
     
July 31, 2023
  
($ millions)
   
Gross
impaired
loans
     
Allowance
for credit
losses
     
Net
carrying
amount
  
Residential mortgages
   
$
1,768
 
   
$
483
 
   
$
1,285
 
Personal loans
   
 
1,079
 
   
 
632
 
   
 
447
 
Credit cards
   
 
–
 
   
 
–
 
   
 
–
 
Business and government
   
 
2,640
 
   
 
705
 
   
 
1,935
 
Total
   
$
5,487
 
   
$
1,820
 
   
$
3,667
 
By geography:
                           
Canada
   
$
1,441
 
   
$
481
 
   
$
960
 
United States
   
 
–
 
   
 
–
 
   
 
–
 
Mexico
   
 
1,211
 
   
 
373
 
   
 
838
 
Peru
   
 
644
 
   
 
354
 
   
 
290
 
Chile
   
 
1,028
 
   
 
259
 
   
 
769
 
Colombia
   
 
342
 
   
 
93
 
   
 
249
 
Other international
   
 
821
 
   
 
260
 
   
 
561
 
Total
   
$
  5,487
 
   
$
  1,820
 
   
$
  3,667
 
 
      As at  
      April 30, 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
    $ 1,659      $ 455      $ 1,204      $ 1,386      $ 406      $ 980  
Personal loans
      1,040        608        432        848        551        297  
Credit cards
      –        –        –        –        –        –  
Business and government
      2,606        688        1,918        2,552        678        1,874  
Total
    $ 5,305      $ 1,751      $ 3,554      $ 4,786      $ 1,635      $ 3,151  
By geography:
                                                      
Canada
    $ 1,293      $ 459      $ 834      $ 1,054      $ 440      $ 614  
United States
      –        –        –        –        –        –  
Mexico
      1,115        320        795        1,020        294        726  
Peru
      736        375        361        761        352        409  
Chile
      990        254        736        740        202        538  
Colombia
      305        80        225        301        67        234  
Other international
      866        263        603        910        280        630  
Total
    $   5,305      $   1,751      $   3,554      $   4,786      $   1,635      $   3,151  
  (1)
Interest income recognized on impaired loans during the three months ended July 31, 2023 was $16 (April 30, 2023 – $14; 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.
 
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Scotiabank Third Quarter Report 2023
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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 economic growth in 2023 for Canada and the U.S. compared to last quarter, as both economies remained resilient in the face of monetary policy tightening, driven largely by resilient labour markets, strong consumption and pent-up demand. This economic resilience and resulting inflationary pressures, combined with implicit guidance on the path of future policy rates by the two countries’ central banks, resulted in an upward revision to monetary policy rates in both countries, with rates now higher for longer compared to last quarter.
The optimistic scenario features somewhat stronger economic activity relative to the base case. The pessimistic scenario is based on the recent banking sector turmoil in the U.S. and Europe, and features deteriorating private sector financial conditions and confidence. 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 scenario features a strong stagflationary impulse that leads to a protracted period of financial market uncertainty. This results in higher inflation, 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 July 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
   
 
0.4
 
  
 
2.6
 
   
 
1.3
 
  
 
3.9
 
   
 
-2.4
 
  
 
3.3
 
   
 
-4.6
 
  
 
3.7
 
Consumer price index, y/y %
   
 
2.9
 
  
 
2.1
 
   
 
3.1
 
  
 
2.6
 
   
 
2.0
 
  
 
1.7
 
   
 
6.5
 
  
 
2.3
 
Unemployment rate, average %
   
 
5.7
 
  
 
6.0
 
   
 
5.4
 
  
 
4.5
 
   
 
7.3
 
  
 
6.6
 
   
 
9.3
 
  
 
6.9
 
Bank of Canada overnight rate target, average %
   
 
4.9
 
  
 
2.7
 
   
 
5.1
 
  
 
3.5
 
   
 
3.8
 
  
 
1.4
 
   
 
6.0
 
  
 
3.4
 
HPI - Housing Price Index, y/y % change
   
 
-0.9
 
  
 
0.3
 
   
 
-0.3
 
  
 
1.8
 
   
 
-4.6
 
  
 
1.1
 
   
 
-6.0
 
  
 
0.4
 
USD/CAD exchange rate, average
   
 
1.29
 
  
 
1.24
 
   
 
1.29
 
  
 
1.24
 
   
 
1.42
 
  
 
1.26
 
   
 
1.48
 
  
 
1.28
 
U.S.
                                                                    
Real GDP growth, y/y % change
   
 
0.3
 
  
 
2.1
 
   
 
0.7
 
  
 
3.0
 
   
 
-2.7
 
  
 
2.9
 
   
 
-4.4
 
  
 
3.2
 
Consumer price index, y/y %
   
 
3.7
 
  
 
2.3
 
   
 
4.0
 
  
 
2.7
 
   
 
2.4
 
  
 
1.9
 
   
 
7.5
 
  
 
2.6
 
Target federal funds rate, upper limit, average %
   
 
5.4
 
  
 
2.7
 
   
 
5.5
 
  
 
3.7
 
   
 
4.3
 
  
 
0.9
 
   
 
6.5
 
  
 
3.4
 
Unemployment rate, average %
   
 
4.0
 
  
 
4.7
 
   
 
3.9
 
  
 
4.3
 
   
 
5.5
 
  
 
5.2
 
   
 
7.1
 
  
 
5.5
 
Mexico
                                                                    
Real GDP growth, y/y % change
   
 
0.5
 
  
 
2.3
 
   
 
1.1
 
  
 
3.2
 
   
 
-1.3
 
  
 
2.8
 
   
 
-3.9
 
  
 
3.3
 
Unemployment rate, average %
   
 
3.7
 
  
 
3.9
 
   
 
3.5
 
  
 
3.2
 
   
 
4.5
 
  
 
4.1
 
   
 
6.6
 
  
 
4.9
 
Chile
                                                                    
Real GDP growth, y/y % change
   
 
0.5
 
  
 
2.9
 
   
 
2.3
 
  
 
4.0
 
   
 
-1.7
 
  
 
3.5
 
   
 
-3.9
 
  
 
4.0
 
Unemployment rate, average %
   
 
9.2
 
  
 
7.2
 
   
 
8.8
 
  
 
6.6
 
   
 
10.4
 
  
 
7.4
 
   
 
12.3
 
  
 
7.8
 
Peru
                                                                    
Real GDP growth, y/y % change
   
 
2.0
 
  
 
2.7
 
   
 
2.9
 
  
 
3.9
 
   
 
1.3
 
  
 
3.0
 
   
 
-0.6
 
  
 
3.4
 
Unemployment rate, average %
   
 
7.3
 
  
 
7.1
 
   
 
6.8
 
  
 
5.2
 
   
 
8.6
 
  
 
7.4
 
   
 
11.9
 
  
 
8.9
 
Colombia
                                                                    
Real GDP growth, y/y % change
   
 
2.2
 
  
 
3.0
 
   
 
3.8
 
  
 
4.0
 
   
 
1.4
 
  
 
3.3
 
   
 
-0.5
 
  
 
3.7
 
Unemployment rate, average %
   
 
10.5
 
  
 
10.1
 
   
 
9.6
 
  
 
8.1
 
   
 
12.3
 
  
 
10.6
 
   
 
17.2
 
  
 
12.8
 
Caribbean
                                                                    
Real GDP growth, y/y % change
   
 
3.8
 
  
 
3.8
 
   
 
4.3
 
  
 
4.7
 
   
 
3.0
 
  
 
4.2
 
   
 
1.2
 
  
 
4.6
 
Global
                                                                    
WTI oil price, average USD/bbl
   
 
78
 
  
 
68
 
   
 
84
 
  
 
84
 
   
 
67
 
  
 
64
 
   
 
62
 
  
 
62
 
Copper price, average USD/lb
   
 
4.00
 
  
 
4.93
 
   
 
4.17
 
  
 
5.52
 
   
 
3.73
 
  
 
4.81
 
   
 
3.59
 
  
 
4.75
 
Global GDP, y/y % change
   
 
2.71
 
  
 
2.38
 
   
 
3.58
 
  
 
3.38
 
   
 
0.06
 
  
 
3.04
 
   
 
-1.52
 
  
 
3.38
 
 
Scotiabank Third Quarter Report 2023
    67
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
      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  
      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  
 
68    
Scotiabank Third Quarter Report 2023
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 $4,259 million (April 30, 2023 – $4,164 million; October 31, 2022 – $3,847 million) from $4,102 million (April 30, 2023 – $4,035 million; October 31, 2022 – $3,609 million).
If the Bank was to only use the very pessimistic scenario for the measurement of allowance for credit losses for such assets, the allowance for credit losses on performing financial instruments would be $750 million (April 30, 2023 – $498 million; October 31, 2022 – $1,096 million) higher than the reported allowance for credit losses as at July 31, 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 $512 million (April 30, 2023 – $500 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
(1)
     
Net write-offs
      Other, including
foreign currency
adjustment		     
Balance as at
July 31,
2023
  
Residential mortgages
    $ 899      $ 99      $ (52 )     $ 63     
$
1,009
 
Personal loans
      2,137        907        (844 )       91     
 
2,291
 
Credit cards
      1,083        701        (661 )       53     
 
1,176
 
Business and government
      1,368        465        (214 )       (16 )    
 
1,603
 
 
    $   5,487      $   2,172      $ (1,771 )     $   191     
$
  6,079
 
Presented as:
                                             
Allowance for credit losses on loans
    $ 5,348                                
$
5,893
 
Allowance for credit losses on acceptances
(2)
      31                                
 
53
 
Allowance for credit losses on
off-balance
sheet exposures
(3)
      108     
 
 
 
   
 
 
 
   
 
 
 
   
 
133
 
  (1)
Excludes amounts associated with other assets of $(6). The
p
rovision for credit losses, net of these amounts, is $2,166.
  (2)
Allowance for credit losses on acceptances are recorded against the financial asset in the Consolidated Statement of Financial Position.
  (3)
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
July 31,
2022		  
Residential mortgages
    $ 802      $ 64      $ (33 )     $ 10      $ 843  
Personal loans
      2,341        403        (643 )       12        2,113  
Credit cards
      1,211        288        (439 )       (11 )       1,049  
Business and government
      1,374        98        (149 )       (45 )       1,278  
 
    $   5,728      $   853      $   (1,264 )     $   (34 )     $   5,283  
Presented as:
                                             
Allowance for credit losses on loans
    $ 5,626                                 $ 5,147  
Allowance for credit losses on acceptances
(1)
      37                                   27  
Allowance for credit losses on
off-balance
sheet exposures
(2)
      65     
 
 
 
   
 
 
 
   
 
 
 
      109  
  (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.
 
Scotiabank Third Quarter Report 2023
    69

Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Allowance for credit losses on loans
   
As at July 31, 2023
  
($ millions)
   
Stage 1
     
Stage 2
     
Stage 3
     
Total
  
Residential mortgages
   
$
222
 
   
$
304
 
   
$
483
 
   
$
1,009
 
Personal loans
   
 
673
 
   
 
986
 
   
 
632
 
   
 
2,291
 
Credit cards
   
 
430
 
   
 
746
 
   
 
–
 
   
 
1,176
 
Business and government
   
 
398
 
   
 
314
 
   
 
705
 
   
 
1,417
 
Total
(1)
   
$
1,723
 
   
$
2,350
 
   
$
1,820
 
   
$
5,893
 
  (1)
Excludes allowance for credit losses of $201 for other financial assets including acceptances, investment securities, deposits with banks,
off-balance
sheet credit risks and reverse repos.
 
