02357404-00000001-00001289-e@#SEDAR#Q2_ENG_FINS-PDF 002002001130Bank of Nova Scotia, The 2015052920150529110805101
02357404-00000001-00001289-e@#SEDAR#Q2_ENG_FINS-PDF
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002
Other Issuers
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Interim financial statements/report - English
20150529
20150529
BC
AB
SK
MB
ON
QC
NB
NS
PE
NF
NT
YT
NU
00001289
Bank of Nova Scotia, The
La Banque de Nouvelle - Ecosse
Deborah M. Alexander, Executive Vice-President, General Counsel and Secretary
416
866-3462
416
866-7767
Bank Act (Canada) since 1871
064149
099199010000000000000090000099999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999
001
18320330
1031
037
01000000000000000999
10000000000009999999
KPMG LLP
KPMG s.r.l
Computershare Trust Company of Canada
Societe de fiducie Computershare du Canada
006
20080310
17:45:40
1
BNS
20150430
003
Bank of Nova Scotia Building
1709 Hollis Street
Halifax
Nova Scotia
Canada
B3J 3B7
Scotia Plaza
44 King Street West
Toronto
Ontario
Canada
M5H 1H1
416
866-6161
416
866-3750
Financial Highlights
As at and for the three months ended For the six months ended
(Unaudited)
April 30
2015
January 31
2015
April 30
2014
April 30
2015
April 30
2014
Operating results($ millions)
Net interest income
3,1983,169 3,0516,3676,056
Net interest income (TEB
(1)
)3,2023,174 3,0546,3766,062
Non-interest income2,7392,694 2,6745,4335,314
Non-interest income (TEB
(1)
)2,8522,781 2,7555,6335,472
Total revenue5,9375,863 5,72511,80011,370
Total revenue (TEB
(1)
)6,0545,955 5,80912,00911,534
Provision for credit losses448463 375911731
Non-interest expenses3,2243,197 2,9956,4216,100
Provision for income taxes468477 5559451,030
Provision for income taxes (TEB
(1)
)585569 6391,1541,194
Net income1,7971,726 1,8003,5233,509
Net income attributable to common shareholders1,7271,649 1,6993,3763,306
Operating performance
Basic earnings per share($)
1.431.36 1.402.782.73
Diluted earnings per share($)1.421.35 1.392.772.71
Adjusted diluted earnings per share
(1)
($)1.431.36 1.402.792.74
Return on equity
(1)
(%)15.114.2 16.314.715.9
Productivity ratio(%)(TEB
(1)
)53.353.7 51.653.552.9
Core banking margin(%)(TEB
(1)
)2.412.41 2.422.412.38
Financial position information($ millions)
Cash and deposits with financial institutions
60,66465,894 59,758
Trading assets113,120109,619 117,728
Loans435,958439,916 418,864
Total assets837,161851,873 791,772
Deposits575,281584,598 551,543
Common equity46,71246,893 42,986
Preferred shares2,9342,934 3,234
Assets under administration
(1)
445,773440,785 418,971
Assets under management
(1)
176,795173,779 158,820
Capital and liquidity measures
Common Equity Tier 1 (CET1) capital ratio(%)
10.610.3 9.8
Tier 1 capital ratio(%)11.911.5 11.3
Total capital ratio(%)13.913.2 13.3
Leverage ratio
(2)
4.14.1 N/A
CET1 risk-weighted assets($ millions)
(3)
328,688335,200 300,155
Liquidity coverage ratio (LCR)(%)
(4)
123N/A N/A
Credit quality
Net impaired loans($ millions)
(5)
2,1722,266 1,941
Allowance for credit losses($ millions)3,6943,788 3,364
Net impaired loans as a % of loans and acceptances
(5)
0.480.50 0.45
Provision for credit losses as a % of average loans and
acceptances (annualized)
0.410.42 0.360.410.35
Commonshare information
Share price($)(TSX)
High
67.7371.18 66.7271.1866.75
Low61.3060.75 59.9260.7559.92
Close66.5361.06 66.60
Shares outstanding(millions)
Average – Basic
1,2101,215 1,2151,2131,212
Average – Diluted1,2311,220 1,2221,2331,219
End of period1,2101,210 1,217
Dividends per share($)0.680.66 0.641.341.26
Dividend yield(%)
(6)
4.24.0 4.04.14.0
Market capitalization($ millions)(TSX)80,49973,887 81,027
Book value per common share($)38.6138.75 35.33
Market value to book value multiple1.71.6 1.9
Price to earnings multiple (trailing 4 quarters)11.610.7 12.3
Other information
Employees
87,32487,090 86,479
Branches and offices3,2443,266 3,321
(1) Refer to page 4 for a discussion of non-GAAP measures.
(2) Effective November 1, 2014, the Bank is subject to OSFI’s Leverage Requirements Guideline (refer to Note 12).
(3) Credit valuation adjustment (CVA) risk-weighted assets were calculated using scalars of 0.64, 0.71 and 0.77 to compute CET1, Tier 1 and Total
capital ratios, respectively in 2015.
(4) LCR is based on OSFI’s guideline, Liquidity Adequacy Requirement (LAR), effective commencing Q2/15.
(5) Excludes Federal Deposit Insurance Corporation (FDIC) guaranteed loans related to the acquisition of R-G Premier Bank of Puerto Rico.
(6) Based on the average of the high and low common share prices for the period.
2Scotiabank Second Quarter Report 2015
Contents
4 Management’s Discussion and
Analysis
6Group Financial Performance and
Financial Condition
6Financial results
8Risk management
25Financial position
25Capital management
27Common dividend
27Financial instruments
28Selected credit instruments
28Off-balance sheet arrangements
29Regulatory developments
30Accounting Policies and Controls
30Accounting policies and
estimates
31Future accounting developments
31Changes in internal control over
financial reporting
31Related party transactions
31Economic Outlook
32Business Segment Review
42Quarterly Financial Highlights
43Share Data
45 Condensed Interim Consolidated
Financial Statements (unaudited)
50Notes to the Condensed Interim
Consolidated Financial Statements
81 Shareholder Information
Forward-looking statementsOur public communications often 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 United States Securities
and Exchange Commission, or in other communications. All such statements are made pursuant to the “safe harbour” provisions of the
United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. Forward-looking
statements include, but are not limited to, statements made in this document, the Management’s Discussion and Analysis in the Bank’s 2014
Annual Report under the headings “Overview – Outlook”, for Group Financial Performance “Outlook”, for each business segment “Outlook”
and in other statements regarding the Bank’s objectives, strategies to achieve those objectives, expected financial results (including those in
the area of risk management), and the outlook for the Bank’s businesses and for the Canadian, United States and global economies. Such
statements are typically identified by words or phrases such as “believe”, “expect”, “anticipate”, “intent”, “estimate”, “plan”, “may increase”,
“may fluctuate”, and similar expressions of future or conditional verbs, such as “will”, “should”, “would” and “could”.
By their very nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and
specific, and the risk that predictions and other forward-looking statements will not prove to be accurate. Do not unduly rely on forward-
looking statements, as a number of important factors, many of which are beyond our control, could cause actual results to differ materially
from the estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to: the economic
and financial conditions in Canada and globally; fluctuations in interest rates and currency values; liquidity; significant market volatility and
interruptions; the failure of third parties to comply with their obligations to us and our affiliates; the effect of changes in monetary policy;
legislative and regulatory developments in Canada and elsewhere, including changes in tax laws; the effect of changes to our credit ratings;
amendments to, and interpretations of, risk-based capital guidelines and reporting instructions and liquidity regulatory guidance;
operational and reputational risks; the risk that the Bank’s risk management models may not take into account all relevant factors; the
accuracy and completeness of information the Bank receives on customers and counterparties; the timely development and introduction of
new products and services in receptive markets; the Bank’s ability to expand existing distribution channels and to develop and realize
revenues from new distribution channels; the Bank’s ability to complete and integrate acquisitions and its other growth strategies; changes
in accounting policies and methods the Bank uses to report its financial condition and financial performance, including uncertainties
associated with critical accounting assumptions and estimates (see “Controls and Accounting Policies – Critical accounting estimates” in the
Bank’s 2014 Annual Report, as updated in this document); the effect of applying future accounting changes (see “Controls and Accounting
Policies – Future accounting developments” in the Bank’s 2014 Annual Report, as updated in this document); global capital markets activity;
the Bank’s ability to attract and retain key executives; reliance on third parties to provide components of the Bank’s business infrastructure;
unexpected changes in consumer spending and saving habits; technological developments; fraud by internal or external parties, including
the use of new technologies in unprecedented ways to defraud the Bank or its customers; increasing cyber security risks which may include
theft of assets, unauthorized access to sensitive information or operational disruption; consolidation in the Canadian financial services
sector; competition, both from new entrants and established competitors; judicial and regulatory proceedings; acts of God, such as
earthquakes and hurricanes; the possible impact of international conflicts and other developments, including terrorist acts and war on
terrorism; the effects of disease or illness on local, national or international economies; disruptions to public infrastructure, including
transportation, communication, power and water; 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. For more information, see the “Risk Management” section starting on page 65 of the
Bank’s 2014 Annual Report.
Material economic assumptions underlying the forward-looking statements contained in this document are set out in the Bank’s
2014 Annual Report under the headings “Overview – Outlook”, as updated in this document; and for each business segment “Outlook”. The
“Outlook” 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.
The preceding list of important factors is not exhaustive. 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.
The Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by or
on its behalf.
Additional information relating to the Bank, including the Bank’s Annual Information Form, can be located on the SEDAR website at
www.sedar.com and on the EDGAR section of the SEC’s website at www.sec.gov.
Scotiabank Second Quarter Report 20153
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
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 periods ended April 30, 2015, compared to corresponding periods. 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 2014 Annual Report. This MD&A is dated May 29, 2015.
Additional information relating to the Bank, including the Bank’s 2014 Annual Report, are available on the Bank’s website at
www.scotiabank.com, as well as on SEDAR at www.sedar.com and on the EDGAR section of the SEC’s website at www.sec.gov.
Non-GAAP Measures
The Bank uses a number of financial measures to assess its performance. Some of these measures are not calculated in accordance
with Generally Accepted Accounting Principles (GAAP), which are based on International Financial Reporting Standards (IFRS),
are not defined by GAAP and do not have standardized meanings that would ensure consistency and comparability between
companies using these measures. These non-GAAP measures are used throughout this report and defined below.
Assets under administration (AUA)
AUA are 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)
AUM are 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.
Adjusted diluted earnings per share
The adjusted diluted earnings per share is calculated by adjusting the diluted earnings per share to add back the non-cash, after-tax
amortization of intangible assets related to acquisitions (excluding software).
Core banking assets
Core banking assets are average earning assets excluding bankers’ acceptances and average trading assets within Global Banking &
Markets.
Core banking margin (TEB)
This ratio represents net interest income (on a taxable equivalent basis) divided by average core banking assets. This is consistent
with the Bank’s Consolidated Statement of Income presentation where net interest income from trading operations is recorded in
trading revenues included in non-interest income.
Economic equity and return on economic equity
For internal reporting purposes, the Bank attributes capital to its business segments based on their risk profile and uses a
methodology that considers credit, market, operational and other risks inherent in each business segment. The amount of risk
capital attributed is commonly referred to as economic equity. The economic equity methodology, models and assumptions are
updated annually and applied prospectively. Return on economic equity for the business segments is calculated as a ratio of net
income attributable to common shareholders of the business segment and the economic equity attributed.
Operating leverage (TEB)
The Bank defines operating leverage as the rate of growth in total revenue (on a taxable equivalent basis), less the rate of growth in
non-interest expenses.
Productivity ratio (TEB)
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 (on a taxable equivalent basis).
4Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Return on equity
Return on equity is a profitability measure that presents the net income attributable to common shareholders as a percentage of
common shareholders’ equity. The Bank calculates its return on equity using average common shareholders’ equity.
Regulatory capital and liquidity ratios
Regulatory capital ratios, such as Common Equity Tier 1, Tier 1, Total Capital, Leverage and Liquidity coverage ratios, have
standardized meanings as defined by the Office of the Superintendent of Financial Institutions, Canada.
Taxable equivalent basis
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. The TEB gross up to net interest income, non-interest income, total revenue,
and provision for income taxes is presented below:
For the three months ended For the six months ended
TEB Gross up
($ millions)
April 30
2015
January 31
2015
April 30
2014
April 30
2015
April 30
2014
Net interest income$ 4$ 5 $ 3$ 9$ 6
Non-interest income11387 81200158
Total revenue and provision for taxes$ 117$ 92 $ 84$ 209$ 164
Tax normalization adjustment of net income from associated corporations
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.
Scotiabank Second Quarter Report 20155
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Group Financial Performanceand FinancialCondition
Financial results
The Bank’s net income for the second quarter was $1,797 million compared to $1,800 million in the same period last year and $1,726
million last quarter. Diluted earnings per share were $1.42, compared to $1.39 in the same period a year ago and $1.35 last quarter.
Return on equity was at 15.1%, compared to 16.3% last year and 14.2% last quarter.
Impact of foreign currency translation
The table below reflects the impact of foreign currency translation on key income statement items.
($ millions)For the three months ended
For the
six months ended
April 30, 2015 vs.
April 30, 2014
April 30, 2015 vs.
January 31, 2015
April 30, 2015 vs.
April 30, 2014
U.S./Canadian dollar exchange rate (average)
April 30, 2015
$0.801 $0.801 $0.830
January 31, 2015$0.859
April 30, 2014$0.905 $0.921
% change(11.5)% (6.7)% (9.8)%
Impact on income:
(1)
Net interest income$ 66 $ 64 $ 104
Non-interest income
(2)
58 47 95
Non-interest expenses(45) (49) (64)
Other items (net of tax)(15) (21) (24)
Net income$ 64 $ 41 $ 111
Earnings per share (diluted)$ 0.05 $ 0.03 $ 0.09
Impact by businessline:
Canadian Banking
$ 4 $ 3 $ 6
International Banking
(2)
34 49 31
Global Banking & Markets33 21 60
Other
(1)(2)
$ (7) $ (32) $ 14
(1) Includes the impact of all currencies.
(2) Includes the impact of foreign currency hedges.
Financial results commentary
Net income
Q2 2015 vs Q2 2014
The Bank’s net income was $1,797 million in the second quarter, in line with $1,800 million in the same period a year ago. Higher net
interest income, stronger banking and wealth management revenues, combined with a lower effective income tax rate and the
positive impact of foreign currency translation, were offset by higher provision for credit losses, higher non-interest expenses and
lower net gains on investment securities. Net income attributable to common shareholders was up 2%.
Q2 2015 vs Q1 2015
Net income was up $71 million or 4% from the prior quarter. This increase was due primarily to higher underwriting, trading and
wealth management revenues, lower provision for credit losses, and the positive impact of foreign currency translation. This was
partly offset by lower net gains on investment securities. Net income attributable to common shareholders was up 5%.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Net income was $3,523 million, up $14 million from $3,509 million in the same period last year. The year-over-year increase resulted
from higher net interest margins, stronger wealth management and banking revenues, a lower effective income tax rate and the
favourable impact of foreign currency translation. Partly offsetting were higher provision for credit losses and non-interest expenses,
lower net gains on investment securities and a lower contribution from investments in associates. Net income attributable to
common shareholders was up 2%.
6Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Net interest income
Q2 2015 vs Q2 2014
Net interest income (on a taxable equivalent basis) was $3,202 million, up $148 million or 5% higher than the same quarter last year.
The increase was attributable to asset growth primarily in retail lending in Canadian and International Banking, and the positive
impact of foreign currency translation partly offset by lower volumes in Global Banking & Markets, primarily in Asia. The core
banking margin was 2.41%, a slight decrease from 2.42% last year. Substantial margin increases in Canadian Banking were offset by
margin compression in Latin America and the impact of higher volumes of lower yielding deposits with financial institutions.
Q2 2015 vs Q1 2015
Net interest income (on a taxable equivalent basis) was up $28 million or 1% from the previous quarter. The increase was due to
asset growth in International Banking and Global Banking & Markets, and the positive impact of foreign currency translation. The
core banking margin was flat compared to last quarter. An increase in the Canadian Banking margin was offset by margin
compression in Latin America and Global Banking & Markets and lower asset/liability management income.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Net interest income (on a taxable equivalent basis) was $6,376 million for the six month period, up $314 million or 5% from the
previous period. This increase was attributable to strong loan growth in International Banking, higher retail and consumer auto loans
in Canadian Banking, and the positive impact of foreign currency translation.
The core banking margin was 2.41%, up from 2.38% for the same period last year. Canadian Banking margin drove much of the
increase.
Non-interest income
Q2 2015 vs Q2 2014
Non-interest income (on a taxable equivalent basis) was $2,852 million, up $97 million or 4% from the same period last year. The
growth was mainly from higher banking, wealth management and underwriting revenues, higher trading revenues, and the positive
impact of foreign currency translation. These increases were mostly offset by lower contributions from investments in associates,
lower net gains on investment securities and losses on financial instrument hedges.
Q2 2015 vs Q1 2015
Compared to the previous quarter, non-interest income (on a taxable equivalent basis) was up $71 million or 3%. The increase was
mostly due to higher trading revenues, wealth management revenues and underwriting fees, and the positive impact of foreign
currency translation. These were mostly offset by lower net gains on investment securities.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Compared to the same period last year, non-interest income was $5,633 million, up $161 million or 3%. The growth was primarily in
banking and wealth management revenues, as well as higher non-trading foreign exchange fees, higher insurance income, and the
positive impact of foreign currency translation. Mostly offsetting were lower net gains on investment securities, lower contributions
from associated corporations and losses on financial instrument hedges, including foreign exchange hedges.
Provision for credit losses
Q2 2015 vs Q2 2014
The provision for credit losses was $448 million this quarter, up $73 million or 20% from the same period last year. The year-over-
year increase was due to higher retail lending provisions in Canadian Banking driven by growth in relatively higher spread products.
International Banking retail provisions increased due primarily to the reduced benefit of the credit mark in Banco Colpatria.
Q2 2015 vs Q1 2015
The provision for credit losses was down $15 million or 3% from the prior quarter. The decrease was due primarily to lower
provisions in Mexico and Peru, partly offset by the reduced benefit of the credit mark in Banco Colpatria.
Scotiabank Second Quarter Report 20157
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Year-to-date Q2 2015 vs Year-to-date Q2 2014
For the six month period, total provisions for credit losses were $911 million, up $180 million or 25% from the same period last year.
The increase was due primarily to higher retail provisions in Canadian Banking due mostly to growth in relatively higher spread
products, and International Banking from the reduced benefit of the credit mark in Banco Colpatria. Further discussion on credit
risk is provided in the following Risk Management section.
Non-interest expenses
Q2 2015 vs Q2 2014
Non-interest expenses were $3,224 million this quarter, up from $2,995 million or 8% from the same quarter last year. After
adjusting for the negative impact of foreign currency translation, about half of the increase arose from higher remuneration, mostly
from year-over-year salary and staffing increases and higher pension costs from the lower rate environment. The balance of the
growth was generally split between higher volume-related expenses, increased business taxes, and growth in technology and project
spend reflecting investments in improving customer experiences and efficiency initiatives. The productivity ratio was 53.3% this
quarter, compared to 51.6% for the same period last year.
Q2 2015 vs Q1 2015
Non-interest expenses increased modestly by $27 million or 1% quarter over quarter. Adjusting for the negative impact of foreign
currency translation, expenses declined as seasonally lower share-based compensation was partly offset by higher business taxes,
professional expenses, and performance-based compensation. The productivity ratio was 53.3%, compared to 53.7% in the previous
quarter.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Non-interest expenses were $6,421 million, up $321 million or 5% higher from the same period last year. Expenses increased across
most categories reflecting the support for ongoing growth initiatives and the negative impact of foreign currency translation. The
productivity ratio was 53.5% for the six-month period, compared to 52.9% for the same period last year. On a year-to-date basis,
operating leverage was negative 1.1%.
Taxes
The effective tax rate this quarter was 20.7%, down from 23.6% in the same quarter last year and 21.7% in the prior quarter, due
primarily to lower taxes in foreign jurisdictions and higher tax-exempt income during the current quarter.
The effective tax rate for the six-month period was 21.2%, down from 22.7% in the same period last year, due primarily to higher
tax-exempt income in the current period.
Risk management
The Bank’s risk management policies and practices are unchanged from those outlined in pages 65 to 89 of the Bank’s 2014 Annual
Report.
Credit risk
Provision for credit losses
Q2 2015 vs Q2 2014
The provision for credit losses was $448 million this quarter, compared to $375 million in the same period last year.
The provision for credit losses was $169 million in Canadian Banking, up from $140 million in the same quarter last year, due to
higher provisions in retail portfolios driven by growth in relatively higher spread products. The provision for credit losses ratio was
0.24%, up 4 basis points from 0.20% in the same period last year.
The provision for credit losses was $266 million in International Banking, compared to $229 million in the same period last year
due to higher retail provisions, partly offset by lower commercial provisions. Higher retail provisions in Colombia and the Caribbean
were in part offset by lower provisions in Peru. Adjusting for the reduced benefit of the credit mark in Banco Colpatria, the growth
in retail provisions was in line with retail asset growth. Commercial provisions declined with improvements across most geographies.
The provision for credit losses ratio was 1.19%, up 3 basis points from 1.16% in the same period last year, or down 8 basis points to
1.21% excluding the credit mark in Banco Colpatria.
Global Banking & Markets’ provision for credit losses was $13 million this quarter, compared to $6 million in the same quarter
last year, due to increases in Canada and Europe. The provision for credit losses ratio was 8 basis points, compared to 4 basis points
in the same period last year.
8Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Q2 2015 vs Q1 2015
The provision for credit losses was down $15 million from the prior quarter.
The provision for credit losses of $169 million this quarter in Canadian Banking was up $4 million from the previous quarter, due
to slight increases of provisions in retail and commercial portfolios. The provision for credit losses ratio increased by 1 basis point.
The provision for credit losses was $266 million in International Banking this quarter, down from $285 million in the previous
quarter. The decrease in provisions was primarily driven by lower commercial provisions in Peru and the Caribbean. Lower retail
provisions in Mexico and Peru were largely offset by higher provisions in the Caribbean related to mortgages, and Colombia due to
volume growth and the reduced benefit of the credit mark in Banco Colpatria. The provision for credit losses ratio improved by 14
basis points relative to the previous quarter. Adjusting for the credit mark benefit related to Banco Colpatria, the ratio improved by
19 basis points.
Global Banking & Markets’ provision for credit losses was $13 million this quarter, unchanged from the previous quarter.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
For the six month period, total provision for credit losses was $911 million, up $180 million from $731 million during the same period
last year.
The provision for credit losses was $334 million in Canadian Banking, up $59 million from the same period last year, with higher
provisions in retail portfolios driven by growth in relatively higher spread products, slightly offset by lower provisions in commercial
portfolios. The provision for credit losses ratio was 0.23%, up 3 basis points compared to the same period last year.
The provision for credit losses was $551 million in International Banking, compared to $446 million in the same period last year.
The increase was entirely due to higher provisions in the retail portfolio in Latin America, primarily as a result of the reduced benefit
of the credit mark in Banco Colpatria, and the Caribbean. The provision for credit losses ratio was 1.26%, up 13 basis points
compared to the same period last year. Adjusting for the reduced benefit of the credit mark in Banco Colpatria, the ratio improved
by 3 basis points to 1.30%.
Global Banking & Markets’ provision for credit losses was $26 million, compared to $10 million in the same period last year, due
primarily to higher provisions in Canada and Europe, partially offset by lower provisions in the United States. The provision for
credit losses ratio was 8 basis points, compared to 3 basis points in the same period last year.
Allowance for credit losses
Total allowance for credit losses was $3,497 million as at April 30, 2015 (excluding $197 million of allowance covered by FDIC
guarantees related to R-G Premier Bank of Puerto Rico) compared to $3,595 million as at January 31, 2015 (excluding $193 million
related to R-G Premier Bank). The decrease was almost entirely due to foreign exchange translation. In addition, the allowance for
off-balance-sheet credit risks classified as other liabilities remained at $184 million.
The allowance for credit losses related to impaired loans was $2,225 million compared to $2,323 million as at January 31, 2015.
The total allowance for credit losses includes allowances of $1,272 million related to performing loans as at April 30, 2015,
unchanged from January 31, 2015.
In Canadian Banking, the allowance decreased to $726 million from $741 million as at January 31, 2015, due to decreases in the
retail portfolios.
In International Banking, the allowance for credit losses decreased $94 million to $1,442 million, primarily due to the impact of
foreign currency translation, partially offset by a decrease in write-offs in International commercial.
Global Banking & Markets had an allowance of $57 million, up $11 million from January 31, 2015, due to increases across all
regions.
Impaired loans
Total gross impaired loans as at April 30, 2015, were $4,397 million, down $192 million from January 31, 2015, of which $165 million
relates to foreign currency translation. The remainder of the decrease was in Canadian retail and Global Banking & Markets
portfolios.
Total net impaired loans as at April 30, 2015 were $2,172 million, a decline of $94 million from $2,266 million as at January 31,
2015.
Net impaired loans in Canadian Banking were $369 million, a decrease of $64 million from January 31, 2015, due to decreases in
the retail portfolios.
Scotiabank Second Quarter Report 20159
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
International Banking’s net impaired loans decreased to $1,693 million from $1,705 million as at January 31, 2015, due to
decreases in the retail portfolios, partially offset by increases in the commercial portfolios.
In Global Banking & Markets, net impaired loans decreased to $110 million from $128 million last quarter, due to decreases in
Canada, Asia and the United States, partially offset by an increase in Europe.
Acquisition-related purchased loans
All purchased loans are initially measured at fair value on the date of acquisition, with no allowance for credit losses recorded in the
Consolidated Statement of Financial Position on the date of acquisition. Consequently, none of the purchased loans are considered
to be impaired on the date of acquisition. In arriving at the fair value, the Bank considers interest rate mark and credit rate mark
adjustments.
The interest rate mark on the date of acquisition is principally set up for fixed interest rate loans and captures the impact of the
interest rate differential between the contractual rate of interest on the loan and the prevailing interest rate on the loan on the date
of acquisition for the remaining term. The interest rate mark is fully amortized into interest income in the Consolidated Statement of
Income over the expected life of the loan using the effective interest method.
In 2012, a credit mark of $549 million for combined expected and incurred losses was recognized during the acquisition of
Banco Colpatria in Colombia. As at April 30, 2015, the remaining balance of the credit mark was $21 million (January 31, 2015 –
$25 million; October 31, 2014 – $41 million). The credit mark was utilized in the past three years as follows: $141 million in 2012;
$204 million in 2013; and $163 million in 2014. For the first six months of 2015, $20 million of the credit mark was utilized.
Overview of loan portfolio – Topand emerging risks
The Bank has a well diversified portfolio by product, business and geography. Details of certain portfolios of current focus are
highlighted below.
Oil and gas
The Bank’s outstanding corporate loan exposure to oil and gas was relatively flat at $15.5 billion as at April 30, 2015 (January 31, 2015
– $15.4 billion; October 31, 2014 – $12.8 billion), reflecting approximately 3.4% (January 31, 2015 – 3.4%; October 31, 2014 – 2.9%)
of the Bank’s total loan book. In addition, the Bank has related undrawn corporate oil and gas loan commitments amounting to
$12.0 billion as at April 30, 2015 (January 31, 2015 – $12.7 billion; October 31, 2014 – $10.8 billion).
The Bank believes that its oil and gas exposures are manageable and the Bank continues to evaluate exposures through various
stress tests.
Residential mortgages
A large portion of the Bank’s lending portfolio is comprised of residential mortgages and consumer loans, which are well diversified
by borrower. As at April 30, 2015, these loans amounted to $300 billion or 66% of the Bank’s total loans and acceptances
outstanding (January 31, 2015 – $301 billion or 66%; October 31, 2014 – $297 billion or 68%). Of these, $232 billion or 77% are real
estate secured loans (January 31, 2015 – $234 billion or 78%; October 31, 2014 – $232 billion or 78%). The tables below provide
more details by portfolios.
10Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Insuredand uninsured mortgagesand home equity lines of credit
The following table presents amounts of insured and uninsured residential mortgages and home equity lines of credit (HELOCs) by
geographic areas.
As at April 30, 2015
Residential mortgages Home equity lines of credit
Insured
(1)
Uninsured Total Insured
(1)
Uninsured Total
($ millions)Amount % Amount % Amount % Amount % Amount % Amount %
Canada:
(2)
Atlantic provinces$ 6,742 3.6% $ 5,338 2.8% $ 12,080 6.4% $ 2 – $ 1,283 6.8% $ 1,285 6.8%
Quebec7,174 3.8 8,176 4.4 15,350 8.2 1 – 1,045 5.5 1,046 5.5
Ontario44,582 23.7 48,045 25.5 92,627 49.2 3 – 9,449 50.1 9,452 50.1
Manitoba & Saskatchewan4,679 2.5 3,783 2.0 8,462 4.5 2 – 869 4.6 871 4.6
Alberta17,465 9.2 11,985 6.4 29,450 15.6 3 0.1 3,047 16.1 3,050 16.2
British Columbia & Territories14,037 7.5 16,281 8.6 30,318 16.1 – – 3,178 16.8 3,178 16.8
Canada
(3)
$ 94,679 50.3% $ 93,608 49.7% $ 188,287 100% $ 11 0.1% $ 18,871 99.9% $ 18,882 100%
International– – 25,235 100 25,235 100 – – – – – –
Total$ 94,679 44.3% $ 118,843 55.7% $ 213,522 100% $ 11 0.1% $ 18,871 99.9% $ 18,882 100%
As at January 31, 2015
Canada
(3)
$ 97,322 51.6% $ 91,355 48.4% $ 188,677 100% $ 11 0.1% $ 18,782 99.9% $ 18,793 100%
International– – 26,114 100 26,114 100 – – – – – –
Total$ 97,322 45.3% $ 117,469 54.7% $ 214,791 100% $ 11 0.1% $ 18,782 99.9% $ 18,793 100%
As at October 31, 2014
Canada$ 97,943 51.9% $ 90,899 48.1% $ 188,842 100% $ 12 0.1% $ 18,946 99.9% $ 18,958 100%
International– – 23,806 100 23,806 100 – – – – – –
Total$ 97,943 46.1% $ 114,705 53.9% $ 212,648 100% $ 12 0.1% $ 18,946 99.9% $ 18,958 100%
(1) 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.
