Exhibit 99.1

 

Q1 2021 Quarterly Report to Shareholders Live audio Web broadcast of the Bank’s analysts’ conference call. See page 73 for details. Scotiabank reports first quarter results TORONTO, February 23, 2021 – Scotiabank reported first quarter net income of $2,398 million compared to $2,326 million in the same period last year. Diluted earnings per share (EPS) was $1.86, up 1% from $1.84 in the previous year. Return on equity was 14.2%, unchanged from the previous year. Adjusted net income(1) of $2,418 million and EPS of $1.88, increased 3% compared to the prior year. Return on equity was 14.4% compared to 13.9% a year ago. “The Bank’s performance this quarter reflects the strength of our diversified business platform with all four business lines making a strong contribution to earnings. We demonstrated positive revenue growth and solid expense discipline to produce high quality earnings and generate positive operating leverage in all our businesses. Our CET1 ratio of 12.2% provides us with additional flexibility for capital deployment in the future. We also witnessed continued strength in digital adoption across all our core markets. As we emerge from the pandemic, I am confident of continued strong performance across the Bank” said Brian Porter, President and CEO of Scotiabank. Canadian Banking generated adjusted earnings of $915 million. Earnings recovered to pre- COVID levels driven by solid asset and deposit growth, strong fee income, stable margins and improving credit trends. International Banking generated adjusted earnings of $398 million, driven by good performance in the Pacific Alliance countries and stable margins. Global Wealth Management reported adjusted earnings of $425 million, up 34% from the prior year. The results were supported by seasonally higher performance fees and strong contributions from iTRADE, market appreciation, solid sales momentum and double-digit growth across our Canadian businesses. AUM and AUA increased 5% and 10% from the prior year, respectively. Global Banking and Markets had a strong start to the year with earnings of $543 million, up 20% compared to the prior year. The results were driven by strong performance across our capital markets and investment banking businesses. The Bank reported a strong Common Equity Tier 1 capital ratio of 12.2%, a strong position from which to continue to support its customers and drive future growth. (1) Refer to Non-GAAP Measures on page 4 for details.

Financial Highlights

 

		As at and for the three months ended
(Unaudited)		January 31 2021				October 31 2020				January 31 2020
Operating results ($ millions)
Net interest income			4,351				4,258				4,392
Non-interest income			3,721				3,247				3,749
Total revenue			8,072				7,505				8,141
Provision for credit losses			764				1,131				926
Non-interest expenses			4,208				4,057				4,418
Income tax expense			702				418				471
Net income			2,398				1,899				2,326
Net income attributable to common shareholders			2,265				1,745				2,262
Operating performance
Basic earnings per share ($)			1.87				1.44				1.86
Diluted earnings per share ($)			1.86				1.42				1.84
Return on equity (%)			14.2				11.0				14.2
Productivity ratio (%)			52.1				54.1				54.3
Core banking margin (%)(1)			2.27				2.22				2.45
Financial position information ($ millions)
Cash and deposits with financial institutions			89,491				76,460				69,291
Trading assets			141,768				117,839				144,731
Loans			603,649				603,263				592,279
Total assets			1,164,050				1,136,466				1,154,022
Deposits			768,993				750,838				763,850
Common equity			63,387				62,819				63,485
Preferred shares and other equity instruments			5,308				5,308				3,884
Assets under administration			600,955				558,594				553,884
Assets under management			313,970				291,701				297,086
Capital and liquidity measures
Common Equity Tier 1 (CET1) capital ratio (%)			12.2				11.8				11.4
Tier 1 capital ratio (%)			13.6				13.3				12.5
Total capital ratio (%)			15.7				15.5				14.6
Leverage ratio (%)			4.7				4.7				4.0
Risk-weighted assets ($ millions)			406,780				417,138				420,694
Liquidity coverage ratio (LCR) (%)			129				138				127
Net stable funding ratio (NSFR) (%)			115				n/a				n/a
Credit quality
Net impaired loans ($ millions)			3,285				3,096				3,233
Allowance for credit losses ($ millions)(2)			7,810				7,820				5,095
Gross impaired loans as a % of loans and acceptances			0.84				0.81				0.77
Net impaired loans as a % of loans and acceptances			0.52				0.50				0.52
Provision for credit losses as a % of average net loans and acceptances (annualized)(3)			0.49				0.73				0.61
Provision for credit losses on impaired loans as a % of average net loans and acceptances (annualized)(3)			0.49				0.54				0.55
Net write-offs as a % of average net loans and acceptances (annualized)			0.43				0.41				0.54
Adjusted results(1)
Adjusted net income ($ millions)			2,418				1,938				2,344
Adjusted diluted earnings per share ($)			1.88				1.45				1.83
Adjusted return on equity (%)			14.4				11.3				13.9
Adjusted productivity ratio (%)			51.8				53.3				53.4
Adjusted provision for credit losses as a % of average net loans and acceptances(3)			0.49				0.73				0.51
Common share information
Closing share price ($) (TSX)			68.20				55.35				72.28
Shares outstanding (millions)
Average – Basic			1,212				1,211				1,214
Average – Diluted			1,237				1,246				1,247
End of period			1,212				1,211				1,213
Dividends paid per share ($)			0.90				0.90				0.90
Dividend yield (%)(4)			5.7				6.4				4.9
Market capitalization ($ millions) (TSX)			82,684				67,055				87,687
Book value per common share ($)			52.28				51.85				52.33
Market value to book value multiple			1.3				1.1				1.4
Price to earnings multiple (trailing 4 quarters)			12.5				10.2				10.5
Other information
Employees (full-time equivalent)(5)			89,808				91,447				99,277
Branches and offices			2,597				2,618				3,048

(1)	Refer to page 4 for a discussion of Non-GAAP measures.

(2)	Includes allowance for credit losses on all financial assets – loans, acceptances, off-balance sheet exposures, debt securities, and deposits with financial institutions.

(3)	Includes provision for credit losses on certain financial assets – loans, acceptances and off-balance sheet exposures.

(4)	Based on the average of the high and low common share prices for the period.

(5)	Prior period amounts have been restated to conform with current period presentation.

 

2    Scotiabank First Quarter Report 2021

MANAGEMENT’S DISCUSSION & ANALYSIS

 

MANAGEMENT’S DISCUSSION & ANALYSIS

The Management’s Discussion and Analysis (MD&A) is provided to enable readers to assess the Bank’s financial condition and results of operations as at and for the period ended January 31, 2021. 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 2020 Annual Report. This MD&A is dated February 23, 2021.

Additional information relating to the Bank, including the Bank’s 2020 Annual Report, is available on the Bank’s website at www.scotiabank.com. As well, the Bank’s 2020 Annual Report and Annual Information Form are available on SEDAR at www.sedar.com and on the EDGAR section of the SEC’s website at www.sec.gov.

 

Contents

 

Forward-looking statements From time to time, our 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 U.S. Securities and Exchange Commission, or in other communications. In addition, representatives of the Bank may include forward-looking statements orally to analysts, investors, the media and others. All such statements are made pursuant to the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. Forward-looking statements may include, but are not limited to, statements made in this document, the Management’s Discussion and Analysis in the Bank’s 2020 Annual Report under the headings “Outlook” and in other statements regarding the Bank’s objectives, strategies to achieve those objectives, the regulatory environment in which the Bank operates, anticipated financial results, and the outlook for the Bank’s businesses and for the Canadian, U.S. and global economies. Such statements are typically identified by words or phrases such as “believe,” “expect,” “foresee,” “forecast,” “anticipate,” “intend,” “estimate,” “plan,” “goal,” “project,” and similar expressions of future or conditional verbs, such as “will,” “may,” “should,” “would” and “could.”

By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that our predictions, forecasts, projections, expectations or conclusions will not prove to be accurate, that our assumptions may not be correct and that our financial performance objectives, vision and strategic goals will not be achieved.

We caution readers not to place undue reliance on these statements as a number of risk factors, many of which are beyond our control and effects of which can be difficult to predict, could cause our actual results to differ materially from the expectations, targets, estimates or intentions expressed in such forward-looking statements.