      As at October 31, 2022  
($ millions)
    Stage 1      Stage 2      Stage 3      Total  
Residential mortgages
    $ 197      $ 296      $ 406      $ 899  
Personal loans
      665        921        551        2,137  
Credit cards
      436        647        –        1,083  
Business and government
      255        296        678        1,229  
Total
(1)
    $   1,553      $   2,160      $   1,635      $   5,348  
  (1)
Excludes allowance for credit losses of $151 for other financial assets including acceptances, investment securities, deposits with banks,
off-balance
sheet credit risks and reverse repos.
 
      As at July 31, 2022  
($ millions)
    Stage 1      Stage 2      Stage 3      Total  
Residential mortgages
    $ 184      $ 284      $ 375      $ 843  
Personal loans
      658        896        559        2,113  
Credit cards
      432        617        –        1,049  
Business and government
      238        281        623        1,142  
Total
(1)
    $   1,512      $   2,078      $   1,557      $   5,147  
  (1)
Excludes allowance for credit losses of $148 for other financial assets including acceptances, investment securities, deposits with banks,
off-balance
sheet credit risks and reverse repos.
 
70    
Scotiabank Third Quarter Report 2023
Table of Contents
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  
    
July 31, 2023
     July 31, 2022  
($ millions)
  
Stage 1
    
Stage 2
    
Stage 3
    
Total
     Stage 1     Stage 2     Stage 3     Total  
Retail loans:
                                                                
Residential mortgages
                                                                
Balance at beginning of period
  
$
220
 
  
$
306
 
  
$
455
 
  
$
981
 
   $ 168     $ 273     $ 393     $ 834  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(50
) 
  
 
21
 
  
 
70
 
  
 
41
 
     1       20       7       28  
Newly originated or purchased financial assets
  
 
9
 
  
 
–
 
  
 
–
 
  
 
9
 
     8       –       –       8  
Derecognition of financial assets and maturities
  
 
(2
) 
  
 
(4
) 
  
 
–
 
  
 
(6
) 
     (1 )      (3 )      –       (4 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
50
 
  
 
(38
) 
  
 
(12
) 
  
 
–
 
     13       (10 )      (3 )      –  
Stage 2
  
 
(10
) 
  
 
38
 
  
 
(28
) 
  
 
–
 
     (2 )      13       (11 )      –  
Stage 3
  
 
–
 
  
 
(18
) 
  
 
18
 
  
 
–
 
     –       (5 )      5       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(28
) 
  
 
(28
) 
     –       –       (17 )      (17 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
6
 
  
 
6
 
     –       –       7       7  
Foreign exchange and other movements
  
 
5
 
  
 
(1
) 
  
 
2
 
  
 
6
 
     (3 )      (4 )      (6 )      (13 ) 
Balance at end of period
  
$
222
 
  
$
304
 
  
$
483
 
  
$
1,009
 
   $ 184     $ 284     $ 375     $ 843  
Personal loans
                                                                
Balance at beginning of period
  
$
677
 
  
$
982
 
  
$
608
 
  
$
2,267
 
   $ 655     $ 950     $ 566     $ 2,171  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(180
) 
  
 
229
 
  
 
255
 
  
 
304
 
     (129 )      107       151       129  
Newly originated or purchased financial assets
  
 
94
 
  
 
–
 
  
 
–
 
  
 
94
 
     92       –       –       92  
Derecognition of financial assets and maturities
  
 
(24
) 
  
 
(45
) 
  
 
–
 
  
 
(69
) 
     (21 )      (32 )      –       (53 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
156
 
  
 
(153
) 
  
 
(3
) 
  
 
–
 
     108       (106 )      (2 )      –  
Stage 2
  
 
(54
) 
  
 
77
 
  
 
(23
) 
  
 
–
 
     (32 )      48       (16 )      –  
Stage 3
  
 
(3
) 
  
 
(103
) 
  
 
106
 
  
 
–
 
     (1 )      (58 )      59       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(381
) 
  
 
(381
) 
     –       –       (251 )      (251 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
65
 
  
 
65
 
     –       –       59       59  
Foreign exchange and other movements
  
 
7
 
  
 
(1
) 
  
 
5
 
  
 
11
 
     (14 )      (13 )      (7 )      (34 ) 
Balance at end of period
  
$
673
 
  
$
986
 
  
$
632
 
  
$
2,291
 
   $ 658     $ 896     $ 559     $ 2,113  
Credit cards
                                                                
Balance at beginning of period
  
$
425
 
  
$
710
 
  
$
–
 
  
$
1,135
 
   $ 419     $ 688     $ –     $ 1,107  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(63
) 
  
 
152
 
  
 
193
 
  
 
282
 
     (33 )      34       112       113  
Newly originated or purchased financial assets
  
 
55
 
  
 
–
 
  
 
–
 
  
 
55
 
     43       –       –       43  
Derecognition of financial assets and maturities
  
 
(16
) 
  
 
(23
) 
  
 
–
 
  
 
(39
) 
     (15 )      (12 )      –       (27 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
64
 
  
 
(64
) 
  
 
–
 
  
 
–
 
     50       (50 )      –       –  
Stage 2
  
 
(38
) 
  
 
38
 
  
 
–
 
  
 
–
 
     (22 )      22       –       –  
Stage 3
  
 
–
 
  
 
(65
) 
  
 
65
 
  
 
–
 
     –       (43 )      43       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(310
) 
  
 
(310
) 
     –       –       (202 )      (202 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
50
 
  
 
50
 
     –       –       40       40  
Foreign exchange and other movements
  
 
3
 
  
 
(2
) 
  
 
2
 
  
 
3
 
     (10 )      (22 )      7       (25 ) 
Balance at end of period
  
$
430
 
  
$
746
 
  
$
–
 
  
$
1,176
 
   $ 432     $ 617     $ –     $ 1,049  
Total retail loans
                                                                
Balance at beginning of period
  
$
  1,322
 
  
$
  1,998
 
  
$
  1,063
 
  
$
  4,383
 
   $   1,242     $   1,911     $   959     $   4,112  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(293
) 
  
 
402
 
  
 
518
 
  
 
627
 
     (161 )      161       270       270  
Newly originated or purchased financial assets
  
 
158
 
  
 
–
 
  
 
–
 
  
 
158
 
     143       –       –       143  
Derecognition of financial assets and maturities
  
 
(42
 )
 
  
 
(72
) 
  
 
–
 
  
 
(114
) 
     (37 )      (47 )      –       (84 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
270
 
  
 
(255
) 
  
 
(15
) 
  
 
–
 
     171       (166 )      (5 )      –  
Stage 2
  
 
(102
) 
  
 
153
 
  
 
(51
) 
  
 
–
 
     (56 )      83       (27 )      –  
Stage 3
  
 
(3
) 
  
 
(186
) 
  
 
189
 
  
 
–
 
     (1 )      (106 )      107       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(719
) 
  
 
(719
) 
     –       –       (470 )      (470 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
121
 
  
 
121
 
     –       –       106       106  
Foreign exchange and other movements
  
 
15
 
  
 
(4
) 
  
 
9
 
  
 
20
 
     (27 )      (39 )      (6 )      (72 ) 
Balance at end of period
  
$
1,325
 
  
$
2,036
 
  
$
1,115
 
  
$
4,476
 
   $ 1,274     $ 1,797     $ 934     $ 4,005  
Non-retail
loans:
                                                                
Business and government
                                                                
Balance at beginning of period
  
$
456
 
  
$
322
 
  
$
704
 
  
$
1,482
 
   $ 234     $ 352     $ 645     $ 1,231  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
16
 
  
 
43
 
  
 
111
 
  
 
170
 
     (1 )      (51 )      48       (4 ) 
Newly originated or purchased financial assets
  
 
103
 
  
 
–
 
  
 
–
 
  
 
103
 
     74       –       –       74  
Derecognition of financial assets and maturities
  
 
(87
) 
  
 
(20
) 
  
 
(14
) 
  
 
(121
) 
     (58 )      (17 )      (6 )      (81 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     31       55       –       86  
Transfer to (from):
                                                                
Stage 1
  
 
18
 
  
 
(18
) 
  
 
–
 
  
 
–
 
     24       (24 )      –       –  
Stage 2
  
 
(14
) 
  
 
16
 
  
 
(2
) 
  
 
–
 
     (6 )      6       –       –  
Stage 3
  
 
–
 
  
 
(2
) 
  
 
2
 
  
 
–
 
     –       (2 )      2       –  
Gross write-offs  
 
–
 
  
 
–
 
  
 
(81
)
 
  
 
(81
)
 
     –       –       (107 )      (107 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
23
 
  
 
23
 
     –       –       86       86  
Foreign exchange and other movements
  
 
(4
) 
  
 
1
 
  
 
(23
)
 
  
 
(26
)
 
     (1 )      (6 )      (27 )      (34 ) 
Balance at end of period including
off-balance
sheet exposures
  
$
488
 
  
$
342
 
  
$
720
 
  
$
1,550
 
   $ 297     $ 313     $ 641     $ 1,251  
Less: Allowance for credit losses on
off-balance
sheet exposures
(2)
  
 
(90
) 
  
 
(28
) 
  
 
(15
) 
  
 
(133
) 
     (59 )      (32 )      (18 )      (109 ) 
Balance at end of period
  
$
398
 
  
$
314
 
  
$
705
 
  
$
1,417
 
   $ 238     $ 281     $ 623     $ 1,142  
 
Scotiabank Third Quarter Report 2023
    71
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
      As at and for the nine months ended  
    
July 31, 2023
     July 31, 2022  
($ millions)
  
Stage 1
    
Stage 2
    
Stage 3
    
Total
     Stage 1     Stage 2     Stage 3     Total  
Retail loans:
                                                                
Residential mortgages
                                                                
Balance at beginning of period
  
$
197
 
  
$
296
 
  
$
406
 
  
$
899
 
   $ 152     $ 276     $ 374     $ 802  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(123
)
 
  
 
38
 
  
 
176
 
  
 
91
 
     (33 )      38       45       50  
Newly originated or purchased financial assets
  
 
25
 
  
 
–
 
  
 
–
 
  
 
25
 
     28       –       –       28  
Derecognition of financial assets and maturities
  
 
(6
)
 
  
 
(11
)
 
  
 
–
 
  
 
(17
)
 
     (4 )      (10 )      –       (14 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
134
 
  
 
(101
)
 
  
 
(33
)
 
  
 
–
 
     46       (39 )      (7 )      –  
Stage 2
  
 
(25
)
 
  
 
108
 
  
 
(83
)
 
  
 
–
 
     (6 )      29       (23 )      –  
Stage 3
  
 
–
 
  
 
(44
)
 
  
 
44
 
  
 
–
 
     –       (11 )      11       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(71
)
 
  
 
(71
)
 
     –       –       (54 )      (54 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
19
 
  
 
19
 
     –       –       21       21  
Foreign exchange and other movements
  
 
20
 
  
 
18
 
  
 
25
 
  
 