(2) The province represents the location of the property in Canada.
(3) Includes multi-residential dwellings (4 + units) of $1,917 (January 31, 2015 – $1,816; October 31, 2014 – $1,518) of which $852 are insured
(January 31, 2015 – $770; October 31, 2014 – $632).
Amortization period ranges for residential mortgages
The following table presents the distribution of residential mortgages by remaining amortization periods, and by geographic areas.
As at April 30, 2015
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
Canada35.3% 35.3% 24.5% 4.8% 0.1% 100%
International67.4% 20.2% 11.1% 1.1% 0.2% 100%
As at January 31, 2015
Canada35.3% 35.1% 24.2% 5.3% 0.1% 100%
International66.2% 20.6% 11.6% 1.4% 0.2% 100%
As at October 31, 2014
Canada34.6% 34.0% 25.1% 6.2% 0.1% 100%
International66.6% 20.5% 11.5% 1.2% 0.2% 100%
Loan to value ratios
The Canadian residential mortgage portfolio is 50% uninsured (January 31, 2015 – 48%; October 31, 2014 – 48%). The average loan-
to-value (LTV) ratio of the uninsured portfolio is 53% (January 31, 2015 – 55%; October 31, 2014 – 54%).
Scotiabank Second Quarter Report 201511
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
The following table presents the weighted average LTV ratio for total newly originated uninsured residential mortgages and home
equity lines of credit under the Scotia Total Equity Plan, which include mortgages for purchases, refinances with a request for
additional funds and transfer from other financial institutions, by geographic areas in the current quarter.
Uninsured LTV ratios
(1)
For the three months
ended April 30, 2015
Residential
mortgages
Home
equity lines
of credit
(2)
LTV% LTV%
Canada:
Atlantic provinces
68.0 64.7
Quebec62.4 69.0
Ontario61.8 63.8
Manitoba & Saskatchewan65.8 66.7
Alberta65.2 68.4
British Columbia & Territories59.4 61.5
Canada62.3% 64.5%
International68.6% N/A
For the three months ended January 31, 2015
Canada62.0% 65.3%
International68.2% N/A
For the three months ended October 31, 2014
Canada62.0% 65.0%
International68.8% N/A
(1) The province represents the location of the property in Canada.
(2) Includes only home equity lines of credit (HELOC) under Scotia Total Equity Plan. 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.
Potential impact on residential mortgagesand real estate home equity lines of credit in the event ofan economic downturn
The Bank stress tests its retail lending portfolio to assess the potential impact of worsening economic conditions such as increases in
unemployment and declines in residential real estate prices. It has an ongoing program to apply topical scenarios such as assessing
the impact of a decrease in oil prices on retail loan losses in relevant regions. Potential losses in the mortgage portfolio under such
scenarios are manageable due to the diversified composition of the portfolio, the high percentage of insured exposures, and the low
LTV in the portfolio. This is further supported by sound risk management oversight and risk mitigation strategies.
Loans toCanadian condominium developers
With respect to loans to Canadian condominium developers, the Bank had loans outstanding of $1,076 million as at April 30, 2015
(January 31, 2015 – $958 million; October 31, 2014 – $978 million). This is a high quality portfolio with well-known developers who
have long-term relationships with the Bank.
European exposures
As a result of the Bank’s broad international operations, the Bank has sovereign credit risk exposure to a number of countries. The
Bank actively manages this sovereign risk, including the use of risk limits calibrated to the credit worthiness of the sovereign
exposure.
12Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
The current European exposure is provided below:
As at
April 30, 2015
January 31
2015
October 31
2014
Loans and loan equivalents
($ millions)
Loans and
acceptances
(1)
Letters of
credit and
guarantees
(2)
Undrawn
commitments
(3)
Securities
and deposits
with financial
institutions
(4)
Securities
Financing
Transactions
(SFT) and
derivatives
(5)
Total
European
exposure
Total
European
exposure
Total
European
exposure
Gross exposures$10,327 $2,122 $11,671 $8,972 $2,824$35,916$ 37,499 $ 31,073
Less: Undrawn commitments– – 11,671 – –11,67113,388 11,187
Net funded exposure$10,327 $2,122 $ – $8,972 $2,824$24,245$ 24,111 $ 19,886
(1) Individual allowance for credit losses are $4. Gross and net values are equal as collateral is not posted against these exposures.
(2) Letters of credit and guarantees are included as funded exposure as they have been issued.
(3) Undrawn commitments represent an estimate of the contractual amount that may be drawn upon by the obligor.
(4) Exposures for securities are calculated taking into account derivative positions where the security is the underlying reference asset and short
trading positions. Gross and net values are equal as collateral is not posted against these exposures.
(5) SFT comprise of securities purchased under resale agreements, obligations related to securities sold under repurchase agreements and securities
lending and borrowing transactions. Net funded exposure represents all net positive positions after taking into account collateral. Collateral held
against derivatives was $1,990 and collateral held against SFT was $7,998.
The Bank believes that its European exposures are manageable, are sized appropriately relative to the credit worthiness of the
counterparties (80% of the exposures are to investment grade counterparties based on a combination of internal and external
ratings), and are modest relative to the capital levels of the Bank. The Bank’s European exposures are carried at amortized cost or
fair value using observable inputs, with negligible amounts valued using models with unobservable inputs (Level 3). There were no
significant events in the quarter that have materially impacted the Bank’s exposures.
Below are the funded exposures related to all European countries:
As at
April 30, 2015
January 31
2015
October 31
2014
($ millions)Sovereign
(1)
Bank Corporate
(2)
TotalTotal Total
Greece$ – $ – $ 332$ 332$ 396 $ 384
Ireland19 – 313332697 295
Italy150 253 15418540 271
Portugal1 3 –46 6
Spain10 54 317381310 330
Total GIIPS$ 180 $ 310 $ 977$ 1,467$ 1,949 $ 1,286
U.K.$ 1,438 $ 2,302 $ 6,072$ 9,812$ 10,216 $ 8,072
Germany1,680 603 1,0103,2932,680 2,535
France1,999 786 3363,1212,602 3,077
Netherlands(21) 462 6571,098896 588
Switzerland6 346 7461,0981,476 969
Other1,264 119 2,9734,3564,292 3,359
Total Non-GIIPS$ 6,366 $ 4,618 $ 11,794$ 22,778$ 22,162 $ 18,600
Total Europe$ 6,546 $ 4,928 $ 12,771$ 24,245$ 24,111 $ 19,886
Total Europe as at January 31, 2015$ 5,528 $ 5,157 $ 13,426 $ 24,111
Total Europe as at October 31, 2014$ 5,159 $ 4,208 $ 10,519 $ 19,886
(1) Includes $686 (January 31, 2015 – $614; October 31, 2014 – $397) in exposures to supra-national agencies.
(2) Corporate includes financial institutions that are not banks.
The Bank’s exposure to certain European countries of focus – Greece, Ireland, Italy, Portugal and Spain (GIIPS) – is not significant.
As of April 30, 2015, the Bank’s current funded exposure to the GIIPS sovereign entities, as well as banks and non-bank financial
institutions and corporations domiciled in these countries, totaled approximately $1.5 billion, down from $1.9 billion last quarter. Of
the $1.5 billion, $1.1 billion related to loans, loan equivalents and deposits with financial institutions which dropped $172 million
over last quarter.
Scotiabank Second Quarter Report 201513
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Specific to sovereign exposures to GIIPS, the Bank’s exposure to Ireland included central bank deposits of $18 million and
$1 million in trading book securities. The Bank was net long securities in sovereign exposures to Italy ($150 million) and Spain
($10 million). The Bank had no sovereign securities holdings of Greece and Portugal.
The Bank had exposures to Italian banks of $253 million, as at April 30, 2015 (January 31, 2015 – $281 million; October 31,
2014 – $268 million), primarily related to short-term precious metals trading and lending activities. Greek exposure of $332 million
(January 31, 2015 – $396 million; October 31, 2014 – $384 million) related primarily to secured loans to shipping companies.
The Bank’s exposures are distributed as follows:
As at
April 30, 2015
January 31
2015
October 31
2014
($ millions)
Loans and
loan
equivalents
Deposits
with
financial
institutions Securities
SFT and
derivativesTotalTotal Total
Greece$ 328 $ – $ 3 $ 1$ 332$ 396 $ 384
Ireland103 18 211 –332697 295
Italy302 2 111 3418540 271
Portugal– – 3 146 6
Spain362 – 15 4381310 330
Total GIIPS$ 1,095 $ 20 $ 343 $ 9$ 1,467$ 1,949 $ 1,286
U.K.$ 5,351 $1,148 $1,863 $1,450$ 9,812$ 10,216 $ 8,072
Germany1,076 306 1,767 1443,2932,680 2,535
France631 29 2,224 2373,1212,602 3,077
Netherlands546 110 228 2141,098896 588
Switzerland748 32 256 621,0981,476 969
Other3,002 41 605 7084,3564,292 3,359
Total Non-GIIPS$11,354 $1,666 $6,943 $2,815$22,778$ 22,162 $ 18,600
Total Europe$12,449 $1,686 $7,286 $2,824$24,245$ 24,111 $ 19,886
Securities exposures to European sovereigns and banks (excluding GIIPS) were $5.9 billion as at April 30, 2015 (January 31, 2015 –
$4.6 billion; October 31, 2014 – $4.9 billion), predominately related to issuers in France, Germany, United Kingdom and
Luxembourg. Securities are carried at fair value and substantially all holdings have strong market liquidity.
The majority of the current funded credit exposure is in the form of funded loans which are recorded on an accrual basis. As well,
credit exposure to clients arises from client-driven derivative transactions and securities financing transactions (reverse repurchase
agreements, repurchase agreements, and securities lending and borrowing). OTC derivative counterparty exposures are recorded on
a fair value basis and security financing transactions are recorded on an accrual basis. As at April 30, 2015, credit exposure to banks
in the form of issued letters of credit amounted to $1.3 billion (January 31, 2015 – $1.2 billion; October 31, 2014 – $3.6 billion).
Undrawn commitments of $11.7 billion (January 31, 2015 – $13.4 billion; October 31, 2014 – $11.0 billion) are comprised of
unfunded loan commitments and commitments to issue letters of credit on behalf of other banks in a syndicated bank lending
arrangement. Total unfunded loan commitments to corporations in Europe (excluding GIIPS) were $8.1 billion as at April 30, 2015
(January 31, 2015 – $9.4 billion; October 31, 2014 – $7.5 billion). Unfunded commitments are detailed further by country in the table
on page 15.
The Bank’s indirect exposure is also detailed in the table below and is defined as:
• Securities where the exposures are to non-European entities whose parent company is domiciled in Europe, and
• Letters of credit or guarantees (included as loan equivalents in the above table) from entities in European countries to
entities in countries outside of Europe.
14Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Included in the indirect securities exposure was $463 million related to GIIPS, $95 million to the United Kingdom and $75 million
to Switzerland. Indirect exposure by way of letters of credit totaled $2,122 million at April 30, 2015 (January 31, 2015 – $2,246
million; October 31, 2014 – $1,839 million), of which $62 million (January 31, 2015 – $76 million; October 31, 2014 – $43 million)
was indirect exposure to GIIPS. Indirect exposure is managed through the Bank’s credit risk management framework, with a robust
assessment of the counterparty. In addition to the total indirect exposures detailed further below, the Bank had Euro-denominated
collateral held for non-European counterparties of $1,927 million (January 31, 2015 –$1,490 million; October 31, 2014 –
$1,371 million).
Undrawn commitments Indirect exposure
(1)
($ millions)
April 30
2015
January 31
2015
October 31
2014
April 30
2015
January 31
2015
October 31
2014
Greece$ –$ – $ –$ –$ – $ –
Ireland7189 87–(1) (1)
Italy8266 45925 7
Portugal–– ––––
Spain98271 57516429 490
Total GIIPS$ 251$ 426 $ 189$ 525$ 453 $ 496
U.K.$ 5,632$ 5,645 $ 5,662$ 879$ 870 $ 693
Germany8291,161 791181255 313
France1,3931,535 1,269399423 346
Netherlands1,2001,109 1,056205206 175
Switzerland678703 806155163 172
Other1,6882,809 1,414413425 365
Total Non-GIIPS$11,420$ 12,962 $ 10,998$2,232$ 2,342 $ 2,064
Total Europe$11,671$ 13,388 $ 11,187$2,757$ 2,795 $ 2,560
(1) Amounts in brackets represent net short positions arising from trading transactions.
The Bank does not use credit default swaps (CDS) as a risk mitigation technique to reduce its non-trading sovereign debt
exposures. With respect to banks and non-bank financial institutions and corporations, the Bank may on occasion use CDS to
partially offset its funded loan exposures. Specific to GIIPS as at April 30, 2015, the Bank had no CDS protection on funded loan
exposures. As part of the trading portfolio, the Bank may purchase or sell CDS. All exposures, including CDS, are subject to risk
limits and ongoing monitoring by the Bank’s independent risk management department.
Like other banks, the Bank also provides settlement and clearing facilities for a variety of clients in these countries and actively
monitors and manages these intra-day exposures. However, the Bank has no funded exposure in these countries to retail customers
or small businesses.
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.
Average for the three months ended
Risk factor($ millions)
April 30
2015
January 31
2015
April 30
2014
Credit spread plus interest rate$ 8.0$ 7.9 $ 13.2
Credit spread8.26.9 9.5
Interest rate4.34.1 10.4
Equities2.52.1 2.5
Foreign exchange1.11.3 0.8
Commodities4.14.2 2.7
Debt specific5.15.8 12.4
Diversification effect(10.2)(10.0) (13.5)
All Bank VaR$ 10.5$ 11.2 $ 18.1
All Bank Stressed VaR$ 23.3$ 27.0 $ 30.7
In the second quarter of 2015, the average one-day total VaR was $10.5 million, a decrease from $11.2 million in the previous quarter
largely due to a reduction in Debt Specific Risk. The average one-day VaR declined year-over-year by $7.6 million due substantially
to a model enhancement to the treatment of credit spreads in VaR, in 2015.
Scotiabank Second Quarter Report 201515
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
The average one-day total Stressed VaR during the quarter was $23.3 million, down from $27.0 million in the previous quarter
due to both reduced Stressed General Market Risk and Stressed Debt Specific Risk. Stressed VaR is calculated using market
volatility from a one-year period identified as stressful given the risk profile of the trading portfolio. The current period is the
2008/2009 credit crisis.
There were four trading loss days in the second quarter, compared to two in the previous quarter. The losses were well within the
range predicted by VaR. 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.
Incremental RiskChargeandComprehensive Risk Measure
Basel market risk capital requirements include the Incremental Risk Charge (IRC) and Comprehensive Risk Measure (CRM) which
capture the following:
• Default risk: This is the potential for direct losses due to an obligor’s (equity/bond issuer or counterparty) default, as well
as the potential for indirect losses that may arise from a default event; and
• Credit migration risk: This is the potential for direct losses due to a credit rating downgrade or upgrade, as well as the
potential for indirect losses that may arise from a credit migration event.
A Monte Carlo model is used to perform default and migration simulations for the obligors underlying credit derivative and bond
portfolios. In addition, for CRM in correlation trading there is a market simulation model to capture historical price movements. Both
IRC and CRM are calculated at the 99.9th percentile with a one year liquidity horizon.
Validation of new models
Prior to the implementation of new market risk models, substantial validation and testing is conducted. Validation is conducted
when a model is initially developed and when any significant changes are made to a model. Models are also subject to ongoing
validation, the frequency of which is determined by model risk ratings. Models may also be triggered for earlier re-validation due to
significant structural changes in the market or changes to the composition of the portfolio. Model validation includes backtesting
and additional analysis such as:
• Theoretical review or tests to demonstrate whether assumptions made within the internal model are appropriate;
• Impact tests including stress testing that would occur under historical and hypothetical market conditions;
• The use of hypothetical portfolios to ensure that models are able to capture concentration risk that may arise in an
undiversified portfolio.
16Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Market risk linkage toConsolidated Statement of Financial Position
Trading assets and liabilities are marked to market daily and included in trading risk measures such as VaR. Derivatives risk related
to Global Banking & Markets’ activities is captured under trading risk measures while derivatives used in asset/liability management
are in the non-trading risk category. A comparison of balance sheet items which are covered under the trading and non-trading risk
measures is provided in the table below.
Market risk linkage toConsolidated Statement of Financial Position of the Bank
As at April 30, 2015 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$ 8,438 $ 8,438 $ – $ – n/a
Trading assets113,120 113,120 – – n/a
Financial assets designated at fair value
through profit or loss
129 – 129 – Interest rate
Derivative financial instruments37,669 34,952 2,717 – Interest rate, FX, equity
Investment securities39,828 – 39,828 – Interest rate, equity
Loans435,958 – 435,958 – Interest rate, FX
Assets not subject to market risk
(1)
202,019 – – 202,019 n/a
Total assets$ 837,161 $ 156,510 $ 478,632 $ 202,019
Deposits$ 575,281 $ – $ 547,868 $ 27,413 Interest rate, FX, equity
Financial instruments designated at fair
value through profit or loss
1,102 – 1,102 – Interest rate, equity
Obligations related to securities sold
short
22,843 22,843 – – n/a
Derivative financial instruments43,613 41,135 2,478 – Interest rate, FX, equity
Trading liabilities
(2)
4,325 4,325 – – n/a
Pension and other benefit liabilities2,623 – 2,623 – Interest rate, credit spread
Liabilities not subject to market risk
(3)
136,431 – – 136,431 n/a
Total liabilities$ 786,218 $ 68,303 $ 554,071 $ 163,844
(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.
As at October 31, 2014 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 $ 7,286 $ 7,286 $ – $ – n/a
Trading assets 113,248 113,248 – – n/a
Financial instruments designated at fair
value through profit or loss
111 – 111 – Interest rate
Derivative financial instruments 33,439 31,401 2,038 – Interest rate, FX, equity
Investment securities 38,662 – 38,662 – Interest rate, equity
Loans 424,309 – 424,309 – Interest rate, FX
Assets not subject to market risk
(1)
188,611 – – 188,611 n/a
Total assets $ 805,666 $ 151,935 $ 465,120 $ 188,611
Deposits $ 554,017 $ – $ 526,929 $ 27,088 Interest rate, FX, equity
Financial instruments designated at fair
value through profit or loss
465 – 465 – Interest rate, equity
Obligations related to securities sold short 27,050 27,050 – – n/a
Derivative financial instruments 36,438 34,992 1,446 – Interest rate, FX, equity
Trading liabilities
(2)
4,571 4,571 – – n/a
Pension and other benefit liabilities 2,095 – 2,095 – Interest rate, credit spread
Liabilities not subject to market risk
(3)
131,819 – – 131,819 n/a
Total liabilities $ 756,455 $ 66,613 $ 530,935 $ 158,907
(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.
Scotiabank Second Quarter Report 201517
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
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 39 of the audited consolidated financial statements
in the Bank’s 2014 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.
Liquidassets
Liquid assets are a key component of liquidity management and the Bank holds these types of assets in sufficient quantity to meet
potential needs for liquidity management.
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 deposits with central banks,
deposits with financial institutions, call and other short-term loans, marketable securities, precious metals and securities received as
collateral from securities financing and derivative transactions. Liquid assets do not include liquidity which may be obtained from
central bank facilities.
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
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, which are primarily held by Global Banking & Markets; and collateral received for
securities financing and derivative transactions.
The Bank maintains large holdings of unencumbered liquid assets to support its operations. These assets generally can be sold or
pledged to meet the Bank’s obligations. As at April 30, 2015, unencumbered liquid assets were $182 billion (October 31, 2014 –
$183 billion). The mix of these liquid assets, comprising securities and NHA mortgage-backed securities, was 66% (October 31, 2014
– 68%). Other unencumbered liquid assets, comprising cash, deposits with financial institutions, precious metals and call and short
loans, was 34% (October 31, 2014 – 32%).
The carrying values outlined in the liquid asset table are consistent with the carrying values in the Bank’s Statement of Financial
Position as at April 30, 2015. The liquidity value of the portfolio will vary under different stress events as different assumptions are
used for the stress scenarios.
The Bank’s liquid asset pool is summarized in the following table:
As at April 30, 2015
($ millions)
Bank-
owned
liquid
assets
Securities
received as
collateral from
securities
financing and
derivative
transactions
Total
liquid
assets
Encumbered
liquid assets
Total unencumbered
liquid assets
Pledged as
collateral Other
(1)
Available as
collateral Other
Cash and deposits with central banks$ 52,562 $ – $ 52,562 $ – $ 6,175 $ 46,387 $ –
Deposits with financial institutions8,102 – 8,102 – 2,383 5,719 –
Precious metals8,438 – 8,438 – 44 8,394 –
Securities
Canadian government obligations
27,505 20,800 48,305 32,592 – 15,713 –
Foreign government obligations35,302 34,794 70,096 51,161 – 18,935 –
Other securities60,841 56,487 117,328 66,584 – 50,744 –
Loans
NHA mortgage-backed securities
(2)
37,665 – 37,665 2,979 – 34,686 –
Call and short loans1,007 – 1,007 – – 1,007 –
Total$ 231,422 $ 112,081 $ 343,503 $ 153,316 $ 8,602 $ 181,585 $ –
18Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
As at October 31, 2014
($ millions)
Bank-
owned
liquid
assets
Securities
received as
collateral from
securities
financing and
derivative
transactions
Total
liquid
assets
Encumbered
liquid assets
Total unencumbered
liquid assets
Pledged as
collateral Other
(1)
Available as
collateral Other
Cash and deposits with central banks$ 49,507 $ – $ 49,507 $ – $ 5,262 $ 44,245 $ –
Deposits with financial institutions7,223 – 7,223 – 1,441 5,782 –
Precious metals7,286 – 7,286 – 43 7,243 –
Securities
Canadian government obligations
31,551 17,595 49,146 27,059 – 22,087 –
Foreign government obligations36,959 41,405 78,364 61,380 – 16,984 –
Other securities55,868 44,195 100,063 52,586 – 47,477 –
Loans
NHA mortgage-backed securities
(2)
42,286 – 42,286 3,686 – 38,600 –
Call and short loans976 – 976 – – 976 –
Total$ 231,656 $ 103,195 $ 334,851 $ 144,711 $ 6,746 $ 183,394 $ –
(1) Assets which are restricted from being used to secure funding for legal or other reasons.
(2) These mortgage-backed securities, which are available-for-sale, are reported as residential mortgage loans on the balance sheet.
A summary of total unencumbered liquid assets held by the parent bank and its branches, and domestic and foreign subsidiaries, is
presented below:
As at
($ millions)
April 30
2015
October 31
2014
Bank of Nova Scotia (Parent)$145,622$ 141,999
Bank domestic subsidiaries15,09523,583
Bank foreign subsidiaries20,86817,812
Total$181,585$ 183,394
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 (89%) of liquid assets are held by the Bank’s corporate office, branches of the Bank, and Canadian
subsidiaries of the Bank. To the extent a liquidity reserve held in a foreign subsidiary of the Bank is required for regulatory
purposes, it is assumed to be unavailable to the rest of the Group. Other liquid assets held by a foreign subsidiary are assumed to be
available only in limited circumstances. The Bank monitors and ensures compliance in relation to minimum levels of liquidity
required and assets held within each entity, and/or jurisdiction.
Scotiabank Second Quarter Report 201519
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Encumberedassets
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 may also be pledged under repurchase agreements. A
summary of encumbered and unencumbered assets is presented below:
Asset encumbrance
As at April 30, 2015 Encumbered assets Unencumbered assets
($ millions)
Bank-owned
assets
Securities received
as collateral from
securities financing and
derivative transactions
Total
assets
Pledged as
collateral Other
(1)
Available as
collateral
(2)
Other
(3)
Cash and deposits with central
banks
$ 52,562 $ – $ 52,562 $ – $ 6,175 $ 46,387 $ –
Deposits with financial institutions8,102 – 8,102 – 2,383 5,719 –
Precious metals8,438 – 8,438 – 44 8,394 –
Liquid securities:
Canadian government
obligations
27,505 20,800 48,305 32,592 – 15,713 –
Foreign government obligations35,302 34,794 70,096 51,161 – 18,935 –
Other liquid securities60,841 56,487 117,328 66,584 – 50,744 –
Other securities8,404 4,232 12,636 4,672 – – 7,964
Loans classified as liquid assets:
NHA mortgage-backed securities
37,665 – 37,665 2,979 – 34,686 –
Call and short loans1,007 – 1,007 – – 1,007 –
Other loans414,565 – 414,565 10,331 39,671 8,945 355,618
Other financial assets
(4)
157,014 (87,756) 69,258 2,801 – – 66,457
Non-financial assets25,756 – 25,756 – – – 25,756
Total$ 837,161 $ 28,557 $ 865,718 $ 171,120 $ 48,273 $ 190,530 $ 455,795
As at October 31, 2014 Encumbered assets Unencumbered assets
($ millions)
Bank-owned
assets
Securities received
as collateral from
securities financing and
derivative transactions
Total
assets
Pledged as
collateral Other
(1)
Available as
collateral
(2)
Other
(3)
Cash and deposits with central
banks
$ 49,507 $ – $ 49,507 $ – $ 5,262 $ 44,245 $ –
Deposits with financial institutions7,223 – 7,223 – 1,441 5,782 –
Precious metals7,286 – 7,286 – 43 7,243 –
Liquid securities:
Canadian government
obligations
31,551 17,595 49,146 27,059 – 22,087 –
Foreign government obligations36,959 41,405 78,364 61,380 – 16,984 –
Other liquid securities55,868 44,195 100,063 52,586 – 47,477 –
Other securities9,759 4,840 14,599 3,291 – – 11,308
Loans classified as liquid assets:
NHA mortgage-backed securities
42,286 – 42,286 3,686 – 38,600 –
Call and short loans976 – 976 – – 976 –
Other loans395,554 – 395,554 11,625 38,435 10,358 335,136
Other financial assets
(4)
144,019 (86,166) 57,853 2,748 – – 55,105
Non-financial assets24,678 – 24,678 – – – 24,678
Total$ 805,666 $ 21,869 $ 827,535 $ 162,375 $ 45,181 $ 193,752 $ 426,227
(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 of April 30, 2015 total encumbered assets of the Bank were $219 billion (October 31, 2014 – $208 billion). Of the remaining
$646 billion (October 31, 2014 – $620 billion) of unencumbered assets, $191 billion (October 31, 2014 – $194 billion) are considered
readily available in the normal course of business to secure funding or meet collateral needs as detailed above.
20Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
In some over-the-counter derivative contracts, the Bank would be required to post additional 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. In the event of a one-notch or two-notch downgrade of the Bank’s rating by rating
agencies, the Bank has to provide an additional $527 million or $751 million of collateral, respectively, to meet contractual derivative
funding or margin requirements.
Encumbered liquid assets are not considered to be available for liquidity management purposes. Liquid assets which are being
employed 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.
Regulatory developments relating to liquidity
In January 2013 the Basel Committee on Banking Supervision (BCBS) finalized its international framework on Liquidity Coverage
Ratio (LCR) requirements. Subsequently, in May 2014, OSFI released its Liquidity Adequacy Requirements (LAR) which contains
the rules for Canadian Banks including LCR and the Net Cumulative Cash Flow (NCCF). The LCR and NCCF were implemented in
January 2015.
In October 2014, BCBS released its final document on the Net Stable Funding Ratio (NSFR). NSFR will become a minimum
standard by January 1, 2018. The Bank continues to monitor developments related to liquidity requirements.
Liquidity coverage ratio
The Liquidity Coverage Ratio measure (LCR) is based on a 30 day liquidity stress scenario, with assumptions defined in the OSFI
Liquidity Adequacy Requirements (LAR) Guideline. The LCR is calculated as the ratio of high quality liquid assets (HQLA) to net
cash outflows. The Bank is subject to a regulatory minimum LCR of 100%.
HQLA are defined in the LAR Guideline, and are grouped into three main categories, with varying haircuts applied to arrive at the
amount included in the total weighted value in the table that follows.
The total weighted values for net cash outflows for the next 30 days are derived by applying the assumptions specified in the LAR
Guideline to specific items, including loans, deposits, maturing debt, derivative transactions and commitments to extend credit.
Scotiabank Second Quarter Report 201521
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
The following table presents the Bank’s average LCR for the quarter ended April 30, 2015, based on month-end LCR calculations for
February, March and April.
For the quarter ended April 30, 2015($ millions)
Total
unweighted
value
(Average)
Total
weighted
value
(Average)
High-quality liquid assets
Total high-quality liquid assets (HQLA)
* 138,542
Cash outflows
Retail deposits and deposits from small business customers, of which:
147,825 9,992
Stable deposits70,575 2,267
Less stable deposits77,250 7,725
Unsecured wholesale funding, of which:142,153 80,483
Operational deposits (all counterparties) and deposits in networks of cooperative banks28,548 7,242
Non-operational deposits (all counterparties)92,345 51,981
Unsecured debt21,260 21,260
Secured wholesale funding* 18,913
Additional requirements, of which:190,806 72,589
Outflows related to derivative exposures and other collateral requirements59,061 49,970
Outflows related to loss of funding on debt products4,374 4,374
Credit and liquidity facilities127,371 18,245
Other contractual funding obligations23,860 1,329
Other contingent funding obligations196,917 7,180
Total*190,486
Cash inflows
Secured lending (e.g. reverse repos)
82,667 14,835
Inflows from fully performing exposures25,415 18,235
Other cash inflows44,826 44,826
Total152,908 77,896
Total
adjusted
value
Total HQLA138,542
Total net cash outflows112,590
Liquidity coverage ratio (%)123%
* Not disclosed as required by the LAR guideline.