The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: general economic and market conditions in the countries in which we operate; changes in currency and interest rates; increased funding costs and market volatility due to market illiquidity and competition for funding; the failure of third parties to comply with their obligations to the Bank and its affiliates; changes in monetary, fiscal, or economic policy and tax legislation and interpretation; changes in laws and regulations or in supervisory expectations or requirements, including capital, interest rate and liquidity requirements and guidance, and the effect of such changes on funding costs; changes to our credit ratings; operational and infrastructure risks; reputational risks; the accuracy and completeness of information the Bank receives on customers and counterparties; the timely development and introduction of new products and services; our ability to execute our strategic plans, including the successful completion of acquisitions and dispositions, including obtaining regulatory approvals; critical accounting estimates and the effect of changes to accounting standards, rules and interpretations on these estimates; global capital markets activity; the Bank’s ability to attract, develop and retain key executives; the evolution of various types of fraud or other criminal behaviour to which the Bank is exposed; disruptions in or attacks (including cyber-attacks) on the Bank’s information technology, internet, network access, or other voice or data communications systems or services; increased competition in the geographic and in business areas in which we operate, including through internet and mobile banking and non-traditional competitors; exposure related to significant litigation and regulatory matters; the occurrence of natural and unnatural catastrophic events and claims resulting from such events; the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic and its impact on the global economy and financial market conditions and the Bank’s business, results of operations, financial condition and prospects; and the Bank’s anticipation of and success in managing the risks implied by the foregoing. A substantial amount of the Bank’s business involves making loans or otherwise committing resources to specific companies, industries or countries. Unforeseen events affecting such borrowers, industries or countries could have a material adverse effect on the Bank’s financial results, businesses, financial condition or liquidity. These and other factors may cause the Bank’s actual performance to differ materially from that contemplated by forward-looking statements. The Bank cautions that the preceding list is not exhaustive of all possible risk factors and other factors could also adversely affect the Bank’s results, for more information, please see the “Risk Management” section of the Bank’s 2020 Annual Report, as may be updated by quarterly reports.

Material economic assumptions underlying the forward-looking statements contained in this document are set out in the 2020 Annual Report under the headings “Outlook”, as updated by quarterly reports. 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. When relying on forward-looking statements to make decisions with respect to the Bank and its securities, investors and others should carefully consider the preceding factors, other uncertainties and potential events. Any forward-looking statements contained in this document represent the views of management only as of the date hereof and are presented for the purpose of assisting the Bank’s shareholders and analysts in understanding the Bank’s financial position, objectives and priorities, and anticipated financial performance as at and for the periods ended on the dates presented, and may not be appropriate for other purposes. Except as required by law, the Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by or on its behalf.

Additional information relating to the Bank, 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 First Quarter Report 2021    3

MANAGEMENT’S DISCUSSION & ANALYSIS

 

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 among companies using these or similar measures. The Bank believes that certain non-GAAP measures are useful in assessing ongoing business performance and provide readers with a better understanding of how management assesses performance. These non-GAAP measures are used throughout this report and defined below.

Adjusted results and diluted earnings per share

The following table presents reconciliations of GAAP reported financial results to non-GAAP adjusted financial results.

The adjustments summarized below are consistent with those described in the Bank’s 2020 Annual Report. For a complete description of the adjustments, refer to the Non-GAAP measures section in the Bank’s 2020 Annual Report.

Adjustment impacting current and prior periods:

 

•

Amortization of acquisition-related intangible assets, excluding software.

Adjustments impacting prior periods only:

 

•

Acquisition and divestiture-related costs – Include costs related to integrating acquired operations and net (gain)/loss on divestitures.

 

•

Valuation-related adjustments, recorded in Q1 2020 – Relate to the inclusion of an additional scenario in the measurement of allowance for credit losses, fair value methodology change relating to uncollateralized OTC derivatives, and a software-related impairment loss.

 

4    Scotiabank First Quarter Report 2021

MANAGEMENT’S DISCUSSION & ANALYSIS

 

		For the three months ended
($ millions)		January 31 2021				October 31 2020				January 31 2020
Reported Results
Net interest income		$	4,351			$	4,258			$	4,392
Non-interest income			3,721				3,247				3,749
Total revenue			8,072				7,505				8,141
Provision for credit losses			764				1,131				926
Non-interest expenses			4,208				4,057				4,418
Income before taxes			3,100				2,317				2,797
Income tax expense			702				418				471
Net income		$	2,398			$	1,899			$	2,326
Net income attributable to non-controlling interests in subsidiaries (NCI)			90				72				39
Net income attributable to equity holders			2,308				1,827				2,287
Net income attributable to common shareholders			2,265				1,745				2,262
Diluted earnings per share (in dollars)		$	1.86			$	1.42			$	1.84
Adjustments
Acquisition-related costs
Integration costs(1)		$	–			$	20			$	76
Amortization of Acquisition-related intangible assets, excluding software(1)			28				26				27
			28				46				103
Allowance for credit losses – Additional scenario(2)			–				–				155
Derivatives valuation adjustment(3)			–				–				116
Net (gain)/loss on divestitures(4)			–				8				(262	)
Impairment charge on software asset(1)			–				–				44
Adjustments (Pre-tax)		$	28			$	54			$	156
Income tax expense/(benefit)			(8	)			(15	)			(138	)
Adjustments (After tax)		$	20			$	39			$	18
Adjustment attributable to NCI			–				–				(48	)
Adjustments (After tax and NCI)		$	20			$	39			$	(30	)
Adjusted Results
Net interest income		$	4,351			$	4,258			$	4,392
Non-interest income			3,721				3,247				3,597
Total revenue			8,072				7,505				7,989
Provision for credit losses			764				1,131				771
Non-interest expenses			4,180				4,003				4,265
Income before taxes			3,128				2,371				2,953
Income tax expense			710				433				609
Net income		$	2,418			$	1,938			$	2,344
Net income attributable to NCI			90				72				87
Net income attributable to equity holders			2,328				1,866				2,257
Net income attributable to common shareholders		$	2,285			$	1,784			$	2,232
Adjusted diluted earnings per share (in dollars)		$	1.88			$	1.45			$	1.83

(1)	Recorded in non-interest expenses.

(2)	Recorded in provision for credit losses.

(3)	Recorded in non-interest income.

(4)	Recorded in non-interest income; costs related to divestitures are recorded in non-interest expenses.

 

Scotiabank First Quarter Report 2021    5

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Reconciliation of International Banking’s reported results and constant dollar results

International Banking business segment results are analyzed on a constant dollar basis, refer to page 14. Under the constant dollar basis, prior period amounts are recalculated using current period average foreign currency rates. The following table presents the reconciliation between reported and constant dollar results for International Banking for prior periods.

 

		For the three months ended
($ millions)		October 31, 2020												January 31, 2020
(Taxable equivalent basis)		Reported				Foreign exchange				Constant dollar				Reported				Foreign exchange				Constant dollar
Net interest income		$	1,785			$	(5	)		$	1,790			$	2,005			$	112			$	1,893
Non-interest income			763				5				758				980				41				939
Total revenue			2,548				–				2,548				2,985				153				2,832
Provision for credit losses			736				(3	)			739				580				30				550
Non-interest expenses			1,424				(13	)			1,437				1,664				83				1,581
Income tax expense			55				5				50				159				10				149
Net income		$	333			$	11			$	322			$	582			$	30			$	552
Net income attributable to non-controlling interest in subsidiaries		$	70			$	–			$	70			$	64			$	2			$	62
Net income attributable to equity holders of the Bank		$	263			$	11			$	252			$	518			$	28			$	490
Other measures
Average assets ($ billions)		$	202			$	(1	)		$	203			$	203			$	8			$	195
Average liabilities ($ billions)		$	153			$	(1	)		$	154			$	151			$	6			$	145

The above table is computed on a basis that is different than the table “Impact of foreign currency translation” in Group Financial Performance on page 8.

Core banking assets

Core banking assets are average interest earning assets excluding bankers’ acceptances and trading assets.

Core banking margin

This ratio represents net interest income divided by core banking assets.

Return on equity

Return on equity is a profitability measure that presents the net income attributable to common shareholders as a percentage of average common shareholders’ equity.

Return on equity for the business segments is calculated as a ratio of net income attributable to common shareholders of the business segment and the capital attributed. The Bank attributed capital to its business lines at approximately 10.5% of Basel III common equity capital requirements based on credit, market and operational risks and leverage inherent within each business segment.

 

6    Scotiabank First Quarter Report 2021

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Group Financial Performance

Impact of COVID-19

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. Absent any medical approaches to slow the spread of the virus, governments around the world implemented several measures to curtail the outbreak and slow its progression. These included business closures, travel restrictions, quarantines, and limits on public and private gatherings.