63
 
     1       1       8       10  
Balance at end of period
  
$
222
 
  
$
304
 
  
$
483
 
  
$
1,009
 
   $ 184     $ 284     $ 375     $ 843  
Personal loans
                                                                
Balance at beginning of period
  
$
665
 
  
$
921
 
  
$
551
 
  
$
2,137
 
   $ 644     $ 1,071     $ 626     $ 2,341  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(552
)
 
  
 
695
 
  
 
676
 
  
 
819
 
     (447 )      296       456       305  
Newly originated or purchased financial assets
  
 
278
 
  
 
–
 
  
 
–
 
  
 
278
 
     242       –       –       242  
Derecognition of financial assets and maturities
  
 
(66
)
 
  
 
(124
)
 
  
 
–
 
  
 
(190
)
 
     (56 )      (88 )      –       (144 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
475
 
  
 
(465
)
 
  
 
(10
)
 
  
 
–
 
     365       (358 )      (7 )      –  
Stage 2
  
 
(150
)
 
  
 
212
 
  
 
(62
)
 
  
 
–
 
     (88 )      131       (43 )      –  
Stage 3
  
 
(7
)
 
  
 
(285
)
 
  
 
292
 
  
 
–
 
     (3 )      (157 )      160       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(1,023
)
 
  
 
(1,023
)
 
     –       –       (833 )      (833 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
179
 
  
 
179
 
     –       –       190       190  
Foreign exchange and other movements
  
 
30
 
  
 
32
 
  
 
29
 
  
 
91
 
     1       1       10       12  
Balance at end of period
  
$
673
 
  
$
986
 
  
$
632
 
  
$
2,291
 
   $ 658     $ 896     $ 559     $ 2,113  
Credit cards
                                                                
Balance at beginning of period
  
$
436
 
  
$
647
 
  
$
–
 
  
$
1,083
 
   $ 352     $ 859     $ –     $ 1,211  
Provision for credit losses
                                                                
Remeasurement
(1)
  
 
(218
)
 
  
 
413
 
  
 
467
 
  
 
662
 
     (122 )      42       327       247  
Newly originated or purchased financial assets
  
 
146
 
  
 
–
 
  
 
–
 
  
 
146
 
     103       –       –       103  
Derecognition of financial assets and maturities
  
 
(50
)
 
  
 
(57
)
 
  
 
–
 
  
 
(107
)
 
     (35 )      (27 )      –       (62 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
                                                                
Stage 1
  
 
199
 
  
 
(199
)
 
  
 
–
 
  
 
–
 
     189       (189 )      –       –  
Stage 2
  
 
(107
)
 
  
 
107
 
  
 
–
 
  
 
–
 
     (48 )      48       –       –  
Stage 3
  
 
–
 
  
 
(188
)
 
  
 
188
 
  
 
–
 
     –       (104 )      104       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(820
)
 
  
 
(820
)
 
     –       –       (580 )      (580 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
159
 
  
 
159
 
     –       –       141       141  
Foreign exchange and other movements
  
 
24
 
  
 
23
 
  
 
6
 
  
 
53
 
     (7 )      (12 )      8       (11 ) 
Balance at end of period
  
$
430
 
  
$
746
 
  
$
–
 
  
$
1,176
 
   $ 432     $ 617     $ –     $ 1,049  
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)
  
 
(893
)
 
  
 
1,146
 
  
 
1,319
 
  
 
1,572
 
     (602 )      376       828       602  
Newly originated or purchased financial assets
  
 
449
 
  
 
–
 
  
 
–
 
  
 
449
 
     373       –       –       373  
Derecognition of financial assets and maturities
  
 
(122
)
 
  
 
(192
)
 
  
 
–
 
  
 
(314
)
 
     (95 )      (125 )      –       (220 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Transfer to (from):
      
 
      
 
                                                
Stage 1
  
 
808
 
  
 
(765
)
 
  
 
(43
)
 
 
 
–
 
     600       (586 )      (14 )      –  
Stage 2
  
 
(282
)
 
  
 
427
 
  
 
(145
)
 
 
 
–
 
     (142 )      208       (66 )      –  
Stage 3
  
 
(7
)
 
  
 
(517
)
 
  
 
524
 
 
 
–
 
     (3 )      (272 )      275       –  
Gross write-offs
  
 
–
 
  
 
–
 
  
 
(1,914
)
 
 
 
(1,914
)
 
     –       –       (1,467 )      (1,467 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
357
 
  
 
357
 
     –       –       352       352  
Foreign exchange and other movements
  
 
74
 
  
 
73
 
  
 
60
 
  
 
207
 
     (5 )      (10 )      26       11  
Balance at end of period
  
$
1,325
 
  
$
2,036
 
  
$
1,115
 
  
$
4,476
 
   $   1,274     $   1,797     $ 934     $ 4,005  
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)
  
 
82
 
  
 
72
 
  
 
295
 
  
 
449
 
     (54 )      (74 )      196       68  
Newly originated or purchased financial assets
  
 
294
 
  
 
–
 
  
 
–
 
  
 
294
 
     195       –       –       195  
Derecognition of financial assets and maturities
  
 
(241
)
 
  
 
(35
)
 
  
 
(26
)
 
  
 
(302
)
 
     (154 )      (73 )      (24 )      (251 ) 
Changes in models and methodologies
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     30       57       –       87  
Transfer to (from):
      
 
      
 
      
 
      
 
                                
Stage 1
  
 
60
 
  
 
(60
)
 
  
 
–
 
  
 
–
 
     85       (85 )      –       –  
Stage 2
  
 
(31
)
 
  
 
38
 
  
 
(7
)
 
  
 
–
 
     (18 )      18       –       –  
Stage 3
  
 
–
 
  
 
(4
)
 
  
 
4
 
  
 
–
 
     –       (5 )      5       –  
Gross write-offs  
 
–
 
  
 
–
 
  
 
(258
)
 
  
 
(258
)
 
     –       –       (253 )      (253 ) 
Recoveries
  
 
–
 
  
 
–
 
  
 
44
 
  
 
44
 
     –       –       104       104  
Foreign exchange and other movements
  
 
2
 
  
 
11
 
  
 
(27
)
 
  
 
(14
)
 
     1       5       (42 )      (36 ) 
Balance at end of period including
off-balance
sheet exposures
  
$
488
 
  
$
342
 
  
$
720
 
  
$
1,550
 
   $ 297     $ 313     $ 641     $ 1,251  
Less: Allowance for credit losses on
off-balance
sheet exposures
(2)
  
 
(90
)
 
  
 
(28
)
 
  
 
(15
)
 
  
 
(133
)
 
     (59 )      (32 )      (18 )      (109 ) 
Balance at end of period
  
$
398
 
  
$
314
 
  
$
705
 
  
$
1,417
 
   $ 238     $ 281     $ 623     $ 1,142  
  (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.
 
72    
Scotiabank Third Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
  (d)
Carrying value of exposures by risk rating
 
Residential
mortgages
  
As at July 31, 2023
     As at October 31, 2022  
Category of PD grades

($ millions)
  
Stage 1
    
Stage 2
    
Stage 3
(1)
    
Total
     Stage 1     Stage 2     Stage 3
(1)
     Total  
Very low
  
$
206,003
 
  
$
687
 
  
$
–
 
  
$
206,690
 
   $ 208,526     $ 635     $ –     $ 209,161  
Low
  
 
91,232
 
  
 
894
 
  
 
–
 
  
 
92,126
 
     90,745       1,172       –       91,917  
Medium
  
 
20,534
 
  
 
1,281
 
  
 
–
 
  
 
21,815
 
     18,399       1,032       –       19,431  
High
  
 
3,537
 
  
 
3,170
 
  
 
–
 
  
 
6,707
 
     2,759       2,680       –       5,439  
Very high
  
 
61
 
  
 
2,046
 
  
 
–
 
  
 
2,107
 
     53       1,429       –       1,482  
Loans not graded
(2)
  
 
15,359
 
  
 
1,135
 
  
 
–
 
  
 
16,494
 
     19,276       1,187       –       20,463  
Default
  
 
–
 
  
 
–
 
  
 
1,768
 
  
 
1,768
 
     –       –       1,386       1,386  
Total
  
$
336,726
 
  
$
9,213
 
  
$
1,768
 
  
$
347,707
 
   $   339,758     $   8,135     $ 1,386     $   349,279  
Allowance for credit losses
  
 
222
 
  
 
304
 
  
 
483
 
  
 
1,009
 
     197       296       406       899  
Carrying value
  
$
336,504
 
  
$
8,909
 
  
$
1,285
 
  
$
346,698
 
   $ 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 July 31, 2023
     As at October 31, 2022  
Category of PD grades

($ millions)
  
Stage 1
    
Stage 2
    
Stage 3
(1)
    
Total
     Stage 1     Stage 2     Stage 3
(1)
     Total  
Very low
  
$
30,519
 
  
$
144
 
  
$
–
 
  
$
30,663
 
   $ 30,098     $ 285     $ –     $ 30,383  
Low
  
 
28,299
 
  
 
493
 
  
 
–
 
  
 
28,792
 
     27,284       685       –       27,969  
Medium
  
 
8,747
 
  
 
490
 
  
 
–
 
  
 
9,237
 
     8,789       1,464       –       10,253  
High
  
 
8,378
 
  
 
3,139
 
  
 
–
 
  
 
11,517
 
     7,059       2,275       –       9,334  
Very high
  
 
105
 
  
 
1,973
 
  
 
–
 
  
 
2,078
 
     81       1,655       –       1,736  
Loans not graded
(2)
  
 
18,778
 
  
 
1,589
 
  
 
–
 
  
 
20,367
 
     17,371       1,537       –       18,908  
Default
  
 
–
 
  
 
–
 
  
 
1,079
 
  
 
1,079
 
     –       –       848       848  
Total
  
$
94,826
 
  
$
7,828
 
  
$
1,079
 
  
$
103,733
 
   $     90,682     $   7,901     $    848     $     99,431  
Allowance for credit losses
  
 
673
 
  
 
986
 
  
 
632
 
  
 
2,291
 
     665       921       551       2,137  
Carrying value
  
$
94,153
 
  
$
6,842
 
  
$
447
 
  
$
101,442
 
   $ 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 July 31, 2023
     As at October 31, 2022  
Category of PD grades

($ millions)
  
Stage 1
    
Stage 2
    
Stage 3
    
Total
     Stage 1     Stage 2     Stage 3     Total  
Very low
  
$
1,941
 
  
$
47
 
  
$
–
 
  
$
1,988
 
   $ 1,813     $ 47     $ –     $ 1,860  
Low
  
 
3,266
 
  
 
97
 
  
 
–
 
  
 
3,363
 
     2,756       159       –       2,915  
Medium
  
 
3,987
 
  
 
124
 
  
 
–
 
  
 
4,111
 
     3,434       190       –       3,624  
High
  
 
3,394
 
  
 
1,187
 
  
 
–
 
  
 
4,581
 
     3,042       998       –       4,040  
Very high
  
 
36
 
  
 
836
 
  
 
–
 
  
 
872
 
     36       587       –       623  
Loans not graded
(1)
  
 
1,151
 
  
 
541
 
  
 
–
 
  
 
1,692
 
     997       459       –       1,456  
Default
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Total
  
$
13,775
 
  
$
2,832
 
  
$
–
 
  
$
16,607
 
   $     12,078     $   2,440     $ –     $     14,518  
Allowance for credit losses
  
 
430
 
  
 
746
 
  
 
–
 
  
 
1,176
 
     436       647       –       1,083  
Carrying value
  
$
13,345
 
  
$
2,086
 
  
$
–
 
  
$
15,431
 
   $ 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 July 31, 2023
     As at October 31, 2022  
Category of PD grades

($ millions)
  
Stage 1
    
Stage 2
    
Stage 3
    
Total
     Stage 1     Stage 2     Stage 3     Total  
Very low
  
$
103,148
 
  
$
4
 
  
$
–
 
  
$
103,152
 
   $ 98,973     $ 6     $ –     $ 98,979  
Low
  
 
18,868
 
  
 
2
 
  
 
–
 
  
 
18,870
 
     19,196       9       –       19,205  
Medium
  
 
9,199
 
  
 
11
 
  
 
–
 
  
 
9,210
 
     7,880       44       –       7,924  
High
  
 
3,754
 
  
 
412
 
  
 
–
 
  
 
4,166
 
     3,700       307       –       4,007  
Very high
  
 
28
 
  
 
305
 
  
 
–
 
  
 
333
 
     34       354       –       388  
Loans not graded
(1)
  
 
8,994
 
  
 
1,770
 
  
 
–
 
  
 
10,764
 
     8,316       1,667       –       9,983  
Default
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
     –       –       –       –  
Carrying value
  
$
143,991
 
  
$
2,504
 
  
$
–
 
  
$
146,495
 
   $   138,099     $   2,387     $ –     $   140,486  
  (1)
Portfolios where the customer account level ‘Probability of Default’ has not been determined have been included in the ‘Loans not graded’ category.
 
