# The Bank of Nova Scotia (Scotiabank, BNS): Business, Risks and Management's Discussion

Scotiabank reports in Canadian dollars. Money amounts in this document are converted to US dollars: flows at the average exchange rate for the period they cover, balances at the rate on the balance-sheet date. Where the company gives a percentage change without an amount, it is stated as reported, in Canadian-dollar terms. The fiscal year ends October 31. "Fiscal 2025" is the year ended October 31, 2025, and the third quarter of fiscal 2026 is the three months ended July 31, 2026.

## Business

*Source: Form 40-F for fiscal 2025, accession 0001193125-25-304643 (Exhibit 99.1, Annual Information Form; Exhibit 99.2, Management's Discussion and Analysis). Balance-sheet figures at July 31, 2026 are from the third-quarter report, Form 6-K accession 0001193125-26-364115.*

Scotiabank is a Canadian universal bank. It lends to, takes deposits from, and sells investment, advisory and capital-markets services to retail, small-business, commercial, corporate and institutional clients. Its main markets are Canada, Latin America (including Mexico, Chile, Peru, Brazil and Uruguay), the Caribbean and, through its wholesale business and an equity stake in KeyCorp, the United States. Most of its income is spread income. In fiscal 2025, net interest income was $15.37 billion of $26.95 billion in total revenue. The rest is fees and other income: wealth and asset-management fees, card and banking fees, insurance, underwriting and advisory fees, trading, and its share of earnings from associated banks. At July 31, 2026 the bank had total assets of $1.10 trillion, loans of $549.30 billion and deposits of $717.15 billion. It employed 81,734 full-time-equivalent staff and operated 1,984 branches and offices.

The bank runs four business lines plus a corporate segment. The amounts below are fiscal 2025 net income attributable to equity holders, as segment results were reported for that year:

- **Canadian Banking** ($2.45 billion) serves more than 11 million customers through 892 branches, 3,542 ABMs and digital channels. Retail Banking covers chequing, savings, cards, mortgages, personal loans, automotive finance and creditor insurance, and includes Tangerine Bank, a self-directed digital bank. Business Banking covers lending, deposits, cash management and trade finance for small, medium and large businesses, including the Roynat franchise.
- **International Banking** ($1.88 billion) is a universal banking franchise with more than 8 million retail, commercial and corporate clients in more than 12 countries, including Mexico, Chile, Peru, Brazil, Uruguay and Caribbean markets. The bank presents it as part of a "North American corridor" with Canada and the U.S.
- **Global Wealth Management** ($1.19 billion) serves more than 2 million investment-fund and advisory clients in 12 countries. Its brands include Scotia iTRADE, ScotiaMcLeod, MD Financial Management, Scotiatrust, Private Banking, Scotia Jarislowsky Fraser, 1832 Asset Management and Dynamic Funds. Assets under management were $308.35 billion and assets under administration $568.88 billion at October 31, 2025.
- **Global Banking and Markets** ($1.37 billion) provides corporate lending, transaction services, investment-banking advice and capital-markets access. It describes itself as a full-service wholesale bank in the Americas, with clients in Canada, the U.S., Latin America, Europe and Asia-Pacific.
- **Other** (a loss of $1.33 billion in fiscal 2025, most of it from the items described under MD&A below) holds Group Treasury, which manages the balance sheet, liquidity, interest-rate risk and wholesale funding. It also holds the bank's minority stakes in associated banks and corporate items not allocated to a business line.

**How the business has been reshaped.** Management's strategy is to move capital out of lower-return Latin American markets and into priority markets across North America. This explains the bank's present shape:

- In two stages, completed December 27, 2024, it bought a 14.9% interest (163 million shares) in the U.S. regional bank KeyCorp. It paid $17.17 per share, for total cash consideration of about $2.8 billion. The bank has two KeyCorp board seats and accounts for the stake as an associate.
- On February 28, 2025 it sold CrediScotia Financiera, its Peruvian consumer-finance subsidiary, to Banco Santander.
- On December 1, 2025 it transferred its banking operations in Colombia, Costa Rica and Panama to Davivienda Group S.A. In exchange it received a 20.3% stake in the combined group, made up of 14.99% in voting common shares plus non-voting preferred shares, and two board seats.