The economic impacts of these measures and uncertainty about the path forward led to severe stresses in financial markets in the early days of the pandemic. To ease strains in funding markets, central banks undertook prompt and large-scale efforts to increase market liquidity. This resulted in sharp cuts in interest rates, quantitative easing programs in some countries, direct lending to businesses, and targeted liquidity injections in various credit product markets. In some countries, regulatory authorities allowed banks to offer deferral programs to customers without requiring them to reclassify affected loans. In addition to these financial measures, fiscal authorities deployed historic amounts of direct support to firms and households including most prominently wage subsidies for firms and financial assistance to employees affected by the pandemic. These programs remain in operation in most countries. As it became clear that measures to slow the spread of the virus were effective, economies were re-opened, leading to a surge in economic activity. Lower interest rates and direct support measures for firms and households fueled the rebound, as evidenced by the evolution in global consumption observed since economies re-opened.

Despite the scale of the rebound observed so far, unemployment remains significantly above pre-pandemic levels in many countries. Sectors most affected by the pandemic remain under stress, while other sectors have thrived. We see these trends continuing across our footprint. The Bank has demonstrated financial strength and operational resilience despite these events, while protecting the health and safety of employees, and supporting customers. The global number of infections remains high and there are risks related to mutations of the virus and vaccine effectiveness against COVID-19 variants, as well as some concerns around timing of vaccine availability and distribution. These factors cloud the near-term outlook, though there is compelling evidence to suggest a strong rebound will occur as infection rates subside with higher vaccination rates. Substantial policy support remains appropriate globally to help bridge economies to the post COVID-19 state of the world. We remain cautiously optimistic that the recovery already underway in the countries in which we operate will strengthen over the next twelve months owing to their strong policy frameworks and the support they have provided to their economies.

Customer Assistance Programs

To support customers, the Bank has implemented a number of customer assistance programs across the footprint. Refer to page 25 of the 2020 Annual Report for details.

Canada

Offering of assistance programs largely ended on September 30, 2020. As of January 31, 2021, total loans in deferral are $653 million (October 31, 2020 – $5,119 million), mostly mortgages. For customer accounts where payment deferrals have expired, cumulatively since the inception of the programs in Q2 2020, approximately 97% are current on payments.

International

Offering of assistance programs for retail loans ended on October 31, 2020 and for commercial loans on September 30, 2020 with some exceptions including requirements by local regulators. As of January 31, 2021, total loans in deferral are $555 million (October 31, 2020 – $10,602 million), primarily mortgages. For customer accounts where payment deferrals have expired, cumulatively since the inception of the programs in Q2 2020, approximately 88% are current on payments.

Financial Performance Summary

The Bank’s reported net income this quarter was $2,398 million, compared to $2,326 million in the same period last year, and $1,899 million last quarter. Diluted earnings per share were $1.86 compared to $1.84 in the same period last year and $1.42 last quarter. Return on equity was 14.2%, in line with last year and up from 11.0% last quarter.

Adjusted net income was $2,418 million compared to $2,344 million last year, an increase of 3%. Adjusted diluted earnings per share were $1.88, compared to $1.83 last year. Adjusted return on equity was 14.4% compared to 13.9% a year ago. The increase in net income was due to lower non-interest expenses and higher revenues this quarter.

Adjusted net income was $2,418 million this quarter compared to $1,938 million last quarter. Adjusted diluted earnings per share were $1.88, compared to $1.45 last quarter, and adjusted return on equity was 14.4% compared to 11.3% last quarter. The increase in net income was driven mainly by higher non-interest income and lower provision for credit losses this quarter.

 

Scotiabank First Quarter Report 2021    7

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Impact of foreign currency translation

The table below reflects the estimated impact of foreign currency translation on key income statement items and is computed on a basis that is different than the table “Constant dollar” in Non-GAAP Measures on page 6.

 

		Average exchange rate												% Change
For the three months ended		January 31, 2021				October 31, 2020				January 31, 2020				January 31, 2021 vs. October 31, 2020				January 31, 2021 vs. January 31, 2020
U.S dollar/Canadian dollar			0.777				0.756				0.760				2.8	%			2.3	%
Mexican Peso/Canadian dollar			15.618				16.390				14.483				(4.7	)%			7.8	%
Peruvian Sol/Canadian dollar			2.807				2.701				2.545				3.9	%			10.3	%
Colombian Peso/Canadian dollar			2,753.077				2,866.315				2,555.453				(4.0	)%			7.7	%
Chilean Peso/Canadian dollar			573.961				591.628				586.493				(3.0	)%			(2.1	)%

 

Impact on net income(1) ($ millions except EPS)		January 31, 2021 vs. October 31, 2020				January 31, 2021 vs. January 31, 2020
Net interest income		$	3			$	(110	)
Non-interest income(2)			15				(33	)
Non-interest expenses			(4	)			85
Other items (net of tax)			(3	)			44
Net income		$	11			$	(14	)
Earnings per share (diluted)		$	0.01			$	(0.01	)
Impact by business line ($ millions)
Canadian Banking		$	–			$	–
International Banking(2)			(12	)			(35	)
Global Wealth Management			–				(3	)
Global Banking and Markets			(6	)			(6	)
Other(2)			29				30
Net income		$	11			$	(14	)

(1)	Includes the impact of all currencies.

(2)	Includes the impact of foreign currency hedges.

Impact of divested operations

The table below reflects the income earned in the period ended January 31, 2020 from divested operations. Refer to Note 37 in the Bank’s 2020 Annual Report for the list of divested operations that have closed:

 

		For the three months ended
(Unaudited) ($ millions)		January 31, 2020(1)
Net interest income		$	69
Non-interest income			69
Total revenue			138
Provision for credit losses			3
Non-interest expenses			61
Income tax expense			15
Net income		$	59
Net income attributable to non-controlling interest in subsidiaries		$	–
Net income attributable to equity holders of the Bank – relating to divested operations		$	59

(1)	The impact of divested operations is nil for the three months ended January 31, 2021 and October 31, 2020.

 

Impact on net income ($millions except EPS)		January 31, 2021 vs. January 31, 2020
Net interest income		$	(69	)
Non-interest income			(69	)
Provision for credit losses			(3	)
Non-interest expenses			(61	)
Income tax expense			(15	)
Net income		$	(59	)
Net income attributable to equity holders of the Bank		$	(59	)
Earnings per share (diluted)		$	(0.05	)

 

8    Scotiabank First Quarter Report 2021

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Financial performance commentary

Net income

Q1 2021 vs Q1 2020

Net Income was $2,398 million compared to $2,326 million up 3%. The increase in net income was due mainly to lower provision for credit losses and non-interest expenses, partly offset by lower net interest income and non-interest income. Adjusted net income was $2,418 million compared to $2,344 million up 3%. The increase was due mainly to higher non-interest income and lower non-interest expenses, partly offset by higher income taxes.

Q1 2021 vs Q4 2020

Net Income was $2,398 million compared to $1,899 million up 26%. Adjusted net income was $2,418 million compared to $1,938 million up 25%. The increase was due mainly to higher non-interest income and lower provision for credit losses, partly offset by higher non-interest expenses and income taxes.

Total revenue

Q1 2021 vs Q1 2020

Revenues were $8,072 million compared to $8,141 million. The decrease was due to lower net interest income and non-interest income. Adjusted revenues were $8,072 million compared to $7,989 million, an increase of $83 million or 1%. The increase was due mainly to higher non-interest income.

Q1 2021 vs Q4 2020

Revenues were $8,072 million compared to $7,505 million. The increase was due mainly to higher non-interest income.

Net interest income

Q1 2021 vs Q1 2020

Net interest income was $4,351 million, a decrease of $41 million or 1%. Asset growth and a higher contribution from asset/liability management activities were more than offset by the negative impact of foreign currency translation and divested operations.

The core banking margin was down 18 basis points to 2.27%, driven by increased levels of high quality, lower-margin liquid assets, as well as lower margins in International Banking and Canadian Banking driven by central bank rate cuts in 2020 and changes in business mix.

Q1 2021 vs Q4 2020

Net interest income was $4,351 million, an increase of $93 million or 2%, driven primarily by a higher contribution from asset/liability management activities and asset growth in Canadian Banking.

The core banking margin was up five basis points to 2.27%, driven primarily by higher contribution from asset/liability management activities and higher margins in Global Banking and Markets and International Banking.