HQLA is substantially comprised of Level 1 assets (as defined in the LAR guideline), such as cash, deposits with central banks,
central bank reserves available to the Bank in times of stress and securities with a 0% risk weight, as defined under OSFI Capital
Adequacy guidelines.
Over time the Bank expects some variability in its reported LCR; much of this variability will result from normal business
activities and will not necessarily be indicative of any trend or change in risk appetite. Potential sources of variability in the reported
LCR include the Bank’s capital markets businesses and wholesale funding activities.
The Bank’s significant operating currencies are Canadian and U.S. dollars. The Bank monitors its significant currency exposures
in accordance with its liquidity risk management framework and risk appetite.
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 $239 billion as at April 30,
2015 (October 31, 2014 – $231 billion). The increase since October 31, 2014, was due primarily to personal deposits, internal capital
22Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
generation and the issuance of NVCC subordinated debentures. A portion of commercial deposits, particularly those of an operating
or relationship nature, would be considered part of the Bank’s core funding. Furthermore, core funding is augmented by longer term
wholesale debt issuances (original maturity over 1 year) of $127 billion (October 31, 2014 – $123 billion). Longer term wholesale
debt issuances includes medium-term notes, deposit 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 a 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 market is based on a number of factors, including relative cost and market capacity as well as an
objective of maintaining a diversified mix of sources 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 deposit notes.
Additional longer-term wholesale debt is generated through the Bank’s Canadian Debt and Equity Shelf and the securitization of
Canadian insured residential mortgages through CMHC securitization programs (such as Canada Mortgage Bonds), and of unsecured
personal lines of credits through the Hollis Receivables Term Trust II Shelf. While the Bank includes CMHC securitization programs
in its view of wholesale debt issuance, this source of funding does not entail the run-off risk that can be experienced in funding
raised from capital markets.
Outside of Canada, short-term wholesale debt is raised through the issuance of negotiable certificates of deposit in the United
States, Hong Kong 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 SEC
Registered Covered Bond Shelf. As well, the Bank’s Covered Bond Program is listed with the U.K. Listing Authority and the Bank
may issue under the program in Australia. The Bank also raises longer-term funding across a variety of currencies through its
Australian Medium Term Note Programme, European Medium Term Note Programme and Singapore Medium Term Note
Programme.
The table below provides the remaining contractual maturities of funding raised through wholesale funding. The products are
aligned to Enhanced Disclosure Task Force (EDTF) recommended categories for comparability with other banks. In the
Consolidated Statement of Financial Position, unless separately disclosed, most sources are included in Business and Government
Deposits.
Scotiabank Second Quarter Report 201523
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Wholesale funding sources
(1)
As at April 30, 2015
($ 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
Deposits from banks
(2)
$ 4,326 $ 1,225 $ 197 $ 132 $ 76 $ 5,956 $ 188 $ 48 $ 12 $ 6,204
Bearer deposit notes, commercial
paper and certificate of deposits9,582 25,846 31,677 16,737 11,482 95,324 6,861 996 40 103,221
Asset-backed commercial paper
(3)
3,478 3,028 334– –6,840–– – 6,840
Medium term notes and
deposit notes2,193 364 5,740 2,394 6,967 17,658 18,833 26,007 8,042 70,540
Asset-backed securities2 – – 2 1 5 599 1,184 482 2,270
Covered bonds– – 3,017 – – 3,017 7,843 7,776 2,032 20,668
Mortgage securitization
(4)
– 696 392 1,236 795 3,119 4,233 7,228 5,408 19,988
Subordinated debentures
(5)
55 23 95 6 22 201 – – 6,643 6,844
Total wholesale funding sources$ 19,636 $ 31,182 $ 41,452 $ 20,507 $ 19,343 $ 132,120 $ 38,557 $ 43,239 $ 22,659 $ 236,575
Of Which:
Unsecured funding$ 16,156 $ 27,458 $ 37,709 $ 19,269 $ 18,547 $ 119,139 $ 25,882 $ 27,051 $ 14,737 $ 186,809
Secured funding3,480 3,724 3,743 1,238 796 12,981 12,675 16,188 7,922 49,766
As at October 31, 2014
($ 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
Deposits from banks
(2)
$ 5,417 $ 755 $ 514 $ 104 $ 153 $ 6,943 $ 96 $ 117 $ – $ 7,156
Bearer deposit notes, commercial
paper and certificate of deposits 9,111 24,400 33,152 15,192 3,913 85,768 8,567 1,103 121 95,559
Asset-backed commercial paper
(3)
3,691 2,609 32 – – 6,332 – – – 6,332
Medium term notes and
deposit notes 3,127 6,266 2,953 2,294 5,499 20,139 12,026 30,448 7,317 69,930
Asset-backed securities – 1 279 – 1 281 507 794 523 2,105
Covered bonds 2,254 – 1,408 – 2,817 6,479 2,254 8,205 2,158 19,096
Mortgage securitization
(4)
– 616 779 696 392 2,483 3,869 8,526 5,356 20,234
Subordinated debentures
(5)
16 16 53 45 29 159 – – 5,288 5,447
Total wholesale funding sources $ 23,616 $ 34,663 $ 39,170 $ 18,331 $ 12,804 $ 128,584 $ 27,319 $ 49,193 $ 20,763 $ 225,859
Of Which:
Unsecured funding $ 17,671 $ 31,437 $ 36,672 $ 17,635 $ 9,594 $ 113,009 $ 20,689 $ 31,668 $ 12,726 $ 178,092
Secured funding 5,945 3,226 2,498 696 3,210 15,575 6,630 17,525 8,037 47,767
(1) Wholesale funding sources exclude repo transactions and bankers acceptances, which are disclosed in the contractual maturities table in Note 19 of
the Condensed Interim Consolidated Financial Statements. Amounts are based on remaining term to maturity.
(2) Only includes commercial bank deposits raised by Group Treasury.
(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) 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.
(5) 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 $182 billion as at April 30, 2015 (October 31, 2014 – $183 billion) were
well in excess of wholesale funding sources which mature in the next 12 months.
Credit ratings
Credit ratings affect the Bank’s access to capital markets and borrowing costs, as well as the terms on which the Bank can conduct
derivatives and hedging transactions and obtain related borrowings. The Bank continues to have strong credit ratings. The current
ratings are AA by DBRS, Aa2 by Moody’s, AA- by Fitch and A+ by Standard and Poor’s (S&P).
In May 2015, DBRS changed its trend on six Canadian banks to “negative” from “stable.” Before that, Moody’s affirmed the long-
term ratings and “negative outlook” of the six largest Canadian banks and two other deposit-taking issuers in April 2015. Moody’s
had originally changed the outlook to “negative” from “stable” for these Canadian banks in June 2014. In August 2014, S&P had
similarly changed the outlook for several Canadian banks to “negative” from “stable”. These actions are not downgrades, nor do they
24Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
suggest that downgrades are highly likely to follow. Rather, these changes suggest that, over the following 12-18 months, these
rating agencies feel that a downgrade is more likely than an upgrade for the Canadian banks. All three rating agencies cited the
uncertainty around the federal government’s proposed new “bail-in” regime for senior unsecured debt as the principal reason for
these system-wide changes in outlook in order to reflect the greater likelihood that such debt may incur losses in the unlikely event
of a distress scenario.
In June 2014, Moody’s placed the Bank’s standalone rating – which assumes no government support – on “negative outlook”. This
was also not a downgrade. This change was done primarily because Moody’s believes that the Bank’s international business is more
risky than its Canadian business and is likely to grow more rapidly in the coming years. Moody’s also cited the Bank’s plans to grow
its unsecured consumer lending businesses – both in Canada and internationally – as a reason for the change.
The Bank remains confident that it will retain strong credit ratings.
Financial position
The Bank’s total assets at April 30, 2015 were $837 billion, up $31 billion or 4% from October 31, 2014. Adjusting for the impact of
foreign currency translation, total assets were up $15 billion or 2%.
Cash and deposits with financial institutions increased $4 billion or $1 billion after adjusting for the impact of foreign currency
translation, due mainly to higher interest bearing deposits with banks. Securities purchased under resale agreements and securities
borrowed increased $4 billion or $2 billion after adjusting for the impact of foreign currency translation.
Adjusting for the impact of foreign currency translation, trading assets decreased $2 billion from October 31, 2014 due primarily
to a decrease in trading securities of $4 billion from lower holdings of Canadian and U.S. government debt.
Investment securities grew by $1 billion. As at April 30, 2015, the unrealized gain on available-for-sale securities, after the impact
of qualifying hedges, was $716 million, a decrease of $131 million from October 31, 2014. The decrease was due mainly to realized
gains on sales and an overall decrease in the market value of equities.
Loans increased $12 billion or 3% from October 31, 2014. Adjusting for the impact of foreign currency translation, loans
increased $7 billion or 2%. Residential mortgages increased $1 billion, mainly in Latin America as underlying growth in Canadian
residential mortgages was largely offset by the planned run-off of Tangerine’s mortgage portfolio. Personal and credit card loans rose
$2 billion, due mainly to growth in Canada. Business and government loans were up $4 billion mainly in the U.S. and Canada.
Total liabilities were $786 billion as at April 30, 2015, up $30 billion or 4% from October 31, 2014. Adjusting for the impact of
foreign currency translation, total liabilities increased $13 billion or 2%.
Total deposits increased $21 billion or $8 billion after adjusting for the impact of foreign currency translation. Personal deposits
grew by $4 billion due primarily to growth in Canada.
After adjusting for the impact of foreign currency translation, obligations related to securities sold under repurchase agreements
and securities lent decreased by $2 billion and obligations related to securities sold short decreased by $4 billion. Derivative
instrument liabilities increased $7 billion, $5 billion after adjusting for the impact of foreign currency translation, due primarily to
the impact of significant changes in interest rate and foreign currency translation on derivative instrument values.
Total shareholders’ equity increased $1,732 million from October 31, 2014. This increase was driven by current year earnings less
dividends paid of $1,838 million and a $413 million increase in accumulated other comprehensive income due primarily to unrealized
foreign exchange gains on the Bank’s investments in its foreign operations. This was partly offset by the repurchase and cancellation
of approximately 7.5 million common shares or $474 million under the normal course issuer bid program.
Capital management
Scotiabank is committed to maintaining a solid capital base to support the risks associated with its diversified businesses. The Bank’s
capital management framework includes a comprehensive internal capital adequacy assessment process (ICAAP), aimed at ensuring
that the Bank’s capital is more than adequate to meet current and future risks and achieve its strategic objectives. Key components
of the Bank’s ICAAP include sound corporate governance; creating a comprehensive risk appetite for the Bank; managing and
monitoring capital, both currently and prospectively; and utilizing appropriate financial metrics which relate risk to capital, including
economic and regulatory capital measures. The Bank’s capital management practices are unchanged from those outlined on
pages 41 to 50 of the Bank’s 2014 Annual Report.
Implementation of the Basel III framework
Effective November 1, 2012, Canadian banks are subject to the revised capital adequacy requirements as published by the Basel
Committee on Banking Supervision (BCBS) and commonly referred to as Basel III. Basel III builds on the “International Convergence
of Capital Measurement and Capital Standards: A Revised Framework” (Basel II). Under Basel III, there are three primary risk-based
regulatory capital ratios used to assess capital adequacy, CET1, Tier 1 and Total capital ratios, which are determined by dividing those
Scotiabank Second Quarter Report 201525
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capital components by risk-weighted assets. Basel III also provides guidance on non-viability contingent capital (NVCC). The guidance
stipulates that in order to qualify as regulatory capital, non-common share capital instruments must be convertible into common
equity upon a trigger event as defined within the guidance. All non-common instruments issued after December 31, 2012, were
required to meet these NVCC requirements to qualify as regulatory capital. To enable banks to meet the new standards, the BCBS
Basel III rules contain transitional arrangements commencing January 1, 2013, through January 1, 2019. Transitional requirements
result in a 5 year phase-in of new deductions and additional components to common equity. Non-qualifying non-common capital
instruments will be phased out over 10 years and the capital conservation buffer will be phased in over 4 years. As of January 2019,
banks will be required to meet new minimum requirements related to risk-weighted assets of: Common Equity Tier 1 ratio of 4.5%
plus a capital conservation buffer of 2.5%, collectively 7%, minimum Tier 1 ratio of 8.5%, and Total capital ratio of 10.5%.
The Office of the Superintendent of Financial Institutions (OSFI) has issued guidelines, reporting requirements and disclosure
guidance which are consistent with the Basel III reforms, except for its deferral of the Basel III credit valuation adjustment (CVA)
related capital charges, requiring they be phased-in over a five-year period, beginning January 2014. Effective the third quarter of
2014, the CVA scalars for the CET1 capital ratio, Tier 1 capital ratio and Total capital ratio are 0.57, 0.65 and 0.77, respectively. As
at April 30, 2015, these scalars are 0.64, 0.71 and 0.77, respectively.
Commencing the first quarter of 2013, OSFI required Canadian deposit-taking institutions to fully implement the 2019 Basel III
reforms, without the transitional phase-in provisions for capital deductions (referred to as ‘all-in’) and achieve a minimum 7%
Common Equity Tier 1 (CET1) target.
In a March 2013 advisory letter, OSFI designated the 6 largest banks in Canada as domestic systemically important banks
(D-SIBs), increasing its minimum capital ratio requirements by 1% for the identified D-SIBs. This 1% surcharge is applicable to all
minimum capital ratio requirements for CET1, Tier 1 and Total capital, by no later than January 1, 2016, in line with the
requirements for global systemically important banks.
In addition to risk-based capital requirements, the Basel III reforms introduced a simpler, non risk-based Leverage ratio
requirement to act as a supplementary measure to its risk-based capital requirements. The Leverage ratio is defined as a 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 requirements. The final calibration will be completed by 2017,
with a view to migrating to a Pillar 1 (minimum capital requirement) treatment by January 2018.
In October 2014, OSFI released its Leverage Requirements Guideline which outlines the application of the Basel III Leverage ratio
in Canada and the replacement of the former Assets-to-Capital Multiple (ACM), effective Q1 2015. Institutions are expected to
maintain a material operating buffer above the 3% minimum. Commencing Q1 2015, disclosure in accordance with OSFI’s September
2014 Public Disclosure Requirements related to Basel III Leverage ratio has been made in the Supplementary Regulatory Capital
Disclosures.
Capital ratios
The Bank’s various regulatory capital measures consist of the following:
As at
April 30
2015
January 31
2015
October 31
2014
($ millions)All-inAll-in All-in
Common Equity Tier 1 capital$ 34,750$ 34,389 $ 33,742
Tier 1 capital39,07738,717 38,073
Total regulatory capital45,86344,354 43,592
CET1 risk-weighted assets
(1)
328,688335,200 312,473
Tier 1 risk-weighted assets
(1)
329,424336,092 313,263
Total risk-weighted assets
(1)
330,055336,857 314,449
Capital ratios:
Common Equity Tier 1 capital
10.6%10.3% 10.8%
Tier 1 capital ratio %11.9%11.5% 12.2%
Total capital ratio %13.9%13.2% 13.9%
Leverage:
Leverage exposures
(2)
947,169953,626 N/A
Leverage ratio
(2)
4.1%4.1% N/A
Assets-to-capital multiple
(2)
N/AN/A 17.1 x
(1) CVA risk-weighted assets were calculated using scalars of 0.64, 0.71 and 0.77 to compute CET1, Tier1 and Total capital ratios, respectively in 2015
(October 31, 2014 – scalars of 0.57, 0.65 and 0.77).
(2) Effective November 1, 2014, the leverage ratio replaced the assets-to-capital multiple.
26Scotiabank Second Quarter Report 2015
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The Bank’s Common Equity Tier 1 ratio increased by approximately 30 basis points this quarter primarily due to internal capital
generation (24 basis points) and a decrease in liabilities relating to employee benefits (12 basis points) from a partial recovery in
long term interest rates.
The Bank continues to maintain a strong capital position. As at April 30, 2015, the CET1, Tier 1, Total capital and Leverage ratios
are well above Basel III all-in minimum requirements.
Changes in regulatory capital
The Bank’s Common Equity Tier 1 capital was $34.8 billion, as at April 30, 2015 (January 31, 2015 – $34.4 billion; October 31, 2014 –
$33.7 billion), an increase of approximately $0.4 billion during the quarter, mainly due to:
• internal capital generation of $0.9 billion;
• reduced threshold-related deductions of $0.4 billion; and
• lower goodwill of $0.2 billion due to foreign currency translation.
Partly offset by:
• decreases in accumulated other comprehensive income of $1.1 billion, primarily from foreign currency translation losses of
$1.5 billion, partly offset by gains of $0.3 billion from decreased liabilities relating to employee benefits and other of
$0.1 billion.
In addition, the above changes impacted Tier 1 and Total capital. Total capital also increased due to the issuance of $1.25 billion
of NVCC subordinated debentures.
Risk-weightedassets (RWA)
CET1 RWA decreased by $6.5 billion or 1.9% during the quarter to $328.7 billion, primarily due to:
• the impact of $8.9 billion from a stronger Canadian dollar on foreign currency denominated assets; and,
• lower counterparty credit risk on derivatives and credit valuation adjustment RWA of $2.2 billion.
Partly offset by:
• growth in personal and business lending of $3.9 billion; and,
• increased operational risk RWA of $0.5 billion.
NormalCourse Issuer Bid
On May 27, 2014, the Bank announced that OSFI and the Toronto Stock Exchange (TSX) approved its normal course issuer bid
pursuant to which it may repurchase for cancellation up to 12 million of the Bank’s common shares. The bid ends on May 29, 2015.
On March 3, 2015, the Bank announced that OSFI and the TSX approved an increase in the bid up to 16 million shares. During the
six months ended April 30, 2015, the Bank repurchased and cancelled approximately 7.5 million common shares under this bid at an
average price of $63.18 per share for a total amount of approximately $474 million. Under this bid, the Bank has repurchased and
cancelled approximately 12 million common shares at an average price of $66.12.
On May 29, 2015, the Bank announced that OSFI and the TSX approved its normal course issuer bid pursuant to which it may
repurchase for cancellation up to 24 million of the Bank’s common shares, which represents approximately 2% of the Bank’s
common shares issued and outstanding as of May 25, 2015. Purchases under the new bid may commence on June 2, 2015, and will
end on the earlier of June 1, 2016, or the date on which the Bank completes its purchases. On a quarterly basis, the Bank will
consult with OSFI prior to making purchases.
Common dividend
The Board of Directors, at its meeting on May 28, 2015, approved a dividend of 68 cents per share. This quarterly dividend is payable
to shareholders of record as of July 7, 2015 on July 29, 2015.
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 on page 8. The
methods of determining the fair value of financial instruments are detailed on page 52 of the Bank’s 2014 Annual Report.
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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 generally arose from normal economic, 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 74 of the Bank’s 2014 Annual Report).
Total derivative notional amounts were $5,674 billion as at April 30, 2015, compared to $5,772 billion as at January 31, 2015 and
$4,970 billion as at October 31, 2014. The quarterly change was due largely to an increase in the volume of interest rate and foreign
exchange contracts, fully offset by a decrease due to the impact of foreign currency translation. The total notional amount of over-
the-counter derivatives was $5,076 billion (January 31, 2015 – $5,088 billion; October 31, 2014 – $4,597 billion), of which
$3,511 billion are settled through central counterparties as at April 30, 2015 (January 31, 2015 – $3,359 billion; October 31, 2014 –
$3,012 billion). The credit equivalent amount, after taking master netting arrangements into account, was $47.9 billion, compared to
$52.8 billion at January 31, 2015. The change from January 31, 2015 was due largely to lower market value of derivative contracts
and the impact of foreign currency translation.
Selected credit instruments
A complete discussion of selected credit instruments which markets regarded as higher risk during the financial crisis was provided
on page 52 of the Bank’s 2014 Annual Report. This disclosure provides a detailed discussion on the nature and extent of the Bank’s
exposures which have substantially remained unchanged from year end.
Collateralized debt obligationsand collateralized loan obligations
Non-trading portfolio
As at April 30, 2015, the carrying value of cash-based CLOs reported as loans on the Consolidated Statement of Financial Position
was $77 million (January 31, 2015 – $90 million; October 31, 2014 – $87 million). The fair value was $74 million (January 31, 2015 –
$86 million; October 31, 2014 – $84 million). The decrease was due to paydowns and the impact of foreign exchange rate changes in
the quarter. None of these cash-based CLOs are classified as impaired loans. The overall risk profile of cash-based CLOs held has not
changed significantly since October 31, 2014.
Trading portfolio
The Bank holds synthetic CDOs in its trading portfolio as a result of legacy transactions with clients and other financial institutions.
These trading exposures have been hedged and are subject to risk limits and ongoing monitoring by the Bank’s independent risk
management department.
The risk profile of the Bank’s CDOs outstanding has not changed significantly from October 31, 2014.
Other
As at April 30, 2015, the Bank has insignificant exposure to highly leveraged loans awaiting syndication, auction-rate securities,
Alt-A type loans, monoline insurers and investments in structured investment vehicles.
Off-balancesheet arrangements
In the normal course of business, the Bank enters into contractual arrangements that are 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 and guarantees and other commitments.
28Scotiabank Second Quarter Report 2015
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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 50 to 51 of the Bank’s 2014 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, 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
$3.9 billion as at April 30, 2015 (October 31, 2014 – $4.1 billion). As at April 30, 2015, total commercial paper outstanding for these
conduits was $2.7 billion (October 31, 2014 – $2.7 billion). Funded assets purchased and held by these conduits as at April 30, 2015,
as reflected at original cost, were $2.7 billion (October 31, 2014 – $2.7 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, 2014.
Other off-balance sheetarrangements
Guarantees and other indirect commitments increased 11% from October 31, 2014, due to the impact of foreign exchange rate
changes on undrawn loan commitments and increased commitments in relation to securities lending activities. Fees from guarantees
and loan commitment arrangements recorded in non-interest income – banking were $119 million for the three months ended
April 30, 2015, compared to $111 million in the previous quarter.
Regulatory developments
The Bank continues to respond to global regulatory developments, such as capital and liquidity requirements under the Basel
Committee on Banking Supervision global standards (Basel III), over-the-counter derivatives reform, consumer protection measures
and specific financial reforms, such as theDodd-Frank Wall Street Reform and Consumer Protection Act. The Bank monitors
these and other developments and is working to ensure business impacts, if any, are minimized.
On December 10, 2013, the Federal Reserve approved a final rule implementing Section 619 of Dodd Frank, commonly known as
the Volcker Rule. The Volcker Rule impacts our global activities as its reach extends to the Bank and each of its subsidiaries and
affiliates (subject to certain exceptions and exclusions). The Volcker Rule imposes prohibitions and restrictions on banking entities
and their affiliates in connection with proprietary trading and investing in or sponsoring of hedge funds or private equity funds. In
the final rule, the Federal Reserve extended the conformance period to July 2015. The Bank has developed an enterprise-wide plan
to be in compliance by July 21, 2015 with the requirements of the Volcker Rule applicable to the Bank as of that date.
On February 18, 2014 the Board of Governors of the Federal Reserve System (“Federal Reserve”) in the U.S. approved the final
rule to implement the enhanced prudential standards and early remediation requirements of sections 165 and 166 of the Dodd-
Frank Act (the FBO Rule) for bank holding companies and foreign banking organizations. With respect to foreign banking
organizations, the overall intent of the final rule is to strengthen the regulation of the U.S. operations of foreign banking
organizations by requiring home country capital certification consistent with the Basel capital framework, home country capital
stress tests comparable to U.S. standards, maintenance of a liquidity buffer for U.S. branches and agencies and establishment of a
U.S. risk committee with the appointment of a U.S. Chief Risk Officer. The Bank has appointed a Chief Risk Officer for the U.S. and
will work to help ensure compliance with the final rule by the effective date of July 2016. The Bank is not currently required to form
a U.S. intermediate holding company under the final rule.
In August 2014, the Federal Government proposed a “bail-in” regime (called the Taxpayer Protection and Bank Recapitalization
Regime) for the six largest Canadian banks designated as domestic systematically important banks (D-SIBs). The proposed regime is
aimed at ensuring that financial stability is preserved and taxpayers and depositors are protected from having to bail out a D-SIB in
the highly unlikely event of the institution’s failure, and would grant the Federal Government the power to permanently cancel an
institution’s existing common shares and/or convert an institution’s long term senior unsecured debt into common shares. Either
power would only be exercisable once the institution was no longer viable and full conversion of the institution’s non-viability
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contingent capital (NVCC) instruments into common shares had already occurred. Deposits (including those insured by the CDIC),
shorter term unsecured wholesale debt, and derivatives would not be subject to conversion or cancellation. On April 21, 2015, the
Federal Government confirmed its intention to implement a “bail-in” regime for D-SIBs. The Government intends to introduce
legislative amendments to enhance the resolution toolkit for D-SIBs, including implementation of the framework for the Taxpayer
Protection and Bank Recapitalization regime, with associated regulations and guidelines to follow. The Bank will continue to monitor
developments and will have a period of time to transition to the new regime.
The Foreign Account Tax Compliance Act (FATCA) is U.S. legislation designed to prevent U.S. taxpayers from using accounts
held outside of the U.S. to evade taxes. FATCA, and in some countries, related local regulations, will require financial institutions to
report annually on specified accounts held outside of the U.S. by U.S. taxpayers. This reporting will be made available to the
U.S. Internal Revenue Service either directly or through local regulatory agencies. In October 2014, over 100 OECD member
countries committed to standardize the automatic exchange of information relating to accounts held by tax residents of signatory
countries (known as Global FATCA). A Common Reporting Standard (CRS) was agreed to and implementation is scheduled to
commence January 2016. 38 countries where Scotiabank has a presence have signed on to the CRS. 17 countries where Scotiabank
operates have signed on to be early adopters. Under the guidance of an enterprise program office, dedicated project teams in each of
the business lines are working to meet all FATCA-related obligations worldwide while minimizing negative impact on the client
experience.
The 2015 Canadian Federal Budget proposed tax rules for synthetic equity arrangements which if enacted, would impact the tax
deductibility of Canadian dividends paid or payable after October 31, 2015, in certain circumstances. The Bank is currently assessing
the impact of this proposal.
Accounting PoliciesandControls
Accounting policiesand estimates
The condensed interim consolidated financial statements have been prepared in accordance with IAS 34,Interim Financial
Reporting, using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board
(IASB). Except for the changes in accounting policies described below, 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, 2014. Note 3 of the Bank’s consolidated financial statements in the 2014 Annual Report
describes the Bank’s significant accounting policies.
Changesin accounting policies
The Bank has adopted the following new accounting standards issued by the IASB effective November 1, 2014.
Own credit risk of liabilities designatedat fair value through profit or loss (IFRS - 9)
The own credit risk provisions of IFRS 9,Financial Instruments, changes the accounting for liabilities designated at fair value
through profit or loss such that changes in fair value arising from changes in the Bank’s own credit risk are recognized in other
comprehensive income unless doing so creates or increases an accounting mismatch. Cumulative fair value changes related to own
credit risk recognized in other comprehensive income cannot be subsequently reclassified to net income. This replaces the previous
requirement in IAS 39,Financial Instruments: Recognition and Measurement, to recognize such changes in net income.
In July 2014, the IASB issued the final IFRS 9 standard which permitted entities to early adopt this requirement prior to the
IFRS 9 mandatory effective date of January 1, 2018. The Bank early adopted this requirement as it relates to deposit note liabilities
designated at fair value, effective November 1, 2014. This change was applied retrospectively. However, in accordance with the
IFRS 9 transition provisions, prior period comparatives have not been restated. The impact of this change on opening retained
earnings was an increase of $5 million and on accumulated other comprehensive income was a decrease of $5 million.
Levies
IFRIC 21,Levies, provides guidance on when to recognize a liability to pay a levy imposed by government that is accounted for in
accordance with IAS 37,Provisions, Contingent Liabilities and Contingent Assets,and also for a liability to pay a levy whose
timing and amount is certain. The interpretation clarifies that an obligating event, as identified by the legislation would trigger the
recognition of a liability to pay a levy. While the interpretation discusses the timing of the recognition, it does not change the
measurement of the amount to be recognized. The adoption of IFRIC 21 did not have a significant impact on the Bank.
30Scotiabank Second Quarter Report 2015
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Presentation
The amendments to IAS 32,Financial Instruments: Presentation, clarifies the requirements relating to offsetting financial assets
and financial liabilities. The adoption of these amendments did not have a significant impact on the Bank.
Future accounting developments
The Bank actively monitors developments and changes in accounting standards from the IASB as well as regulatory requirements
from the Canadian Securities Administrators and OSFI.
The Bank is currently assessing the impact the adoption of new and revised standards issued by the IASB will have on its
consolidated financial statements.
The IASB issued IFRS 9,Financial Instruments,which will replace IAS 39,Financial Instruments: Recognition and
Measurement,effective for annual periods beginning on or after January 1, 2018. On January 9, 2015, OSFI issued an advisory on
the early adoption of IFRS 9 for Domestic Systematically Important Banks (D-SIBs) for annual reporting periods beginning on
November 1, 2017. The Bank has been identified as a D-SIB and is required to adopt IFRS 9 effective November 1, 2017.