Scotiabank Third Quarter Report 2023
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Total retail loans
  
As at July 31, 2023
     As at October 31, 2022  
Category of PD grades

($ millions)
  
Stage 1
    
Stage 2
    
Stage 3
(1)
    
Total
     Stage 1     Stage 2     Stage 3
(1)
     Total  
Very low
  
$
341,611
 
  
$
882
 
  
$
–
 
  
$
342,493
 
   $ 339,410     $ 973     $ –     $ 340,383  
Low
  
 
141,665
 
  
 
1,486
 
  
 
–
 
  
 
143,151
 
     139,981       2,025       –       142,006  
Medium
  
 
42,467
 
  
 
1,906
 
  
 
–
 
  
 
44,373
 
     38,502       2,730       –       41,232  
High
  
 
19,063
 
  
 
7,908
 
  
 
–
 
  
 
26,971
 
     16,560       6,260       –       22,820  
Very high
  
 
230
 
  
 
5,160
 
  
 
–
 
  
 
5,390
 
     204       4,025       –       4,229  
Loans not graded
(2)
  
 
44,282
 
  
 
5,035
 
  
 
–
 
  
 
49,317
 
     45,960       4,850       –       50,810  
Default
  
 
–
 
  
 
–
 
  
 
2,847
 
  
 
2,847
 
     –       –       2,234       2,234  
Total
  
$
589,318
 
  
$
22,377
 
  
$
2,847
 
  
$
614,542
 
   $ 580,617     $ 20,863     $ 2,234     $ 603,714  
Allowance for credit losses
  
 
1,325
 
  
 
2,036
 
  
 
1,115
 
  
 
4,476
 
     1,298       1,864       957       4,119  
Carrying value
  
$
587,993
 
  
$
20,341
 
  
$
1,732
 
  
$
610,066
 
   $   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 July 31, 2023
     As at October 31, 2022  
Grade
($ millions)
  
Stage 1
    
Stage 2
    
Stage 3
(1)
    
Total
     Stage 1     Stage 2     Stage 3
(1)
     Total  
Investment grade
  
$
159,628
 
  
$
1,122
 
  
$
–
 
  
$
160,750
 
   $ 162,696     $ 1,775     $ –     $ 164,471  
Non-investment
grade
  
 
113,422
 
  
 
7,717
 
  
 
–
 
  
 
121,139
 
     105,251       9,563       –       114,814  
Watch list
  
 
27
 
  
 
3,021
 
  
 
–
 
  
 
3,048
 
     22       2,890       –       2,912  
Loans not graded
(2)
  
 
2,459
 
  
 
15
 
  
 
–
 
  
 
2,474
 
     2,346       12       –       2,358  
Default
  
 
–
 
  
 
–
 
  
 
2,640
 
  
 
2,640
 
     –       –       2,552       2,552  
Total
  
$
275,536
 
  
$
11,875
 
  
$
2,640
 
  
$
290,051
 
   $ 270,315     $ 14,240     $ 2,552     $ 287,107  
Allowance for credit losses
  
 
398
 
  
 
314
 
  
 
705
 
  
 
1,417
 
     255       296       678       1,229  
Carrying value
  
$
275,138
 
  
$
11,561
 
  
$
1,935
 
  
$
288,634
 
   $   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 July 31, 2023
     As at October 31, 2022  
Grade
($ millions)
  
Stage 1
    
Stage 2
    
Stage 3
(1)
    
Total
     Stage 1     Stage 2     Stage 3
(1)
     Total  
Investment grade
  
$
227,390
 
  
$
1,959
 
  
$
–
 
  
$
229,349
 
   $ 222,734     $ 1,502     $ –     $ 224,236  
Non-investment
grade
  
 
61,918
 
  
 
5,232
 
  
 
–
 
  
 
67,150
 
     62,827       4,534       –       67,361  
Watch list
  
 
2
 
  
 
775
 
  
 
–
 
  
 
777
 
     4       604       –       608  
Loans not graded
(2)
  
 
5,074
 
  
 
1
 
  
 
–
 
  
 
5,075
 
     4,573       –       –       4,573  
Default
  
 
–
 
  
 
–
 
  
 
107
 
  
 
107
 
     –       –       139       139  
Total
  
$
294,384
 
  
$
7,967
 
  
$
107
 
  
$
302,458
 
   $ 290,138     $ 6,640     $ 139     $ 296,917  
Allowance for credit losses
  
 
90
 
  
 
28
 
  
 
15
 
  
 
133
 
     67       24       17       108  
Carrying value
  
$
294,294
 
  
$
7,939
 
  
$
92
 
  
$
302,325
 
   $   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 July 31, 2023
     As at October 31, 2022  
Grade
($ millions)
  
Stage 1
    
Stage 2
    
Stage 3
(1)
    
Total
     Stage 1     Stage 2     Stage 3
(1)
     Total  
Investment grade
  
$
387,018
 
  
$
3,081
 
  
$
–
 
  
$
390,099
 
   $ 385,430     $ 3,277     $ –     $ 388,707  
Non-investment
grade
  
 
175,340
 
  
 
12,949
 
  
 
–
 
  
 
188,289
 
     168,078       14,097       –       182,175  
Watch list
  
 
29
 
  
 
3,796
 
  
 
–
 
  
 
3,825
 
     26       3,494       –       3,520  
Loans not graded
(2)
  
 
7,533
 
  
 
16
 
  
 
–
 
  
 
7,549
 
     6,919       12       –       6,931  
Default
  
 
–
 
  
 
–
 
  
 
2,747
 
  
 
2,747
 
     –       –       2,691       2,691  
Total
  
$
569,920
 
  
$
19,842
 
  
$
2,747
 
  
$
592,509
 
   $ 560,453     $ 20,880     $ 2,691     $ 584,024  
Allowance for credit losses
  
 
488
 
  
 
342
 
  
 
720
 
  
 
1,550
 
     322       320       695       1,337  
Carrying value
  
$
569,432
 
  
$
19,500
 
  
$
2,027
 
  
$
590,959
 
   $   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.
 
74    
Scotiabank Third Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
  (e)
Loans past due but not impaired
(1)
A loan is considered past due 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 July 31, 2023
(2)
 
($ millions)
  
31-60

days
 
  
61-90

days
 
  
91 days
and greater
(3)
 
  
Total
 
Residential mortgages
   
$
1,279
 
   
$
605
 
   
$
–
 
   
$
1,884
 
Personal loans
   
 
609
 
   
 
313
 
   
 
–
 
   
 
922
 
Credit cards
   
 
226
 
   
 
153
 
   
 
317
 
   
 
696
 
Business and government
   
 
148
 
   
 
58
 
   
 
–
 
   
 
206
 
Total
   
$
2,262
 
   
$
1,129
 
   
$
317
 
   
$
3,708
 
   
      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 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)
   
July 31
2023
      April 30
2023		      October 31
2022		  
Unpaid principal balance
(1)
   
$
293
 
    $ 305      $ 309  
Credit-related fair value adjustments
   
 
(79
) 
      (79 )       (70 ) 
Carrying value
   
 
214
 
      226        239  
Stage 3 allowance
   
 
(1
) 
      (2 )       (2 ) 
Carrying value net of related allowance
   
$
  213
 
    $   224      $   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.
 
Scotiabank Third Quarter Report 2023
    75
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)
   
July 31
2023
(1)
      April 30
2023
(1)
      October 31
2022
(1)
  
Assets
                           
Carrying value of residential mortgage loans
   
$
13,956
 
    $ 14,970      $ 15,032  
Other related assets
(2)
   
 
10,005
 
      9,594        9,854  
Liabilities
                           
Carrying value of associated liabilities
   
$
    22,314
 
    $     22,780      $     24,173  
  (1)
The fair value of the transferred assets is $21,950 (April 30, 2023 – $22,753; October 31, 2022 – $23,379) and the fair value of the associated liabilities is $21,309 (April 30, 2023 – $22,153; October 31, 2022 – $23,254) for a net position of $641 (April 30, 2023 – $600; 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 credit cards and auto loans
The Bank periodically securitizes a portion of its credit card and auto loan receivables through consolidated structured entities. These receivables continue to be recognized on the Consolidated Statement of Financial Position as personal loans and credit card loans. During the quarter, the Bank did not enter into any new securitization arrangements.
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)
   
July 31
2023
(1)
      April 30
2023
(1)
      October 31
2022
(1)
  
Carrying value of securities associated with:
                           
Repurchase agreements
(2)
   
$
127,317
 
    $ 114,423      $ 122,552  
Securities lending agreements
   
 
62,452
 
      59,028        52,178  
Total
   
 
189,769
 
      173,451        174,730  
Carrying value of associated liabilities
(3)
   
$
  147,432
 
    $   132,631      $   139,025  
  (1)
The fair value of transferred assets is $189,769 (April 30, 2023 – $173,451; October 31, 2022 – $174,730) and the fair value of the associated liabilities is $147,432 (April 30, 2023 – $132,631; October 31, 2022 – $139,025) for a net position of $42,337 (April 30, 2023 – $40,820; 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.
Other off-balance sheet arrangements
The Bank uses capital vehicles to transfer credit exposure on certain loan assets and purchases credit protection against eligible credit events from these vehicles. The vehicles collateralize their obligation
using cash proceeds received 
through the issuance of guarantee-linked notes. Loan assets are not sold or assigned to the vehicles and remain on the Bank’s Consolidated Statement of Financial Position. During the quarter, $949 million of guarantee-linked notes (April 30, 2023 – nil; October 31, 2022 – nil) issued by these vehicles were included in
Deposits – Business and government on the Bank’s Consolidated Statement of Financial Position.
Continuing involvement in transferred financial assets
Loans issued by the Bank under the Canada Emergency Business Account (CEBA) program are not recognized in the Consolidated Statement of Financial Position as the program meets the pass-through criteria of financial assets under IFRS 9.
As at July 31, 2023, the Bank has issued $3.6 billion CEBA loans (April 30, 2023 – $3.7 billion; October 31, 2022 – $3.9 billion). The Bank retains a continuing involvement 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.
 