Non-interest income

Q1 2021 vs Q1 2020

Non-interest income was $3,721 million, down $28 million or 1%. Adjusted non-interest income increased 3% or $125 million, and 5% excluding the negative impact of divested operations. The increase was due to higher investment gains, and wealth management revenues which benefited from elevated annual performance fees. These were partly offset by lower banking revenues, the negative impact of foreign currency translation, and the prior year benefit of aligning the reporting period of Mexico with the Bank (“Alignment of reporting period”).

Q1 2021 vs Q4 2020

Non-interest income was up $474 million or 15% driven by higher wealth management revenues which benefited from elevated annual performance fees, as well as increases in banking revenues, trading revenues, and investment gains.

Provision for credit losses

Q1 2021 vs Q1 2020

The provision for credit losses was $764 million, compared to $926 million, a decrease of $162 million or 17%. Adjusted provision for credit losses decreased $7 million or 1%. The provision for credit losses ratio decreased 12 basis points to 49 basis points, and by two basis points on an adjusted basis.

Provision on impaired loans was $762 million, compared to $835 million, a decrease of $73 million or 9%. Adjusted provision on impaired loans decreased $40 million or 5% due primarily to lower retail provisions in Canadian Banking driven by lower delinquencies. The provision for credit losses ratio on impaired loans decreased six basis points to 49 basis points, and by four basis points on an adjusted basis.

Provision on performing loans was $2 million, compared to $91 million. Adjusted provision for credit losses on performing loans increased $33 million, due to the COVID-19 impact on portfolio credit quality, partially offset by the more favourable macroeconomic outlook.

 

Scotiabank First Quarter Report 2021    9

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Q1 2021 vs Q4 2020

The provision for credit losses was $764 million, compared to $1,131 million, a decrease of $367 million or 32%. The provision for credit losses ratio decreased 24 basis points to 49 basis points.

Provision on impaired loans was $762 million, a decrease of $73 million or 9% due to lower formations in commercial and corporate portfolios partially offset by higher provisions in International retail driven by credit migration due to expired payment deferrals. The provision for credit losses ratio on impaired loans was 49 basis points, a decrease of five basis points.

Provision on performing loans was $2 million, compared to $296 million, a decrease of $294 million, of which $191 million is related to retail, mainly in International Banking driven by the more favourable macroeconomic outlook. Commercial and corporate performing loan provisions also decreased $103 million, due to the more favourable macroeconomic outlook.

Non-interest expenses

Q1 2021 vs Q1 2020

Non-interest expenses were $4,208 million, down $210 million or 5%. Adjusted non-interest expenses of $4,180 million declined by 2%, of which 1% related to the impact of divested operations. The remaining 1% decrease was due to the positive impact of foreign currency translation, lower personnel costs and advertising and business development, partly offset by the increased investment in the SCENE loyalty program and higher performance-based compensation, including amounts related to the elevated wealth management performance fees.

The productivity ratio was 52.1% compared to 54.3%. On an adjusted basis, the productivity ratio was 51.8%, compared to 53.4%. Operating leverage was positive 3.9% on a reported basis and positive 3.0% on an adjusted basis.

Q1 2021 vs Q4 2020

Non-interest expenses were up $151 million or 4%. Adjusted non-interest expenses were also up by 4%. Increases were due to seasonally higher share-based and performance-based compensation, including amounts related to the elevated wealth management performance fees, and the increased investment in the SCENE loyalty program. Increases were partly offset by lower premises and technology costs.

The productivity ratio was 52.1% compared to 54.1%. On an adjusted basis, the productivity ratio was 51.8%, compared to 53.3%.

Taxes

Q1 2021 vs Q1 2020

The effective tax rate was 22.7% compared to 16.8% in the same quarter last year. On an adjusted basis, the effective tax rate was 22.7% compared to 20.6% due primarily to changes in earnings mix across businesses and jurisdictions.

Q1 2021 vs Q4 2020

The effective tax rate was 22.7% compared to 18.0% in the previous quarter. On an adjusted basis, the effective tax rate was 22.7% compared to 18.2% due primarily to higher income in higher tax rate jurisdictions and changes in earnings mix in the current quarter.

Economic Outlook

The global economy appears to be poised for recovery in 2021. Though COVID-19 remains a significant concern given infection levels, mutations of the virus and the speed of vaccine rollouts, the global economy appears to have greater underlying momentum than earlier assessed. Housing, financial, and commodity markets are all contributing to the recovery. Moreover, the American Recovery Plan is likely to significantly raise US growth, and with that, growth of its principal trading partners, including Canada. On balance, risks appear to have shifted to the upside.

In the context of a brighter economic outlook, policy support will remain critical to guard against downside risks and to ensure as rapid a recovery of lost output as possible. Inflation pressures continue to remain muted, with inflation below central bank targets in most countries. While market measures of inflation expectations have risen, we anticipate that policy rates will continue to remain on hold for an extended period. Yield curves have already begun to steepen in anticipation of higher inflation and an eventual rise in policy rates. We expect further steepening as the recovery strengthens. From a fiscal policy perspective, the American Recovery Plan will have a large impact on US and global growth even if conservative assumptions are used to estimate its impact. It is clear that fiscal support will be maintained at least until the recovery is assured, and likely beyond.

In Canada, several elements suggest a strong post COVID-19 recovery. Cash holdings are high. Housing and financial wealth have been rising. Commodity prices are significantly stronger than expected. As more progress is made in containing the virus, we expect industries which have been most held back by the containment measures to rebound strongly, though at present there is clear evidence of a two-track recovery as economic activity in the less-affected sectors of the economy appears to be quite robust.

Prospects also appear favourable in the Pacific Alliance countries. As elsewhere, data in late 2020 pointed to significantly more economic momentum than expected. Though additional containment measures have been put in place in some countries so far this year, we continue to believe that economic activity will rebound strongly in 2021. Robust growth in China and the United States, combined with higher commodity prices, will drive the recovery though the upcoming election in Peru, the second vote in the Chilean constitutional reform process and the mid-term elections in Mexico pose risks to the outlook.

 

10    Scotiabank First Quarter Report 2021

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Business Segment Review

Business segment results are presented on a taxable equivalent basis, adjusted for the following:

 

•

The Bank analyzes revenues on a taxable equivalent basis (TEB) for business lines. This methodology grosses up tax-exempt income earned on certain securities reported in either net interest income or non-interest income to an equivalent before tax basis. A corresponding increase is made to the provision for income taxes; hence, there is no impact on net income. Management believes that this basis for measurement provides a uniform comparability of net interest income and non-interest income arising from both taxable and non-taxable sources and facilitates a consistent basis of measurement. While other banks may also use TEB, their methodology may not be comparable to the Bank’s methodology. A segment’s revenue and provision for income taxes are grossed up by the taxable equivalent amount. The elimination of the TEB gross-up is recorded in the Other segment.

 

•

For business line performance assessment and reporting, net income from associated corporations, which is an after tax number, is adjusted to normalize for income taxes. The tax normalization adjustment grosses up the amount of net income from associated corporations and normalizes the effective tax rate in the business lines to better present the contribution of the associated corporations to the business line results.

 

Canadian Banking(1)		For the three months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		January 31 2021				October 31 2020				January 31 2020
Reported Results
Net interest income		$	1,984			$	1,954			$	2,003
Non-interest income(2)			664				612				704
Total revenue			2,648				2,566				2,707
Provision for credit losses			215				330				321
Non-interest expenses			1,204				1,186				1,233
Income tax expense			318				272				301
Net income		$	911			$	778			$	852
Net income attributable to non-controlling interest in subsidiaries		$	–			$	–			$	–
Net income attributable to equity holders of the Bank		$	911			$	778			$	852
Other financial data and measures
Return on equity			21.9	%			18.4	%			20.6	%
Net interest margin(3)			2.26	%			2.26	%			2.36	%
Provision for credit losses – performing (Stage 1 and 2)		$	1			$	92			$	59
Provision for credit losses – impaired (Stage 3)		$	214			$	238			$	262
Provision for credit losses as a percentage of average net loans and acceptances (annualized)			0.23	%			0.37	%			0.36	%
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)			0.23	%			0.27	%			0.30	%
Net write-offs as a percentage of average net loans and acceptances (annualized)			0.22	%			0.25	%			0.29	%
Average assets ($ billions)		$	368			$	363			$	355
Average liabilities ($ billions)		$	306			$	295			$	263

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.

(2)	Includes income (on a taxable equivalent basis) from investments in associated corporations of $20 (October 31, 2020 – $15; January 31, 2020 – $20).