The strategy rests on four pillars: grow and scale in priority businesses, earn more primary client relationships, make it easier to do business with the bank, and "win as one team". The bank's medium-term financial objectives are diluted EPS growth of 7% or more, a return on equity of 14% or more, positive operating leverage and strong capital ratios.

**Regulation and structure.** The bank received its charter in Nova Scotia in 1832 and has been a Schedule I bank under the Bank Act (Canada) since 1871. It is supervised by the Office of the Superintendent of Financial Institutions (OSFI) and is a domestic systemically important bank, so it falls under Canada's bail-in regime. Without ministerial approval, no person may own more than 10% of any class of its shares, and with limited exceptions governments may not own its shares. In the United States it is a financial holding company and is subject to the Federal Reserve's enhanced prudential standards for foreign banking organizations.

## Risk Factors

*Source: Form 40-F for fiscal 2025, accession 0001193125-25-304643 (Exhibit 99.2, "Top and emerging risks" and the risk-management section; Exhibit 99.1, legal proceedings), updated by the third-quarter report, 6-K accession 0001193125-26-364115 (Top and emerging risks, credit risk, Notes 8 and 18).*

- **Canadian household credit and housing.** Canadian residential mortgages were $221.85 billion at July 31, 2026. Of these, 77% are uninsured, and the average loan-to-value ratio on the uninsured book is 56%. Variable-rate loans are 36% of the Canadian mortgage portfolio. Ontario accounts for 55% of the Canadian book and British Columbia and the Territories for about 20%. In fiscal 2025, Canadian Banking's credit-loss provisions rose to $1.64 billion, or 50 basis points of loans against 38 basis points in 2024. The bank attributed the rise to credit migration, a sharply weaker macroeconomic outlook, and more impaired mortgages and unsecured retail loans.
- **Tariffs, trade policy and recession.** The bank names U.S. tariffs and trade-policy uncertainty as key interconnected risk drivers. These include the CUSMA review and the effect of sectoral and non-CUSMA-compliant tariffs on Canadian and Mexican exports. Lagged effects of past high interest rates, softer consumer demand and higher unemployment could raise delinquencies and credit losses. In the third quarter the bank said elevated tariff rates on selected Canadian industries had just taken effect.
- **Higher-loss emerging-market lending and currency exposure.** International Banking's provision-for-credit-losses ratio was 138 basis points in the third quarter of fiscal 2026, against 42 basis points in Canadian Banking. Its results move with the Mexican peso, Peruvian sol and Chilean peso. In the third quarter, foreign-currency translation turned a 1% constant-currency decline in the segment's earnings into a reported increase.
- **Geopolitical tensions.** The third-quarter report says escalation involving Iran has disrupted energy markets and shipping routes and revived inflation pressures. It warns that temporary buffers, such as drawdowns of inventories and strategic reserves and the rerouting of supply, may fade if the disruption persists. The annual report also cites U.S.-China tensions and the war in Ukraine.
- **Cyber threats and frontier AI.** The bank expects cyber attacks on itself and on its third-party providers to keep growing in sophistication. These include state-sanctioned attacks and attacks enabled by generative and agentic AI. The third-quarter report adds that frontier AI models can rapidly find previously unknown vulnerabilities. In response, the bank says it is moving to a real-time, automated security model. It also carries cyber insurance.
- **Third-party dependence, fraud and insider risk.** Critical services are concentrated in a small number of dominant third-party and further-removed (nth-party) providers. The bank expects continued losses from external fraud, scams and first-party fraud, and notes an industry-wide increase in insider-risk cases.
- **AI, data and technology modernization.** The bank cites several execution risks: AI adoption (model governance, intellectual-property exposure, inaccurate outputs), data quality, legacy platforms and expired software, and the pace of change-management and regulatory projects. Lower-cost, less-regulated fintech competitors add to the pressure.
- **Regulation and changing government policy.** The volume and pace of regulatory obligations keep rising, as does the size of fines. Governments are also taking a more active role in economic matters, including industrial policy and restrictive trade measures. Together these could raise compliance costs, constrain the business and require strategic adjustments.
- **Tax disputes.** At July 31, 2026, the Canada Revenue Agency had issued reassessments totalling $1.43 billion of tax and interest. They deny the deductibility of certain Canadian dividends the bank received in its 2011 to 2021 taxation years. Separately, a subsidiary faces $454.09 million of withholding-tax assessments (tax, penalties and interest) on securities-lending transactions for 2014 to 2019. The bank has filed Notices of Appeal with the Tax Court of Canada against the dividend reassessments for its 2011 and 2012 taxation years, and the subsidiary has appealed the 2014 to 2019 withholding-tax assessments. In both matters, the bank says its filing positions were appropriate.
- **Litigation in Peru.** Through its Peruvian subsidiary, the bank disputes value-added-tax assessments and interest of $125.62 million, which arose from client transactions that predate its acquisition of the subsidiary. It has taken the default-interest component to international arbitration against the Republic of Peru, under the Canada-Peru Free Trade Agreement. It recorded a $101.36 million provision for the amount at issue in that arbitration. Both amounts are converted at the October 31, 2025 exchange rate.
- **Value of minority stakes.** At July 31, 2026, the bank's Bank of Xi'an stake had a quoted market value of $436.98 million, below its carrying value of $593.81 million. The bank recorded an impairment on this investment in fiscal 2024. The KeyCorp stake traded above its carrying value ($3.56 billion market value against $3.14 billion). The unlisted Davivienda common shares have no quoted price.
- **Climate and sustainability.** The bank cites physical risk from severe weather, uncertainty over climate regulation, and legal and reputational exposure to "greenwashing" claims. Separately, the annual report's economic summary notes that Hurricane Melissa caused significant damage in Jamaica and the Dominican Republic, with Jamaica more heavily affected.