76    
Scotiabank Third Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
9.
Investments in associates
The Bank had significant investments in the following associates:
 
                               As at  
                                     
July 31
2023
      April 30
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 %       June 30, 2023     
$
550
 
    $ 558      $ 579  
Bank of Xi’an Co. Ltd.
(3)
      China        Banking        18.11 %       June 30, 2023     
 
1,035
 
        1,099          1,007  
Maduro & Curiel’s Bank N.V.
(4)
      Curacao        Banking        48.10 %       June 30, 2023     
 
456
 
      459        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 $581 (April 30, 2023 – $570; October 31, 2022 – $489). The market value of the investment has remained below the carrying amount. The Bank performed an impairment test as at July 31, 2023 using a value in use (VIU), discounted cash flow model. The Bank concluded that there is no impairment as at July 31, 2023.
  (4)
The local regulator requires financial institutions to set aside reserves for general banking risks. These reserves are not required under IFRS, and represent undistributed retained earnings related to a foreign associated corporation, which are subject to local regulatory restrictions. As of July 31, 2023, these reserves amounted to $66 (April 30, 2023 – $69; October 31, 2022 – $67).
 
10.
Deposits
 
     As at  
    
July 31, 2023
     April 30
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
  
$
  5,433
 
  
$
  10,395
 
  
$
  149,448
 
  
$
  119,462
 
  
$
  284,738
 
   $ 283,651     $ 265,892  
Business and government
  
 
154,370
 
  
 
33,369
 
  
 
46,366
 
  
 
381,326
 
  
 
615,431
 
     611,376       597,617  
Financial institutions
  
 
12,590
 
  
 
860
 
  
 
1,815
 
  
 
41,791
 
  
 
57,056
 
     50,511       52,672  
 
  
$
172,393
 
  
$
44,624
 
  
$
197,629
(4)
 
  
$
542,579
 
  
$
957,225
 
   $ 945,538     $ 916,181  
Recorded in:
                                                        
Canada
  
$
124,735
 
  
$
24,547
 
  
$
161,113
 
  
$
367,526
 
  
$
677,921
 
   $   673,137     $   642,977  
United States
  
 
37,904
 
  
 
46
 
  
 
516
 
  
 
57,534
 
  
 
96,000
 
     95,338       104,984  
United Kingdom
  
 
–
 
  
 
–
 
  
 
439
 
  
 
25,111
 
  
 
25,550
 
     25,320       24,243  
Mexico
  
 
–
 
  
 
7,471
 
  
 
13,556
 
  
 
20,241
 
  
 
41,268
 
     37,681       31,841  
Peru
  
 
4,863
 
  
 
257
 
  
 
5,112
 
  
 
6,169
 
  
 
16,401
 
     16,149       16,439  
Chile
  
 
1,306
 
  
 
4,932
 
  
 
161
 
  
 
18,009
 
  
 
24,408
 
     25,464       22,105  
Colombia
  
 
26
 
  
 
482
 
  
 
4,178
 
  
 
4,892
 
  
 
9,578
 
     8,549       8,211  
Other International
  
 
3,559
 
  
 
6,889
 
  
 
12,554
 
  
 
43,097
 
  
 
66,099
 
     63,900       65,381  
Total
(5)
  
$
  172,393
 
  
$
44,624
 
  
$
197,629
 
  
$
542,579
 
  
$
957,225
 
   $ 945,538     $ 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 $130 (April 30, 2023 – $134; October 31, 2022 – $156) of
non-interest-bearing
deposits.
  (5)
Deposits denominated in U.S. dollars amount to $325,622 (April 30, 2023 – $326,922; October 31, 2022 – $326,041), deposits denominated in Chilean pesos amount to $20,797 (April 30, 2023 – $21,593; October 31, 2022 – $18,740), deposits denominated in Mexican pesos amount to $37,662 (April 30, 2023 – $34,709; October 31, 2022 – $29,269) and deposits denominated in other foreign currencies amount to $122,403 (April 30, 2023 – $115,466; 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 July 31, 2023
   
$
70,143
 
   
$
34,446
 
   
$
69,387
 
   
$
129,092
 
   
$
18,776
 
   
$
321,844
 
As at April 30, 2023
    $ 64,875      $ 37,468      $ 73,025      $ 123,485      $ 18,795      $ 317,648  
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.
 
Scotiabank Third Quarter Report 2023
    77
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
11.
Capital and financing transactions
Common shares
 
     For the three months ended  
    
July 31, 2023
     July 31, 2022  
($ millions)
  
Number of shares
    
Amount
     Number of shares     Amount  
Outstanding at beginning of period
  
 
1,198,174,512
 
  
$
  19,160
 
     1,197,797,983     $   18,799  
Issued in relation to share-based payments, net
  
 
6,252
 
  
 
1
 
     103,238       7  
Issued in relation to the acquisition of a subsidiary or associated corporation
  
 
–
 
  
 
–
 
     –       –  
Issued in relation to the Shareholder Dividend and Share Purchase Plan
(1)
  
 
7,152,387
 
  
 
466
 
     –       –  
Repurchased for cancellation under the Normal Course Issuer Bid
(2)
  
 
–
 
  
 
–
 
     (4,993,900 )      (78 ) 
Outstanding at end of period
  
 
1,205,333,151
 
  
$
19,627
 
     1,192,907,321     $ 18,728  
 
     For the nine months ended  
    
July 31, 2023
     July 31, 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
  
 
404,655
 
  
 
27
 
     1,883,598       132  
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)
  
 
13,553,401
 
  
 
893
 
     –       –  
Repurchased for cancellation under the Normal Course Issuer Bid
(2)
  
 
–
 
  
 
–
 
     (31,313,800 )      (480 ) 
Outstanding at end of period
  
 
1,205,333,151
 
  
$
19,627
 
     1,192,907,321     $ 18,728  
  (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 July 31, 2023. The Bank’s previous normal course issuer bid terminated on December 1, 2022.
Subordinated debentures
Issuance
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.
On June 12, 2023, the Bank issued
$
1.0 billion 5.679%
d
ebentures due August 2, 2033 (Non-Viability Contingent Capital (NVCC)). The debentures are subject to optional redemption by the Bank on or after August 2, 2028. Interest is payable semi-annually in arrears at a rate of 5.679% from and including the issue date to, but excluding, August 2, 2028, and thereafter to, but excluding, August 2, 2033, at an annual rate equal to Daily Compounded CORRA plus 2.100%. The initial interest payment
,
payable on February 2, 2024, will be
approximately 
$
36.33
per $
1,000
principal amount of debentures. The debentures contain NVCC provisions necessary to qualify as Tier 2 regulatory capital under Basel III.
Redemption
On July 21, 2023, the Bank announced
the redemption on August 31, 2023 of the
 US$55.99 million
outstanding of its US$300 million 
Floating Rate Subordinated Capital Debentures due 2085
,
 at a price equal to 100% of their principal amount plus accrued
and
unpaid interest to but excluding the redemption date.
 
78    
Scotiabank Third 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)
  
July 31
2023
 
  
April 30
2023
 
  
October 31
2022
 
  
  
Revised
Basel III
 
  
Revised
Basel III
 
  
Basel III
 
Capital
(1)(2)
  
  
  
Common Equity Tier 1 capital
   
$
55,832
 
    $ 55,520      $ 53,081  
Net Tier 1 capital
   
 
64,016
 
      63,688        61,262  
Total regulatory capital
   
 
74,332
 
      73,197        70,710  
Total loss absorbing capacity
(3)
   
 
134,207
 
      127,815        126,565  
Risk-weighted assets/exposures used in calculation of capital ratios
                           
Risk-weighted assets
(1)(2)(4)
   
$
439,814
 
    $ 451,063      $ 462,448  
Leverage exposures
(5)
   
 
1,551,344
 
      1,530,107        1,445,619  
Regulatory ratios
(1)(2)
                           
Common Equity Tier 1 capital ratio
   
 
12.7
% 
      12.3 %       11.5 % 
Tier 1 capital ratio
   
 
14.6
% 
      14.1 %       13.2 % 
Total capital ratio
   
 
16.9
% 
      16.2 %       15.3 % 
Total loss absorbing capacity ratio
(3)
   
 
30.5
% 
      28.3 %       27.4 % 
Leverage ratio
(5)
   
 
4.1
% 
      4.2 %       4.2 % 
Total loss absorbing capacity leverage ratio
(3)
   
 
8.7
% 
      8.4 %       8.8 % 
  (1)
Regulatory ratios and amounts reported as at Q3 2023 and Q2 2023 are under Revised Basel III requirements and are not directly comparable to ratios and amounts reported in Q4 2022.
  (2)
Q3 2023 and 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 year 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 July 31, 2023, CET1, Tier 1, Total Capital and TLAC RWA include a Basel III floor adjustment of $1.4 billion (April 30, 2023 – $8.2 billion and as at October 31, 2022, the Bank did not have a regulatory capital floor
add-on
for CET1, Tier 1, Total Capital and TLAC RWA).
  (5)
Q3 2023 and Q2 2023 leverage ratios are based on Revised Basel III requirements as determined in accordance with OSFI Guideline – Leverage Requirements (February 2023). Prior year 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 July 31, 2023, including the Domestic Stability Buffer requirement. In addition, the Bank substantially exceeded OSFI minimum leverage and TLAC leverage ratios as at July 31, 2023.
 
13.
Share-based payments
During the first quarter
 of 2023
, 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 $12 million for the three months and nine months ended July 31, 2023 (July 31, 2022 – $1 million and $9 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)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      April 30
2023		      July 31
2022		  
Defined benefit service cost
   
$
55
 
    $ 55      $ 97     
$
5
 
    $ 5      $ 6  
Interest on net defined benefit (asset) liability
   
 
(8
) 
      (8 )       (8 )    
 
15
 
      16        12  
Other
   
 
3
 
      3        4     
 
(2
) 
      –        2  
Defined benefit expense
   
$
50
 
    $ 50      $ 93     
$
18
 
    $ 21      $ 20  
Defined contribution expense
   
$
40
 
    $ 40      $ 32     
$
–
 
    $ –      $ –  
Increase (decrease) in other comprehensive income related to employee benefits
(2)
   
$
    200
 
    $   (222 )     $   (207 )    
$
    45
 
    $     (3 )     $     (24 ) 
 
      For the nine months ended  
      Pension plans      Other benefit plans  
($ millions)
   
July 31
2023
      July 31
2022		     
July 31
2023
      July 31
2022		  
Defined benefit service cost
   
$
165
 
    $     254     
$
15
 
    $ 17  
Interest on net defined benefit (asset) liability
   
 
(25
) 
      (11 )    
 
48
 
      35  
Other
   
 
9
 
      12     
 
–
 
      (5 ) 
Defined benefit expense
   
$
149
 
    $ 255     
$
63
 
    $ 47  
Defined contribution expense
   
$
117
 
    $ 93     
$
–
 
    $ –  
Increase (decrease) in other comprehensive income related to employee benefits
(2)
   
$
    (192
) 
    $ 838     
$
    (7
) 
    $     134  
  (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 Third 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 July 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)
   
$
  2,468
 
   
$
  2,118
 
   
$
207
 
   
$
337
 
   
$
  (550
) 
   