(3)	Net interest income (TEB) as percentage of average earning assets excluding bankers’ acceptances.

 

		For the three months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		January 31 2021				October 31 2020				January 31 2020
Adjusted Results(1)
Net interest income		$	1,984			$	1,954			$	2,003
Non-interest income			664				612				704
Total revenue			2,648				2,566				2,707
Provision for credit losses(2)			215				330				250
Non-interest expenses(3)			1,198				1,180				1,228
Income tax expense			320				274				321
Net income		$	915			$	782			$	908
Net income attributable to non-controlling interest in subsidiaries		$	–			$	–			$	–
Net income attributable to equity holders of the Bank		$	915			$	782			$	908

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.

(2)	Includes adjustment for Allowance for credit losses – Additional scenario of $71 in the first quarter of 2020.

(3)	Includes adjustment for Amortization of acquisition-related intangible assets, excluding software of $6 (October 31, 2020 – $6; January 31, 2020 – $5).

Net income

Q1 2021 vs Q1 2020

Net income attributable to equity holders was $911 million, an increase of $59 million or 7%. Adjusted net income was $915 million, an increase of $7 million or 1%. Lower provision for credit losses and non-interest expenses, were partly offset by lower non-interest income and net interest income.

 

Scotiabank First Quarter Report 2021    11

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Q1 2021 vs Q4 2020

Net income attributable to equity holders increased $133 million or 17%. The increase was due primarily to lower provision for credit losses, higher non-interest income and net interest income, partly offset by higher non-interest expenses.

Average assets

Q1 2021 vs Q1 2020

Average assets increased $14 billion or 4% to $368 billion. The growth included $16 billion or 7% in residential mortgages and $3 billion or 5% in business loans and acceptances, partially offset by declines of $2 billion or 3% in personal loans and $2 billion or 20% in credit cards.

Q1 2021 vs Q4 2020

Average assets of $368 billion were up $6 billion or 2%. The growth included $6 billion or 2% in residential mortgages and $1 billion or 1% in business loans and acceptances, partially offset by declines in personal loans and credit cards.

Average liabilities

Q1 2021 vs Q1 2020

Average liabilities increased $43 billion or 16%, including growth of $21 billion or 27% in non-personal deposits and $20 billion or 12% in personal deposits.

Q1 2021 vs Q4 2020

Average liabilities increased $11 billion or 4%, including growth of $7 billion or 7% in non-personal deposits and $4 billion or 2% in personal deposits.

Total revenue

Q1 2021 vs Q1 2020

Revenues were $2,648 million, down $59 million or 2%. The decrease was due primarily to lower non-interest income and lower net interest income driven by margin compression, partially offset by solid asset and deposit growth.

Q1 2021 vs Q4 2020

Revenues increased $82 million or 3%, due primarily to higher non-interest income and higher net interest income driven by solid asset and deposit growth.

Net interest income

Q1 2021 vs Q1 2020

Net interest income of $1,984 million decreased $19 million or 1%, due primarily to margin compression partly offset by solid volume growth. The net interest margin declined 10 basis points to 2.26%, primarily driven by changes in business mix and Bank of Canada interest rate cuts.

Q1 2021 vs Q4 2020

Net interest income increased $30 million or 1%, driven by volume growth. The margin of 2.26% was in line with the prior quarter.

Non-interest income

Q1 2021 vs Q1 2020

Non-interest income of $664 million decreased $40 million or 6%. The decline was due primarily to lower banking fees mainly as a result of a decline in economic activity and transaction volumes, and lower foreign exchange and insurance revenues, partially offset by higher mutual fund fees.

Q1 2021 vs Q4 2020

Non-interest income increased $52 million or 9% due primarily to higher banking fees, mutual fund fees, and income from associated corporations.

Provision for credit losses

Q1 2021 vs Q1 2020

The provision for credit losses was $215 million, compared to $321 million, a decrease of $106 million or 33%. Adjusted provision for credit losses decreased by $35 million. The provision for credit losses ratio decreased 13 basis points to 23 basis points, and adjusted provision for credit losses ratio decreased by five basis points.

Provision on impaired loans was $214 million, down $48 million. Adjusted provision on impaired loans was down $44 million due to lower retail provisions driven by lower delinquencies. The provision for credit losses ratio on impaired loans was 23 basis points, a decrease of seven basis points, and adjusted provision for credit losses ratio on impaired loans decreased by six basis points.

Provision on performing loans was $1 million, a decrease of $58 million. Adjusted provision on performing loans was up $9 million due to higher retail and commercial provisions.

 

12    Scotiabank First Quarter Report 2021

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Q1 2021 vs Q4 2020

The provision for credit losses was $215 million, compared to $330 million, down $115 million or 35%. The provision for credit losses ratio decreased 14 basis points to 23 basis points.

Provision on impaired loans was $214 million compared to $238 million, down $24 million or 10% due primarily to lower commercial provisions. The provision for credit losses ratio on impaired loans was 23 basis points, a decrease of four basis points.

Provision on performing loans was $1 million, compared to $92 million, a decrease of $91 million. Retail provisions decreased by $48 million while commercial provisions decreased $43 million, due primarily to the more favourable macroeconomic outlook.

Non-interest expenses

Q1 2021 vs Q1 2020

Non-interest expenses were $1,204 million, down $29 million or 2%, driven mainly by lower personnel, advertising and business travel costs, partially offset by higher technology costs to support business development.

Q1 2021 vs Q4 2020

Non-interest expenses were up $18 million or 2%, due largely to higher technology costs to support business development and seasonally higher personnel costs.

Taxes

The effective tax rate was 25.9% compared to 26.1% in the prior year and 26.0% in the prior quarter.

 

International Banking(1)		For the three months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		January 31 2021				October 31 2020				January 31 2020
Reported Results
Net interest income		$	1,788			$	1,785			$	2,005
Non-interest income(2)(3)			773				763				980
Total revenue			2,561				2,548				2,985
Provision for credit losses			525				736				580
Non-interest expenses			1,402				1,424				1,664
Income tax expense			157				55				159
Net income		$	477			$	333			$	582
Net income attributable to non-controlling interest in subsidiaries		$	88			$	70			$	64
Net income attributable to equity holders of the Bank		$	389			$	263			$	518
Other financial data and measures
Return on equity			8.5	%			5.6	%			10.6	%
Net interest margin(4)			4.03	%			3.97	%			4.51	%
Provision for credit losses – performing (Stage 1 and 2)		$	(3	)		$	175			$	44
Provision for credit losses – impaired (Stage 3)		$	528			$	561			$	536
Provision for credit losses as a percentage of average net loans and acceptances (annualized)			1.49	%			2.07	%			1.57	%
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)			1.50	%			1.58	%			1.45	%
Net write-offs as a percentage of average net loans and acceptances (annualized)			1.27	%			1.06	%			1.47	%
Average assets ($ billions)		$	199			$	202			$	203
Average liabilities ($ billions)		$	153			$	153			$	151

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.

(2)	Includes income (on a taxable equivalent basis) from investments in associated corporations for the three months ended January 31, 2021 – $49 (October 31, 2020 – $38; January 31, 2020 – $93).

(3)	Includes one additional month of earnings relating to Mexico of $50 (after tax and NCI-$37) in the first quarter of 2020.

(4)	Net interest income (TEB) as percentage of average earning assets excluding bankers’ acceptances.

 

		For the three months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		January 31 2021				October 31 2020				January 31 2020
Adjusted Results(1)
Net interest income		$	1,788			$	1,785			$	2,005
Non-interest income			773				763				980
Total revenue			2,561				2,548				2,985
Provision for credit losses(2)			525				736				503
Non-interest expenses(3)(4)			1,389				1,397				1,581
Income tax expense			161				62				202
Net income		$	486			$	353			$	699
Net income attributable to non-controlling interest in subsidiaries		$	88			$	70			$	84
Net income attributable to equity holders of the Bank		$	398			$	283			$	615

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.

(2)	Includes adjustment for Allowance for credit losses – Additional scenario of $77 in the first quarter of 2020.

(3)	Includes adjustment for Integration costs of $16 in the fourth quarter of 2020 and $71 in the first quarter of 2020.

(4)	Includes adjustment for Amortization of acquisition-related intangible assets, excluding software of $13 (October 31, 2020 – $11; January 31, 2020 – $12).