There are no other significant updates to the future accounting developments effective after November 1, 2014, as reflected in
Note 5 of the Bank’s consolidated financial statements in the 2014 Annual Report.
Changesin internal control over financial reporting
There have been no changes in the Bank’s internal control over financial reporting during the six months ended April 30, 2015, that
have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.
Commencing first quarter 2015, the Bank used the Internal Control – Integrated Framework 2013 issued by the Committee of
Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of 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 on pages 97 and 186
of the Bank’s 2014 Annual Report. All transactions with related parties continued to be at market terms and conditions.
Economic Outlook
The global economy continues to post moderate growth. While the U.S. and U.K. are pacing activity among the advanced economies,
stronger performances have been slow to develop. The euro zone is showing signs of reviving on the back of aggressive central bank
easing and low oil prices, though the output gain remains quite modest, as is growth in Japan. The economic performance in Canada,
Mexico and Australia has been restrained by the reduced investment attributable to the low price of crude oil and other
commodities, though most non-energy sectors retain some positive momentum.
At the same time, output growth in many of the larger emerging market economies is slowing alongside the continuing deceleration
in China, and lingering recession in Brazil. Outside of India which is recording the strongest growth around the world, most
developing nations, including those in Latin America and Asia-Pacific, are posting moderate economic gains despite the lacklustre
performance of international trade.
Nevertheless, global growth is expected to regain some traction, with most nations benefiting from the support provided by low
borrowing costs and gasoline prices, currency revaluations which should help underpin export competitiveness, and in some
countries, increased infrastructure-related spending. While the U.S. is widely expected to begin the cautious process of normalizing
interest rates in the second-half of 2015, monetary officials will likely maintain very accommodative policies in most countries and,
in the case of some underperforming nations such as China, potentially ease further.
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BusinessSegment Review
Changes to operating segments effective November 1, 2014
Effective November 1, 2014, the Canadian and International businesses previously reported in Global Wealth & Insurance are
included in Canadian Banking’s and International Banking’s results, respectively. As well, certain Asia business activity previously
reported in International Banking is now included in Global Banking & Markets. Prior period comparative results have been restated.
The 2015 business results are presented below:
Canadian BankingFor the three months ended For the six months ended
(Unaudited) ($ millions)
(Taxable equivalent basis)
(1)
April 30
2015
January 31
2015
April 30
2014
April 30
2015
April 30
2014
Business segment income
Net interest income
$1,574$ 1,551 $ 1,454$3,125$ 2,934
Non-interest income
(2)
1,2101,181 1,1832,3912,347
Total revenue2,7842,732 2,6375,5165,281
Provision for credit losses169165 140334275
Non-interest expenses1,4871,464 1,4002,9512,806
Income tax expense299288 273587547
Net income$ 829$ 815 $ 824$1,644$ 1,653
Net income attributable to non-controlling interests in subsidiaries$ –$ – $ 1$ –$ 1
Net income attributable to equity holders of the Bank$ 829$ 815 $ 823$1,644$ 1,652
Other measures
Return on economic equity
(1)
30.7%29.0% 25.5%29.8%25.2%
Assets under administration($ billions)$ 312$ 305 $ 286$ 312$ 286
Assets under management($ billions)$ 134$ 130 $ 118$ 134$ 118
Average assets($ billions)$ 298$ 297 $ 290$ 297$ 290
Average liabilities($ billions)$ 216$ 213 $ 206$ 215$ 206
(1) Refer to page 4 for a discussion of non-GAAP measures.
(2) Includes net income from investments in associated corporations for the three months ended April 30, 2015 $19 (January 31, 2015 – $15 and
April 30, 2014 – $68) and for the six months ended April 30, 2015 $34 (April 30, 2014 – $130).
Net income
Q2 2015 vs Q2 2014
Canadian Banking reported net income attributable to equity holders of $829 million, an increase of $6 million or 1% compared to
the same quarter last year. Adjusting for the prior contribution from CI Financial Corp. (CI) and a change in this year’s effective tax
rate, net income attributable to equity holders increased $70 million or 9% compared to the same period last year. Good growth in
assets and deposits, an increase in the net interest margin and higher non-interest income were partially offset by increased
provision for credit losses and non-interest expenses.
Q2 2015 vs Q1 2015
Net income attributable to equity holders increased $14 million or 2% from last quarter, mainly due to an increase in the net interest
margin and growth in non-interest income, partly offset by higher non-interest expenses.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Canadian Banking reported net income attributable to equity holders of $1,644 million, a decrease of $8 million from the same
period last year. Adjusting for the prior contribution from CI and a change in this year’s effective tax rate, net income attributable to
equity holders increased $116 million or 8% from the same period last year driven by growth in assets and deposits, an increase in
the net interest margin and an increase in non-interest income. Partly offsetting were higher non-interest expenses and provision for
credit losses.
Averageassets
Q2 2015 vs Q2 2014
Average assets grew $8 billion or 2% from the same quarter last year. Adjusting for the impact of the Tangerine broker originated
and white label mortgage run off portfolios, assets increased $12 billion or 5%. The growth included $5 billion or 3% in residential
32Scotiabank Second Quarter Report 2015
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mortgages, $6 billion or 10% in personal loans primarily in consumer auto lending and credit cards, as well as $4 billion or 13% in
business loans and acceptances. This was partially offset by a decline in securities of $2 billion, mostly related to the sale of the
investment in CI.
Q2 2015 vs Q1 2015
Average assets rose $1 billion from last quarter. Adjusting for the impact of the Tangerine broker originated and white label
mortgage run off portfolios, assets increased $2 billion or 1%, mainly reflecting growth in business loans and acceptances.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Average assets grew $7 billion or 3% from the same period last year. Adjusting for the impact of the Tangerine broker originated and
white label mortgage run off portfolios, assets increased $13 billion or 5%. The growth reflected $6 billion or 11% in personal loans
primarily in consumer auto lending and credit cards, $5 billion or 3% in residential mortgages, and $ 4 billion or 12% in business
loans and acceptances. This was partially offset by a decline in securities of $2 billion, mostly related to the sale of the investment in
CI.
Average liabilities
Q2 2015 vs Q2 2014
Average liabilities increased $10 billion or 5% from the same quarter last year, including strong growth of $1 billion or 9% in retail
banking chequing accounts and $4 billion or 6% in savings deposits. Canadian Banking also recorded growth of $5 billion or 10% in
small business and commercial banking business operating accounts. This was partially offset by a decline in lower margin GICs of
$1 billion or 1%.
Q2 2015 vs Q1 2015
Average liabilities increased $3 billion or 1% from last quarter primarily due to growth in chequing and savings deposits.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Average liabilities increased $9 billion or 4% from the same period last year, reflecting strong growth in retail banking chequing
accounts of $1 billion or 8% and in savings deposits of $3 billion or 5%. There was also growth of $4 billion or 9% in small business
and commercial banking business operating accounts. This was partially offset by a decline in GICs of $1 billion or 1%.
Assets under management (AUM)andassets underadministration (AUA)
AUM of $134 billion increased $16 billion or 13% from same quarter last year and grew $4 billion or 3% from the previous quarter,
driven by strong net sales and market appreciation. AUA of $312 billion increased $26 billion or 9% from the same quarter last year
and increased $7 billion or 2% from the previous quarter.
Net interest income
Q2 2015 vs Q2 2014
Net interest income of $1,574 million was up $120 million or 8% from the same period last year. This was driven by a 12 basis point
increase in the margin to 2.26% and asset growth. The margin increase was primarily driven by higher spreads in personal lending,
including mortgages, as well as growth in higher margin credit card and auto loans.
Q2 2015 vs Q1 2015
Net interest income increased $23 million or 2% from the previous quarter, notwithstanding a shorter quarter. This was due to a 10
basis point increase in the margin driven by higher asset spreads across all segments and deposit growth.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Net interest income of $3,125 million was up $191 million or 7% from the same period last year. This was driven by solid asset
growth and an 8 basis point improvement in the interest margin to 2.21%.
Scotiabank Second Quarter Report 201533
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Non-interest income
Q2 2015 vs Q2 2014
Non-interest income increased $27 million or 2% from the same quarter last year. Adjusting for the prior contribution from CI, non-
interest income increased $96 million or 9%, primarily due to growth in mutual fund and brokerage revenues driven by higher net
sales and market appreciation, and an increase in card revenues.
Q2 2015 vs Q1 2015
Non-interest income grew $29 million or 2% from the previous quarter primarily driven by higher wealth management revenues.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Non-interest income of $2,391 million was up $44 million or 2% from the same period last year. Adjusting for the prior contribution
from CI, non-interest income increased $176 million or 8% primarily driven by growth in mutual fund and brokerage revenues, and
an increase in card revenues.
Provision for credit losses
Q2 2015 vs Q2 2014
The provision for credit losses was $169 million this quarter, up from $140 million in the same quarter last year, due to higher
provisions in retail portfolios driven by growth in relatively higher spread products. The provision for credit losses ratio was 0.24%,
up 4 basis points from 0.20% in the same period last year.
Q2 2015 vs Q1 2015
The provision for credit losses was up $4 million from the previous quarter due to slight increases of provisions in retail and
commercial portfolios. The provision for credit losses ratio increased by 1 basis point.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
The provision for credit losses was $334 million, up $59 million from the same period last year, with higher provisions in retail
portfolios driven by growth in relatively higher spread products, slightly offset by lower provisions in commercial portfolios. The
provision for credit losses ratio was 0.23%, up 3 basis points compared to the same period last year.
Non-interest expenses
Q2 2015 vs Q2 2014
Non-interest expenses were up $87 million or 6% from the same quarter last year, primarily due to increased investment to support
business growth and higher wealth management volume-related expenses, partially offset by a decrease in advertising expenses as
last year included costs for Tangerine brand transition.
Q2 2015 vs Q1 2015
Non-interest expenses were up $23 million or 2% quarter over quarter, primarily related to investment to support business growth.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Non-interest expenses were up $145 million or 5% from the same period last year, primarily reflecting salary increases, volume and
revenue driven expenses, and higher technology spending.
Taxes
The effective tax rate increased to 26.5% compared to 24.9% in the same quarter last year. On a year-to-date basis, the effective tax
rate increased to 26.3% compared to 24.9% in the same period last year. The increases were primarily due to changes in the
Canadian tax legislation. The effective tax rate increased slightly to 26.5% from 26.1% in the previous quarter.
34Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
International BankingFor the three months ended For the six months ended
(Unaudited) ($ millions)
(Taxable equivalent basis)
(1)
April 30
2015
January 31
2015
April 30
2014
April 30
2015
April 30
2014
Business segment income
Net interest income
$1,380$ 1,349 $ 1,289$2,729$ 2,545
Non-interest income
(2)
751726 7391,4771,468
Total revenue2,1312,075 2,0284,2064,013
Provision for credit losses266285 229551446
Non-interest expenses1,2241,204 1,1172,4282,286
Income tax expense154122 174276294
Net income$ 487$ 464 $ 508$ 951$ 987
Net income attributable to non-controlling interests in subsidiaries$ 40$ 47 $ 57$ 87$ 111
Net income attributable to equity holders of the Bank$ 447$ 417 $ 451$ 864$ 876
Other measures
Return on economic equity
(1)
12.7%12.0% 14.6%12.4%14.1%
Average assets($ billions)$ 128$ 120 $ 117$ 124$ 115
Average liabilities($ billions)$ 94$ 89 $ 86$ 91$ 85
(1) Refer to page 4 for a discussion of non-GAAP measures.
(2) Includes net income from investments in associated corporation for the three months ended April 30, 2015 $112 (January 31, 2015 – $108 and
April 30, 2014 – $99) and for the six months ended April 30, 2015 $220 (April 30, 2014 – $216)
Net income
Q2 2015 vs Q2 2014
Net income attributable to equity holders was $447 million, a decrease of $4 million or 1% from the same period last year.
The quarter’s results reflected strong loan growth across most geographies partly offset by margin compression, particularly in
our Latin American markets compared to a year ago. The positive impact of foreign currency translation largely offset higher
business taxes, reduced benefit from the credit mark in Banco Colpatria, and a lower contribution from Banco del Caribe in
Venezuela.
Q2 2015 vs Q1 2015
Quarter over quarter, net income attributable to equity holders increased $30 million or 7% due to strong loan growth, and lower
provision for credit losses and expenses. The positive impact of foreign currency translation was partly offset by the impact of a
shorter quarter and lower tax benefits.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Net income attributable to equity holders decreased by $12 million or 1% to $864 million. Results reflected strong loan growth,
particularly in Latin America, and the positive impact of foreign currency translation; offsetting were lower net interest margins in
our Latin American markets, reduced benefit from the credit mark in Banco Colpatria, and higher business taxes.
Averageassets
Q2 2015 vs Q2 2014
Average assets rose $11 billion or 10% to $128 billion from the same quarter last year. This was due primarily to strong retail and
commercial loan growth of 12% and 13%, respectively, or 8% and 5% adjusting for positive foreign exchange translation. Growth in
retail loans was driven by a 12% increase in Latin America. Commercial loan growth was driven by a 10% increase in Latin America
offset by a 5% reduction in Caribbean and Central America.
Q2 2015 vs Q1 2015
Average assets rose $8 billion or 7% from last quarter with strong retail and commercial loan growth of 6% and 8%, respectively, or
2% and 3% adjusting for positive foreign currency translation, driven by 4% growth in both retail and commercial loans in Latin
America.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Average assets were $124 billion, up $10 billion or 9% compared to the same period last year. This was due to strong retail and
commercial loan growth of 12% and 11% respectively, or 9% and 5% adjusting for foreign currency translation. Growth in retail was
driven primarily by a 13% increase in Latin America, while underlying commercial loan growth of 10% in Latin America was offset by
contraction of 7% in the Caribbean.
Scotiabank Second Quarter Report 201535
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Average liabilities
Q2 2015 vs Q2 2014
Average liabilities increased $7 billion or 8% to $94 billion from the same period last year largely due to 11% growth in deposits, or
6% adjusting for positive foreign currency translation. Growth was primarily in retail and commercial deposits in Latin America.
Core retail deposits in Latin America rose 11%, or 7% adjusting for the impact of foreign currency translation.
Q2 2015 vs Q1 2015
Average liabilities rose $5 billion or 5% from last quarter primarily driven by 8% growth in deposits, or 3% excluding foreign
currency translation, primarily in Latin America.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Average liabilities rose $7 billion or 8% to $91 billion from the same period last year largely due to 9% growth in deposits, or 5%
adjusting for positive foreign currency translation. Growth was primarily in retail and commercial deposits in Latin America.
Net interest income
Q2 2015 vs Q2 2014
Net interest income of $1,380 million was up $91 million or 7% from the same period last year. Growth primarily reflected strong
asset growth in Latin America, and positive foreign currency translation. Partly offsetting was a lower margin due to Central Bank
rate cuts in Latin America.
Q2 2015 vs Q1 2015
Compared to last quarter, net interest income increased $31 million or 2% due to good asset growth in Latin America and positive
foreign currency translation. This was partly offset by the impact of less days in the quarter.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Net interest income of $2,729 million increased $184 million or 7% driven by the strong loan and deposit growth in Latin America,
and the positive impact of foreign currency translation, partly offset by a slight decline in the net interest margin.
Non-interest income
Q2 2015 vs Q2 2014
Non-interest income of $751 million increased $12 million or 2% from the same quarter last year. Solid growth in fee income,
particularly in Colombia and Caribbean, and the positive impact of foreign currency translation, were partly offset by lower
securities gains and trading revenues, and a lower contribution from Banco del Caribe in Venezuela.
Q2 2015 vs Q1 2015
Non-interest income increased $25 million or 3% due largely to the positive impact of foreign currency translation and last quarter’s
negative changes in the fair value of financial instruments used for foreign currency hedging.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Non-interest income increased $9 million or 1% to $1,477 million with higher fees and commissions, partly offset by the negative
valuation of financial instruments used for foreign currency hedging purposes and lower trading revenues. Net income from
investments in associated corporations at $220 million was up $4 million as higher contributions from Thanachart Bank in Thailand
and Bank of Xi’an in China were mostly offset by a lower contribution from Banco del Caribe in Venezuela.
Provision for credit losses
Q2 2015 vs Q2 2014
The provision for credit losses was $266 million, compared to $229 million in the same period last year due to higher retail
provisions, partly offset by lower commercial provisions. Higher retail provisions in Colombia and the Caribbean were in part offset
36Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
by lower provisions in Peru. Adjusting for the reduced benefit of the credit mark in Banco Colpatria, the growth in retail provisions
was in line with retail asset growth. Commercial provisions declined with improvements across most geographies. The provision for
credit losses ratio was 1.19%, up 3 basis points from 1.16% in the same period last year, or down 8 basis points to 1.21% excluding
the credit mark in Banco Colpatria.
Q2 2015 vs Q1 2015
The provision for credit losses was $266 million this quarter, down from $285 million in the previous quarter. The decrease in
provisions was primarily driven by lower commercial provisions in Peru and the Caribbean. Retail provisions were slightly lower with
lower provisions in Mexico and Peru largely offset by higher provisions in the Caribbean related to mortgages, and Colombia due to
asset growth and the reduced benefit of the credit mark in Banco Colpatria. The provision for credit losses ratio improved by 14
basis points relative to the previous quarter. Excluding the credit mark benefits related to Colombia, the ratio improved by 19 basis
points.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
The provision for credit losses was $551 million, compared to $446 million in the same period last year. The increase was entirely
due to higher provisions in the retail portfolio in Latin America, primarily as a result of reduced benefit of the credit mark in Banco
Colpatria, and the Caribbean. The provision for credit losses ratio was 1.26%, up 13 basis points compared to the same period last
year. Adjusting for the reduced benefit of the credit mark in Banco Colpatria, the ratio improved by 3 basis points to 1.30%.
Non-interest expenses
Q2 2015 vs Q2 2014
Non-interest expenses were $1,224 million, up $107 million or 10%. Foreign currency translation accounted for one quarter of the
increase with the balance largely from increased volume-related expenses, inflation-related increases and higher business taxes.
Q2 2015 vs Q1 2015
Non-interest expenses were up $20 million or 2% compared to last quarter; however, $14 million lower when excluding foreign
currency translation. Last quarter’s expenses reflected seasonally higher share-based compensation.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Non-interest expenses of $2,428 million were up $142 million or 6% versus the same period last year. Underlying expenses,
excluding foreign currency translation, were up 5% reflective of increased volume-related expenses, inflation related increases, and
higher business taxes. Expense management remains a key priority.
Taxes
The effective tax rate decreased to 24.1% compared to 25.6% in the same quarter last year due to higher tax benefits in certain
jurisdictions.
Compared to the previous quarter the effective tax rate increased from 20.8% due to higher tax benefits in certain jurisdictions in
the preceding quarter.
The year-to-date effective tax rate decreased to 22.5% compared to 23.0% last year as a result of higher tax benefits.
Scotiabank Second Quarter Report 201537
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Global Banking & MarketsFor the three months ended For the six months ended
(Unaudited) ($ millions)
(Taxable equivalent basis)
(1)
April 30
2015
January 31
2015
April 30
2014
April 30
2015
April 30
2014
Business segment income
Net interest income
$ 259$ 267 $ 270$ 526$ 530
Non-interest income839765 8051,6041,569
Total revenue1,0981,032 1,0752,1302,099
Provision for credit losses1313 62610
Non-interest expenses467465 437932926
Income tax expense169150 196319339
Net income$ 449$ 404 $ 436$ 853$ 824
Net income attributable to non-controlling interests in subsidiaries$ –$ – $ –$ –$ –
Net income attributable to equity holders of the Bank$ 449$ 404 $ 436$ 853$ 824
Other measures
Return on economic equity
(1)
29.9%29.3% 29.0%29.7%27.0%
Average assets($ billions)$ 355$ 339 $ 313$ 347$ 306
Average liabilities($ billions)$ 247$ 238 $ 218$ 242$ 215
(1) Refer to page 4 for a discussion of non-GAAP measures.
Net income
Q2 2015 vs Q2 2014
Net income attributable to equity holders was $449 million, an increase of $13 million or 3% from the same period last year. This was
driven by the positive impact of foreign currency translation and by strong results in capital markets and Canadian lending. This was
partly offset by a lower contribution from investment banking, slightly higher provisions for credit losses and higher expenses. The
prior year also included a securities gain in U.S. lending.
Q2 2015 vs Q1 2015
Quarter-over-quarter net income attributable to equity holders increased $45 million or 11%. Stronger results in fixed income,
commodities, Canadian lending and investment banking were partly offset by declines in foreign exchange and Asia lending.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Year-to-date net income attributable to equity holders increased $29 million or 4%. This was driven by the positive impact of foreign
currency translation, and by stronger results in the equities and commodities businesses. This was partly offset by a lower
contribution from investment banking, higher provisions for credit losses and lower securities gains in U.S. lending.
Averageassets
Q2 2015 vs Q2 2014
Average assets were $355 billion, an increase of $42 billion or 13% from the same quarter last year. Adjusting for the positive impact
of foreign currency translation, assets increased by $20 billion or 6%. This was mainly due to growth of $14 billion in derivative-
related assets, $9 billion in securities purchased under resale agreements, and $3 billion in deposits with banks, partly offset by
reductions in trading assets of $3 billion, and $3 billion in corporate loans and acceptances. The latter was mostly due to reductions
in Asia Trade Finance balances.
Q2 2015 vs Q1 2015
Average assets increased by $16 billion or 5% compared to last quarter, mainly due to the positive impact of foreign currency
translation. Growth of $2 billion of derivative-related assets, $2 billion in corporate loans and acceptances, and $1 billion in
securities purchased under resale agreements was mostly offset by a reduction of $4 billion in trading assets.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Average assets increased by $41 billion or 13% compared to the same period last year. This was partly due to the positive impact of
foreign currency translation. On an underlying basis, the increase was $23 billion or 8%, which was driven by growth of $10 billion of
derivative-related assets, $8 billion in securities purchased under resale agreements, $3 billion in deposits with banks and $1 billion
in trading assets. This was partly offset by reductions in corporate loans and acceptances of $3 billion, entirely due to reductions in
Asia Trade Finance balances.
38Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Average liabilities
Q2 2015 vs Q2 2014
Average liabilities were $247 billion, an increase of $29 billion or 13% from the same quarter last year. Adjusting for the positive
impact of foreign currency translation, the increase was $19 billion or 9%. This was mainly due to growth of $14 billion in derivative-
related liabilities and $4 billion in other capital markets liabilities, partly offset by a reduction of $2 billion in corporate deposits.
Q2 2015 vs Q1 2015
Average liabilities increased by $9 billion or 4% compared to last quarter. Adjusting for the positive impact of foreign currency
translation, liabilities were $1 billion higher, driven by growth in derivative-related liabilities.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Average liabilities increased by $27 billion or 13% compared to the same period last year. Excluding the positive impact of foreign
currency translation, liabilities were $16 billion or 7% higher. This was mainly due to growth of $12 billion in derivative-related
liabilities and $4 billion in other capital markets liabilities.
Net interest income
Q2 2015 vs Q2 2014
Net interest income of $259 million was down $11 million or 4% from the same period last year. This was due mainly to lower
lending volumes in Asia and lower spreads in Europe, the U.S. and Asia, which were partly offset by higher lending volumes in
Canada and Europe and the positive impact of foreign currency translation.
Q2 2015 vs Q1 2015
Net interest income was $8 million or 3% lower than the previous quarter due to a shorter quarter, as well as lower interest income
from capital markets operations and lower loan volumes in Asia. This was partly offset by increased volumes in the U.S., Europe and
Canadian lending businesses, higher loan origination fees and the positive impact of foreign currency translation.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Net interest income was $4 million or 1% lower than the first half of last year. This was due mainly to lower interest income from
capital markets operations and lower loan volumes and spreads in Asia, which was only partly offset by increased volumes in
Canada, the U.S., and Europe and the positive impact of foreign currency translation.
Non-interest income
Q2 2015 vs Q2 2014
Non-interest income was $839 million, which was an increase of $34 million or 4% from the same period last year. This was mainly
due to higher debt and equity underwriting fees, increased trading revenues in equities, commodities, precious metals and foreign
exchange, higher banking fees, and the positive impact of foreign currency translation, partly offset by lower advisory fees. The prior
year also included a securities gain in U.S. lending.
Q2 2015 vs Q1 2015
Non-interest income increased $74 million or 10% from last quarter. Increased trading revenues in precious metals, fixed income
and commodities, higher debt and equity underwriting fees, higher banking fees and the positive impact of foreign currency
translation was partly offset by lower advisory fees.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Non-interest income increased $35 million or 2% from the same period last year. This was driven by increased trading revenues in
equities, foreign exchange and commodities, higher debt and equity underwriting fees and the positive impact of foreign currency
translation. This was partly offset by lower advisory fees and reduced securities gains in U.S. lending.
Provision for credit losses
Q2 2015 vs Q2 2014
The provision for credit losses was $13 million this quarter, compared to $6 million in the same quarter last year, due to increases in
Canada and Europe. The provision for credit losses ratio was 8 basis points, compared to 4 basis points in the same period last year.
Scotiabank Second Quarter Report 201539
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Q2 2015 vs Q1 2015
The provision for credit losses was $13 million this quarter, unchanged from the previous quarter.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
The provision for credit losses was $26 million compared to $10 million in the same period last year, due primarily to higher
provisions in Canada and Europe, partially offset by lower provisions in the United States. The provision for credit losses ratio was 8
basis points, compared to 3 basis points in the same period last year.
Non-interest expenses
Q2 2015 vs Q2 2014
Non-interest expenses of $467 million were higher by $30 million or 7% compared to the same quarter last year. Most of the increase
related to the negative impact of foreign currency translation and the remaining increase was largely driven by higher professional
fees, technology expenses and salaries and benefits.
Q2 2015 vs Q1 2015
Non-interest expenses increased $2 million compared to last quarter. Adjusting for the negative impact of foreign currency
translation, expenses were down slightly, mainly due to lower share-based compensation costs.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
Non-interest expenses increased $6 million or 1% compared the same period last year. Adjusting for the negative impact of foreign
currency translation, expenses were down slightly, mainly due to lower share-based compensation costs.
Taxes
The effective tax rate decreased to 27.3% compared to 31.0% in the same period last year, mainly due to a lower level of income in
higher tax jurisdictions. The current quarter’s rate was in line with the previous quarter.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
The effective tax rate was 27.2% compared to 29.1% in the same period last year, mainly due to a lower level of income in higher tax
jurisdictions.
Other
(1)
For the three months ended For the six months ended
(Unaudited) ($ millions)
(Taxable equivalent basis)
(2)
April 30
2015
January 31
2015
April 30
2014
April 30
2015
April 30
2014
Business segment income
Net interest income
(3)
$ (15)$ 2 $ 38$ (13)$ 47
Non-interest income
(3)(4)
(61)22 (53)(39)(70)
Total revenue(76)24 (15)(52)(23)
Provision for credit losses–– –––
Non-interest expenses4664 4111082
Income tax expense
(3)
(154)(83) (88)(237)(150)
Net income$ 32$ 43 $ 32$ 75$ 45
Net income attributable to non-controlling interests in subsidiaries$ –$ – $ –$ –$ –
Net income attributable to equity holders of the Bank$ 32$ 43 $ 32$ 75$ 45
Other measures
Average assets($ billions)
$ 89$ 79 $ 78$ 82$ 76
Average liabilities($ billions)$ 262$ 245 $ 240$ 252$ 234
(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) Refer to page 4 for a discussion of non-GAAP measures.
(3) Includes the elimination of the tax-exempt income gross-up reported in net interest income, non-interest income and provision for income taxes for
the three months ended April 30, 2015 $(117), (January 31, 2015 $(92), and April 30, 2014 $(84)) and for the six months ended April 30, 2015
$(209) and April 30, 2014 $(164) to arrive at the amounts reported in the Consolidated Statement of Income.
(4) Net income from investments in associated corporations and the provision for income taxes in each period include the tax normalization
adjustments related to the gross-up of income from associated companies of $(32), (January 31, 2015 – $(33) and April 30, 2014 – $(40)) and for
the six months ended April 30, 2015 $(65) and April 30, 2014 $(84).
40Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Other
The Other segment includes Group Treasury, smaller operating segments and other corporate items which are not allocated to a
business line.
Net interest income, other operating 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. The
elimination was $117 million in the second quarter, compared to $84 million in the same period last year and $92 million last quarter.
Net income from investments in associated corporations and the provision for income taxes in each period include the tax
normalization adjustments related to the gross-up of income from associated companies. This adjustment normalizes the effective
tax rate in the divisions to better present the contribution of the associated companies to the divisional results.
Q2 2015 vs Q2 2014
The Other segment had a net income attributable to equity holders of $32 million in the quarter, unchanged with the net income last
year. Higher net gains on investment securities and lower taxes, were partly offset by lower contributions from asset/liability
management activities.
Q2 2015 vs Q1 2015
The Other segment had a net income attributable to equity holders of $32 million in the quarter, compared to $43 million last
quarter. The decrease was mainly due to lower contributions from asset/liability management activities and the impact of foreign
currency translation (including hedges). Partly offsetting were lower expenses and taxes this quarter.
Year-to-date Q2 2015 vs Year-to-date Q2 2014
The Other segment had a net income attributable to equity holders of $75 million, compared to $45 million last year. The increase
was mainly due to higher net gains on investment securities and lower taxes. Partly offsetting were lower contributions from asset/
liability management activities, the impact of foreign currency translation (including hedges), and higher expenses.