$
  4,580
 
Non-interest
income
(4)(5)
   
 
748
 
   
 
728
 
   
 
  1,129
 
   
 
  1,006
 
   
 
(101
) 
   
 
3,510
 
Total revenues
   
 
3,216
 
   
 
2,846
 
   
 
1,336
 
   
 
1,343
 
   
 
(651
) 
   
 
8,090
 
Provision for credit losses
   
 
307
 
   
 
516
 
   
 
2
 
   
 
(6
) 
   
 
–
 
   
 
819
 
Non-interest
expenses
   
 
1,448
 
   
 
1,491
 
   
 
843
 
   
 
758
 
   
 
22
 
   
 
4,562
 
Provision for income taxes
   
 
399
 
   
 
192
 
   
 
123
 
   
 
157
 
   
 
(374
) 
   
 
497
 
Net income
   
$
1,062
 
   
$
647
 
   
$
368
 
   
$
434
 
   
$
(299
) 
   
$
2,212
 
Net income attributable to
non-controlling
interests in subsidiaries
   
$
–
 
   
$
19
 
   
$
2
 
   
$
–
 
   
$
–
 
   
$
21
 
Net income attributable to equity holders of the Bank
   
$
1,062
 
   
$
628
 
   
$
366
 
   
$
434
 
   
$
(299
) 
   
$
2,191
 
Average assets
($ billions)
  
$
450
 
   
$
241
 
   
$
34
 
   
$
493
 
   
$
184
 
   
$
1,402
 
Average liabilities
($ billions)
  
$
376
 
   
$
184
 
   
$
40
 
   
$
450
 
   
$
273
 
   
$
1,323
 
  (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 – $8, International Banking – $62, Global Wealth Management – $5, and Other – $(20).
 
      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).
 
80    
Scotiabank Third Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
      For the three months ended July 31, 2022  
($ millions)
    Canadian
Banking
(1)
      International
Banking
(1)
      Global
Wealth
Management
(1)
      Global
Banking and
Markets
(1)
      Other
(2)
      Total  
Net interest income
(3)
    $   2,361      $   1,759      $ 200      $ 405      $ (49 )     $   4,676  
Non-interest
income
(4)(5)
      758        660          1,112        747        (154 )       3,123  
Total revenues
      3,119        2,419        1,312          1,152          (203 )       7,799  
Provision for credit losses
      93        325        5        (15 )       4        412  
Non-interest
expenses
      1,385        1,295        796        655        60        4,191  
Provision for income taxes
      428        122        133        134        (215 )       602  
Net income
    $ 1,213      $ 677      $ 378      $ 378      $ (52 )     $ 2,594  
Net income attributable to
non-controlling
interests in subsidiaries
    $ –      $ 52      $ 2      $ –      $ –      $ 54  
Net income attributable to equity holders of the Bank
    $ 1,213      $ 625      $ 376      $ 378      $ (52 )     $ 2,540  
Average assets
($ billions)
   $ 437      $ 209      $ 33      $ 443      $ 173      $ 1,295  
Average liabilities
($ billions)
    $ 337      $ 155      $ 48      $ 419      $ 263      $ 1,222  
  (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 – $15, International Banking – $54, Global Wealth Management – $3, and Other – $(28).
 
     
For the nine months ended July 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)
   
$
  7,194
 
   
$
  6,024
 
   
$
629
 
   
$
  1,175
 
   
$
  (1,407
) 
   
$
  13,615
 
Non-interest
income
(4)(5)
   
 
2,320
 
   
 
2,275
 
   
 
  3,330
 
   
 
3,023
 
   
 
(564
) 
   
 
10,384
 
Total revenues
   
 
9,514
 
   
 
8,299
 
   
 
3,959
 
   
 
4,198
 
   
 
(1,971
) 
   
 
23,999
 
Provision for credit losses
   
 
743
 
   
 
1,356
 
   
 
5
 
   
 
62
 
   
 
–
 
   
 
2,166
 
Non-interest
expenses
   
 
4,354
 
   
 
4,406
 
   
 
2,463
 
   
 
2,283
 
   
 
96
 
   
 
13,602
 
Provision for income taxes
   
 
1,208
 
   
 
533
 
   
 
380
 
   
 
499
 
   
 
(532
) 
   
 
2,088
 
Net income
   
$
3,209
 
   
$
2,004
 
   
$
1,111
 
   
$
1,354
 
   
$
(1,535
) 
   
$
6,143
 
Net income attributable to
non-controlling
interests in subsidiaries
   
$
–
 
   
$
80
 
   
$
7
 
   
$
–
 
   
$
–
 
   
$
87
 
Net income attributable to equity holders of the Bank
   
$
3,209
 
   
$
1,924
 
   
$
1,104
 
   
$
1,354
 
   
$
(1,535
) 
   
$
6,056
 
Average assets
($ billions)
  
$
450
 
   
$
236
 
   
$
34
 
   
$
487
 
   
$
184
 
   
$
1,391
 
Average liabilities
($ billions)
  
$
367
 
   
$
178
 
   
$
41
 
   
$
450
 
   
$
278
 
   
$
1,314
 
  (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 $358 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 – $48, International Banking – $194, Global Wealth Management – $13, and Other – $(120).
 
Scotiabank Third Quarter Report 2023
    81
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
      For the nine months ended July 31, 2022  
($ millions)
    Canadian
Banking
(1)
      International
Banking
(1)
      Global
Wealth
Management
(1)
      Global
Banking and
Markets
(1)
      Other
(2)
      Total  
Net interest income
(3)
    $   6,638      $   5,094      $ 558      $   1,138      $ 65      $   13,493  
Non-interest
income
(4)(5)
      2,258        2,129          3,534        2,680          (304 )       10,297  
Total revenues
      8,896        7,223        4,092        3,818        (239 )       23,790  
Provision for credit losses
      46        875        5        (77 )       4        853  
Non-interest
expenses
      3,991        3,848        2,461        1,978        295        12,573  
Provision for income taxes
      1,266        512        424        490        (409 )       2,283  
Net income
    $ 3,593      $ 1,988      $ 1,202      $ 1,427      $ (129 )     $ 8,081  
Net income attributable to
non-controlling
interests in subsidiaries
    $ –      $ 213      $ 7      $ –      $ –      $ 220  
Net income attributable to equity holders of the Bank
    $ 3,593      $ 1,775      $ 1,195      $ 1,427      $ (129 )     $ 7,861  
Average assets
($ billions)
   $ 424      $ 203      $ 32      $ 440      $ 166      $ 1,265  
Average liabilities
($ billions)
    $ 328      $ 149      $ 48      $ 409      $ 258      $ 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 $276 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 – $41, International Banking – $199, Global Wealth Management – $9, and Other – $(30).
 
16.
Interest income and expense
 

  
 
For the three months ended
 
 
For the nine months ended
 
  
 
July 31, 2023
 
 
April 30, 2023
 
 
July 31, 2022
 
 
July 31, 2023
 
 
July 31, 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)
  
$
  13,124
 
  
$
  10,058
 
   $  12,463     $  9,357     $  8,174     $  4,169    
$
  37,484
 
  
$
  27,960
 
   $  20,978     $  8,819  
Measured at FVOCI
(1)
  
 
1,003
 
  
 
–
 
     921       –       450       –    
 
2,737
 
  
 
–
 
     892       –  
   
 
14,127
 
  
 
10,058
 
     13,384       9,357       8,624       4,169    
 
40,221
 
  
 
27,960
 
     21,870       8,819  
Other
  
 
562
(2)
 
  
 
51
(3)
 
     486
(2)
 		     47
(3)
 		     261
(2)
 		     40
(3)
 		  
 
1,494
(2)
 
  
 
140
(3)
 
     570
(2)
 		     128
(3)
 
Total
  
$
14,689
 
  
$
10,109
 
   $ 13,870     $ 9,404     $ 8,885     $ 4,209    
$
41,715
 
  
$
28,100
 
   $ 22,440     $ 8,947  
  (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 July 31, 2023 – $29 (April 30, 2023 – $29; July 31, 2022 – $27) and for the nine months ended July 31, 2023 – $84 (
July 31, 2022 – $
80).
 
17.
Earnings per share
 
      For the three months ended      For the nine months ended  
($ millions)
   
July 31
2023
      April 30
2023		      July 31
2022		     
July 31
2023
      July 31
2022		  
Basic earnings per common share
                                             
Net income attributable to common shareholders
   
$
  2,086
 
    $   2,029      $   2,504     
$
  5,746
 
    $   7,707  
Weighted average number of common shares outstanding
(millions)
   
 
1,199
 
      1,192        1,195     
 
1,194
 
      1,201  
Basic earnings per common share
(1)
(in dollars)
   
$
1.74
 
    $ 1.70      $ 2.10     
$
4.81
 
    $ 6.41  
Diluted earnings per common share
                                             
Net income attributable to common shareholders
   
$
2,086
 
    $ 2,029      $ 2,504     
$
5,746
 
    $ 7,707  
Dilutive impact of share-based payment options and others
(2)
   
 
2
 
      (11 )       6     
 
(24
) 
      91  
Net income attributable to common shareholders (diluted)
   
$
2,088
 
    $ 2,018      $ 2,510     
$
5,722
 
    $ 7,798  
Weighted average number of common shares outstanding
(millions)
   
 
1,199
 
      1,192        1,195     
 
1,194
 
      1,201  
Dilutive impact of share-based payment options and others
(2)
(millions)
   
 
15
 
      5        8     
 
7
 
      20  
Weighted average number of diluted common shares outstanding
(millions)
   
 
1,214
 
      1,197        1,203     
 
1,201
 
      1,221  
Diluted earnings per common share
(1)
(in dollars)
   
$
1.72
 
    $ 1.69      $ 2.09     
$
4.76
 
    $ 6.39  
  (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.
 
82    
Scotiabank Third Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
18.
Financial instruments
(a) Risk management
The Bank’s principal business activities result in a balance sheet that consists primarily of financial instruments. In addition, the Bank uses derivative financial instruments for both trading and hedging purposes. The principal financial risks that arise from transacting financial instruments include credit risk, liquidity risk and market risk. The Bank’s framework to monitor, evaluate and manage these risks is consistent with that in place as at October 31, 2022.
(i) Credit risk
Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to honour its financial or contractual obligations to the Bank.
Credit risk exposures disclosed below are presented based on the Basel framework utilized by the Bank. The Bank uses the 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.
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
 
  
  
July 31, 2023
 
  
April 30
2023
 
  
October 31
2022
 
  
  
Revised Basel III
 
  
Revised
Basel III
 
  
Basel III
 
($ millions)
  
IRB
 
  
Standardized
 
  
Total
 
  
Total
 
  
Total
 
By exposure
sub-type
  
  
  
  
  
Non-retail
  
  
  
  
  
Drawn
(3)(4)
   
$
477,168
 
   
$
72,255
 
   
$
549,423
 
    $ 546,224      $ 534,978  
Undrawn commitments
   
 
92,681
 
   
 
7,458
 
   
 
100,139
 
      106,677        132,195  
Other exposures
(5)
   
 
120,636
 
   
 
6,424
 
   
 
127,060
 
      114,853        130,471  
Total
non-retail
   
$
690,485
 
   
$
86,137
 
   
$
776,622
 
    $ 767,754      $ 797,644  
Retail
(6)
                                             
Drawn
   
$
290,434
 
   
$
114,759
 
   
$
405,193
 
    $ 406,195      $ 392,143  
Undrawn commitments and other exposures
   
 
97,252
 
   
 
9,097
 
   
 
106,349
 
      105,176        57,913  
Total retail
   
$
387,686
 
   
$
123,856
 
   
$
511,542
 
    $ 511,371      $ 450,056  
Total
   
$
  1,078,171
 
   
$
  209,993
 
   
$
  1,288,164
 
    $   1,279,125      $   1,247,700  
  (1)
Regulatory amounts reported as at Q3 2023 and Q2 2023 are under Revised Basel III requirements and are not directly comparable to amounts reported in Q4 2022.
  (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 July 31, 2023, 26% (April 30, 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 51% (April 30, 2023 – 53%; October 31, 2022 – 49%).
Retail standardized portfolio
The retail standardized portfolio of $124 billion as at July 31, 2023 (April 30, 2023 – $123 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 (April 30, 2023 – $65 billion; October 31, 2022 – $63 billion) was represented by mortgages and loans secured by residential real estate, mostly with a
loan-to-value
ratio of below 80%.
(ii) Liquidity risk
Liquidity risk is the risk that the Bank is unable to meet its financial obligations in a timely manner at reasonable prices. The Bank’s liquidity risk is subject to extensive risk management controls and is managed within the framework of policies and limits approved by the Board. The Board receives reports on risk exposures and performance against approved limits. The Asset/Liability Committee (ALCO) provides senior management oversight of liquidity risk.
 