 

Scotiabank First Quarter Report 2021    13

MANAGEMENT’S DISCUSSION & ANALYSIS

 

(Unaudited) ($ millions)		For the three months ended
(Taxable equivalent basis)		January 31, 2020(1)
Impact of Divested Operations
Net interest income		$	69
Non-interest income			61
Total revenue			130
Provision for credit losses			3
Non-interest expenses			53
Income tax expense			15
Net income		$	59
Net income attributable to non-controlling interest in subsidiaries		$	–
Net income attributable to equity holders of the Bank – relating to divested operations		$	59

(1)	The impact of divested operations is nil for the three months ended January 31, 2021 and October 31, 2020.

Net income

Q1 2021 vs Q1 2020

Net income attributable to equity holders was $389 million, a decrease of $129 million or 25%. Adjusted net income attributable to equity holders was $398 million, a decrease of $217 million or 35%. The impact of divested operations represents 7% of this decrease with the remaining decline primarily related to lower net interest income, non-interest income, higher provision for credit losses and the benefit of one additional month of earnings from the Alignment of the reporting period of Mexico with the Bank (“Alignment of reporting period”) in the prior year, partially offset by lower non-interest expenses.

Q1 2021 vs Q4 2020

Net income attributable to equity holders increased by $126 million or 48%. Adjusted net income attributable to equity holders increased $115 million or 41%. The increase was due primarily to lower provision for credit losses and non-interest expenses, and higher non-interest income, partially offset by higher income taxes.

Financial Performance on an Adjusted and Constant Dollar Basis

The discussion below on the results of operations is on an adjusted and constant dollar basis. Constant dollar basis excludes the impact of foreign currency translation, which is a non-GAAP financial measure (refer to Non-GAAP Measures). The Bank believes that reporting in constant dollar is useful for readers in assessing ongoing business performance. Ratios are on a reported basis.

 

International Banking(1)		For the three months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		January 31 2021				October 31 2020				January 31 2020
Constant dollars - Adjusted
Net interest income(2)		$	1,788			$	1,790			$	1,893
Non-interest income(3)			773				758				939
Total revenue			2,561				2,548				2,832
Provision for credit losses			525				739				477
Non-interest expenses			1,389				1,410				1,500
Income tax expense			161				57				190
Net income		$	486			$	342			$	665
Net income attributable to non-controlling interest in subsidiaries		$	88			$	71			$	81
Net income attributable to equity holders of the Bank		$	398			$	271			$	584
Other financial data and measures
Average assets ($ billions)		$	199			$	203			$	195
Average liabilities ($ billions)		$	153			$	154			$	145

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.

(2)	Includes one additional month of earnings relating to Mexico of $50 (after tax and NCI $40) in the first quarter of 2020.

(3)	Includes income (on a taxable equivalent basis) from investments in associated corporations for the three months ended January 31, 2021 – $49 (October 31, 2020 – $39; January 31, 2020 – $95).

Net income

Q1 2021 vs Q1 2020

Net income attributable to equity holders was $389 million, a decrease of $101 million or 21%. Adjusted net income attributable to equity holders was $398 million, a decrease of $186 million or 32%. The impact of divested operations represents 8% of this decrease with the remaining decline primarily related to lower net interest income, non-interest income, higher provision for credit losses and the benefit of the Alignment of the reporting period in the prior year, partially offset by lower non-interest expenses.

 

14    Scotiabank First Quarter Report 2021

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Q1 2021 vs Q4 2020

Net income attributable to equity holders increased by $137 million or 54%. Adjusted net income attributable to equity holders increased $127 million or 47%. The increase was primarily related to lower provision for credit losses and non-interest expenses, and higher non-interest income, partially offset by higher income taxes.

Average assets

Q1 2021 vs Q1 2020

Average assets of $199 billion increased by $4 billion or 2%. Total loans declined by 1% or increased by 2% excluding the impact of divested operations. This increase is due to growth in commercial loans. In addition, average assets increased due to higher deposits with central banks and investment securities.

Q1 2021 vs Q4 2020

Average assets decreased $3 billion or 2%. Total loans declined by 2% driven primarily by 3% decrease in commercial loans mainly in Latin America.

Average liabilities

Q1 2021 vs Q1 2020

Average liabilities of $153 billion increased $8 billion or 5% driven by higher funding from central banks. Total deposits declined by 1% driven by a 2% decline in retail deposits. The negative impact of divested operations on total deposit growth was 5%.

Q1 2021 vs Q4 2020

Average liabilities decreased $1 billion or 1% driven by a decline in total deposits of 2% primarily in Latin America. Non-personal deposits declined 4% while retail deposit growth was 2%.

Total revenue

Q1 2021 vs Q1 2020

Revenues were $2,561 million, a decrease of $271 million, or 10% of which 5% is attributed to the impact of divested operations. The remaining decline was due to lower net interest income in the Caribbean and Central America, lower banking and credit card fees due to the slow-down in consumer activity, and the Alignment of the reporting period in the prior year.

Q1 2021 vs Q4 2020

Revenues increased by $13 million or 1% driven primarily by non-interest income from higher banking and credit card fees and higher trading revenues, partially offset by lower investment gains.

Net interest income

Q1 2021 vs Q1 2020

Net interest income was $1,788 million, down 6% or 2% excluding the impact of divested operations. The decline was due to margin compression. The net interest margin reduced 48 basis points due primarily to the impact of rate reductions across the footprint, changes in business mix, and increased volume of high quality liquid assets.

Q1 2021 vs Q4 2020

Net interest income was stable quarter over quarter. An increase of net interest margin of six basis points was driven mainly by lower funding costs, offset by lower volumes.

Non-interest income

Q1 2021 vs Q1 2020

Non-interest income was $773 million, down 18% or 12% excluding the impact of divested operations. The decline was driven primarily by the benefit of the Alignment of reporting period in the prior year, and lower banking and card fees due to the slow-down in consumer activity.

Q1 2021 vs Q4 2020

Non-interest income increased $15 million or 2% due mainly to higher banking fees and higher trading revenues, partially offset by lower investment gains.

Provision for credit losses

Q1 2021 vs Q1 2020

The provision for credit losses was $525 million, compared to $550 million, down $25 million or 5%. Adjusted provision for credit losses was up $48 million due to higher commercial and retail provisions in Peru. The provision for credit losses ratio decreased eight basis points to 149 basis points, and adjusted provision for credit losses ratio increased by 13 basis points.

 

Scotiabank First Quarter Report 2021    15

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Provision on impaired loans increased $19 million to $528 million. Adjusted provision on impaired loans was up $46 million due primarily to higher commercial and retail provisions in Peru. The provision for credit losses ratio on impaired loans was 150 basis points, an increase of five basis points, while adjusted provision for credit losses ratio increased by 13 basis points.

Provision on performing loans was a net reversal of $3 million, down $45 million. Adjusted provision on performing loans was up $2 million.

Q1 2021 vs Q4 2020

The provision for credit losses was $525 million, compared to $739 million, down $214 million or 29%. The provision for credit losses ratio decreased 58 basis points to 149 basis points.

Provision on impaired loans decreased $37 million to $528 million, down 7% due to lower commercial provisions partially offset by higher retail provisions driven by credit migration in Peru. The provision for credit losses ratio on impaired loans was 150 basis points, a decrease of eight basis points.

Provision on performing loans was a net reversal of $3 million, compared to $174 million, a decrease of $178 million of which $138 million related to retail and $40 million related to commercial banking. The decrease was due primarily to a more favourable macroeconomic outlook this period.

Non-interest expenses

Q1 2021 vs Q1 2020

Non-interest expenses were $1,402 million, down 11%. On an adjusted basis, non-interest expenses decreased 7% or 4% excluding the impact of divested operations. The decline was driven by lower salary and benefits, and premises and technology costs related to efficiency initiatives and synergies.

Q1 2021 vs Q4 2020

Non-interest expenses decreased 2% due primarily to lower personnel costs and efficiency initiatives.

Taxes

Q1 2021 vs Q1 2020

The effective tax rate for the quarter was 24.8% compared to 21.5%. On an adjusted basis, the effective tax rate for the quarter was 24.9% compared to 22.5% last year, due primarily to changes in earnings mix.

Q1 2021 vs Q4 2020

The effective tax rate for the quarter was 24.8% compared to 14.2%. On an adjusted basis, the effective tax rate for the quarter was 24.9% compared to 15.0% last quarter, due primarily to inflation adjustments and higher income in higher tax rate jurisdictions.