## Management's Discussion and Analysis: Fiscal 2025

*Source: Form 40-F for fiscal 2025, accession 0001193125-25-304643 (Exhibit 99.2, Overview of Performance, Business Line Overview and Outlook).*

Fiscal 2025 reported earnings were held down by restructuring and divestiture charges, while the underlying business grew. Reported net income was $5.54 billion, down 4.5% from $5.80 billion in US-dollar terms (down 1.7% in Canadian dollars). Diluted EPS was $4.05, against $4.31, and return on equity was 9.7%, against 10.2%. Adjusting items reduced net income by a net $1.25 billion after tax. The main items were:

- an impairment loss of $1.02 billion before tax ($958.19 million after tax) on the Colombia, Costa Rica and Panama operations, booked when they were classified as held for sale;
- a fourth-quarter restructuring charge and severance provisions of $268.83 million before tax, covering workforce reductions in Canadian Banking, a restructuring and right-sizing of Asian operations in Global Banking and Markets, and regionalization in International Banking;
- a $53.33 million legal provision before tax.

On an adjusted basis, net income rose 7.1% in US-dollar terms to $6.79 billion (up 10.2% in Canadian dollars), adjusted diluted EPS was $5.06 against $4.75, and adjusted ROE was 11.8%. The adjusted ROE remained below the bank's 14% target.

- **Revenue.** Net interest income rose 8.6% in US-dollar terms to $15.37 billion. The net interest margin widened 17 basis points to 2.33%. The main driver was much lower funding costs after central-bank rate cuts, together with wider corporate-lending margins in Global Banking and Markets. Lower deposit margins in Canadian Banking and larger holdings of low-yielding liquid assets partly offset the gain. Non-interest income rose 9.3% to $11.58 billion, led by wealth-management fees, trading, underwriting and advisory, and income from associates, chiefly KeyCorp.
- **Credit.** The provision for credit losses rose 13.0% in US-dollar terms to $3.37 billion, or 62 basis points of loans against 53 basis points. Provisions on performing loans rose because of credit migration, a worse outlook driven by U.S. tariffs, and growth in the international retail portfolio. Provisions on impaired loans rose mainly because more Canadian Banking loans became impaired.
- **Expenses and tax.** Non-interest expenses rose 11.1% in US-dollar terms to $16.08 billion, including the impairment. Adjusted expenses rose 9% in Canadian dollars, driven by personnel costs, technology, advertising and foreign-currency translation. Operating leverage was negative 2.2% on a reported basis and positive 3.0% adjusted. The effective tax rate rose to 26.2% from 20.5%, reflecting the impairment, less income from lower-tax jurisdictions and the new Global Minimum Tax. The CET1 ratio ended the year at 13.2%.
- **Segments.** Canadian Banking's net income fell 11.9% in US-dollar terms on higher credit losses and costs. Its margin fell 9 basis points to 2.29% as rate cuts squeezed deposit spreads. International Banking was down 1.0% in US-dollar terms (up 1.9% in Canadian dollars): its margin widened to 4.50%, but business loans were deliberately cut by 8%. Global Wealth Management rose 14.4% in US-dollar terms, with assets under management up 16%. Global Banking and Markets rose 26.3%, helped by trading, fees and record M&A revenue.
- **Shareholder returns.** Dividends were $3.08 per share (C$4.32, up 1.9% in Canadian dollars). The payout ratio was 73.7% reported and 60.7% adjusted, against a 40-50% target range. Total shareholder return for the year was 36%.