Geographic highlightsFor the three months ended For the six months ended
(Unaudited) ($ millions)
April 30
2015
January 31
2015
April 30
2014
April 30
2015
April 30
2014
Geographicsegment income
Canada
$ 1,046$ 969 $ 1,013$ 2,015$ 2,036
United States139172 164311256
Mexico105101 104206186
Peru114100 88214175
Other international421413 475834949
Corporate adjustments(28)(29) (44)(57)(93)
Net income$ 1,797$ 1,726 $ 1,800$ 3,523$ 3,509
Average assets($ billions)
Canada
$ 510$ 493 $ 470$ 500$ 464
United States124117 119121118
Mexico2525 242523
Peru2018 171917
Other international179170 154174153
Corporate adjustments1212 141112
$ 870$ 835 $ 798$ 850$ 787
Scotiabank Second Quarter Report 201541
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Quarterly Financial Highlights
For the three months ended
(Unaudited)
April 30
2015
January 31
2015
October 31
2014
July 31
2014
April 30
2014
January 31
2014
October 31
2013
(1)
July 31
2013
(1)
Total revenue($ millions)$ 5,937$ 5,863 $ 5,747 $ 6,487 $ 5,725 $ 5,645 $ 5,400 $ 5,515
Total revenue (TEB
(2)
)($ millions)6,0545,9555,848 6,576 5,8095,7255,477 5,594
Net income($ millions)1,7971,726 1,438 2,351 1,800 1,709 1,676 1,747
Basic earnings per share($)1.431.361.10 1.86 1.401.331.30 1.37
Diluted earnings per share($)1.421.35 1.10 1.85 1.39 1.32 1.29 1.36
(1) Prior period amounts are retrospectively adjusted to reflect the adoption of new and amended IFRS standards (IFRS 10 and IAS 19) in 2014.
(2) Refer to page 4 for a discussion of non-GAAP measures.
42Scotiabank Second Quarter Report 2015
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
Share Data
As at April 30, 2015
Amount
($ millions) Dividend
Dividend
rate
(%)
Number
outstanding
(000s)
Commonshares
(1)
$15,186 $ 0.68 – 1,209,962
Preferredshares
Preferred shares Series 14
(2)
345 0.281250 4.50 13,800
Preferred shares Series 15
(2)
345 0.281250 4.50 13,800
Preferred shares Series 16
(2)
345 0.328125 5.25 13,800
Preferred shares Series 17
(2)
230 0.350000 5.60 9,200
Preferred shares Series 18
(2)(3)(4)
187 0.209375 3.35 7,498
Preferred shares Series 19
(2)(3)(5)
158 0.161125 2.58 6,302
Preferred shares Series 20
(2)(3)(6)
201 0.225625 3.61 8,039
Preferred shares Series 21
(2)(3)(7)
149 0.139250 2.23 5,961
Preferred shares Series 22
(2)(3)(8)
234 0.239375 3.83 9,377
Preferred shares Series 23
(2)(3)(9)
66 0.150500 2.41 2,623
Preferred shares Series 30
(2)(3)(10)
154 0.113750 1.82 6,143
Preferred shares Series 31
(2)(3)(11)
111 0.095500 1.53 4,457
Preferred shares Series 32
(2)(3)(12)
409 0.231250 3.70 16,346
Trustsecurities
Amount
($ millions)
Distri-
bution Yield (%)
Number
outstanding
(000s)
Scotiabank Trust Securities –
Series 2006-1 issued by Scotiabank Capital Trust
(13a,c,d)
750 28.25 5.650 750
Scotiabank Tier 1 Securities –
Series 2009-1 issued by Scotiabank Tier 1 Trust
(13b,c,d)
650 39.01 7.802 650
NVCCSubordinated debentures
Amount
($ millions)
Interest
Rate (%)
Subordinated debentures due March 2027
(14)
1,250 2.58
Options
Number
outstanding
(000s)
Outstanding options granted under the Stock Option Plans to purchase common
shares
(1)(15)
23,983
(1) Dividends on common shares are paid quarterly. As at May 20, 2015, the number of outstanding common shares and options was 1,209,983 thousand and
23,966 thousand, respectively.
(2) These shares are entitled to non-cumulative preferential cash dividends payable quarterly.
(3) These preferred shares have conversion features (refer to Note 27 of the consolidated financial statements in the Bank’s 2014 Annual Report for further details).
(4) Subsequent to the initial five-year fixed rate period which ended on April 25, 2013, and resetting every five years thereafter, the dividends, if and when declared, will
be determined by the sum of the five-year Government of Canada Yield plus 2.05%, multiplied by $25.00.
(5) Dividends, if and when declared, are determined by the sum of the three-month Government of Canada Treasury Bill Yield plus 2.05%, multiplied by $25.00, which
will be reset quarterly until April 25, 2018.
(6) Subsequent to the initial five-year fixed rate period which ended on October 25, 2013, and resetting every five years thereafter, the dividends, if and when declared,
will be determined by the sum of the five-year Government of Canada Yield plus 1.70%, multiplied by $25.00.
(7) Dividends, if and when declared, are determined by the sum of the three-month Government of Canada Treasury Bill Yield plus 1.70%, multiplied by $25.00, which
will be reset quarterly until October 25, 2018.
(8) Subsequent to the initial five-year fixed rate period which ended on January 25, 2014, and resetting every five years thereafter, the dividends, if and when declared,
will be determined by the sum of the five-year Government of Canada Yield plus 1.88%, multiplied by $25.00.
(9) Dividends, if and when declared, are determined by the sum of the three-month Government of Canada Treasury Bill Yield plus 1.88%, multiplied by $25.00, which
will be reset quarterly until January 25, 2019.
(10) Subsequent to the initial five-year fixed rate period which ended on April 25, 2015, and resetting every five years thereafter, the dividends, if and when declared, will
be determined by the sum of the five-year Government of Canada Yield plus 1.00%, multiplied by $25.00. On April 27, 2015, 4,457 thousand of the 10,600 thousand
non-cumulative preferred shares Series 30 were converted into non-cumulative preferred shares Series 31.
(11) Dividends, if and when declared, are determined by the sum of the three-month Government of Canada Treasury Bill Yield plus 1.00%, multiplied by $25.00, which
will be reset quarterly until April 25, 2020.
(12) Dividends, if and when declared, are for the initial five-year period ending on February 1, 2016. Subsequent to the initial five-year fixed rate period, and resetting
every five years thereafter, the dividends will be determined by the sum of the five-year Government of Canada Yield plus 1.34%, multiplied by $25.00.
(13)(a) On September 28, 2006, Scotiabank Capital Trust issued 750,000 Scotiabank Trust Securities – Series 2006-1 (Scotia BaTS II Series 2006-1). The holders of Scotia
BaTS II Series 2006-1 are entitled to receive non-cumulative fixed cash distributions payable semi-annually in an amount of $28.25 per security. With regulatory
approval, these securities may be redeemed in whole upon the occurrence of certain tax or regulatory capital changes, or in whole or in part on December 30, 2011 and
on any distribution date thereafter at the option of Scotiabank Capital Trust. The holder has the right at any time to exchange their security into Non-cumulative
Preferred Shares Series S of the Bank. The Series S shares will be entitled to cash dividends payable semi-annually in an amount of $0.4875 per $25.00 share [refer to
Notes 26 and 27 – Restrictions on dividend payments in the Bank’s 2014 Annual Report]. Under the circumstances outlined in 12(c) below, the Scotia BaTS II Series
2006-1 would be automatically exchanged without the consent of the holder, into Non-cumulative Preferred Shares Series T of the Bank. The Series T shares will be
entitled to non-cumulative cash dividends payable semi-annually in an amount of $0.625 per $25.00 share. If there is an automatic exchange of the Scotia BaTS II
Series 2006-1 into Preferred Shares Series T of the Bank, then the Bank would become the sole beneficiary of the Trust.
(13)(b) On May 7, 2009, Scotiabank Tier 1 Trust issued 650,000 Scotiabank Tier 1 Securities Series 2009-1 (Scotia BaTS III Series 2009-1). Interest is payable semi-annually in
an amount of $39.01 per Scotia BaTS III Series 2009-1 on the last day of June and December until June 30, 2019. After June 30, 2019 and on every fifth anniversary
thereafter until June 30, 2104, the interest rate on the Scotia BaTS III Series 2009-1 will be reset at an interest rate per annum equal to the then prevailing 5-year
Government of Canada Yield plus 7.05%. On or after June 30, 2014, the Trust may, at its option redeem the Scotia BaTS III Series 2009-1, in whole or in part, subject to
regulatory approval. Under the circumstances outlined in 12(c) below, the Scotia BaTS III Series 2009-1, including accrued and unpaid interest thereon, would be
exchanged automatically without the consent of the holder, into newly issued Non-cumulative Preferred Shares Series R of the Bank. In addition, in certain
circumstances, holders of Scotia BaTS III Series 2009-1 may be required to invest interest paid on the Scotia BaTS III Series 2009-1 in a series of newly-issued preferred
shares of the Bank with non-cumulative dividends (each such series is referred to as Bank Deferral Preferred Shares). If there is an automatic exchange of the Scotia
BaTS Preferred Shares, then the Bank would become the sole beneficiary of the Trust.
(13)(c) The Scotia BaTS II Series 2006-1 and Scotia BaTS III Series 2009-1 may be automatically exchanged, without the consent of the holder, into Non-cumulative Preferred
Shares of the Bank in the following circumstances: (i) proceedings are commenced for the winding-up of the Bank; (ii) the Superintendent takes control of the Bank or
its assets; (iii) the Bank has a Tier 1 Capital ratio of less than 5% or a Total Capital ratio of less than 8%; or (iv) the Superintendent has directed the Bank to increase
its capital or provide additional liquidity and the Bank elects such automatic exchange or the Bank fails to comply with such direction.
Scotiabank Second Quarter Report 201543
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
(13)(d) No cash distributions will be payable on the Scotia BaTS II Series 2006-1 and Scotia BaTS III Series 2009-1 in the event that the regular dividend is not declared on the
Bank’s preferred shares and, if no preferred shares are outstanding, the Bank’s common shares. In such a circumstance the net distributable funds of the Trust will be
payable to the Bank as the holder of the residual interest in the Trust. Should the Trust fail to pay the semi-annual distributions on the Scotia BaTS II Series 2006-1 and
Scotia BaTS III Series 2009-1 in full, the Bank will not declare dividends of any kind on any of its preferred or common shares for a specified period of time [refer to
Notes 26 and 27 – Restrictions on dividend payments in the Bank’s 2014 Annual Report].
(14) On March 30, 2015, the Bank issued $1.25 billion subordinated debentures due March 30, 2027. The debentures contain non-viability contingent capital (NVCC)
provisions. Under such NVCC provisions, the debentures are convertible into a variable number of common shares if OSFI announces that the Bank has ceased, or is
about to cease, to be viable, or if a federal or provincial government in Canada publicly announces that the Bank has accepted or agreed to accept a capital injection,
or equivalent support, from the federal government or any provincial government or political subdivision or agent thereof without which the Bank would have been
determined by OSFI to be non-viable. If such a conversion were to occur, the debentures would be converted into common shares pursuant to an automatic conversion
formula defined as 150% of the par value plus accrued and unpaid interested divided by the conversion price. The conversion price is based on the greater of: (i) a
floor price of $5.00 (subject to adjustments in certain events as set out in the prospectus supplement March 23, 2015), and (ii) the current market price of the Bank’s
common shares at the time of the trigger event (10-day weighted average). Based on the floor price of $5.00 and excluding the impact of accrued and unpaid interest
(if any) and declared but unpaid dividends (if any), the maximum number of common shares issuable on conversion of the debentures would be 375 million shares,
which would represent a dilution impact of 31% based on the common shares outstanding as at April 30, 2015.
(15) Included are 224,144 stock options with tandem stock appreciation rights (Tandem SAR) features.
Further details, including convertibility features, are available in Notes 23, 26, 27 and 29 of the Bank’s consolidated financial
statements in the 2014 Annual Report.
44Scotiabank Second Quarter Report 2015
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Consolidated Statement of Financial Position
As at
(Unaudited) ($ millions)Note
April 30
2015
January 31
2015
October 31
2014
Assets
Cash and deposits with financial institutions
5$ 60,664$ 65,894 $ 56,730
Precious metals8,4389,698 7,286
Trading assets
Securities
92,09586,695 95,363
Loans17,27918,990 14,508
Other3,7463,934 3,377
113,120109,619 113,248
Financial instruments designated at fair value through profit or loss129119 111
Securities purchased under resale agreements and securities borrowed98,20587,217 93,866
Derivative financial instruments37,66955,435 33,439
Investment securities639,82840,905 38,662
Loans
Residential mortgages
213,522214,791 212,648
Personal and credit cards86,18685,929 84,204
Business and government139,944142,984 131,098
439,652443,704 427,950
Allowance for credit losses8(b)3,6943,788 3,641
435,958439,916 424,309
Other
Customers’ liability under acceptances
13,54911,898 9,876
Property and equipment2,1822,334 2,272
Investments in associates93,8453,907 3,461
Goodwill and other intangible assets10,92311,068 10,884
Deferred tax assets2,0312,354 1,763
Other assets10,62011,509 9,759
43,15043,070 38,015
Total assets$ 837,161$ 851,873 $ 805,666
Liabilities
Deposits
Personal
10$ 180,312$ 180,973 $ 175,163
Business and government10358,400364,260 342,367
Financial institutions1036,56939,365 36,487
575,281584,598 554,017
Financial instruments designated at fair value through profit or loss1,102736 465
Other
Acceptances
13,54911,898 9,876
Obligations related to securities sold short22,84322,784 27,050
Derivative financial instruments43,61357,725 36,438
Obligations related to securities sold under repurchase agreements and securities lent89,67679,322 88,953
Subordinated debentures116,1344,973 4,871
Other liabilities34,02038,656 34,785
209,835215,358 201,973
Total liabilities786,218800,692 756,455
Equity
Common equity
Common shares
1115,18615,173 15,231
Retained earnings29,98429,103 28,609
Accumulated other comprehensive income (loss)1,3622,436 949
Other reserves180181 176
Total common equity46,71246,893 44,965
Preferred shares112,9342,934 2,934
Total equity attributable to equity holders of the Bank49,64649,827 47,899
Non-controlling interests in subsidiaries1,2971,354 1,312
Total equity50,94351,181 49,211
Total liabilities and equity$ 837,161$ 851,873 $ 805,666
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Scotiabank Second Quarter Report 201545
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Consolidated Statement of Income
For the three months ended For the six months ended
(Unaudited) ($ millions)Note
April 30
2015
January 31
2015
April 30
2014
April 30
2015
April 30
2014
Revenue
Interest income
Loans
$ 4,561$ 4,707 $ 4,478$ 9,268$ 8,960
Securities235233 240468474
Securities purchased under resale agreements and securities borrowed3840 487891
Deposits with financial institutions7469 66143136
4,9085,049 4,8329,9579,661
Interest expense
Deposits
1,4961,575 1,4983,0713,064
Subordinated debentures4345 5588113
Other171260 228431428
1,7101,880 1,7813,5903,605
Net interest income3,1983,169 3,0516,3676,056
Non-interest income
Banking
16818810 7451,6281,548
Wealth management16824799 7471,6231,478
Underwriting and other advisory173130 146303299
Non-trading foreign exchange116124 98240207
Trading revenues340320 344660669
Net gain on sale of investment securities139182 219321361
Net income from investments in associated corporations9990 127189262
Insurance underwriting income, net of claims137130 112267227
Other93109 136202263
2,7392,694 2,6745,4335,314
Total revenue5,9375,863 5,72511,80011,370
Provision for credit losses448463 375911731
5,4895,400 5,35010,88910,639
Non-interest expenses
Salaries and employee benefits
1,6901,714 1,5803,4043,285
Premises and technology502490 476992945
Depreciation and amortization144139 129283258
Communications110106 105216207
Advertising and business development132128 147260272
Professional129114 106243214
Business and capital taxes9887 74185149
Other419419 378838770
3,2243,197 2,9956,4216,100
Income before taxes2,2652,203 2,3554,4684,539
Income tax expense468477 5559451,030
Net income$ 1,797$ 1,726 $ 1,800$ 3,523$ 3,509
Net income attributable to non-controlling interests in subsidiaries4047 5887112
Net income attributable to equity holders of the Bank1,7571,679 1,7423,4363,397
Preferred shareholders3030 436091
Common shareholders$ 1,727$ 1,649 $ 1,699$ 3,376$ 3,306
Earningsper commonshare(in dollars)
Basic
17$ 1.43$ 1.36 $ 1.40$ 2.78$ 2.73
Diluted17$ 1.42$ 1.35 $ 1.39$ 2.77$ 2.71
Certain prior period amounts for April 30, 2014 have been restated to conform to the current period presentation.
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
46Scotiabank Second Quarter Report 2015
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Consolidated Statement of Comprehensive Income
For the three months ended For the six months ended
(Unaudited) ($ millions)
April 30
2015
January 31
2015
April 30
2014
April 30
2015
April 30
2014
Net income$ 1,797$ 1,726 $ 1,800$ 3,523$ 3,509
Other comprehensive income (loss)
Itemsthat will be reclassifiedsubsequently to net income
Net change in unrealized foreign currency translation gains (losses):
Net unrealized foreign currency translation gains (losses)
(2,143)3,421 (467)1,2781,189
Net gains (losses) on hedges of net investments in foreign operations828(1,489) 159(661)(644)
Income tax expense (benefit):
Net unrealized foreign currency translation gains (losses)
(19)35 (3)1619
Net gains (losses) on hedges of net investments in foreign operations218(381) 43(163)(169)
(1,514)2,278 (348)764695
Net change in unrealized gains (losses) on available-for-sale securities:
Net unrealized gains (losses) on available-for-sale securities
(165)560 181395460
Reclassification of net (gains) losses to net income
(1)
134(660) (178)(526)(433)
Income tax expense (benefit):
Net unrealized gains (losses) on available-for-sale securities
(29)125 5396129
Reclassification of net (gains) losses to net income28(179) (57)(151)(133)
(30)(46) 7(76)31
Net change in gains (losses) on derivative instruments designated as cash flow hedges:
Net gains (losses) on derivative instruments designated as cash flow hedges
(732)679 (31)(53)708
Reclassification of net (gains) losses to net income877(814) 7563(769)
Income tax expense (benefit):
Net gains (losses) on derivative instruments designated as cash flow hedges
(232)212 (9)(20)218
Reclassification of net (gains) losses to net income270(248) 2122(232)
107(99) 328(47)
Other comprehensive income from investments in associates215 (3)1718
Itemsthat will not be reclassifiedsubsequently to net income
Net change in remeasurement of employee benefit plan asset and liability:
Actuarial gains (losses) on employee benefit plans
405(865) (63)(460)(141)
Income tax expense (benefit)102(224) (14)(122)(33)
303(641) (49)(338)(108)
Net change in fair value due to change in own credit risk on financial liabilities
designated under the fair value option
(2)
:
Change in fair value due to change in own credit risk on financial liabilities designated
under the fair value option
(4)4 –––
Income tax expense (benefit)(1)1 –––
(3)3 –––
Other comprehensive income from investments in associates1– (2)1(2)
Other comprehensive income (loss)(1,134)1,510 (363)376587
Comprehensive income$ 663$ 3,236 $ 1,437$ 3,899$ 4,096
Comprehensive income (loss) attributable to non-controlling interests(20)65 9745144
Comprehensive income attributable to equity holders of the Bank6833,171 1,3403,8543,952
Preferred shareholders3030 436091
Common shareholders$ 653$ 3,141 $ 1,297$ 3,794$ 3,861
(1) Includes amounts related to qualifying hedges.
(2) In accordance with the transition requirements for the own credit risk provisions of IFRS 9, prior year comparatives have not been restated for the
adoption of this standard in 2015 (refer to Note 3).
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Scotiabank Second Quarter Report 201547
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Consolidated Statement of Changes in Equity
Accumulated other comprehensive income (loss) Non-controlling interests
(Unaudited) ($ millions)
Common
shares
Retained
earnings
(1)
Foreign
currency
translation
Available-
for-sale
securities
Cash
flow
hedges
Share
from
associates
(2)
Employee
benefits
(2)
Own
credit
risk
(2)
Other
reserves
(3)
Total
common
equity
Preferred
shares
Total
common and
preferred
equity
Non-controlling
interests in
subsidiaries
Capital
instrument
equity
holders Total
Balance a
s
at November
1
, 20
1
4
$ 15,231 $ 28,609 $ 700 $ 664 $ (48) $ 113 $ (480) $ – $ 176 $ 44,965 $ 2,934 $ 47,899 $ 1,312 $ – $ 49,211
Opening adjustment
(4)
– 5 – – – – – (5) – – – – – – –
Restated balances
15,231 28,614 700 664 (48) 113 (480) (5) 176 44,965 2,934 47,899 1,312 – 49,211
Net income
– 3,376 – – – – – – – 3,376 60 3,436 87 – 3,523
Other comprehensive income (loss)
– – 809 (77) 8 18 (340) – – 418 – 418 (42) – 376
Total comprehen
s
ive income
$ – $ 3,376 $ 809 $ (77) $ 8 $ 18 $ (340) $ – $ – $ 3,794 $ 60 $ 3,854 $ 45 $ – $ 3,899
Shares issued
49 – – – – – – – (7) 42 – 42 – – 42
Shares repurchased/redeemed
(94) (380) – – – – – – – (474) – (474) – – (474)
Common dividends paid
– (1,625) – – – – – – – (1,625) – (1,625) – – (1,625)
Preferred dividends paid
– – – – – – – – – – (60) (60) – – (60)
Distributions to non-controlling interests
– – – – – – – – – – – – (58) – (58)
Share-based payments
– – – – – – – – 11 11 – 11 – – 11
Other
– (1) – – – – – – – (1) – (1) (2) – (3)
Balance a
s
at April 30, 20
1
5
$ 15,186 $ 29,984 $ 1,509 $ 587 $ (40) $ 131 $ (820) $ (5) $ 180 $ 46,712 $ 2,934 $ 49,646 $ 1,297 $ – $ 50,943
Balance a
s
at November
1
, 20
1
3
$ 14,516 $ 25,315 $ (173) $ 705 $ (42) $ 55 $ – $ – $ 193 $ 40,569 $ 4,084 $ 44,653 $ 1,155 $ 743 $ 46,551
Opening adjustment
(5)
– (247) – – – – (157) – – (404) – (404) (17) (743) (1,164)
Restated balances
14,516 25,068 (173) 705 (42) 55 (157) – 193 40,165 4,084 44,249 1,138 – 45,387
Net income
– 3,306 – – – – – – – 3,306 91 3,397 112 – 3,509
Other comprehensive income (loss)
– – 665 30 (47) 16 (109) – – 555 – 555 32 – 587
Total comprehen
s
ive income
$ – $ 3,306 $ 665 $ 30 $ (47) $ 16 $ (109) $ – $ – $ 3,861 $ 91 $ 3,952 $ 144 $ – $ 4,096
Shares issued
483 3 – – – – – – (22) 464 – 464 – – 464
Shares redeemed
– – – – – – – – – – (850) (850) – – (850)
Common dividends paid
– (1,528) – – – – – – – (1,528) – (1,528) – – (1,528)
Preferred dividends paid
– – – – – – – – – – (91) (91) – – (91)
Distributions to non-controlling interests
– – – – – – – – – – – – (51) – (51)
Share-based payments
– – – – – – – – 24 24 – 24 – – 24
Other
– – – – – – – – – – – – 6
(6)
– 6
Balance a
s
at April 30, 20
1
4
$ 14,999 $ 26,849 $ 492 $ 735 $ (89) $ 71 $ (266) $ – $ 195 $ 42,986 $ 3,234 $ 46,220 $ 1,237 $ – $ 47,457
(1) Includes undistributed retained earnings of $57 (April 30, 2014 – $46) related to a foreign associated corporation, which is subject to local regulatory restriction.(2) Represents amounts that will not be reclassified subsequently to net income. Share from associates $1 (April 30, 2014 – $(2)) will not be reclassified subsequently to net income.(3) Represents amounts on account of share-based payments (refer to Note 13).(4) Adjusted to reflect the adoption of the own credit risk provisions of IFRS 9 pertaining to financial liabilities designated at fair value through profit or loss (refer to Note 3).(5) Certain prior period amounts are retrospectively adjusted to reflect the adoption of new and amended IFRS standards (IFRS 10 and IAS 19) in 2014 (refer to Note 4 of the Bank’s consolidated
financial statements in the 2014 Annual Report).
(6) Includes changes to non-controlling interests arising from business combinations.The accompanying notes are an integral part of these condensed interim consolidated financial statements.
48Scotiabank Second Quarter Report 2015
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Consolidated Statement of Cash Flows
(Unaudited) ($ millions)For the three months ended For the six months ended
Sources (uses) of cash flows
April 30
2015
April 30
2014
April 30
2015
April 30
2014
Cash flowsfrom operating activities
Net income
$ 1,797$ 1,800$ 3,523$ 3,509
Adjustment for:
Net interest income
(3,198)(3,051)(6,367)(6,056)
Depreciation and amortization144129283258
Provision for credit losses448375911731
Equity-settled share-based payment expense241124
Net gain on sale of investment securities(139)(219)(321)(361)
Net income from investments in associated corporations(99)(127)(189)(262)
Provision for income taxes4685559451,030
Changes in operating assets and liabilities:
Trading assets
(6,804)(5,118)2,322(18,547)
Securities purchased under resale agreements and securities borrowed(14,221)(1,419)(1,723)2,447
Loans(3,933)(5,914)(7,826)(12,169)
Deposits6,38715,4878,24922,142
Obligations related to securities sold short736762(4,361)1,882
Obligations related to assets sold under repurchase agreements and securities lent13,578976(1,981)7,552
Net derivative financial instruments3,1521,9153,128(351)
Other, net(2,821)(1,407)2,1602,223
Dividends received341255611495
Interest received4,4104,4869,3409,089
Interest paid(1,643)(1,839)(3,750)(3,973)
Income tax paid(682)(465)(1,192)(964)
Net cash from/(used in) operating activities(2,077)7,1853,7738,699
Cash flowsfrom investing activities
Interest-bearing deposits with financial institutions
1,794(4,929)(632)(3,697)
Purchase of investment securities(10,959)(12,171)(24,236)(26,379)
Proceeds from sale and maturity of investment securities10,30812,77923,48124,728
Acquisition/sale of subsidiaries, associated corporations or business units,
net of cash acquired
–––15
Property and equipment, net of disposals(1)(51)(59)(112)
Other, net8845(364)(71)
Net cash from/(used in) investing activities1,230(4,327)(1,810)(5,516)
Cash flowsfrom financing activities
Proceeds from subordinated debentures
1,236–1,236–
Redemption/repayment of subordinated debentures–(1,000)–(1,000)
Redemption of preferred shares–(600)–(850)
Proceeds from common shares issued1910947478
Common shares purchased for cancellation(29)–(474)–
Cash dividends paid(853)(821)(1,685)(1,619)
Distributions to non-controlling interests(37)(33)(58)(51)
Other, net(2)(247)(849)176
Net cash from/(used in) financing activities334(2,592)(1,783)(2,866)
Effect of exchange rate changes on cash and cash equivalents(253)(30)108184
Net change in cash and cash equivalents(766)236288501
Cash and cash equivalents at beginning of period
(1)
6,8825,7145,8285,449
Cash and cash equivalents at end of period
(1)
$ 6,116$ 5,950$ 6,116$ 5,950
(1) Represents cash and non-interest-bearing deposits with financial institutions (refer to Note 5).
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Scotiabank Second Quarter Report 201549
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NOTES TO THE Q2 2015
Condensed Interim Consolidated Financial Statements (unaudited)
TABLE OF CONTENTS
Page Note
511. Reporting entity
512. Basis of preparation
513. Significant accounting policies
524. Future accounting developments
535. Cash and deposits with financial institutions
536. Investment securities
547. Derecognition of financial assets
558. Impaired loans and allowance for credit losses
579. Investments in associates
5810. Deposits
5811. Capital and financing transactions
5912. Capital management
6113. Share-based payments
6214. Employee benefits
6215. Operating segments
6516. Non-interest income
6617. Earnings per share
6618. Financial instruments
7719. Contractual maturities
7920. Events after the Consolidated Statement of Financial Position date
50Scotiabank Second Quarter Report 2015
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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 Scotia Plaza, 44 King Street West, Toronto, Canada. The common
shares of the Bank are listed on the Toronto Stock Exchange and the New York Stock Exchange.
2. Basis of preparation
Statement of compliance
These condensed interim consolidated financial statements of the Bank have been prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB),
which is in line with the requirements of Section 308 of the Bank Act. 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 consolidated financial statements
for the year ended October 31, 2014.
The condensed interim consolidated financial statements for the quarter ended April 30, 2015 have been approved by the
Board of Directors for issue on May 29, 2015.
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 held-for-trading
• Financial assets and liabilities designated at fair value through profit or loss
• Derivative financial instruments
• Available-for-sale investment securities
Functionaland 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 estimatesand judgments
The preparation of financial statements, in conformity with IFRS, requires management to make estimates, apply
judgments and make assumptions that affect the reported amount of assets and liabilities at the date of the financial
statements, and income and expenses during the reporting period. 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
investment securities, impairment of non-financial assets, determination of the control of structured entities, de facto
control of other entities, and provisions. Actual results could differ from these estimates.
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, 2014. Except for the changes in accounting policies
described below, the significant accounting policies used in the preparation of these condensed interim consolidated
financial statements are consistent with those used in the Bank’s audited consolidated financial statements for the year
ended October 31, 2014. Note 3 of the Bank’s consolidated financial statements in the 2014 Annual Report describes the
Bank’s significant accounting policies.
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Changes inaccounting policies
The Bank has adopted the following new accounting standards issued by the IASB effective November 1, 2014.