 

Global Wealth Management(1)		For the three months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		January 31 2021				October 31 2020				January 31 2020
Reported Results
Net interest income		$	155			$	144			$	141
Non-interest income			1,235				1,021				1,016
Total revenue			1,390				1,165				1,157
Provision for credit losses			4				3				1
Non-interest expenses			817				726				737
Income tax expense			148				111				110
Net income		$	421			$	325			$	309
Net income attributable to non-controlling interest in subsidiaries		$	3			$	2			$	3
Net income attributable to equity holders of the Bank		$	418			$	323			$	306
Other financial data and measures
Return on equity			17.6	%			13.9	%			13.2	%
Assets under administration ($ billions)		$	546			$	502			$	497
Assets under management ($ billions)		$	314			$	292			$	298
Average assets ($ billions)		$	27			$	27			$	25
Average liabilities ($ billions)		$	42			$	40			$	35

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.

 

16    Scotiabank First Quarter Report 2021

MANAGEMENT’S DISCUSSION & ANALYSIS

 

		For the three months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		January 31 2021				October 31 2020				January 31 2020
Adjusted Results(1)
Net interest income		$	155			$	144			$	141
Non-interest income			1,235				1,021				1,016
Total revenue			1,390				1,165				1,157
Provision for credit losses(2)			4				3				–
Non-interest expenses(3)(4)			808				713				722
Income tax expense			150				114				114
Net income		$	428			$	335			$	321
Net income attributable to non-controlling interest in subsidiaries		$	3			$	2			$	3
Net income attributable to equity holders of the Bank		$	425			$	333			$	318

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.

(2)	Includes adjustment for Allowance for credit losses—Additional scenario of $1 in the first quarter of 2020.

(3)	Includes adjustment for Integration costs of $4 in the fourth quarter of 2020 and $5 in the first quarter of 2020.

(4)	Includes adjustment for Amortization of acquisition-related intangible assets, excluding software of $9 (October 31, 2020—$9; January 31, 2020—$10).

Net income

Q1 2021 vs Q1 2020

Net income attributable to equity holders was $418 million, an increase of $112 million or 37%. Adjusted net income was $425 million, up 34%. This increase is due primarily to higher mutual fund fees, brokerage revenues, and elevated performance fees, partially offset by higher non-interest expenses. The Bank earns a performance fee on certain Dynamic Funds that represent less than 3% of total AUM. Performance fees earned are recorded in the first quarter of each year. The Bank recognized $62 million in net performance fees this quarter, as a result of outperforming the funds’ benchmark in 2020.

Q1 2021 vs Q4 2020

Net income attributable to equity holders increased $95 million or 29%. Adjusted net income increased $92 million or 28% due primarily to higher mutual fund fees, brokerage revenues and elevated performance fees, partially offset by higher non-interest expenses.

Assets under management (AUM) and assets under administration (AUA)

Q1 2021 vs Q1 2020

Assets under management of $314 billion increased $16 billion or 5%, while assets under administration of $546 billion increased $49 billion or 10%. The growth in AUM and AUA was due primarily to higher net sales and market appreciation.

Q1 2021 vs Q4 2020

Assets under management increased $22 billion or 8%, and assets under administration increased by $45 billion or 9%, due to higher net sales and market appreciation.

Total revenue

Q1 2021 vs Q1 2020

Revenues were $1,390 million, up $233 million or 20% due primarily to higher mutual fund fees, brokerage revenues from higher customer activity, and elevated performance fees.

Q1 2021 vs Q4 2020

Revenues were up $225 million or 19%, due primarily to higher mutual fund fees, brokerage revenues from higher customer activity, and elevated performance fees.

Provision for credit losses

Q1 2021 vs Q1 2020

The provision for credit losses was $4 million compared to $1 million. The provision for credit losses ratio was 11 basis points.

Q1 2021 vs Q4 2020

The provision for credit losses was $4 million compared to $3 million. The provision for credit losses ratio was 11 basis points.

Non-interest expenses

Q1 2021 vs Q1 2020

Non-interest expenses of $817 million were up $80 million or 11%, largely due to higher variable compensation driven by higher performance fees, and technology costs to support business initiatives, partly offset by lower travel and business development expenses.

 

Scotiabank First Quarter Report 2021    17

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Q1 2021 vs Q4 2020

Non-interest expenses were up $91 million or 13%, largely due to higher variable compensation driven by higher performance fees.

Taxes

The effective tax rate was 26.0% compared to 26.2% in the prior year and slightly higher than 25.6% in the prior quarter.

 

Global Banking and Markets(1)		For the three months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		January 31 2021				October 31 2020				January 31 2020
Reported Results
Net interest income		$	358			$	350			$	325
Non-interest income			978				860				842
Total revenue			1,336				1,210				1,167
Provision for credit losses			20				62				24
Non-interest expenses			614				583				654
Income tax expense			159				105				117
Net income		$	543			$	460			$	372
Net income attributable to non-controlling interest in subsidiaries		$	–			$	–			$	–
Net income attributable to equity holders of the Bank		$	543			$	460			$	372
Other financial data and measures
Return on equity			17.3	%			14.6	%			11.5	%
Provision for credit losses – performing (Stage 1 and 2)		$	5			$	28			$	(12	)
Provision for credit losses – impaired (Stage 3)		$	15			$	34			$	36
Provision for credit losses as a percentage of average net loans and acceptances (annualized)			0.08	%			0.24	%			0.09	%
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)			0.06	%			0.13	%			0.14	%
Net write-offs as a percentage of average net loans and acceptances			0.10	%			0.10	%			0.11	%
Average assets ($ billions)		$	395			$	389			$	411
Average liabilities ($ billions)		$	387			$	387			$	337

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.

 

		For the three months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		January 31 2021				October 31 2020				January 31 2020
Adjusted Results(1)
Net interest income		$	358			$	350			$	325
Non-interest income(2)			978				860				944
Total revenue			1,336				1,210				1,269
Provision for credit losses(3)			20				62				18
Non-interest expenses			614				583				654
Income tax expense			159				105				146
Net income		$	543			$	460			$	451
Net income attributable to non-controlling interest in subsidiaries		$	–			$	–			$	–
Net income attributable to equity holders of the Bank		$	543			$	460			$	451

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.

(2)	Includes adjustment for derivatives valuation of $102 in the first quarter of 2020.

(3)	Includes adjustment for Allowance for credit losses – Additional scenario of $6 in the first quarter of 2020.

Net income

Q1 2021 vs Q1 2020

Net income attributable to equity holders was $543 million, an increase of $171 million or 46%. Adjusted net income attributable to equity holders increased by $92 million or 20%. This was due to higher net interest income and non-interest income, and lower non-interest expenses, partly offset by higher provision for credit losses.

Q1 2021 vs Q4 2020

Net income attributable to equity holders increased by $83 million or 18%. This was due mainly to higher net interest income and non-interest income, lower provision for credit losses, partly offset by higher non-interest expenses.

Average assets

Q1 2021 vs Q1 2020

Average assets were $395 billion, a decrease of $16 billion or 4% due mainly to decreases in loans, securities purchased under resale agreements and the impact of foreign currency translation.

 

18    Scotiabank First Quarter Report 2021

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Q1 2021 vs Q4 2020

Average assets increased $6 billion or 2% due mainly to an increase in trading assets and the impact of foreign currency translation.

Average liabilities

Q1 2021 vs Q1 2020

Average liabilities of $387 billion were higher by $50 billion or 15%, due to strong growth in deposits of 33%, as well as growth in derivative-related liabilities.

Q1 2021 vs Q4 2020

Average liabilities remained in line with prior quarter.

Total revenue

Q1 2021 vs Q1 2020

Revenues were $1,336 million, an increase of $169 million or 15%. Adjusted revenues increased $67 million or 5% due primarily to higher non-interest income driven by trading revenues and higher net interest income.

Q1 2021 vs Q4 2020

Revenues increased by $126 million or 10% due mainly to higher trading revenues and higher net interest income.

Net interest income

Q1 2021 vs Q1 2020

Net interest income was $358 million, an increase of $33 million or 10%. The increase was due mainly to strong growth in deposits and higher loan origination fees.

Q1 2021 vs Q4 2020

Net interest income increased by $8 million or 2%. The increase was due mainly to higher lending margins and loan origination fees, partly offset by lower loan volumes.