**Outlook for fiscal 2026 (as given in the annual report).** Management expected strong earnings growth. It expected higher net interest income from loan and deposit growth and margin expansion, higher non-interest revenue in every segment, and lower credit-loss provisions, partly offset by a higher tax rate. It expected modest expense growth, excluding divestitures, and positive operating leverage. Segment guidance was as follows:

- Canadian Banking: strong earnings growth, with provisions recovering from 2025's elevated level.
- International Banking: a modest earnings increase, excluding divestitures.
- Global Wealth Management: strong growth.
- Global Banking and Markets: modest earnings growth after a very strong 2025, with expenses rising faster than revenue.
- Other: a smaller loss as liabilities reprice at lower rates.

## Current Quarter: Third Quarter of Fiscal 2026 (three months ended July 31, 2026)

*Source: Form 6-K filed 2026-08-25, accession 0001193125-26-364115 (Exhibit 99.1, Third Quarter 2026 Report to Shareholders: MD&A, Note 10 and Note 19).*

**The quarter.** Management called it a record quarter. ROE of 14.1% (14.2% adjusted) exceeded the bank's 14% medium-term target, which fiscal 2025 had fallen short of. Reported net income was $2.11 billion, up 14.9% in US-dollar terms from $1.84 billion a year earlier. Net income attributable to equity holders was $2.08 billion, up 16.9% from $1.78 billion. Diluted EPS was $1.63, against $1.34. Adjusted net income was $2.13 billion, up 16.1% in US-dollar terms. Revenue rose 9.2% in US-dollar terms to $7.54 billion, despite the loss of the Colombia, Costa Rica and Panama operations, which had contributed revenue a year earlier. Excluding those divested operations, net interest income grew 12% and non-interest income 21% in Canadian-dollar terms.

- **Margin.** The net interest margin was 2.49%, up 13 basis points from a year earlier. Excluding the divestitures it was up 18 basis points, with margins higher in every business segment. Net interest income was $4.2 billion.
- **Fees.** Non-interest income rose 15.0% in US-dollar terms to $3.34 billion, from wealth-management revenue, underwriting and advisory fees, banking fees and income from associated banks.
- **Costs.** Expenses rose 7.4% in US-dollar terms to $3.98 billion. Excluding divested operations, adjusted expenses rose 14% in Canadian-dollar terms, of which 5 points came from performance and share-based compensation. Higher technology and personnel costs and the effect of currency translation also contributed. The productivity ratio improved to 52.7% from 53.7%.
- **Credit.** The provision for credit losses was $772.56 million, up 1.9% in US-dollar terms. It was 56 basis points of loans, compared with 55 basis points a year earlier and 66 basis points in the prior quarter. Provisions on impaired loans rose on corporate and Canadian retail accounts. Gross impaired loans were 1.00% of loans, against 0.90% a year earlier. The total allowance for credit losses was $5.38 billion.

**By business line** (year-over-year changes in net income attributable to equity holders, in Canadian-dollar terms as the company reports them):

- **Canadian Banking**, up 12%. This was the fifth consecutive quarter of margin expansion: the margin was 2.38%, up 9 basis points on better loan and deposit spreads and a richer deposit mix. Fee income grew 11%, from mutual-fund distribution, cards and insurance. Operating leverage was positive for a fourth straight quarter and ROE was 19.4%. Retail impaired provisions, mainly unsecured, rose.
- **International Banking**, up 8% as reported but down 1% on a constant-currency basis. Constant-currency revenue fell 9%, mainly because of the divestitures. The margin rose 15 basis points to 4.69% on lower funding costs, and provisions fell.
- **Global Wealth Management**, up 23%, a record. Mutual-fund and brokerage fees grew in the Canadian wealth business, and net interest income rose 25%, mainly in Private Banking. Assets under management were $337.90 billion (up 16%) and assets under administration $610.21 billion (up 13%).
- **Global Banking and Markets**, up 37%, a record. Revenue rose 32%, with record underwriting and advisory fees and stronger equities and foreign-exchange trading. The margin rose 32 basis points to 2.09% on deposit volume and spread. Impaired provisions increased on new Canadian formations.
- **Other** reported a net loss attributable to equity holders of $35.8 million, against a profit in the prior quarter, mainly because investment gains were lower.