Own credit risk of liabilities designatedat fair value through profit or loss (IFRS - 9)
The own credit risk provisions of IFRS 9,Financial Instruments, changes the accounting for liabilities designated at fair
value through profit or loss such that changes in fair value arising from changes in the Bank’s own credit risk are
recognized in other comprehensive income unless doing so creates or increases an accounting mismatch. Cumulative fair
value changes related to own credit risk recognized in other comprehensive income cannot be subsequently reclassified to
net income. This replaces the previous requirement in IAS 39,Financial Instruments: Recognition and Measurement,
to recognize such changes in net income.
In July 2014, the IASB issued the final IFRS 9 standard which permitted entities to early adopt this requirement prior to
the IFRS 9 mandatory effective date of January 1, 2018. The Bank early adopted this requirement as it relates to deposit
note liabilities designated at fair value through profit or loss, effective November 1, 2014. This change was applied
retrospectively. However, in accordance with the IFRS 9 transition provisions, prior year comparatives have not been
restated. The impact of this change on opening retained earnings was an increase of $5 million and on accumulated other
comprehensive income was a decrease of $5 million.
Levies
IFRIC 21,Levies, provides guidance on when to recognize a liability to pay a levy imposed by government that is
accounted for in accordance with IAS 37,Provisions, Contingent Liabilities and Contingent Assets,and also for a
liability to pay a levy whose timing and amount is certain. The interpretation clarifies that an obligating event, as identified
by the legislation would trigger the recognition of a liability to pay a levy. While the interpretation discusses the timing of
the recognition, it does not change the measurement of the amount to be recognized. The adoption of IFRIC 21 did not
have a significant impact on the Bank.
Presentation
The amendments to IAS 32,Financial Instruments: Presentation, clarifies the requirements relating to offsetting
financial assets and financial liabilities. The adoption of these amendments did not have a significant impact on the Bank.
4. Future accounting developments
The Bank actively monitors developments and changes in accounting standards from the IASB as well as regulatory
requirements from the Canadian Securities Administrators and OSFI.
The Bank is currently assessing the impact the adoption of new and revised standards issued by the IASB will have on its
consolidated financial statements.
The IASB issued IFRS 9,Financial Instruments,which will replace IAS 39,Financial Instruments: Recognition and
Measurement,effective for annual periods beginning on or after January 1, 2018. On January 9, 2015, OSFI issued an
advisory on the early adoption of IFRS 9 for Domestic Systematically Important Banks (D-SIBs) for annual reporting
periods beginning on November 1, 2017. The Bank has been identified as a D-SIB and is required to adopt IFRS 9 effective
November 1, 2017.
There are no other significant updates to the future accounting developments effective after November 1, 2014, as
reflected in Note 5 of the Bank’s consolidated financial statements in the 2014 Annual Report.
52Scotiabank Second Quarter Report 2015
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5. Cash and deposits with financial institutions
As at
($ millions)
April 30
2015
January 31
2015
October 31
2014
Cash and non-interest-bearing deposits with financial institutions$ 6,116$ 6,882 $ 5,828
Interest-bearing deposits with financial institutions54,54859,012 50,902
Total$ 60,664$ 65,894 $ 56,730
The Bank is required to maintain balances with central banks, other regulatory authorities and certain counterparties and
these amount to $5,000 million (January 31, 2015 – $4,851 million; October 31, 2014 – $4,628 million).
6. Investment securities
Investment securities includes held-to-maturity securities of $174 million (January 31, 2015 – $183 million; October 31,
2014 – $166 million) and available-for-sale securities of $39,654 million (January 31, 2015 – $40,722 million; October 31,
2014 – $38,496 million).
An analysis of unrealized gains and losses on available-for-sale securities is as follows:
As at April 30, 2015
($ millions)Cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Canadian federal government issued or guaranteed debt$ 7,342 $ 252 $ 2 $ 7,592
Canadian provincial and municipal debt3,642 34 1 3,675
U.S. treasury and other U.S. agencies’ debt5,476 22 5 5,493
Other foreign governments’ debt12,683 34 21 12,696
Bonds of designated emerging markets39 7 1 45
Other debt6,409 81 7 6,483
Preferred shares407 13 121 299
Common shares2,479 919 27 3,371
Total available-for-sale securities$ 38,477 $ 1,362 $ 185 $ 39,654
As at January 31, 2015
($ millions)Cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Canadian federal government issued or guaranteed debt$ 7,370 $ 374 $ – $ 7,744
Canadian provincial and municipal debt3,587 50 – 3,637
U.S. treasury and other U.S. agencies’ debt5,798 47 3 5,842
Other foreign governments’ debt12,541 63 22 12,582
Bonds of designated emerging markets42 8 1 49
Other debt6,615 93 6 6,702
Preferred shares409 14 100 323
Common shares2,875 1,024 56 3,843
Total available-for-sale securities$ 39,237 $ 1,673 $ 188 $ 40,722
As at October 31, 2014
($ millions)Cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Canadian federal government issued or guaranteed debt$ 6,704 $ 147 $ – $ 6,851
Canadian provincial and municipal debt3,284 20 1 3,303
U.S. treasury and other U.S. agencies’ debt6,218 11 3 6,226
Other foreign governments’ debt10,940 60 17 10,983
Bonds of designated emerging markets39 7 1 45
Other debt6,666 128 7 6,787
Preferred shares412 15 59 368
Common shares3,097 871 35 3,933
Total available-for-sale securities$ 37,360 $ 1,259 $ 123 $ 38,496
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The net unrealized gain on available-for-sale securities of $1,177 million (January 31, 2015 – $1,485 million; October 31,
2014 – $1,136 million) decreases to a net unrealized gain of $716 million (January 31, 2015 – $747 million; October 31,
2014 – $847 million) after the impact of qualifying hedges is taken into account. The net unrealized gain on available-for-
sale securities is recorded in accumulated other comprehensive income.
7. Derecognition of financial assets
Securitization of residential mortgage loans
The Bank securitizes fully insured residential mortgage loans, Bank originated and others, through the creation of
mortgage backed securities (MBS) under the National Housing Act (NHA) MBS program, sponsored by Canada Mortgage
Housing Corporation (CMHC). MBS created under the program are sold to Canada Housing Trust (the Trust), a
government sponsored entity under the Canada Mortgage Bond (CMB) program, and/or to third-party investors. The
Trust issues securities to third-party investors.
The sale of mortgages under the above programs does not meet the derecognition requirements, as the Bank retains the
pre-payment and interest rate risks associated with the mortgages, which represents substantially all the risk and rewards
associated with the transferred assets.
The transferred mortgages continue to be recognized on the Consolidated Statement of Financial Position as residential
mortgage loans. Cash proceeds from the transfer are treated as secured borrowings and included in Deposits – Business
and government on the Consolidated Statement of Financial Position.
The following table provides the carrying amount of transferred assets that do not qualify for derecognition and the
associated liabilities:
As at
($ millions)
April 30
2015
(1)
January 31
2015
(1)
October 31
2014
(1)
Assets
Carrying value of residential mortgage loans
$ 18,629$ 18,384 $ 17,969
Other related assets
(2)
1,8492,130 2,425
Liabilities
Carrying value of associated liabilities
20,46620,527 20,414
(1) The fair value of the transferred assets is $20,589 (January 31, 2015 – $20,549; October 31, 2014 – $20,430) and the fair value of the associated
liabilities is $21,097 (January 31, 2015 – $21,412; October 31, 2014 – $20,791) for a net position of $(508) (January 31, 2015 – $(863);
October 31, 2014 – $(361)).
(2) These include cash held in trust and trust permitted investment assets acquired as part of principal reinvestment account that the Bank is
required to maintain in order to participate in the programs.
Securitization of personal loans
The Bank securitizes a portion of its unsecured personal line of credit receivables on a revolving basis through a
consolidated structured entity. The receivables continue to be recognized on the Consolidated Statement of Financial
Position as personal loans.
Securities sold under repurchase agreements and securities lent
The Bank enters into transactions, such as repurchase agreements and securities lending agreements, where the Bank
transfers assets under agreements to repurchase them on a future date and retains all the substantial risks and rewards
associated with the assets. The transferred securities remain on the Consolidated Statement of Financial Position along
with the cash collateral received from the counterparty that is classified as deposit liabilities.
54Scotiabank Second Quarter Report 2015
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The following table provides the carrying amount of the transferred assets and the associated liabilities:
As at
($ millions)
April 30
2015
(1)
January 31
2015
(1)
October 31
2014
(1)
Carrying value of securities associated with:
Repurchase agreements
(2)
$ 79,971$ 69,285 $ 80,335
Securities lending agreements45,40940,086 37,110
Total125,380109,371 117,445
Carrying value of associated liabilities
(3)
$ 89,676$ 79,322 $ 88,953
(1) The fair value of transferred assets is $125,380 (January 31, 2015 – $109,371; October 31, 2014 – $117,445) and the fair value of the associated
liabilities is $89,676 (January 31, 2015 – $79,322; October 31, 2014 – $88,953), for a net position of $35,704 (January 31, 2015 – $30,049;
October 31, 2014 – $28,492).
(2) Does not include over-collateralization of assets pledged.
(3) Liabilities for securities lending arrangements only include amounts related to cash collateral received. In most cases, securities are received as
collateral.
8. Impaired loans and allowance for credit losses
(a) Impaired loans
(1)(2)(3)
April 30, 2015
($ millions)
Gross
impaired
loans
Allowance for
credit losses Net
Business and government$ 1,503 $ 573
(4)
$ 930
Residential mortgages1,598 381
(5)
1,217
Personal and credit cards1,296 1,271
(5)
25
Total$ 4,397 $ 2,225 $ 2,172
By geography:
Canada
$ 430
United States19
Other international1,723
Total$ 2,172
As at
January 31, 2015
October 31, 2014
($ millions)
Gross
impaired
loans
(6)
Allowance for
credit losses Net
Gross
impaired
loans
Allowance for
credit losses Net
Business and government$ 1,526 $ 600
(4)
$ 926 $ 1,455 $ 614
(4)
$ 841
Residential mortgages1,714 408
(5)
1,306 1,491 359
(5)
1,132
Personal and credit cards1,349 1,315
(5)
34 1,254 1,225
(5)
29
Total$ 4,589 $ 2,323 $ 2,266 $ 4,200 $ 2,198 $ 2,002
By geography:
Canada
$ 511 $ 378
United States26 11
Other international1,729 1,613
Total$ 2,266 $ 2,002
(1) Interest income recognized on impaired loans during the three months ended April 30, 2015 was $3 (January 31, 2015 – $7; October 31, 2014 –
$6).
(2) Additional interest income of approximately $78 would have been recorded if the above loans had not been classified as impaired (January 31,
2015 – $85; October 31, 2014 – $73).
(3) Excludes Federal Deposit Insurance Corporation (FDIC) guaranteed loans related to the acquisition of R-G Premier Bank of Puerto Rico.
(4) Allowance for credit losses for business and government loans is individually assessed.
(5) Allowance for credit losses for residential mortgages and personal and credit card loans is assessed on a collective basis.
(6) Includes acceptances.
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(b) Allowance for credit losses
As at and for the six months ended April 30, 2015
($ millions)
Balance at
beginning
of year Write-offs Recoveries
Provision
for credit
losses
Other, including
foreign currency
adjustment
Balance
at end
of period
Individual$ 614 $ (203) $ 29 $ 109 $ 24 $ 573
Collective2,856 (940) 179 806 23 2,924
Total before FDIC guaranteed loans3,470 (1,143) 208 915 47 3,497
FDIC guaranteed loans
(1)
171 – 18 (4) 12 197
Total allowances$ 3,641 $ (1,143) $ 226 $ 911 $ 59 $ 3,694
As at and for the three months ended January 31, 2015
($ millions)
Balance at
beginning
of year
Write-offs Recoveries
Provision
for credit
losses
Other, including
foreign currency
adjustment
Balance
at end
of period
Individual$ 614 $ (170) $ 15 $ 63 $ 78 $ 600
Collective2,856 (438) 89 406 82 2,995
Total before FDIC guaranteed loans3,470 (608) 104 469 160 3,595
FDIC guaranteed loans
(1)
171 – 6 (6) 22 193
Total allowances$ 3,641 $ (608) $ 110 $ 463 $ 182 $ 3,788
As at and for the twelve months ended October 31, 2014
($ millions)
Balance at
beginning
of year
Write-offs Recoveries
Provision
for credit
losses
Other, including
foreign currency
adjustment
Balance
at end
of year
Individual$ 561 $ (338) $ 93 $ 265 $ 33 $ 614
Collective2,604 (1,559) 399 1,403 9 2,856
Total before FDIC guaranteed loans3,165 (1,897) 492 1,668 42 3,470
FDIC guaranteed loans
(1)
108 – 18 35 10 171
$ 3,273 $ (1,897) $ 510 $ 1,703 $ 52 $ 3,641
Represented by:
As at
($ millions)
April 30
2015
January 31
2015
October 31
2014
Allowance against impaired loans
$ 2,225$ 2,323 $ 2,198
Allowance against performing loans
(2)
1,2721,272 1,272
Total before FDIC guaranteed loans3,4973,595 3,470
FDIC guaranteed loans
(1)
197193 171
$ 3,694$ 3,788 $ 3,641
(1) This represents the gross amount of allowance for credit losses as the receivable from FDIC is separately recorded in other assets.
(2) The allowance for performing loans is attributable to business and government loans $527 (January 31, 2015 – $551; October 31, 2014 – $584)
with the remainder allocated to personal and credit card loans $588 (January 31, 2015 – $561; October 31, 2014 – $527) and residential
mortgages $157 (January 31, 2015 – $160; October 31, 2014 – $161).
(c) Total FDIC guaranteed loans
As at
($ millions)
April 30
2015
January 31
2015
October 31
2014
R-G Premier Bank
Unpaid principal balance
$ 2,622$ 2,909 $ 2,688
Fair value adjustments(251)(344) (357)
Net carrying value2,3712,565 2,331
Allowance for credit losses(197)(193) (171)
$ 2,174$ 2,372 $ 2,160
Loans purchased as part of the acquisition of R-G Premier Bank of Puerto Rico are subject to loss share agreements with
the FDIC. Under these agreements, the FDIC guarantees 80% of loan losses. Claims for losses under these guarantees
expire in June 2015 and April 2020 for non-single family loans and loans for single family homes, respectively. The
provision for credit losses in the Consolidated Statement of Income related to these loans is reflected net of the amount
expected to be reimbursed by the FDIC.
56Scotiabank Second Quarter Report 2015
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Allowance for credit losses in the Consolidated Statement of Financial Position is reflected on a gross basis. As at April 30,
2015 the carrying value of loans guaranteed by FDIC was $2.2 billion (January 31, 2015 – $2.4 billion; October 31, 2014 –
$2.2 billion) with a net receivable of $220 million (January 31, 2015 – $265 million; October 31, 2014 – $275 million) from
the FDIC included in Other assets in the Consolidated Statement of Financial Position.
(d) Loans past due but not impaired
(1)
A loan is considered past due when a counterparty has not made a payment by the contractual due date. The following
table presents the carrying value of loans that are past due but not classified as impaired because they are either less than
90 days past due, or fully secured and collection efforts are reasonably expected to result in repayment, or restoring it to a
current status in accordance with the Bank’s policy.
As at April 30, 2015
(2)(3)
($ millions)
31-60
days
61-90
days
91 days
and greater Total
Residential mortgages$ 1,225 $ 435 $ 133 $ 1,793
Personal and credit cards651 320 52 1,023
Business and government196 59 211 466
Total$ 2,072 $ 814 $ 396 $ 3,282
As at January 31, 2015
(2)(3)
($ millions)
31-60
days
61-90
days
91 days
and greater Total
Residential mortgages$ 1,365 $ 458 $ 140 $ 1,963
Personal and credit cards637 337 53 1,027
Business and government153 59 165 377
Total$ 2,155 $ 854 $ 358 $ 3,367
As at October 31, 2014
(2)(3)
($ millions)
31-60
days
61-90
days
91 days
and greater Total
Residential mortgages$ 1,253 $ 483 $ 153 $ 1,889
Personal and credit cards591 298 48 937
Business and government140 57 233 430
Total$ 1,984 $ 838 $ 434 $ 3,256
(1) Loans past due 30 days or less are not presented in this analysis as they are not administratively considered past due.
(2) Excludes Federal Deposit Insurance Corporation (FDIC) guaranteed loan related to the acquisition of R-G Premier Bank of Puerto Rico.
(3) These loans would be considered in the determination of an appropriate level of collective allowances despite not being individually classified
as impaired.
9. Investments in associates
The Bank had significant investments in the following associates:
As at
April 30
2015
January 31
2015
October 31
2014
($ millions)
Country of
incorporation
Nature of
business
Ownership
percentage
Date of
financial
statements
(1)
Carrying
value
Carrying
value
Carrying
value
Thanachart Bank Public
Company Limited
Thailand Banking 49.0% March 31, 2015$ 2,323$ 2,460 $ 2,134
Canadian Tire’s Financial Services
business (CTFS)
(2)(3)
Canada
Financial
Services 20.0% March 31, 2015517520 509
Bank of Xi’an Co. Ltd.China Banking 19.9% March 31, 2015554421 359
Maduro & Curiel’s Bank N.V.
(4)
Curacao Banking 48.1% March 31, 2015233244 221
Banco del Caribe
(5)
Venezuela Banking 26.6% March 31, 20151961 54
(1) Represents the date of the most recent published financial statements. Where available, financial statements prepared by the associates’
management or other published information is used to estimate the change in the Bank’s interest since the most recent published financial
statements.
(2) On October 1, 2014, the Bank acquired a 20% equity interest in Canadian Tire’s Financial Services business (CTFS).
(3) Under the agreement Canadian Tire has an option to sell to the Bank up to an additional 29% equity interest within the next 10 years at the
then fair value, that can be settled, at the Bank’s discretion, by issuance of common shares or cash. After 10 years, 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.
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(4) The local regulator requires financial institutions to set aside reserves for general banking risks. These reserves are not required under IFRS,
and represent undistributed retained earnings related to a foreign associated corporation, which are subject to local regulatory restrictions. As
of January 31, 2015 these reserves amounted to $57 (January 31, 2015 – $59; October 31, 2014 – $52).
(5) Revalued using SIMADI rate of 1 USD to 199 VEF replacing the SICAD II rate (January 31, 2015 – SICAD II rate of 1 USD to 52 VEF; October 31,
2014 – 1 USD to 50 VEF). The Bank recorded a reduction in the carrying value of the investment in associates of $42 million through other
comprehensive income and foreign exchange losses of $5 million in the Consolidated Statement of Income in relation to the monetary assets.
10. Deposits
As at
April 30, 2015
January 31
2015
October 31
2014
Payable on demand
Payable
after
notice
Payable on a
fixed date Total
Total Total($ millions)
Interest-
bearing
Non-interest-
bearing
Personal$ 9,066 $ 5,000 $ 92,551 $ 73,695 $180,312$ 180,973 $ 175,163
Business and government56,300 19,331 26,796 255,973 358,400364,260 342,367
Financial institutions3,479 2,976 1,419 28,695 36,56939,365 36,487
Total$68,845 $27,307 $120,766
(1)
$358,363 $575,281$ 584,598 $ 554,017
Recorded in:
Canada
$382,514$ 378,906 $ 373,491
United States87,14696,387 84,710
U.K.14,82115,947 13,296
Mexico13,96014,646 13,668
Peru12,62012,527 11,701
Chile7,2977,056 5,785
Colombia7,6247,376 7,450
Other International49,29951,753 43,916
Total
(2)
$575,281$ 584,598 $ 554,017
(1) Includes $106 of non-interest bearing deposits.
(2) Deposits denominated in U.S. dollars amount to $219,222 (January 31, 2015 – $229,066; October 31, 2014 – $201,891) deposits denominated in
Mexican pesos amount to $12,269 (January 31, 2015 – $12,862; October 31, 2014 – $12,444) and deposits denominated in other foreign
currencies amount to $59,316 (January 31, 2015 – $59,255; October 31, 2014 – $49,836).
Refer to Note 19 for contractual maturities for deposits, which provides maturities 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, and with no specific maturity.
The following table presents the maturity schedule for term deposits in Canada greater than $100,000
(1)
.
($ millions)
Within
three months
Three to
six months
Six to
twelve months
One to
five years
Over
five years Total
As at April 30, 2015
$ 24,616 $ 21,194 $ 22,361 $ 84,325 $ 14,759 $ 167,255
As at January 31, 2015$ 30,879 $ 12,608 $ 26,788 $ 87,001 $ 14,849 $ 172,125
As at October 31, 2014$ 42,801 $ 13,907 $ 23,338 $ 75,987 $ 14,110 $ 170,143
(1) The majority of foreign term deposits are in excess of $100,000.
11. Capital and financing transactions
Covered bonds
During the six month period ending April 30, 2015, two series of covered bonds totalling US$3.25 billion matured under
the Bank’s Global Public Sector Covered Bond Programme.
During the six month period ended April 30, 2015, the Bank issued four series of covered bonds under the Bank’s Global
Registered Covered Bond Program as follows:
• EUR 1.250 billion due November 2, 2017;
• GBP 550 million due November 2, 2017;
• AUD 600 million due January 21, 2020; and
• US$1.1 billion due April 14, 2020.
58Scotiabank Second Quarter Report 2015
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Subordinated debentures
On March 30, 2015, the Bank issued $1.25 billion subordinated debentures due March 30, 2027. The debentures are
redeemable on or after March 30, 2022. Interest is payable at a rate of 2.58% per annum until March 30, 2022 and
thereafter until March 30, 2027 at the 90 day Bankers’ Acceptance rate plus 1.19%. The debentures contain non-viability
contingent capital (NVCC) provisions necessary for the debentures to qualify as Tier 2 regulatory capital. Under the
NVCC provisions, the debentures are convertible into a variable number of common shares upon either of two events:
(i) the public announcement by OSFI that the Bank has ceased, or is about to cease, to be viable; or (ii) a federal or
provincial government of Canada publicly announces that the Bank has accepted or agreed to accept a capital injection, or
equivalent support, from the federal government or any provincial government or political subdivision or agent thereof
without which the Bank would have been determined by OSFI to be non-viable.
Common shares
Normal Course Issuer Bid
On May 27, 2014, the Bank announced that OSFI and the TSX approved its normal course issuer bid pursuant to which it
may repurchase for cancellation up to 12 million of the Bank’s common shares. The bid will end on the earlier of May 29,
2015, or the date on which the Bank completes its purchases. On March 3, 2015, the Bank announced that OSFI and the
TSX approved an increase in the bid up to 16 million shares. During the six months ended April 30, 2015, the Bank
repurchased and cancelled approximately 7.5 million common shares under this bid at an average price of $63.18 per
share for a total amount of approximately $474 million. Under this bid the Bank has repurchased and cancelled
approximately 12 million common shares at an average price of $66.12.
Preferred shares
Certain holders of Series 30 Non-cumulative 5-Year Rate Reset Preferred Shares elected to exchange 4,457,262 shares
into an equal number of Series 31 Non-cumulative Floating Rate Preferred Shares effective April 27, 2015. Dividends, if
and when declared, on the Series 31 Preferred Shares are determined by the sum of the three-month Government of
Canada Treasury Bill Yield plus 1.00%, multiplied by $25.00, which will be reset quarterly until April 25, 2020.
12. Capital management
The Bank has a capital management process in place to measure, deploy and monitor its available capital and assess its
adequacy. This capital management process aims to achieve four major objectives: exceed regulatory thresholds and meet
longer-term internal capital targets, maintain strong credit ratings, manage capital levels commensurate with the risk profile
of the Bank and provide the Bank’s shareholders with acceptable returns.
Capital is managed in accordance with the Board-approved Capital Management Policy. Senior executive management
develop the capital strategy and oversee the capital management processes of the Bank. The Bank’s Finance, Group
Treasury and Global Risk Management (GRM) groups are key in implementing the Bank’s capital strategy and managing
capital. Capital is managed using both regulatory capital measures and internal metrics.
Although the Bank is subject to several capital regulations in the different business lines and countries in which the Bank
operates, capital adequacy is managed on a consolidated Bank basis. The Bank also takes measures to ensure its
subsidiaries meet or exceed local regulatory capital requirements. The primary regulator of its consolidated capital
adequacy is the Office of the Superintendent of Financial Institutions Canada (OSFI). The capital adequacy regulations in
Canada are largely consistent with international standards set by the Basel Committee on Banking Supervision (BCBS).
Effective November 1, 2012, Canadian banks are subject to the revised capital adequacy requirements as published by
BCBS and commonly referred to as Basel III. Basel III builds on the “International Convergence of Capital Measurement
and Capital Standards: A Revised Framework” (Basel II). The Office of the Superintendent of Financial Institutions
(OSFI) has issued guidelines, reporting requirements and disclosure guidance which are consistent with the Basel III
reforms, except for its deferral of the Basel III credit valuation adjustment (CVA) related capital charges, requiring they
be phased-in over a five-year period, beginning January 2014. In accordance with OSFI’s requirements as at April 30,
2015, the scalar for CVA risk-weighted assets (RWA) of 0.64, 0.71 and 0.77 for Common Equity Tier 1 (CET1) capital
ratio, Tier 1 capital ratio and Total capital ratio, respectively (January 31, 2015 – scalars of 0.64, 0.71 and 0.77;
October 31, 2014 – scalars of 0.57, 0.65 and 0.77, respectively).
Under Basel III, there are three primary risk-based regulatory capital ratios used to assess capital adequacy, CET1, Tier 1
and Total capital ratios, which are determined by dividing those capital components by risk-weighted assets. Basel III also
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provides guidance on non-viability contingent capital (NVCC). The guidance stipulates that in order to qualify as
regulatory capital, non-common share capital instruments must be convertible into common equity upon a trigger event as
defined within the guidance. All non-common instruments issued after December 31, 2012, were required to meet these
NVCC requirements to qualify as regulatory capital.
To enable banks to meet the new standards, Basel III contains transitional arrangements commencing January 1, 2013,
through January 1, 2019. Transitional requirements result in a 5 year phase-in of new deductions and additional capital
components to common equity. Non-qualifying non-common capital instruments will be phased out over 10 years and the
capital conservation buffer will be phased in over 4 years.
OSFI requires Canadian deposit-taking institutions to fully implement the 2019 Basel III reforms, without the transitional
phase-in provisions for capital deductions (referred to as ‘all-in’), and achieve a minimum 7% common equity target. OSFI
has also designated the bank as a domestic systemically important banks (D-SIB), increasing its minimum capital ratio
requirements by 1% effective January 1, 2016, in line with the requirements for global systemically important banks.
Risk-weighted assets represent the Bank’s exposure to credit, market and operational risk and are computed by applying a
combination of the Bank’s internal credit risk parameters and OSFI prescribed risk weights to on-and off-balance sheet
exposures. Under the Basel framework there are two main methods for computing credit risk: the standardized approach,
which uses prescribed risk weights; and internal ratings-based approaches, which allow the use of a Bank’s internal
models to calculate some, or all, of the key inputs into the regulatory capital calculation. Users of the Advanced Internal
Ratings Based Approach (AIRB) are required to have sophisticated risk management systems for the calculations of credit
risk regulatory capital. Once banks demonstrate full compliance with the AIRB requirements, and OSFI has approved its
use, they may proceed to apply the AIRB approach in computing capital requirements. The Bank uses the AIRB to
compute credit risk for material Canadian, U.S. and European portfolios, and for a significant portion of the international
corporate and commercial portfolio. The Bank continues to assess the remaining portfolios for the application of AIRB in
the future. In 2012, the Bank implemented the Basel Committee’s revised market risk framework. The Bank uses the
Standardized Approach to calculate the operational risk capital requirements.
In addition to risk-based capital requirements, the Basel III reforms introduced a simpler, non risk-based Leverage ratio
requirement to act as a supplementary measure to its risk-based capital requirements. The Leverage ratio is defined as a
ratio of Basel III Tier 1 capital to a leverage exposure measure as defined within the requirements which includes on
balance sheet assets, derivatives, securities financing transaction and off-balance sheet items including commitments.
Minimum public disclosure requirements are effective January 2015. The final calibration will be completed by 2017, with
a view to migrating to a Pillar 1 (minimum capital requirement) treatment by January 2018.
In October 2014, OSFI released its Leverage Requirements Guideline which outlines the application of the Basel III
Leverage ratio in Canada and the replacement of the existing Assets-to-Capital Multiple (ACM), effective November 1,
2014. Institutions will be expected to maintain a material operating buffer above the 3% minimum. The Bank meets OSFI’s
authorized leverage ratio.