Non-interest income

Q1 2021 vs Q1 2020

Non-interest income was $978 million, an increase of $136 million or 16% from the prior year. Adjusted non-interest income increased $34 million or 4% due mainly to growth in fixed income and equities trading-related revenues.

Q1 2021 vs Q4 2020

Non-interest income increased by $118 million or 14% due mainly to an increase in trading-related revenues and higher advisory fees, partly offset by the negative impact of foreign currency translation.

Provision for credit losses

Q1 2021 vs Q1 2020

The provision for credit losses was $20 million, compared to $24 million. Adjusted provision for credit losses increased by $2 million. The provision for credit losses ratio decreased one basis point to eight basis points, and adjusted provision for credit losses ratio increased by one basis point.

Provision on impaired loans was $15 million, compared to $36 million, down $21 million due to lower formations this quarter. The provision for credit losses ratio on impaired loans was six basis points, a decrease of eight basis points.

Provision on performing loans was $5 million, compared to a net reversal of $12 million, an increase of $17 million. Adjusted provision on performing loans increased $23 million as credit quality migration in industries most impacted by the COVID-19 pandemic were partially offset by the more favourable macroeconomic outlook.

Q1 2021 vs Q4 2020

The provision for credit losses was $20 million, compared to $62 million, a decrease of $42 million or 68%. The provision for credit losses ratio decreased 16 basis points to eight basis points.

Provision on impaired loans was $15 million, compared to $34 million, down $19 million, due to lower formations this quarter. The provision for credit losses ratio on impaired loans decreased seven basis points to six basis points.

Provision on performing loans was $5 million, a decrease of $23 million. The decrease was driven primarily due to stable portfolio quality and the more favourable macroeconomic outlook.

 

Scotiabank First Quarter Report 2021    19

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Non-interest expenses

Q1 2021 vs Q1 2020

Non-interest expenses of $614 million decreased $40 million or 6%. The decrease was driven primarily by lower personnel costs and lower advertising and business development expenses.

Q1 2021 vs Q4 2020

Non-interest expenses increased $31 million or 5% due mainly to seasonally higher share-based compensation for employees that are eligible to retire.

Taxes

Q1 2021 vs Q1 2020

The effective tax rate for the quarter was 22.6%, compared to 24.0% or 24.4% on an adjusted basis, due mainly to the change in earnings mix across jurisdictions.

Q1 2021 vs Q4 2020

The effective tax rate for the quarter was 22.6%, compared to 18.5% in the prior quarter. The increase was due mainly to changes in the earnings mix across jurisdictions.

 

Other(1)(2)		For the three months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		January 31 2021				October 31 2020				January 31 2020
Reported Results
Net interest income(3)		$	66			$	25			$	(82	)
Non-interest income(3)(4)			71				(9	)			207
Total revenue			137				16				125
Provision for credit losses			–				–				–
Non-interest expenses			171				138				130
Income tax expense(3)			(80	)			(125	)			(216	)
Net income		$	46			$	3			$	211
Net income attributable to non-controlling interest in subsidiaries		$	(1	)		$	–			$	(28	)
Net income attributable to equity holders		$	47			$	3			$	239
Other measures
Average assets ($ billions)		$	166			$	159			$	124
Average liabilities ($ billions)		$	196			$	195			$	262

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.

(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, non-interest income and provision for income taxes and differences in the actual amount of costs incurred and charged to the operating segments.

(3)	Includes the elimination of the tax-exempt income gross-up reported in net interest income, non-interest income and provision for income taxes of $69 (October 31, 2020 – $67; January 31, 2020 – $68) to arrive at the amounts reported in the Consolidated Statement of Income.

(4)	Income (on a taxable equivalent basis) from investments in associated corporations and the provision for income taxes in each period include the tax normalization adjustments related to the gross-up of income from associated companies of $(15) (October 31, 2020 – $(7); January 31, 2020 – $(25)).

 

		For the three months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		January 31 2021				October 31 2020				January 31 2020
Adjusted Results(1)
Net interest income		$	66			$	25			$	(82	)
Non-interest income(2)(3)			71				(9	)			(47	)
Total revenue			137				16				(129	)
Provision for credit losses			–				–				–
Non-interest expenses(3)(4)			171				130				80
Income tax expense			(80	)			(122	)			(174	)
Net income		$	46			$	8			$	(35	)
Net income attributable to non-controlling interest in subsidiaries		$	(1	)		$	–			$	–
Net income attributable to equity holders		$	47			$	8			$	(35	)

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.

(2)	Includes adjustment for derivatives valuation of $14 in the first quarter of 2020.

(3)	Includes adjustment for Net (gain)/loss on divestitures of $8 in the fourth quarter of 2020 and $(262) in the first quarter of 2020.

(4)	Includes adjustment for software impairment charge of $44 in the first quarter of 2020.

The Other segment includes Group Treasury, smaller operating segments, net gain or loss on divestitures and other corporate items which are not allocated to a business line.

Net interest income, non-interest income, and the provision for income taxes in each period include the elimination of tax-exempt income gross-up. This amount is included in the operating segments, which are reported on a taxable equivalent basis.

 

20    Scotiabank First Quarter Report 2021

MANAGEMENT’S DISCUSSION & ANALYSIS

 

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.

Q1 2021 vs Q1 2020

Net income attributable to equity holders was $47 million, a decrease of $192 million. Adjusted net income attributable to equity holders was $47 million, compared to a net loss of $35 million in the prior year. The increase of $82 million was related to higher contributions from asset/liability management activities and higher investment gains, partly offset by the increased investment in the SCENE loyalty program.

Q1 2021 vs Q4 2020

Net income attributable to equity holders increased $44 million, or $39 million on an adjusted basis. The improvement was due mainly to higher contributions from asset/liability management activities, partly offset by the increased investment in the SCENE loyalty program.

Geographic Highlights

 

		For the three months ended January 31, 2021
(Unaudited) ($ millions)		Canada				U.S.				Mexico				Peru				Chile				Colombia				Caribbean and Central America				Other				Total
Reported results
Net interest income		$	2,272			$	177			$	452			$	356			$	375			$	192			$	366			$	161			$	4,351
Non-interest income			2,411				242				170				151				180				104				163				300				3,721
Total revenue			4,683				419				622				507				555				296				529				461				8,072
Provision for credit losses			229				2				102				223				67				63				60				18				764
Non-interest expenses			2,365				230				322				179				250				175				357				330				4,208
Income tax expense			458				29				52				23				56				17				28				39				702
Net income			1,631				158				146				82				182				41				84				74				2,398
Net income attributable to non-controlling interests in subsidiaries			–				–				3				(3	)			52				19				19				–				90
Net income attributable to equity holders of the Bank		$	1,631			$	158			$	143			$	85			$	130			$	22			$	65			$	74			$	2,308
Adjusted results
Adjustments			9				–				–				3				5				–				1				2				20
Adjusted net income (loss) attributable to equity holders of the Bank		$	1,640			$	158			$	143			$	88			$	135			$	22			$	66			$	76			$	2,328
Average Assets ($ billions)		$	700			$	149			$	41			$	29			$	53			$	13			$	31			$	139			$	1,155
		For the three months ended October 31, 2020
(Unaudited) ($ millions)		Canada				U.S.				Mexico				Peru				Chile				Colombia				Caribbean and Central America				Other				Total
Reported results
Net interest income		$	2,192			$	188			$	412			$	408			$	344			$	186			$	378			$	150			$	4,258
Non-interest income			1,938				247				181				146				153				105				183				294				3,247
Total revenue			4,130				435				593				554				497				291				561				444				7,505
Provision for credit losses			353				28				114				298				100				132				71				35				1,131
Non-interest expenses			2,218				202				347				188				234				171				376				321				4,057
Income tax expense			313				8				35				10				24				(5	)			21				12				418
Net income			1,246				197				97				58				139				(7	)			93				76				1,899
Net income attributable to non-controlling interests in subsidiaries			–				–				2				7				47				(8	)			24				–				72
Net income attributable to equity holders of the Bank		$	1,246			$	197			$	95			$	51			$	92			$	1			$	69			$	76			$	1,827
Adjusted results
Adjustments			18				–				–				1				5				–				12				3				39
Adjusted net income (loss) attributable to equity holders of the Bank		$	1,264			$	197			$	95			$	52			$	97			$	1			$	81			$	79			$	1,866
Average Assets ($ billions)		$	695			$	149			$	41			$	31			$	52			$	13			$	32			$	127			$	1,140

 

Scotiabank First Quarter Report 2021    21