Scotiabank Third Quarter Report 2023
    83
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
The key elements of the Bank’s liquidity risk management framework include:
 
  •  
liquidity risk measurement and management limits, including limits on maximum net cash outflow by currency over specified short-term horizons;
 
  •  
prudent diversification of its wholesale funding activities by using a number of different funding programs to access the global financial markets and manage its maturity profile, as appropriate;
 
  •  
large holdings of liquid assets to support its operations, which can generally be sold or pledged to meet the Bank’s obligations;
 
  •  
liquidity stress testing, including Bank-specific, global-systemic, and combination systemic/specific scenarios; and
 
  •  
liquidity contingency planning.
The Bank’s foreign operations have liquidity management frameworks that are similar to the Bank’s framework. Local deposits are managed from a liquidity risk perspective based on the local management frameworks and regulatory requirements.
(iii) Market risk
Market risk arises from changes in market prices and rates (including interest rates, credit spreads, equity prices, foreign exchange rates and commodity prices), the correlations among them, and their levels of volatility.
Interest rate risk
Interest rate risk is the risk of loss due to the following: changes in the level, slope and curvature of the yield curve; the volatility of interest rates and changes in customers’ preferences (e.g. mortgage prepayment rates).
Non-trading
foreign currency risk
Foreign currency risk is the risk of loss due to changes in spot and forward rates.
As at July 31, 2023, a one per cent increase (decrease) in the Canadian dollar against all currencies in which the Bank operates decreases (increases) the Bank’s
before-tax
annual earnings by approximately $68 million (April 30, 2023 – $71 million; July 31, 2022 – $43 million) in the absence of hedging activity, due primarily from exposure to U.S. dollars.
A similar change in the Canadian dollar as at July 31, 2023, would increase (decrease) the unrealized foreign currency translation losses in the accumulated other comprehensive income section of shareholders’ equity by approximately $328 million (April 30, 2023 – $325 million; July 31, 2022 – $297 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  
    
July 31, 2023
(1)
            
July 31
      April 30      July 31  
($ millions)
   
Average
     
High
     
Low
             
2023
      2023      2022  
Credit spread plus interest rate
   
$
  15.0
 
   
$
  24.0
 
   
$
  10.6
 
            
$
  12.6
 
    $ 19.1      $ 16.2  
Credit spread
   
 
7.6
 
   
 
9.9
 
   
 
6.4
 
            
 
6.9
 
      7.4        5.3  
Interest rate
   
 
11.5
 
   
 
17.3
 
   
 
8.3
 
            
 
10.5
 
      17.4        15.0  
Equities
   
 
4.0
 
   
 
5.7
 
   
 
2.8
 
            
 
3.1
 
      4.3        4.6  
Foreign exchange
   
 
2.9
 
   
 
6.6
 
   
 
1.5
 
            
 
1.6
 
      4.2        2.3  
Commodities
   
 
4.7
 
   
 
5.6
 
   
 
3.7
 
            
 
3.7
 
      4.6        3.4  
Debt specific
   
 
3.3
 
   
 
4.6
 
   
 
2.4
 
            
 
2.6
 
      3.2        2.1  
Diversification effect
   
 
(14.4
) 
   
 
–
 
   
 
–
 
   
 
 
 
   
 
(11.3
) 
      (13.5 )       (11.5 ) 
Total VaR
   
$
15.5
 
   
$
21.9
 
   
$
11.0
 
   
 
 
 
   
$
12.3
 
    $   21.9      $   17.1  
Total Stressed VaR
   
$
32.0
 
   
$
63.6
 
   
$
13.9
 
   
 
 
 
   
$
18.4
 
    $ 47.5      $ 31.4  
  (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.
 
Stressed VaR is calculated using the largest loss across historical periods as applied to the current portfolio. 
(b) Financial instruments designated at fair value through profit or loss
In accordance with its risk management strategy, the Bank has elected to designate certain senior note liabilities at fair value through profit or loss to reduce an accounting mismatch between fair value changes in these instruments and fair value changes in related derivatives, and where a hybrid financial liability contains one or more embedded derivatives that are not closely related to the host contract. Changes in fair value of financial liabilities arising from the Bank’s own credit risk are recognized in other comprehensive income, without subsequent reclassification to net income.
The cumulative fair value adjustment due to own credit risk is determined at a point in time by comparing the present value of expected future cash flows over the term of these liabilities discounted at the Bank’s effective funding rate, and the present value of expected future cash flows discounted at a benchmark rate.
 
84    
Scotiabank Third Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
The following table presents the fair value of liabilities designated at fair value through profit or loss and their changes in fair value.
 
  
 
Fair value
 
 
Change in fair value
(1)
 
 
Cumulative change in fair value
(2)
 
  
 
As at
 
 
For the three months ended
 
 
  
 
 
As at
 
 
  
 
($ millions)
 
July 31
2023
 
 
April 30
2023
 
 
July 31
2022
 
 
July 31
2023
 
 
April 30
2023
 
 
July 31
2022
 
 
July 31
2023
 
 
April 30
2023
 
 
July 31
2022
 
Liabilities
 
 
 
 
 
 
 
 
 
Senior note liabilities
(3)
  
$
  28,893
 
   $   26,935     $   22,876    
$
  (1,906)
 
   $   2,104     $   302    
$
  4,567
 
   $   6,473     $   4,410  
  (1)
Change in the difference between the contractual maturity amount and the carrying value.
  (2)
The cumulative change in fair value is measured from the instruments’ date of initial recognition.
 
(3)
Changes in fair value attributable to changes in the Bank’s own credit risk are recorded in other comprehensive income. Other changes in fair value are recorded in
non-interest
income – trading revenues. The offsetting fair value changes from associated derivatives is also recorded in
non-interest
income – trading revenues.
The following table presents the changes in fair value attributable to changes in the Bank’s own credit risk for financial liabilities designated at fair value through profit or loss as well as their contractual maturity and carrying amounts.
 
  
  
Senior note liabilities
 
($ millions)
  
 
Contractual
maturity
amount
 
 
 
  
 
Carrying value
 
  
 
Difference
between
contractual
maturity
amount and
carrying
value
 
 
 
 
 
 
 
  
 
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 July 31, 2023
   
$
33,460
 
   
$
28,893
 
   
$
4,567
 
   
$
 (1,848
)
   
$
(48
)
As at April 30, 2023
    $   33,408      $   26,935      $   6,473        $
 
  1,661		      $   1,800  
As at July 31, 2022
    $ 27,286      $ 22,876      $ 4,410        $
 
     567		      $ 856  
  (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
 
  
  
July 31, 2023
 
  
April 30, 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
   
$
90,325
 
   
$
90,325
 
    $ 63,893      $ 63,893      $ 65,895      $ 65,895  
Trading assets
   
 
  119,301
 
   
 
  119,301
 
        114,695          114,695          113,154          113,154  
Securities purchased under resale agreements and securities borrowed
   
 
198,358
 
   
 
198,358
 
      184,684        184,684        175,313        175,313  
Derivative financial instruments
   
 
44,655
 
   
 
44,655
 
      44,725        44,725        55,699        55,699  
Investment securities – FVOCI and FVTPL
   
 
82,003
 
   
 
82,003
 
      88,318        88,318        86,398        86,398  
Investment securities – amortized cost
   
 
26,833
 
   
 
28,192
 
      27,270        28,277        22,443        23,610  
Loans
   
 
737,119
 
   
 
752,205
 
      749,544        764,068        729,149        744,987  
Customers’ liability under acceptances
   
 
20,425
 
   
 
20,425
 
      21,901        21,901        19,494        19,494  
Other financial assets
   
 
22,551
 
   
 
22,551
 
      24,918        24,918        27,394        27,394  
Liabilities:
                                                      
Deposits
   
 
947,312
 
   
 
957,225
 
      936,437        945,538        904,033        916,181  
Financial instruments designated at fair value through profit or loss
   
 
28,893
 
   
 
28,893
 
      26,935        26,935        22,421        22,421  
Acceptances
   
 
20,478
 
   
 
20,478
 
      21,951        21,951        19,525        19,525  
Obligations related to securities sold short
   
 
37,522
 
   
 
37,522
 
      41,310        41,310        40,449        40,449  
Derivative financial instruments
   
 
50,848
 
   
 
50,848
 
      50,562        50,562        65,900        65,900  
Obligations related to securities sold under repurchase agreements and securities lent
   
 
147,432
 
   
 
147,432
 
      132,631        132,631        139,025        139,025  
Subordinated debentures
   
 
9,351
 
   
 
9,566
 
      8,574        8,784        8,038        8,469  
Other financial liabilities
   
 
49,050
 
   
 
49,963
 
      50,182        51,486        45,723        46,682  
 
Scotiabank Third Quarter Report 2023
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
(d) Fair value hierarchy
The best evidence of fair value for a financial instrument is the quoted price in an active market. Unadjusted quoted market prices for identical instruments represent a Level 1 valuation. Where possible, valuations are based on quoted prices or observable inputs obtained from active markets.
Quoted prices are not always available for
over-the-counter
transactions, as well as transactions in inactive or illiquid markets. In these instances, internal models that maximize the use of observable inputs are used to estimate fair value. The chosen valuation technique incorporates all the factors that market participants would take into account in pricing a transaction. When all significant inputs to models are observable, the valuation is classified as Level 2. Financial instruments traded in a less active market are valued using indicative market prices or other valuation techniques. Fair value estimates do not consider forced or liquidation sales.
Where financial instruments trade in inactive markets, illiquid markets or when using models where observable parameters do not exist, greater management judgment is required for valuation purposes. Valuations that require the significant use of unobservable inputs are classified as Level 3.
The following table outlines the fair value hierarchy and instruments carried at fair value on a recurring basis.
 