**Year to date.** Nine-month net income was $5.69 billion, up 44.0% in US-dollar terms. The comparison flatters the trend, because the prior-year period carried the Davivienda impairment. The current period itself absorbed a $313.01 million pre-tax loss ($271.90 million after tax), booked in the first quarter when the Davivienda transaction closed. The loss mainly reflects the release of cumulative currency-translation losses. Adjusted nine-month net income was $6.01 billion, up 21.4% in US-dollar terms.

**Capital and funding.** The CET1 ratio was 13.1%, down 20 basis points in the quarter. Risk-weighted assets grew with the business and with the recall of a synthetic risk transfer securitization, and the bank repurchased 8.6 million shares; earnings net of dividends partly offset these. On July 23, 2026 the bank issued $891.07 million of 4.223% subordinated debentures due August 1, 2036. They qualify as non-viability contingent Tier 2 capital and are redeemable from August 1, 2031. The liquidity coverage ratio was 126%.

**Scotia Group Jamaica.** On June 12, 2026 the bank proposed to buy all shares of Scotia Group Jamaica Limited that it does not already own, for total cash consideration of approximately $357.88 million. The deal is structured as a court-approved scheme of arrangement under Jamaican law and needs minority-shareholder and court approval. Because the bank already controls and consolidates the subsidiary, it will be accounted for as an equity transaction, with no income-statement gain or loss. The bank expects it to reduce the CET1 ratio by about 6 basis points at closing.

**Management's economic view.** In the third-quarter report, management expected global growth to soften through 2027 under trade and geopolitical strain. Its forecasts were:

- **Canada:** real GDP growth of 0.9% in 2026, held down by a temporary first-quarter decline, recovering to 2.2% in 2027. The Bank of Canada was expected to raise its policy rate to 2.75% by the end of the calendar year and to 3% in early 2027.
- **United States:** growth of 2.0% in 2026 and 1.9% in 2027, with the Federal Reserve's first cut, to 3.50%, now expected in the first quarter of 2027.
- **Latin America:** Mexico subdued, Peru solid, and Chile slowing sharply in 2026.

## Subsequent Events

*Sources: Form 6-K filed 2026-08-25, accessions 0001193125-26-364115 and 0001193125-26-364103; Form 6-Ks filed 2026-10-01, accessions 0001193125-26-410050 and 0001839882-26-048517; Form 6-K filed 2026-10-02, accession 0001279569-26-000945.*

The third-quarter interim statements contain no separate subsequent-events note. Filings after July 31, 2026 disclose the following:

- **Dividend.** On August 24, 2026 the board approved a quarterly common dividend of $0.82 per share (C$1.14), payable October 28, 2026 to shareholders of record on October 6, 2026.
- **Larger buyback authorization.** On October 2, 2026 the bank announced that the Toronto Stock Exchange and OSFI had approved an amendment to its normal course issuer bid. The amendment raises the maximum from 15 million to 40 million common shares, about 3.25% of the 1,231,433,660 shares outstanding at March 24, 2026, effective October 6, 2026. By August 31, 2026 the bank had bought 13,044,315 shares under the bid, which runs until April 6, 2027 at the latest.
- **Debt-program documents.** On October 1, 2026 the bank filed the distribution, calculation-agency and exchange-rate-agency agreements for its Senior Medium-Term Notes, Series I. That program allows aggregate initial offerings of up to $75 billion, a cap the agreements state in US dollars. It also filed a seventh amended and restated distribution agreement for its senior notes. These establish issuance capacity under the bank's U.S. shelf registration; the filings disclose no specific borrowing.
- **No new acquisitions or divestitures.** No filing through October 2, 2026 announces one. The Scotia Group Jamaica minority buyout was still awaiting shareholder and court approval as of the August 25, 2026 report, and no later filing reports that it has closed.