60Scotiabank Second Quarter Report 2015
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The Bank’s Common Equity Tier 1, Tier 1 and Total capital are composed of the following:
As at
April 30, 2015January 31, 2015 October 31, 2014
($ millions)All-in TransitionalAll-in Transitional All-in Transitional
Total Common Equity$ 46,712 $ 46,712$ 46,893 $ 46,893 $ 44,965 $ 44,965
Qualifying non-controlling interests in
common equity of subsidiaries
521 –486 – 514 –
Goodwill and non-qualifying
intangibles, net of deferred tax
liabilities
(1)
(10,530) –(10,686) – (10,482) –
Threshold related deductions(928) –(1,350) – (305) –
Net deferred tax assets (excluding
those arising from temporary
differences)
(602) –(615) – (620) –
Other Common Equity Tier 1
adjustments
(2)
(423) (4,093)(339) (4,247) (330) (3,253)
Common Equity Tier1Capital$ 34,750 $ 42,619$ 34,389 $ 42,646 $ 33,742 $ 41,712
Preferred Shares
(3)
2,934 2,9342,934 2,934 2,934 2,934
Capital instrument liabilities – trust
securities
(3)
1,400 1,4001,400 1,400 1,400 1,400
Other Tier 1 capital adjustments
(4)
(7) (4,334)(6) (4,334) (3) (4,334)
Net Tier1Capital$ 39,077 $ 42,619$ 38,717 $ 42,646 $ 38,073 $ 41,712
Subordinated debentures, net of
amortization
(3)
6,134 6,1344,973 4,973 4,871 4,871
Other Tier 2 capital adjustments
(4)
652 409664 340 648 517
Total regulatory capital$ 45,863 $ 49,162$ 44,354 $ 47,959 $ 43,592 $ 47,100
CET1risk-weighted assets
(5)
$328,688 $335,233$ 335,200 $ 342,740 $ 312,473 $ 319,936
Tier1risk-weighted assets
(5)
329,424 335,233336,092 342,740 313,263 319,936
Total risk-weighted assets
(5)
$330,055 $335,233$ 336,857 $ 342,740 $ 314,449 $ 319,936
Capital ratios
Common Equity Tier 1 Capital ratio
10.6% 12.7%10.3% 12.4% 10.8% 13.0%
Tier 1 capital ratio11.9% 12.7%11.5% 12.4% 12.2% 13.0%
Total capital ratio13.9% 14.7%13.2% 14.0% 13.9% 14.7%
Leverage:
Leverage exposures
(6)
$947,169 $950,456$ 953,626 $ 957,249 N/A N/A
Leverage ratio
(6)
4.1% 4.5%4.1% 4.5% N/A N/A
Assets-to-capital multiple
(6)(7)
N/A N/AN/A N/A 17.1 x 17.1 x
(1) Reported amounts are based on OSFI’s requirements that goodwill relating to investments in associates be classified as goodwill for regulatory
reporting purposes beginning Q3 2014.
(2) Other Common Equity Tier 1 capital adjustments under the all-in approach include defined pension plan assets and other items. For the
transitional approach, deductions include: Common Equity Tier 1 all-in deductions multiplied by an annual transitional factor (40% in 2015;
20% in 2014) and an adjustment for Additional Tier 1 deductions for which there is insufficient Additional Tier 1 capital.
(3) Qualifying Tier 1 and Tier 2 Capital instruments are compliant with Basel III requirement for NVCC. Non-qualifying Tier 1 and Tier 2 capital
instruments are subject to a phase-out period of 10 years. Amounts reported for regulatory capital may be less than as reported on the
Consolidated Statement of Financial Position.
(4) Other Tier 1/Tier 2 capital adjustments under the all-in approach include eligible non-controlling interests in subsidiaries; in addition, Tier 2
includes eligible collective allowance and excess allowance. For the transitional approach, other Tier 1/Tier 2 capital adjustments include the
amount of the Common Equity Tier 1 regulatory adjustment not deducted that were Tier 1/Tier 2 deductions under Basel II (such as 50% of
significant investments in financial institutions).
(5) As at April 30, 2015, the CVA risk-weighted assets were calculated using scalars of 0.64, 0.71 and 0.77 to compute CET1 capital ratio, Tier 1
capital ratio and Total capital ratio, respectively (January 31, 2015 – scalars of 0.64, 0.71 and 0.77; October 31, 2014 – scalars of 0.57, 0.65 and
0.77, respectively).
(6) Effective January 31, 2015, the leverage ratio replaced the Assets-to-capital multiple.
(7) As prescribed by OSFI, asset-to-capital multiple is calculated by dividing the Bank’s total assets, including specific off-balance sheet items, by
total regulatory capital on a transitional basis.
The Bank substantially exceeded the OSFI minimum capital requirement as at April 30, 2015. OSFI has also prescribed an
authorized leverage ratio and the Bank was above the regulatory minimum as at April 30, 2015.
13. Share-based payments
During the first quarter, the Bank granted 1,514,158 options with an exercise price of $68.32 per option and a weighted
average fair value of $7.63 to selected 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. This change is prospective and does
not impact prior period grants. Options granted prior to December 2014 vest evenly over a four-year period.
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The Bank recorded an increase to equity – other reserves of $2 million and $11 million for the three months and
six months ended April 30, 2015, respectively (April 30, 2014 – $4 million and $24 million) as a result of equity-classified
share-based payment expense.
14. Employee benefits
Employee benefits include pensions, other post-retirement benefits, and post-employment benefits. The following table
summarizes the expenses for the Bank’s principal plans
(1)
.
For the three months ended
Pension plans Other benefit plans
($ millions)
April 30
2015
January 31
2015
April 30
2014
April 30
2015
January 31
2015
April 30
2014
Defined benefit service cost
$ 77$ 75 $ 67$ 11$ 12 $ 10
Interest on net defined benefit (asset) liability55 31515 15
Other22 2(3)3 1
Defined benefit expense$ 84$ 82 $ 72$ 23$ 30 $ 26
Defined contribution expense$ 7$ 7 $ 5n/an/a n/a
Increase (decrease) in other comprehensive income
related to employee benefits
(2)
$ 328$ (725) $ –$ 77$ (140) $ (63)
For the six months ended
Pension plans Other benefit plans
($ millions)
April 30
2015
April 30
2014
April 30
2015
April 30
2014
Defined benefit service cost$ 152$ 131$ 23$ 19
Interest on net defined benefit (asset) liability1043029
Other44–2
Defined benefit expense$ 166$ 139$ 53$ 50
Defined contribution expense$ 14$ 10n/an/a
Increase (decrease) in other comprehensive income related to employee benefits
(2)
$ (397)$ (84)$ (63)$ (57)
(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. All other assumptions are updated
annually.
15. Operating segments
Scotiabank is a diversified financial services institution that provides a wide range of financial products and services to
retail, commercial and corporate customers around the world. The Bank’s businesses are grouped into three business
lines: Canadian Banking, International Banking and Global Banking & Markets. 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 consolidated financial statements in the 2014 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.
Changes to operating segments effective November 1, 2014
Effective November 1, 2014, the Canadian and International businesses previously reported in Global Wealth & Insurance
are included in Canadian Banking and International Banking’s results, respectively. As well, certain Asia business activity
previously reported in International Banking is now included in Global Banking & Markets. Prior period comparative
results have been restated.
62Scotiabank Second Quarter Report 2015
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Scotiabank’s results, and average assets and liabilities, allocated by these operating segments, are as follows:
For the three months ended April 30, 2015
Taxable equivalent basis
(1)
($ millions)
Canadian
Banking
International
Banking
Global
Banking
& Markets Other
(2)
Total
Net interest income$1,574 $1,380 $259 $(15) $3,198
Non-interest income
(3)
1,210 751 839 (61) 2,739
Total revenues2,784 2,131 1,098 (76) 5,937
Provision for credit losses169 266 13 – 448
Non-interest expenses1,487 1,224 467 46 3,224
Provision for income taxes299 154 169 (154) 468
Net income$ 829 $ 487 $449 $ 32 $1,797
Net income attributable to non-controlling interests in
subsidiaries
$ – $ 40 $ – $ – $ 40
Net income attributable to equity holders of the Bank$ 829 $ 447 $449 $ 32 $1,757
Average assets($ billions)$ 298 $ 128 $355 $ 89 $ 870
Average liabilities($ billions)$ 216 $ 94 $247 $262 $ 819
(1) Refer to page 4 for a discussion of non-GAAP measures.
(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 ($117) 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) Includes net income from investments in associated corporations for Canadian Banking – $19; International Banking – $112 and Other– $(32).
For the three months ended January 31, 2015
Taxable equivalent basis
(1)
($ millions)
Canadian
Banking
International
Banking
Global
Banking
& Markets Other
(2)
Total
Net interest income$ 1,551 $ 1,349 $ 267 $ 2 $ 3,169
Non-interest income
(3)
1,181 726 765 22 2,694
Total revenues2,732 2,075 1,032 24 5,863
Provision for credit losses165 285 13 – 463
Non-interest expenses1,464 1,204 465 64 3,197
Provision for income taxes288 122 150 (83) 477
Net income$ 815 $ 464 $ 404 $ 43 $ 1,726
Net income attributable to non-controlling interests in
subsidiaries
$ – $ 47 $ – $ – $ 47
Net income attributable to equity holders of the Bank$ 815 $ 417 $ 404 $ 43 $ 1,679
Average assets($ billions)$ 297 $ 120 $ 339 $ 79 $ 835
Average liabilities($ billions)$ 213 $ 89 $ 238 $ 245 $ 785
(1) Refer to page 4 for a discussion of non-GAAP measures.
(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) Includes net income from investments in associated corporations for Canadian Banking – $15; International Banking – $108 and Other –
$(33).
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For the three months ended April 30, 2014
Taxable equivalent basis
(1)
($ millions)
Canadian
Banking
International
Banking
Global
Banking
& Markets Other
(2)
Total
Net interest income$ 1,454 $ 1,289 $ 270 $ 38 $ 3,051
Non-interest income
(3)
1,183 739 805 (53) 2,674
Total revenues2,637 2,028 1,075 (15) 5,725
Provision for credit losses140 229 6 – 375
Non-interest expenses1,400 1,117 437 41 2,995
Provision for income taxes273 174 196 (88) 555
Net income$ 824 $ 508 $ 436 $ 32 $ 1,800
Net income attributable to non-controlling interests in
subsidiaries
1 57 – – 58
Net income attributable to equity holders of the Bank$ 823 $ 451 $ 436 $ 32 $ 1,742
Average assets($ billions)$ 290 $ 117 $ 313 $ 78 $ 798
Average liabilities($ billions)$ 206 $ 86 $ 218 $ 240 $ 750
(1) Refer to page 4 for a discussion of non-GAAP measures.
(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 $(84) 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) Includes net income from investments in associated corporations for Canadian Banking – $68; International Banking – $99 and Other – $(40).
For the six months ended April 30, 2015
Taxable equivalent basis
(1)
($ millions)
Canadian
Banking
International
Banking
Global
Banking
& Markets Other
(2)
Total
Net interest income$3,125 $2,729 $526 $(13) $6,367
Non-interest income
(3)
2,391 1,477 1,604 (39) 5,433
Total revenues5,516 4,206 2,130 (52) 11,800
Provision for credit losses334 551 26 – 911
Non-interest expenses2,951 2,428 932 110 6,421
Provision for income taxes587 276 319 (237) 945
Net income$1,644 $ 951 $853 $ 75 $3,523
Net income attributable to non-controlling interests in
subsidiaries
$ – $ 87 $ – $ – $ 87
Net income attributable to equity holders of the Bank$1,644 $ 864 $853 $ 75 $3,436
Average assets($ billions)$ 297 $ 124 $347 $ 82 $ 850
Average liabilities($ billions)$ 215 $ 91 $242 $252 $ 800
(1) Refer to page 4 for a discussion of non-GAAP measures.
(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 $(209) 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) Includes net income from investments in associated corporations for Canadian Banking – $34; International Banking – $220 and Other –
$(65).
64Scotiabank Second Quarter Report 2015
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For the six months ended April 30, 2014
Taxable equivalent basis
(1)
($ millions)
Canadian
Banking
International
Banking
Global
Banking
& Markets Other
(2)
Total
Net interest income$ 2,934 $ 2,545 $ 530 $ 47 $ 6,056
Non-interest income
(3)
2,347 1,468 1,569 (70) 5,314
Total revenues5,281 4,013 2,099 (23) 11,370
Provision for credit losses275 446 10 – 731
Non-interest expenses2,806 2,286 926 82 6,100
Provision for income taxes547 294 339 (150) 1,030
Net income$ 1,653 $ 987 $ 824 $ 45 $ 3,509
Net income attributable to non-controlling interests in
subsidiaries
1 111 – – 112
Net income attributable to equity holders of the Bank$ 1,652 $ 876 $ 824 $ 45 $ 3,397
Average assets($ billions)$ 290 $ 115 $ 306 $ 76 $ 787
Average liabilities($ billions)$ 206 $ 85 $ 215 $ 234 $ 740
(1) Refer to page 4 for a discussion of non-GAAP measures.
(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 $(164) 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) Includes net income from investments in associated corporations for Canadian Banking – $130; International Banking – $216 and Other –
$(84).
16. Non-interest income
The following table presents details of banking revenues and wealth management revenues in non-interest income.
For the three months ended For the six months ended
($ millions)
April 30
2015
January 31
2015
April 30
2014
April 30
2015
April 30
2014
Banking
Card revenues
$ 263$ 259 $ 224$ 522$ 456
Deposit and payment services306302 291608580
Credit fees261252 235513506
Other9090 80180172
920903 8301,8231,714
Banking fee related expenses10293 85195166
Total banking revenues$ 818$ 810 $ 745$ 1,628$ 1,548
Wealth management
Mutual funds
$ 405$ 393 $ 359$ 798$ 714
Brokerage fees254247 234501465
Investment management and trust165159 154324299
Total wealth management revenues$ 824$ 799 $ 747$ 1,623$ 1,478
Prior period amounts for April 30, 2014 have been restated to conform with current period presentation.
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17. Earnings per share
For the three months ended For the six months ended
($ millions)
April 30
2015
January 31
2015
April 30
2014
April 30
2015
April 30
2014
Basic earningsper commonshare
Net income attributable to common shareholders
$ 1,727$ 1,649 $ 1,699$ 3,376$ 3,306
Average number of common shares outstanding(millions)1,2101,215 1,2151,2131,212
Basic earnings per common share
(1)
(in dollars)$ 1.43$ 1.36 $ 1.40$ 2.78$ 2.73
Diluted earningsper commonshare
Net income attributable to common shareholders
$ 1,727$ 1,649 $ 1,699$ 3,376$ 3,306
Adjustments to net income due to share-based payment options and
others
(2)
16– 1344
Adjusted income attributable to common shareholders$ 1,743$ 1,649 $ 1,700$ 3,410$ 3,310
Average number of common shares outstanding(millions)1,2101,215 1,2151,2131,212
Adjustments to average shares due to share-based payment options
and others
(2)
(millions)215 7207
Average number of diluted common shares outstanding(millions)1,2311,220 1,2221,2331,219
Diluted earnings per common share
(1)
(in dollars)$ 1.42$ 1.35 $ 1.39$ 2.77$ 2.71
(1) Earnings per share calculations are based on full dollar and share amounts.
(2) Certain grants of tandem stock appreciation rights or options that the Bank may settle at its own discretion by issuing common shares in
relation to non-controlling interests and additional interest in an associated company were not included in the calculation of diluted earnings
per share as they were anti-dilutive.
18. Financial instruments
(a) Risk management
The Bank’s principal business activities result in a balance sheet that consists primarily of financial instruments. In
addition, the Bank uses derivative financial instruments for both trading and hedging purposes. The principal financial
risks that arise from transacting financial instruments include credit risk, liquidity risk and market risk. The Bank’s
framework to monitor, evaluate and manage these risks is consistent with that in place as at October 31, 2014.
(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 Basel framework utilized by the Bank. The Bank uses the
Advanced Internal Ratings Based approach (AIRB) for all material Canadian, U.S. and European portfolios, and for a
significant portion of the international corporate and commercial portfolios. The remaining portfolios, including other
international portfolios, are treated under the standardized approach. Under the AIRB approach, the Bank uses internal
risk parameter estimates, based on historical experience.
66Scotiabank Second Quarter Report 2015
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Under the standardized approach, credit risk is estimated using the risk weights as prescribed by the Basel framework,
either based on credit assessments by external rating agencies or based on the counterparty type for non-retail exposures
and product type for retail exposures.
Exposure at default
(1)
As at
April 30, 2015
January 31
2015
October 31
2014
($ millions)AIRB Standardized TotalTotal Total
By exposuresub-type
Non-retail
(2)
Drawn
(3)
$ 290,125 $ 51,149 $ 341,274$ 351,289 $ 316,057
Undrawn commitments59,718 4,592 64,31067,661 59,388
Other exposures
(4)
93,930 3,384 97,314103,579 85,909
Total non-retail$ 443,773 $ 59,125 $ 502,898$ 522,529 $ 461,354
Retail
Drawn
(5)
$ 157,985 $ 48,434 $ 206,419$ 205,166 $ 210,101
Undrawn commitments
29,748 – 29,74829,695 29,064
Total retail
$ 187,733 $ 48,434 $ 236,167$ 234,861 $ 239,165
Total
$ 631,506 $ 107,559 $ 739,065$ 757,390 $ 700,519
(1) After credit risk mitigation and excludes available-for-sale equity securities and other assets.
(2) Non-retail AIRB drawn exposures include government guaranteed mortgages.
(3) Non-retail drawn includes loans, bankers’ acceptances, deposits with financial institutions and available-for-sale debt securities.
(4) Includes off-balance sheet lending instruments such as letters of credit, letters of guarantee, securitization, over-the-counter derivatives and
repo-style transactions net of related collateral.
(5) Retail drawn includes residential mortgages, credit cards, lines of credit and other personal loans.
Credit quality of non-retail exposures
The Bank’s non-retail portfolio is well diversified by industry. As at April 30, 2015, January 31, 2015 and October 31, 2014,
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, 2014.
Credit quality of retail exposures
The Bank’s retail portfolios consist of a number of relatively small loans to a large number of borrowers. The portfolios are
distributed across Canada and a wide range of countries. As such, the portfolios inherently have a high degree of
diversification. In addition, as of April 30, 2015, 50% (January 31, 2015 – 52%; October 31, 2014 – 52%) of the Canadian
residential mortgage portfolio is insured. The average loan-to-value ratio of the uninsured portion of the Canadian
residential mortgage portfolio is 53% (January 31, 2015 – 55%; October 31, 2014 – 54%).
Retail standardized portfolio
The retail standardized portfolio of $48 billion as at April 30, 2015 (January 31, 2015 – $50 billion; October 31, 2014 –
$47 billion), was comprised of residential mortgages, personal loans, credit cards and lines of credit to individuals, mainly
in the Caribbean and Latin American region. Of the total standardized retail exposures, $25 billion (January 31, 2015 –
$26 billion; October 31, 2014 – $24 billion) was represented by mortgages and loans secured by residential real estate,
mostly with a loan-to-value ratio of below 80%.
(ii) Liquidity risk
Liquidity risk is the risk that the Bank is unable to meet its financial obligations in a timely manner at reasonable prices.
The Bank’s liquidity risk is subject to extensive risk management controls and is managed within the framework of policies
and limits approved by the Board. The Board receives reports on risk exposures and performance against approved limits.
The Asset/Liability Committee (ALCO) provides senior management oversight of liquidity risk.
The key elements of the Bank’s liquidity risk management framework include:
– liquidity risk measurement and management limits, including limits on maximum net cash outflow by currency
over specified short-term horizons;
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– 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, inclusive of credit spread 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; mortgage prepayment rates; changes in the market price of
credit; and the creditworthiness of a particular issuer.
Non-trading interest rate sensitivity
Based on the Bank’s interest rate positions, the following table shows the pro-forma after-tax impact on the Bank’s net
income over the next twelve months and economic value of shareholders’ equity of an immediate and sustained 100 and
200 basis point (bp) increase and decrease in interest rates across major currencies as defined by the Bank.
As at
April 30, 2015January 31, 2015 April 30, 2014
Net income Economic value
($ millions)
Canadian
dollar
Other
currencies Total
Canadian
dollar
Other
currencies Total
Net
income
Economic
value
Net
income
Economic
value
+ 100 bps$ 13 $111 $124 $(357) $ (86) $(444)$ 193 $(278) $ 182 $ (489)
– 100 bps
(1)
(13) (33) (46) 238 150 389(96) 235 (102) 387
+ 200 bps$ 25 $222 $247 $(787) $(173) $(959)$ 385 $(625) $ 367 $(1,111)
– 200 bps
(1)
(25) (40) (65) 15 407 421(160) 68 (171) 728
(1) Corresponding with the current low interest rate environment; the annual income sensitivity for US, EUR, and GBP exposures are measured
using a 25 bp decline. April 30, 2014 amounts have been restated to reflect this change.
Non-trading foreign currency risk
Foreign currency risk is the risk of loss due to changes in spot and forward rates.
As at April 30, 2015, a one per cent increase (decrease) in the Canadian dollar against all currencies in which the Bank
operates decreases (increases) the Bank’s before-tax annual earnings by approximately $59 million (January 31, 2015 –
$54 million; April 30, 2014 – $52 million) in the absence of hedging activity, primarily from exposure to U.S. dollars. The
Bank hedges a portion of this foreign currency risk.
A similar change in the Canadian dollar as at April 30, 2015, would decrease (increase) the unrealized foreign currency
translation gains in the accumulated other comprehensive income section of shareholders’ equity by approximately
$281 million (January 31, 2015 – $276 million; April 30, 2014 – $233 million), net of hedging.
Non-trading equity risk
Equity risk is the risk of loss due to adverse movements in equity prices. The Bank is exposed to equity risk through its
available-for-sale equity portfolios. The fair value of available-for-sale equity securities is shown in Note 6.
68Scotiabank Second Quarter Report 2015
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Trading portfolio risk management
The table below shows the Bank’s VaR by risk factor along with Stressed VaR:
One-day VaR by risk factor
For the three months ended As at As at
April 30, 2015
April 30
2015
January 31
2015
April 30
2014($ millions)Average High Low
Credit spread plus interest rate$ 8.0 $ 9.8 $ 6.3 $ 7.3$ 8.4 $ 16.6
Credit spread8.2 9.8 7.2 7.27.6 8.6
Interest rate4.3 6.8 2.8 3.14.1 12.9
Equities2.5 10.7 1.2 2.12.5 3.0
Foreign exchange1.1 2.3 0.6 0.81.8 0.7
Commodities4.1 5.4 3.0 4.74.1 2.6
Debt specific5.1 5.7 4.3 4.45.4 11.4
Diversification effect(10.2) N/A N/A (9.8)(10.9) (14.3)
All-Bank VaR$ 10.5 $13.6 $ 8.4 $ 9.4$ 11.3 $ 20.0
All-Bank Stressed VaR$ 23.3 $35.1 $19.7 $19.7$ 23.8 $ 28.4
(iv) Operational risk
Operational risk is the risk of loss, whether direct or indirect, to which the Bank is exposed due to inadequate or failed
internal processes or systems, human error, or external events. Operational risk includes legal and regulatory risk,
business process and change risk, fiduciary or disclosure breaches, technology failure, financial crime and environmental
risk. It exists in some form in every Bank business and function.
Operational risk can not only result in financial loss, but also regulatory sanctions and damage to the Bank’s reputation.
The Bank is very successful at managing operational risk with a view to safeguarding client assets and preserving
shareholder value. The Bank has developed policies, processes and assessment methodologies to ensure that operational
risk is appropriately identified and managed with effective controls.
(b) Financial instruments designatedat fair value through profit or loss
In accordance with its risk management strategy, the Bank has elected to designate certain financial instruments at fair
value through profit or loss. These include:
• certain investments, in order to significantly reduce an accounting mismatch between fair value changes in these
assets and fair value changes in related derivatives; and
• certain deposit note liabilities containing extension and equity linked features that are economically hedged with
derivatives and managed on a fair value basis.
For assets designated at fair value through profit or loss, changes in fair value are recognized in net income. For liabilities
designated at fair value through profit or loss, changes in fair value arising from changes in the Bank’s own credit risk are
recognized in other comprehensive income, without subsequent reclassification to net income, unless doing so would
create or increase an accounting mismatch. All other changes in fair value are recognized in net income.
For deposit note liabilities designated at fair value through profit or loss, presenting changes in fair value due to changes
in the Bank’s own credit risk in other comprehensive income would not create or increase an accounting mismatch in net
income since the Bank does not currently hedge its own credit risk.
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 under a benchmark rate. The change in fair value attributable
to change in credit risk is determined by the change in the cumulative fair value adjustment due to own credit risk.
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The following table presents the fair value of assets and liabilities designated at fair value through profit or loss and their
changes in fair value.
Fair value Change in fair value Cumulative change in fair value
(3)
As atFor the three months ended As at
($ millions)
April 30
2015
January 31
2015
October 31
2014
April 30
2015
January 31
2015
April 30
2014
April 30
2015
January 31
2015
April 30
2014
Investment securities
(1)
$ 129$ 119 $ 111$ –$ (1) $ 1$ 12$ 12 $ 15
Deposit note liabilities
(2)
1,102736 465(10)2 (1)1020 2
(1) Changes in fair value are recorded in non-interest income – other.
(2) Changes in fair value attributable to changes in the Bank’s own credit risk are recorded in other comprehensive income. Other changes in fair
value are recorded in non-interest income – other.
(3) The cumulative change in fair value is measured from the instruments’ date of initial recognition.
The following tables present 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.
Term deposits
($ millions)
Contractual
maturity
amount
(1)
Carrying value
Difference
between
carrying
value and
contractual
maturity
amount
Changes in fair value
for the three month
period attributable
to changes in own
credit risk
recorded in other
comprehensive
income
Cumulative changes
in fair value
attributable to
changes in own
credit risk
(2)(3)
As at April 30, 2015$ 1,112 $ 1,102 $ 10 $ (4) $ (5)
As at January 31, 2015$ 756 $ 736 $ 20 $ 4 $ (1)
(1) As at October 31, 2014, the contractual maturity amount of term deposits designated at fair value through profit or loss was $483.
(2) The cumulative change in fair value is measured from the instruments’ date of initial recognition.
(3) For the quarter ended April 30, 2015, the Bank did not realize any changes in fair value previously recorded in other comprehensive income
on liabilities which were derecognized during the period.
(c) Financial instruments – fair value
Fair value of financial instruments
The calculation of fair value is based on market conditions at a specific point in time and therefore may not be reflective of
future fair values. The Bank has controls and processes in place to ensure that the valuation of financial instruments is
appropriately determined.
Refer to Note 7 of the Bank’s consolidated financial statements in the 2014 Annual Report for the valuation techniques
used to fair value our significant financial assets and liabilities.
70Scotiabank Second Quarter Report 2015
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The following table sets out the fair values of financial instruments of the Bank. The fair values disclosed do not include
non-financial assets, such as property and equipment, investments in associates, precious metals, goodwill and other
intangible assets.
April 30, 2015January 31, 2015 October 31, 2014
($ millions)
Total
fair
value
Total
carrying
value
Favourable/
(Unfavourable)
Total
fair
value
Total
carrying
value
Favourable/
(Unfavourable)
Total
fair
value
Total
carrying
value
Favourable/
(Unfavourable)
Assets:
Cash and deposits with
financial institutions$ 60,664 $ 60,664 $ –$ 65,894 65,894 $ – $ 56,730 $ 56,730 $ –
Trading assets113,120 113,120 –109,619 109,619 – 113,248 113,248 –
Financial instruments
designated at fair value
through profit or loss129 129 –119 119 – 111 111 –
Securities purchased under
resale agreements and
securities borrowed98,205 98,205 –87,217 87,217 – 93,866 93,866 –
Derivative financial
instruments37,669 37,669 –55,435 55,435 – 33,439 33,439 –
Investment securities39,828 39,828 –40,905 40,905 – 38,662 38,662 –
Loans440,948 435,958 4,990444,897 439,916 4,981 428,616 424,309 4,307
Customers’ liability under
acceptances13,549 13,549 –11,898 11,898 – 9,876 9,876 –
Other assets7,344 7,344 –8,315 8,315 – 7,029 7,029 –
Liabilities:
Deposits577,938 575,281 (2,657)587,555 584,598 (2,957) 555,754 554,017 (1,737)
Financial instruments
designated at fair value
through profit or loss1,102 1,102 –736 736 – 465 465 –
Acceptances13,549 13,549 –11,898 11,898 – 9,876 9,876 –
Obligations related to
securities sold short22,843 22,843 –22,784 22,784 – 27,050 27,050 –
Derivative financial
instruments43,613 43,613 –57,725 57,725 – 36,438 36,438 –
Obligations related to
securities sold under
repurchase agreements
and securities lent89,676 89,676 –79,322 79,322 – 88,953 88,953 –
Subordinated debentures6,323 6,134 (189)5,189 4,973 (216) 5,073 4,871 (202)
Other liabilities21,645 21,209 (436)24,532 24,266 (266) 21,668 21,218 (450)
(d) Fair value hierarchy
The best evidence of fair value for a financial instrument is the quoted price in an active market. Quoted market prices
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, present value of cash flows or other
valuation techniques. Fair value estimates normally do not consider forced or liquidation sales.
Where financial instruments trade in inactive 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 considered Level 3.
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The following table outlines the fair value hierarchy of instruments carried at fair value on a recurring basis.