  
 
As at    
 
  
 
July 31, 2023
 
 
April 30, 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)
  
$
–
 
  
$
1,009
 
  
$
–
 
  
$
1,009
 
   $ –     $ 1,191     $ –     $ 1,191  
Trading assets
                                                                
Loans
  
 
–
 
  
 
8,420
 
  
 
–
 
  
 
8,420
 
     –       6,905       5       6,910  
Canadian federal government and government guaranteed debt
  
 
12,799
 
  
 
4,694
 
  
 
–
 
  
 
17,493
 
     15,145       2,944       –       18,089  
Canadian provincial and municipal debt
  
 
4,474
 
  
 
3,890
 
  
 
–
 
  
 
8,364
 
     4,673       4,470       –       9,143  
U.S. treasury and other U.S. agencies’ debt
  
 
12,761
 
  
 
–
 
  
 
–
 
  
 
12,761
 
     11,911       536       –       12,447  
Other foreign governments’ debt
  
 
553
 
  
 
9,834
 
  
 
–
 
  
 
10,387
 
     15       9,295       –       9,310  
Corporate and other debt
  
 
2,642
 
  
 
7,378
 
  
 
–
 
  
 
10,020
 
     2,513       8,117       –       10,630  
Equity securities
  
 
49,157
 
  
 
127
 
  
 
1
 
  
 
49,285
 
     45,852       88       1       45,941  
Other
  
 
–
 
  
 
2,571
 
  
 
–
 
  
 
2,571
 
     –       2,225       –       2,225  
 
  
$
  82,386
 
  
$
  36,914
 
  
$
1
 
  
$
  119,301
 
   $   80,109     $   34,580     $ 6     $   114,695  
Investment securities
(2)
                                                                
Canadian federal government and government guaranteed debt
  
$
6,223
 
  
$
4,763
 
  
$
–
 
  
$
10,986
 
   $ 4,569     $ 4,720     $ –     $ 9,289  
Canadian provincial and municipal debt
  
 
2,378
 
  
 
3,898
 
  
 
–
 
  
 
6,276
 
     3,729       3,922       –       7,651  
U.S. treasury and other U.S. agencies’ debt
  
 
28,232
 
  
 
2,296
 
  
 
–
 
  
 
30,528
 
     31,318       2,139       –       33,457  
Other foreign governments’ debt
  
 
1,253
 
  
 
26,789
 
  
 
–
 
  
 
28,042
 
     3,352       28,117       –       31,469  
Corporate and other debt
  
 
–
 
  
 
2,144
 
  
 
42
 
  
 
2,186
 
     –       2,061       55       2,116  
Equity securities
  
 
1,993
 
  
 
227
 
  
 
1,765
 
  
 
3,985
 
     2,383       219       1,734       4,336  
 
  
$
40,079
 
  
$
40,117
 
  
$
  1,807
 
  
$
82,003
 
   $ 45,351     $ 41,178     $   1,789     $ 88,318  
Derivative financial instruments
                                                                
Interest rate contracts
  
$
–
 
  
$
14,151
 
  
$
–
 
  
$
14,151
 
   $ –     $ 13,478     $ –     $ 13,478  
Foreign exchange and gold contracts
  
 
–
 
  
 
25,077
 
  
 
–
 
  
 
25,077
 
     –       25,792       –       25,792  
Equity contracts
  
 
41
 
  
 
2,883
 
  
 
30
 
  
 
2,954
 
     38       2,451       32       2,521  
Credit contracts
  
 
–
 
  
 
396
 
  
 
3
 
  
 
399
 
     –       481       3       484  
Commodity contracts
  
 
–
 
  
 
2,064
 
  
 
10
 
  
 
2,074
 
     –       2,435       15       2,450  
 
  
$
41
 
  
$
44,571
 
  
$
43
 
  
$
44,655
 
   $ 38     $ 44,637     $ 50     $ 44,725  
Liabilities:
                                                                
Deposits
  
$
–
 
  
$
78
 
  
$
–
 
  
$
78
 
   $ –     $ 116     $ –     $ 116  
Financial liabilities designated at fair value through profit or loss
  
 
–
 
  
 
28,893
 
  
 
–
 
  
 
28,893
 
     –       26,935       –       26,935  
Obligations related to securities sold short
  
 
31,661
 
  
 
5,860
 
  
 
1
 
  
 
37,522
 
     35,613       5,696       1       41,310  
                 
Derivative financial instruments
                                                                
Interest rate contracts
  
 
–
 
  
 
21,335
 
  
 
–
 
  
 
21,335
 
     –       19,520       –       19,520  
Foreign exchange and gold contracts
  
 
–
 
  
 
24,093
 
  
 
–
 
  
 
24,093
 
     –       25,813       –       25,813  
Equity contracts
  
 
82
 
  
 
3,026
 
  
 
16
 
  
 
3,124
 
     185       2,578       22       2,785  
Credit contracts
  
 
–
 
  
 
28
 
  
 
2
 
  
 
30
 
     –       24       1       25  
Commodity contracts
  
 
–
 
  
 
2,259
 
  
 
7
 
  
 
2,266
 
     –       2,415       4       2,419  
 
  
$
82
 
  
$
50,741
 
  
$
25
 
  
$
50,848
 
   $ 185     $ 50,350     $ 27     $ 50,562  
  (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 $28,192 (April 30, 2023 – $28,277).
 
86    
Scotiabank Third Quarter Report 2023
Table of Contents
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 investment securities measured at amortized cost of $23,610.
 
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
Level 3 instrument fair value changes
Financial instruments categorized as Level 3 as at July 31, 2023, in the fair value hierarchy comprise certain 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 July 31, 2023.
All positive balances represent assets and negative balances represent liabilities. Consequently, positive amounts indicate purchases of assets or settlements of liabilities and negative amounts indicate sales of assets or issuances of liabilities.
 
  
 
As at July 31, 2023
 
($ millions)
 
 
Fair
value,
beginning
of the
quarter
 
 
 
 
 
 
 
Gains/
(losses)
recorded
in income
 
 
 
 
 
 
Gains/
(losses)
recorded
in OCI
 
 
 
 
 
 
Purchases/
Issuances
 
 
 
 
Sales/
Settlements
 
 
 
 
Transfers
into/out
of Level 3
 
 
 
 
 
Fair
value, end
of the
quarter
 
 
 
 
 
 
Changes in
unrealized
gains/(losses)
recorded in
income for
instruments
still held
(1)
 
 
 
 
 
 
 
Trading assets
 
 
 
 
 
 
 
 
 
Loans
   $ 5     $ –     $ –     $ –     $ –     $ (5 )  
$
–
 
   $ –  
Equity securities
     1       –       –       1       –       (1 )  
 
1
 
     –  
      6       –       –       1       –       (6 )  
 
1
 
     –  
Investment securities
                                                      
 
        
Corporate and other debt
     55       (3 )
 
     (2 )
 
     –       (8 )     –    
 
42
 
     (3 )
Equity securities
     1,734       15       3       48       (38 )     3    
 
1,765
 
     15  
      1,789       12       1       48       (46 )
 
     3    
 
1,807
 
     12  
Derivative financial instruments – assets
                                                      
 
        
Equity contracts
     32       2       –       1       –       (5 )  
 
30
 
     3
(2)
 
Credit contracts
     3       –       –       –       –       –    
 
3
 
     –  
Commodity contracts
     15       (5 )     –       –       –       –    
 
10
 
     (5 )
                 
Derivative financial instruments – liabilities
                                                      
 
        
Equity contracts
     (22 )      2       –       (4 )     –       8    
 
(16
)
 
     2
(2)
 
Credit contracts
     (1 )      (1 )     –       –       –       –    
 
(2
)
 
     (1 )
Commodity contracts
     (4 )      (3 )     –       –       –       –    
 
(7
)
 
     (3 )
      23       (5 )     –       (3 )
 
     –       3    
 
18
 
     (4 )
Obligations related to securities sold short
     (1 )      –       –       –       –       –    
 
(1
)
 
     –  
Total
   $   1,817     $          7     $            1     $            46     $            (46)     $            –    
$
  1,825
 
   $            8  
  (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.
 
88    
Scotiabank Third Quarter Report 2023
Table of Contents
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
The following tables summarize the changes in Level 3 instruments carried at fair value for the three months ended April 30, 2023 and October 31, 2022.
 
  
  
As at April 30, 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
    $ 35      $ –      $ –      $ 6      $ (28 )    $ (7 )     $ 6  
Investment securities
        1,709          45          2          54          (19 )      (2 )         1,789  
Derivative financial instruments
      12        (2 )       –        (2 )       2          13        23  
Obligations related to securities sold short
      (6 )       –        –        –        –        5        (1 ) 
  (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.
 
  
  
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 July 31, 2023:
 
  •  
Trading assets of $1,213 million, investment securities of $462 million and obligations related to securities sold short of $142 million were transferred out of Level 2 into Level 1.
 
  •  
Trading assets of $1,376 million, investment securities of $882 million and obligations related to securities sold short of $710 million were transferred out of Level 1 into Level 2.
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 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 July 31, 2023 and April 30, 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.
 
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
19.
Corporate income taxes
Tax Assessments
The Bank received reassessments totaling $1,555 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 2011-201
8
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 $2 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 2014-201
8
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 15, 2022, certain Canadian federal tax measures impacting 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 corporate income tax rate on taxable income above $100 million.  
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.
 
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Scotiabank Third 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
Annual Meeting
The Annual Meeting for fiscal year 2023 is scheduled for April 9, 2024.
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 August 29, 2023, at 8:15 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 2672535# (please call shortly before 8:15 am ET). In addition, an audio webcast, with accompanying slide presentation, may be accessed via the Investor Relations page at www.scotiabank.com/investorrelations.
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 August 29, 2023, to October 5, 2023, by calling
905-694-9451
or
1-800-408-3053
(North America toll-free) and entering the access code 1127377#.
 
 
Contact Information
Investors:
Financial Analysts, Portfolio Managers and other Institutional Investors requiring financial information, please contact Investor Relations, Finance Department:
Scotiabank
40 Temperance Street, Toronto, Ontario
Canada M5H 0B4
Telephone:
(416) 775-0798
E-mail:
investor.relations@scotiabank.com
Global Communications:
Scotiabank
40 Temperance Street, Toronto, Ontario
Canada M5H 0B4
E-mail:
corporate.communications@scotiabank.com
Shareholders:
For enquiries related to changes in share registration or address, dividend information, lost share certificates, estate transfers, or to advise of duplicate mailings, please contact the Bank’s transfer agent:
Computershare Trust Company of Canada
100 University Avenue, 8th Floor
Toronto, Ontario, Canada M5J 2Y1
Telephone:
1-877-982-8767
E-mail:
service@computershare.com
 
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SHAREHOLDER INFORMATION
 
Co-Transfer
Agent (U.S.A.)
Computershare Trust Company, N.A.
Overnight Mail Delivery:
Computershare C/O: Shareholder Services
462 South 4th Street, Suite 1600
Louisville, KY 40202
First Class, Registered or Certified Mail Delivery:
Computershare C/O: Shareholder Services
P.O. Box 505000, Louisville, KY 40233-5000
Tel:
1-800-962-4284
E-mail:
service@computershare.com
For other shareholder enquiries, please contact the Corporate Secretary’s Department:
Scotiabank
40 Temperance Street
Toronto, Ontario, Canada M5H 0B4
Telephone:
(416) 866-3672
E-mail:
corporate.secretary@scotiabank.com
Rapport trimestriel disponible en français
Le rapport trimestriel 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.