As at April 30, 2015As at January 31, 2015
($ millions)
Level 1 Level 2 Level 3 TotalLevel 1 Level 2 Level 3 Total
Instrumentscarried at fair value on a
recurring basis:
Assets:
Preciousmetals
(1)
$ – $ 8,438 $ – $ 8,438$ – $ 9,698 $ – $ 9,698
Trading assets
Loans
– 17,279 – 17,279– 18,990 – 18,990
Canadian federal government and
government guaranteed debt
9,366 – – 9,3668,009 – – 8,009
Canadian provincial and municipal debt– 6,795 – 6,795– 6,263 – 6,263
US treasury and other US agencies’ debt5,131 729 – 5,8605,362 900 – 6,262
Other foreign governments’ debt8,690 3,133 – 11,8238,060 1,904 – 9,964
Corporate and other debt134 13,487 32 13,653167 13,676 32 13,875
Income funds and hedge funds156 1,969 1,393 3,518123 2,065 1,427 3,615
Equity securities40,869 155 56 41,08038,539 112 56 38,707
Other
(2)
3,746 – – 3,7463,934 – – 3,934
$ 68,092 $ 51,985 $ 1,481 $ 121,558$ 64,194 $ 53,608 $ 1,515 $ 119,317
Financial assetsdesignated at fair
value through profit or loss
$ 15 $ 93 $ 21 $ 129$ – $ 98 $ 21 $ 119
Investmentsecurities
(3)
Canadian federal government and
government guaranteed debt
$ 5,850 $ 1,742 $ – $ 7,592$ 6,047 $ 1,697 $ – $ 7,744
Canadian provincial and municipal debt853 2,822 – 3,675784 2,853 – 3,637
US treasury and other US agencies’ debt5,395 98 – 5,4935,809 33 – 5,842
Other foreign governments’ debt6,006 6,271 419 12,6965,696 6,442 444 12,582
Bonds of designated emerging markets– 45 – 45– 49 – 49
Corporate and other debt883 5,297 154 6,334875 5,531 152 6,558
Mortgage-backed securities6 106 37 149– 106 38 144
Equity securities2,399 212 1,059 3,6702,838 227 1,101 4,166
$ 21,392 $ 16,593 $ 1,669 $ 39,654$ 22,049 $ 16,938 $ 1,735 $ 40,722
Derivative financial instruments
Interest rate contracts
$ – $ 14,211 $ 156 $ 14,367$ – $ 17,729 $ 138 $ 17,867
Foreign exchange and gold contracts1 17,774 – 17,775– 29,603 – 29,603
Equity contracts165 1,733 325 2,223144 2,798 380 3,322
Credit contracts– 475 2 477– 742 3 745
Commodity contracts1,254 1,561 12 2,8271,875 2,013 10 3,898
$ 1,420 $ 35,754 $ 495 $ 37,669$ 2,019 $ 52,885 $ 531 $ 55,435
Liabilities:
Deposits
(4)
$ – $ 179 $ 1,110 $ 1,289$ – $ 162 $ 1,149 $ 1,311
Financial liabilitiesdesignated at
fair value through profit or loss
$ – $ 1,102 $ – $ 1,102$ – $ 736 $ – $ 736
Obligationsrelated tosecurities
soldshort
$ 18,676 $ 4,167 $ – $ 22,843$ 18,706 $ 4,078 $ – $ 22,784
Derivative financial instruments
Interest rate contracts
$ – $ 13,381 $ 50 $ 13,431$ – $ 16,412 $ 50 $ 16,462
Foreign exchange and gold contracts2 19,692 – 19,694– 28,186 – 28,186
Equity contracts210 1,860 441 2,511228 1,582 517 2,327
Credit contracts– 3,452 8 3,460– 3,959 4 3,963
Commodity and other contracts1,074 3,185 258 4,5171,309 5,220 258 6,787
$ 1,286 $ 41,570 $ 757 $ 43,613$ 1,537 $ 55,359 $ 829 $ 57,725
(1) The fair value of precious metals is determined based on quoted market prices and forward spot prices.
(2) Consists primarily of base metal positions. The fair value of these positions is determined based on quoted prices in active markets.
(3) Excludes investments which are held-to-maturity of $174 (January 31, 2015 – $183).
(4) These amounts represent embedded derivatives bifurcated from structured deposit notes.
72Scotiabank Second Quarter Report 2015
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
As at October 31, 2014
($ millions)
Level 1 Level 2 Level 3 Total
Instrumentscarried at fair value on a recurring basis:
Assets:
Preciousmetals
(1)
$ – $ 7,286 $ – $ 7,286
Trading assets
Loans
– 14,508 – 14,508
Canadian federal government and government guaranteed debt13,848 – – 13,848
Canadian provincial and municipal debt– 7,531 – 7,531
US treasury and other US agencies’ debt9,212 1,764 – 10,976
Other foreign governments’ debt8,004 2,230 – 10,234
Corporate and other debt85 12,453 32 12,570
Income funds and hedge funds144 2,946 1,282 4,372
Equity securities35,564 217 51 35,832
Other
(2)
3,377 – – 3,377
$ 70,234 $ 48,935 $ 1,365 $ 120,534
Financial assetsdesignated at fair value through profit or loss$ – $ 90 $ 21 $ 111
Investmentsecurities
(3)
Canadian federal government and government guaranteed debt$ 5,520 $ 1,331 $ – $ 6,851
Canadian provincial and municipal debt803 2,500 – 3,303
US treasury and other US agencies’ debt6,096 130 – 6,226
Other foreign governments’ debt5,793 4,779 411 10,983
Bonds of designated emerging markets– 45 – 45
Corporate and other debt889 5,260 500 6,649
Mortgage-backed securities– 99 39 138
Equity securities3,087 208 1,006 4,301
$ 22,188 $ 14,352 $ 1,956 $ 38,496
Derivative financial instruments
Interest rate contracts
$ – $ 12,668 $ 146 $ 12,814
Foreign exchange and gold contracts2 14,996 – 14,998
Equity contracts237 1,547 573 2,357
Credit contracts– 970 4 974
Commodity contracts875 1,380 41 2,296
$ 1,114 $ 31,561 $ 764 $ 33,439
Liabilities:
Deposits
(4)
$ – $ 136 $ 1,011 $ 1,147
Financial liabilitiesdesignated at fair value through profit or loss$ – $ 465 $ – $ 465
Obligationsrelated tosecurities soldshort$ 24,025 $ 3,025 $ – $ 27,050
Derivative financial instruments
Interest rate contracts
$ – $ 13,003 $ 52 $ 13,055
Foreign exchange and gold contracts3 13,927 – 13,930
Equity contracts463 1,711 456 2,630
Credit contracts– 3,947 2 3,949
Commodity and other contracts579 2,295 – 2,874
$ 1,045 $ 34,883 $ 510 $ 36,438
(1) The fair value of precious metals is determined based on quoted market prices and forward spot prices.
(2) Consists primarily of base metal positions. The fair value of these positions is determined based on quoted prices in active markets.
(3) Excludes investments which are held-to-maturity of $166.
(4) These amounts represent embedded derivatives bifurcated from structured deposit notes.
Non-recurring fair value measurements
There were no non-recurring fair value measurements at April 30, 2015, January 31, 2015 and October 31, 2014.
Level 3 instrument fair value changes
Financial instruments categorized as Level 3 in the fair value hierarchy comprise certain illiquid government bonds,
highly-structured corporate bonds, mortgage-backed securities, illiquid investments in funds, private equity securities,
income funds, hedge funds, complex derivatives, and embedded derivatives in structured deposit notes.
The following table summarizes the changes in Level 3 instruments carried at fair value for the three months ended
April 30, 2015.
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All positive balances represent assets and negative balances represent liabilities. Consequently, positive amounts indicate
purchases of assets or settlements of liabilities and negative amounts indicate sales of assets or issuances of liabilities.
As at April 30, 2015
($ millions)
Fair value,
beginning
of period
Gains/
(losses)
recorded
in income
(1)
Gains/
(losses)
recorded
in OCI
(2)
Purchases/
Issuances
Sales/
Settlements
Transfers
into / out
of Level 3
Fair
value, end
of period
Change in
unrealized
gains/(losses)
recorded in
income for
instruments
still held
(3)
Trading assets
(4)
Corporate and other debt$ 32 $ – $ – $ – $ – $ –$ 32$ –
Income funds and hedge funds1,448 (40) – 11 (5) –1,414(40)
(5)
Equity securities56 – – – – –56–
1,536 (40) – 11 (5) –1,502(40)
Investmentsecurities
Other foreign governments’
debt444 – (25)229(229) –419–
Corporate and other debt152 – 4 – (2) –154–
Mortgage-backed securities38 – – – (1) –37–
Equity securities1,101 20 (37) 22 (47) –1,059–
1,735 20 (58) 251 (279) –1,669–
Derivative financial
instruments– assets
Interest rate contracts138 15 – 3 – –15615
Equity contracts380 5 – 2 (48) (14)325(3)
Credit contracts3 (1) – – – –2(1)
Commodity contracts10 2 – – – –122
Derivative financial
instruments– liabilities
Interest rate contracts(50) 4 – (4) – –(50)4
Equity contracts(517) 23 – (1) 35 19(441)23
(6)
Credit contracts(4) 2 – (6) – –(8)2
Other contracts(258) – – – – –(258)–
(298) 50 – (6) (13) 5(262)42
Deposits
(7)
(1,149) 39 – – – –(1,110)39
(5)
Total$ 1,824 $ 69 $ (58) $ 256 $ (297) $ 5$ 1,799$ 41
(1) Gains and losses on trading assets and all derivative financial instruments are included in trading revenues in the Consolidated Statement of
Income. Gains and losses on disposal of investment securities are included in net gain on sale of investment securities in the Consolidated
Statement of Income.
(2) Gains and losses from fair value changes of investment securities are presented in the net change in unrealized gains (losses) on available-for-
sale securities in the Consolidated Statement of Shareholder’s Equity – Accumulated Other Comprehensive Income.
(3) 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.
(4) Trading assets include an insignificant amount of financial assets designated at fair value through profit or loss.
(5) The unrealized losses on income fund and hedge fund units are offset by the mark-to-market changes in an equity-linked deposit note and
certain other derivative instruments in structured transactions. Both losses and offsetting gains are included in trading revenues in the
Consolidated Statement of Income.
(6) 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.
(7) These amounts represent embedded derivatives bifurcated from structured deposit notes.
The following table summarizes the changes in Level 3 instruments carried at fair value for the three months ended
January 31, 2015 and October 31, 2014
(1)
:
As at January 31, 2015
($ millions)
Fair value,
beginning
of period
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
period
Trading assets
(2)
$ 1,386 $ 148 $ – $ 4 $ (2) $ – $ 1,536
Investment securities1,956 83 83 173 (560) – 1,735
Derivative financial instruments254 20 – (1) 7 (578) (298)
Deposits
(3)
(1,011) (138) – – – – (1,149)
(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.
(2) Trading assets include an insignificant amount of financial assets designated at fair value through profit or loss.
(3) These amounts represent embedded derivatives bifurcated from structured deposit notes.
74Scotiabank Second Quarter Report 2015
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
As at October 31, 2014
($ millions)
Fair value,
beginning
of period
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
period
Trading assets
(2)
$ 1,345 $ 25 $ – $ 51 $ (35) $ – $ 1,386
Investment securities2,023 105 (46) 222 (348) – 1,956
Derivative financial instruments225 2 – (3) 10 20 254
Deposits
(3)
(986) (25) – – – – (1,011)
(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.
(2) Trading assets include an insignificant amount of financial assets designated at fair value through profit or loss.
(3) These amounts represent embedded derivatives bifurcated from structured deposit notes.
Level 3 sensitivity analysis
The table below sets out information about significant unobservable inputs used in measuring financial instruments
categorized as Level 3 in the fair value hierarchy.
Valuation
technique
Significant
unobservable inputs
Range of estimates for
unobservable inputs
(1)
Changes in fair value
from reasonably
possible alternatives
($ millions)
Trading assets
(2)
Corporate and other debtModel based Default correlation 60% – 86% –
Investmentsecurities
Other foreign governments’ debtPrice based Price 100% (2)/–
Corporate and other debtPrice based
Discounted
cash flow
Model based
Price
Discount rate
Default correlation
95%
1% – 2%
60% – 86% (1)/1
Mortgage-backed securitiesPrice based Price 95% –
Private equity securitiesMarket General Partner
comparable valuations per
statements 100%
Capitalization rate 7% (36)/36
Derivative financial instruments
Interest rate contractsOption
pricing
model Interest rate volatility 15% – 193% (5)/5
Equity contractsOption
pricing
model
Equity volatility
Single stock correlation
4% – 98%
(77)% – 98% (7)/7
Credit contractsModel based Default correlation 51% – 86% (1)/1
(1) The range of estimates represents the actual lowest and highest level inputs used to fair value financial instruments within each financial
statement category.
(2) The valuation of private equity, hedge fund investments and embedded derivatives, bifurcated from structured deposit notes, utilize net asset
values as reported by fund managers. Net asset values are not considered observable as the Bank cannot redeem these instruments at such
values. The range for net asset values per unit or price per share has not been disclosed for these instruments since the valuations are not
model based.
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 consolidated financial statements in the 2014 Annual Report 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.
Changes in fair value from reasonably possible alternatives
The fair value of Level 3 instruments is determined using management’s judgements about the appropriate value of
unobservable inputs. Due to the unobservable nature of the inputs used, there may be uncertainty about the valuation of
Level 3 instruments. Management has used reasonably possible alternative assumptions to determine the sensitivity of
these inputs and the resulting potential impact on fair value of these Level 3 instruments.
Scotiabank Second Quarter Report 201575
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
For the Bank’s investment securities, the impact of applying these other reasonably possible inputs is a potential gain of
$37 million and a potential loss of $39 million (January 31, 2015 – potential gain of $44 milion and a potential loss of $45
million; October 31, 2014 – potential gain of $48 million and a potential loss of $57 million) recorded through other
comprehensive income until the security is sold or becomes impaired.
For the Bank’s trading securities, derivative instruments and obligations related to securities sold short, the impact of
applying these other reasonably possible assumptions is a potential net gain of $13 million and a potential net loss of
$13 million (January 31, 2015 – potential net gain of $10 million and a potential net loss of $10 million; October 31, 2014 –
potential net gain of $10 million and a potential net loss of $10 million).
A sensitivity analysis has not been performed on certain equity investments not quoted in an active market that are
hedged with total return swaps.
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 as of the end of the reporting period during which the change has occurred.
During the three months ended April 30, 2015, a net amount of derivative assets of $14 million was transferred out of
Level 3. $15 million was transferred into Level 2 and $1 million was transferred out of Level 1. A net amount of derivative
liabilities of $19 million was transferred out of Level 3. $20 million was transferred into Level 2 and $1 million was
transferred out of Level 1. During the three months ended January 31, 2015, a net amount of derivative assets of
$242 million was transferred out of Level 3 to Level 2, and a net amount of derivative liabilities of $336 million was
transferred into Level 3 from Level 2. During the three months ended October 31, 2014, a net amount of $20 million was
transferred into Level 3 from Level 2 for derivative instruments.
All transfers were as a result of new information being obtained regarding the observability of inputs used in the valuation.
76Scotiabank Second Quarter Report 2015
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
19. Contractual maturities
The table below provides the maturity of assets and liabilities as well as the off-balance sheet commitments based on the
contractual maturity date. From a liquidity risk perspective the Bank considers factors other than contractual maturity in
the assessment of liquid assets or in determining expected future cash flows. In particular, for securities with a fixed
maturity date, the ability and time horizon to raise cash from these securities is more relevant to liquidity management
than contractual maturity. For other assets and deposits the Bank uses assumptions about rollover rates to assess liquidity
risk for normal course and stress scenarios. Similarly, the Bank uses assumptions to assess the potential drawdown of
credit commitments in various scenarios.
As at April 30, 2015
($ 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$ 53,180 $ 1,193 $ 443 $ 443 $ 811 $ 472 $ 483 $ 35 $ 12,042 $ 69,102
Trading assets4,991 5,607 3,902 2,043 2,467 6,914 16,564 22,258 48,374 113,120
Financial instruments designated at fair
value through profit or loss12 – – – 63 – 14 – 40 129
Securities purchased under resale
agreements and securities borrowed76,171 11,694 5,908 1,541 1,662 1,229 – – – 98,205
Derivative financial instruments2,636 1,684 1,434 1,347 964 3,380 7,847 18,377 – 37,669
Investment securities1,921 1,879 3,816 1,714 1,451 6,571 14,081 4,708 3,687 39,828
Loans23,160 28,378 26,481 23,222 26,192 68,461 165,476 29,051 45,537 435,958
Residential mortgages4,137 7,549 10,986 11,595 13,618 42,570 102,004 19,289 1,774
(1)
213,522
Personal and credit cards3,169 2,775 2,418 2,346 2,263 8,431 17,415 4,603 42,766 86,186
Business and government15,854 18,054 13,077 9,281 10,311 17,460 46,057 5,159 4,691
(2)
139,944
Allowance for credit losses– – – – – – – – (3,694) (3,694)
Customers’ liabilities under acceptances10,551 2,868 130 – – – – – – 13,549
Other assets– – – – – – – – 29,601 29,601
Total assets$172,622 $53,303 $42,114 $30,310 $33,610 $87,027 $204,465 $74,429 $139,281 $837,161
Liabilitiesand equity
Deposits$ 54,171 $53,222 $56,434 $32,948 $30,299 $57,645 $ 58,680 $14,964 $216,918 $575,281
Personal6,812 7,246 8,507 8,763 8,132 16,900 16,978 357 106,617 180,312
Non-personal47,359 45,976 47,927 24,185 22,167 40,745 41,702 14,607 110,301 394,969
Financial instruments designated at fair
value through profit or loss6 24 12 – – 7 528 525 – 1,102
Acceptances10,551 2,868 130 – – – – – – 13,549
Obligations related to securities sold
short203 88 239 122 220 2,994 6,008 9,107 3,862 22,843
Derivative financial instruments3,722 1,956 1,871 1,338 1,342 3,390 9,818 20,176 – 43,613
Obligations related to securities sold
under repurchase agreements and
securities lent76,196 3,802 4,120 3,556 2,002 – – – – 89,676
Subordinated debentures– – – – – – – 6,134 – 6,134
Other liabilities434 1,011 311 622 137 1,023 2,587 3,478 24,417 34,020
Total equity– – – – – – – – 50,943 50,943
Total liabilities and equity$145,283 $62,971 $63,117 $38,586 $34,000 $65,059 $ 77,621 $54,384 $296,140 $837,161
Off-Balancesheet commitments
Operating leases$ 26 $ 55 $ 81 $ 80 $ 77 $ 284 $ 581 $ 563 $ – $ 1,747
Credit commitments
(3)
1,872 7,557 11,942 10,716 11,605 19,900 75,246 9,201 5 148,044
Financial guarantees
(4)
– – – – – – – – 29,790 29,790
Outsourcing obligations19 38 57 56 52 196 296 18 1 733
(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.
Scotiabank Second Quarter Report 201577
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
As at January 31, 2015
($ 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$ 57,940 $ 1,692 $ 299 $ 171 $ 1,062 $ 284 $ 502 $ 44 $ 13,598 $ 75,592
Trading assets6,326 5,285 4,268 1,702 2,184 6,491 13,854 23,270 46,239 109,619
Financial instruments designated at fair
value through profit or loss– – 13 – – 67 – – 39 119
Securities purchased under resale
agreements and securities borrowed62,752 14,507 6,141 1,307 1,249 1,261 – – – 87,217
Derivative financial instruments3,879 3,641 2,253 1,706 1,852 4,968 11,642 25,494 – 55,435
Investment securities1,543 2,338 3,861 1,348 1,664 7,244 13,736 4,987 4,184 40,905
Loans23,205 26,950 31,643 22,815 24,900 73,556 161,658 29,714 45,475 439,916
Residential mortgages2,914 7,841 14,062 12,152 11,833 46,901 97,493 19,648 1,947
(1)
214,791
Personal and credit cards3,395 1,612 3,011 2,303 2,175 8,182 17,670 4,943 42,638 85,929
Business and government16,896 17,497 14,570 8,360 10,892 18,473 46,495 5,123 4,678
(2)
142,984
Allowance for credit losses– – – – – – – – (3,788) (3,788)
Customers’ liabilities under acceptances9,001 2,777 120 – – – – – – 11,898
Other assets– – – – – – – – 31,172 31,172
Total assets$ 164,646 $ 57,190 $ 48,598 $ 29,049 $ 32,911 $ 93,871 $ 201,392 $ 83,509 $ 140,707 $ 851,873
Liabilitiesand equity
Deposits$ 60,277 $ 54,288 $ 51,019 $ 39,003 $ 20,871 $ 59,858 $ 62,238 $ 15,240 $ 221,804 $ 584,598
Personal6,937 6,872 9,229 7,712 8,884 17,416 17,751 308 105,864 180,973
Non-personal53,340 47,416 41,790 31,291 11,987 42,442 44,487 14,932 115,940 403,625
Financial instruments designated at
fair value through profit or loss– 18 23 – – – 303 392 – 736
Acceptances9,001 2,777 120 – – – – – – 11,898
Obligations related to securities
sold short155 78 302 143 301 1,774 7,149 10,228 2,654 22,784
Derivative financial instruments5,054 3,183 2,148 1,819 1,740 5,032 12,401 26,348 – 57,725
Obligations related to securities sold
under repurchase agreements and
securities lent64,112 4,847 2,807 4,129 3,427 – – – – 79,322
Subordinated debentures– – – – – – – 4,973 – 4,973
Other liabilities497 1,139 290 117 636 983 2,828 3,645 28,521 38,656
Total equity– – – – – – – – 51,181 51,181
Total liabilities and equity$ 139,096 $ 66,330 $ 56,709 $ 45,211 $ 26,975 $ 67,647 $ 84,919 $ 60,826 $ 304,160 $ 851,873
Off-Balancesheet commitments
Operating leases$ 26 $ 57 $ 83 $ 81 $ 78 $ 272 $ 562 $ 575 $ – $ 1,734
Credit commitments
(3)
3,422 6,034 13,213 12,536 14,168 17,126 74,016 13,467 5 153,987
Financial guarantees
(4)
– – – – – – – – 30,131 30,131
Outsourcing obligations19 38 57 57 50 147 250 1 1 620
(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.
78Scotiabank Second Quarter Report 2015
C O N D E N S E D I N T E R I M C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
As at October 31, 2014
($ 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$ 49,912 $ 1,312 $ 398 $ 125 $ 715 $ 125 $ 394 $ 2 $ 11,033 $ 64,016
Trading assets5,038 6,068 2,921 2,628 3,051 8,707 16,124 25,143 43,568 113,248
Financial instruments designated at fair
value through profit or loss– – – 12 – 60 – – 39 111
Securities purchased under resale
agreements and securities borrowed71,611 14,251 3,604 2,134 1,148 1,118 – – – 93,866
Derivative financial instruments2,216 2,582 1,430 1,059 1,011 3,559 6,922 14,660 – 33,439
Investment securities1,846 1,674 2,951 1,740 1,577 10,071 9,805 4,697 4,301 38,662
Loans25,495 21,343 25,828 27,558 23,305 71,750 155,459 28,112 45,459 424,309
Residential mortgages2,589 3,983 12,441 15,686 12,309 47,999 97,540 18,395 1,706
(1)
212,648
Personal and credit cards2,719 1,530 2,239 2,797 2,450 7,735 17,448 5,003 42,283 84,204
Business and government20,187 15,830 11,148 9,075 8,546 16,016 40,471 4,714 5,111
(2)
131,098
Allowance for credit losses– – – – – – – – (3,641) (3,641)
Customers’ liabilities under acceptances7,778 2,032 65 1 – – – – – 9,876
Other assets– – – – – – – – 28,139 28,139
Total assets$ 163,896 $ 49,262 $ 37,197 $ 35,257 $ 30,807 $ 95,390 $ 188,704 $ 72,614 $ 132,539 $ 805,666
Liabilitiesand equity
Deposits$ 53,612 $ 58,296 $ 52,802 $ 29,330 $ 22,930 $ 45,523 $ 65,793 $ 14,755 $ 210,976 $ 554,017
Personal7,261 7,401 8,334 8,319 7,850 16,763 17,292 257 101,686 175,163
Non-personal46,351 50,895 44,468 21,011 15,080 28,760 48,501 14,498 109,290 378,854
Financial instruments designated at fair
value through profit or loss3 23 17 – – – 187 235 – 465
Acceptances7,778 2,032 65 1 – – – – – 9,876
Obligations related to securities sold short34 159 990 269 183 3,912 7,645 10,924 2,934 27,050
Derivative financial instruments2,156 2,629 1,266 1,386 945 4,232 8,656 15,168 – 36,438
Obligations related to securities sold
under repurchase agreements and
securities lent73,074 8,929 2,280 1,586 3,084 – – – – 88,953
Subordinated debentures– – – – – – – 4,871 – 4,871
Other liabilities372 489 398 184 92 1,948 2,999 3,387 24,916 34,785
Total equity– – – – – – – – 49,211 49,211
Total liabilities and equity$ 137,029 $ 72,557 $ 57,818 $ 32,756 $ 27,234 $ 55,615 $ 85,280 $ 49,340 $ 288,037 $ 805,666
Off-Balancesheet commitments
Operating leases$ 25 $ 53 $ 78 $ 78 $ 76 $ 261 $ 550 $ 577 $ – $ 1,698
Credit commitments
(3)
5,062 4,165 9,950 13,315 14,475 13,821 73,224 3,424 5 137,441
Financial guarantees
(4)
– – – – – – – – 27,137 27,137
Outsourcing obligations19 38 57 57 57 161 286 1 1 677
(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.
20. Events after the Consolidated Statement of Financial Position date
Cencosud Administradora de Tarjetas S.A.
On May 1, 2015, the Bank acquired a 51% controlling interest in Cencosud Administradora de Tarjetas S.A., and certain
other smaller entities (collectively, CAT), from Cencosud S.A. (Cencosud), for cash consideration of US$280 million. CAT
is the financial services business of Cencosud and distributes credit cards and consumer loans in Chile. The acquisition
will allow the Bank to provide its customers with more credit card options, attract new customers and build scale in Chile.
The Bank and Cencosud have entered into a 15 year partnership agreement to manage the credit card business and
provide additional products and services to customers of both organizations. The Bank has also committed to fund 100%
of CAT’s loan portfolio. The acquisition will be accounted for as a business combination and will result in assets and
liabilities comprising mainly of personal and credit card loans and related funding.
Citibank Peru operations
On May 1, 2015, the Bank announced that its subsidiary in Peru acquired the retail and commercial banking operations of
Citibank in Peru. The transaction will result in the recognition of credit card, personal loan and commercial loan related
assets of an approximate Canadian equivalent of $475 million. This acquisition will be accounted for as a business
combination.
Scotiabank Second Quarter Report 201579
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Normal Course Issuer Bid
On May 29, 2015, the Bank announced that OSFI and the TSX approved its normal course issuer bid pursuant to which it
may repurchase for cancellation up to 24 million of the Bank’s common shares, which represents approximately 2% of the
Bank’s common shares issued and outstanding as of May 25, 2015. Purchases under the bid may commence on June 2,
2015, and will end on the earlier of June 1, 2016, or the date on which the Bank completes its purchases. On a quarterly
basis, the Bank will consult with OSFI prior to making purchases.
80Scotiabank Second Quarter Report 2015
S H A R E H O L D E R I N F O R M A T I O N
Direct deposit service
Shareholders may have dividends deposited directly into accounts held at financial institutions which are members of the Canadian Payments Association. To arrange
direct deposit service, please write to the transfer agent.
Dividend and Share Purchase Plan
Scotiabank’s dividend reinvestment and share purchase plan allows common and preferred shareholders to purchase additional common shares by reinvesting their
cash dividend without incurring brokerage or administrative fees.
As well, eligible shareholders may invest up to $20,000 each fiscal year to purchase additional common shares of the Bank. All administrative costs of the plan are
paid by the Bank.
For more information on participation in the plan, please contact the transfer agent.
Dividend dates for 2015
Record and payment dates for common and preferred shares, subject to approval by the Board of Directors.
Record Date Payment Date
January 6 January 28
April 7 April 28
July 7 July 29
October 6 October 28
Duplicated communication
If your shareholdings are registered under more than one name or address, multiple mailings will result. To eliminate this duplication, please write to the transfer
agent to combine the accounts.
Normal Course Issuer Bid
A copy of the Notice of Intention to commence the Normal Course Issuer Bid is available without charge by contacting the Secretary’s Department at (416)-866-3672.
Website
For information relating to Scotiabank and its services, visit us at our website: www.scotiabank.com.
Conference call and Web broadcast
The quarterly results conference call will take place on May 29, 2015, at 8:00 am EDT and is expected to last approximately one hour. Interested parties are invited to
access the call live, in listen-only mode, by telephone, toll-free, at (416) 849-1847 or 1-866-530-1554 (please call five to 15 minutes in advance). In addition, an
audio webcast, with accompanying slide presentation, may be accessed via the Investor Relations page of www.scotiabank.com. Following discussion of the results
by Scotiabank executives, there will be a question and answer session.
A telephone replay of the conference call will be available from May 29, 2015, to June 13, 2015, by calling (647) 436-0148 or 1-888-203-1112 (North America
toll-free) and entering the identification code 1232313#. The archived audio webcast will be available on the Bank’s website for three months.
Contact information
Investors:
Financial analysts, portfolio managers and other investors requiring financial information, please contact Investor Relations, Finance Department:
Scotiabank
Scotia Plaza, 44 King Street West
Toronto, Ontario, Canada M5H 1H1
Telephone: (416) 933-8774
Fax: (416) 866-7867
E-mail: investor.relations@scotiabank.com
Media:
For media enquiries, please contact the Public and Corporate Affairs Department at the above address.
Telephone: (416) 866-6806
Fax: (416) 866-4988
E-mail: corporate.communications@scotiabank.com
Scotiabank Second Quarter Report 201581
S H A R E H O L D E R I N F O R M A T I O N
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
Fax: 1-888-453-0330
E-mail: service@computershare.com
Co-Transfer Agent (U.S.A.)
Computershare Trust Company N.A.
250 Royall Street
Canton, MA 02021 U.S.A.
Telephone: 1-800-962-4284
For other shareholder enquiries, please contact the Finance Department:
Scotiabank
Scotia Plaza, 44 King Street West
Toronto, Ontario, Canada M5H 1H1
Telephone: (416) 866-4790
Fax: (416) 866-4048
E-mail: corporate.secretary@scotiabank.com
Rapport trimestriel disponible en français
Le Rapport annuel et les états financiers de la Banque sont publiés en français et en anglais et distribués aux actionnaires dans la version de leur choix. Si vous
préférez que la documentation vous concernant vous soit adressée en français, veuillez en informer Relations publiques, Affaires de la société et Affaires
gouvernementales, La Banque de Nouvelle-Écosse, Scotia Plaza, 44, rue King Ouest, Toronto (Ontario), Canada M5H 1H1, en joignant, si possible, l’étiquette
d’adresse, afin que nous puissions prendre note du changement.
82Scotiabank Second Quarter Report 2015
The Bank of Nova Scotia is incorporated in Canada with limited liability.
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