Exhibit 99.1

 

Q2 2021 Quarterly Report to Shareholders Live audio Web broadcast of the Bank’s analysts’ conference call. See page 80 for details. Scotiabank reports second quarter results TORONTO, June 1, 2021 – Scotiabank reported second quarter net income of $2,456 million compared to $1,324 million in the same period last year. Diluted earnings per share (EPS) was $1.88, up 88% from $1.00 in the previous year. Return on equity was 14.8%, up from 7.9% in the previous year. Adjusted net income(1) increased 81% to $2,475 million and EPS of $1.90, increased 83% compared to the prior year. Return on equity was 14.9% compared to 8.2% a year ago. “We delivered another quarter of strong results reflecting the strength of our diversified business platform, and the solid economic recovery underway in our core markets,” said Brian Porter, President and CEO of Scotiabank. “Our commitment to superior customer service was recognized in the J.D. Power 2021 Canada Retail Banking Satisfaction Study where the Bank rose to #2 among large banks and Tangerine was recognized as number one for the tenth consecutive year among mid-sized retail banks. Our commitment to strong ESG practices was also recognized with a rating of “AAA” in the MSCI ESG Ratings(2) assessment, a rating held by only 2% of banks globally. We are very proud of these accomplishments.” Canadian Banking generated earnings of $931 million with a strong rebound in fee income, lower provision for credit losses, as well as solid asset and deposit growth. Global Wealth Management’s earnings of $378 million were supported by strong revenue growth, positive operating leverage for the sixth consecutive quarter, and strong net sales. AUM and AUA increased 19% and 20% from the prior year, respectively. Global Banking and Markets reported earnings of $517 million, driven by continued solid performance in the capital markets business, particularly equities, good deposit growth and lower provision for credit losses. The advisory pipeline remains strong for the balance of the year. International Banking generated earnings of $429 million, trending positively from the prior quarter, aided by strong economic recovery across the Pacific Alliance. The Bank reported a Common Equity Tier 1 capital ratio of 12.3%, and remains very well capitalized to support its strategic growth plans. (1) Refer to Non-GAAP Measures on page 5 for details. (2) The use by Scotiabank of any MSCI ESG Research LLC or its affiliates (“MSCI”) data, and the use of MSCI logos, trademarks, service marks or index names herein, do not constitute a sponsorship, endorsement, recommendation, or promotion of Scotiabank by MSCI. MSCI services and data are the property of MSCI or its information providers, and are provided ‘as-is’ and without warranty. MSCI names and logos are trademarks or service marks of MSCI.

Financial Highlights

 

		As at and for the three months ended												For the six months ended
(Unaudited)		April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Operating results ($ millions)
Net interest income			4,176				4,351				4,417				8,527				8,809
Non-interest income			3,560				3,721				3,539				7,281				7,288
Total revenue			7,736				8,072				7,956				15,808				16,097
Provision for credit losses			496				764				1,846				1,260				2,772
Non-interest expenses			4,042				4,208				4,363				8,250				8,781
Income tax expense			742				702				423				1,444				894
Net income			2,456				2,398				1,324				4,854				3,650
Net income attributable to common shareholders			2,289				2,265				1,243				4,554				3,505
Operating performance
Basic earnings per share ($)			1.89				1.87				1.03				3.76				2.89
Diluted earnings per share ($)			1.88				1.86				1.00				3.74				2.84
Return on equity (%)			14.8				14.2				7.9				14.5				11.1
Productivity ratio (%)			52.2				52.1				54.8				52.2				54.5
Core banking margin (%)(1)			2.26				2.27				2.35				2.26				2.40
Financial position information ($ millions)
Cash and deposits with financial institutions			52,017				89,491				103,904
Trading assets			144,247				141,768				121,485
Loans			608,165				603,649				625,186
Total assets			1,125,248				1,164,050				1,247,073
Deposits			756,661				768,993				797,690
Common equity			63,459				63,387				64,264
Preferred shares and other equity instruments			4,549				5,308				3,619
Assets under administration			626,690				600,955				530,907
Assets under management			331,594				313,970				277,990
Capital and liquidity measures
Common Equity Tier 1 (CET1) capital ratio (%)			12.3				12.2				10.9
Tier 1 capital ratio (%)			13.6				13.6				11.9
Total capital ratio (%)			15.7				15.7				14.0
Leverage ratio (%)			4.7				4.7				4.4
Risk-weighted assets ($ millions)			404,727				406,780				446,173
Liquidity coverage ratio (LCR) (%)			129				129				132
Net stable funding ratio (NSFR) (%)			112				115				n/a
Credit quality
Net impaired loans ($ millions)			3,178				3,285				3,473
Allowance for credit losses ($ millions)(2)			6,893				7,810				6,079
Gross impaired loans as a % of loans and acceptances			0.81				0.84				0.78
Net impaired loans as a % of loans and acceptances			0.50				0.52				0.53
Provision for credit losses as a % of average net loans and acceptances (annualized)(3)			0.33				0.49				1.19				0.41				0.90
Provision for credit losses on impaired loans as a % of average net loans and acceptances (annualized)(3)			0.80				0.49				0.56				0.64				0.55
Net write-offs as a % of average net loans and acceptance (annualized)			0.76				0.43				0.47				0.59				0.51
Adjusted results(1)
Adjusted net income ($ millions)			2,475				2,418				1,371				4,893				3,715
Adjusted diluted earnings per share ($)			1.90				1.88				1.04				3.78				2.87
Adjusted return on equity (%)			14.9				14.4				8.2				14.6				11.1
Adjusted productivity ratio (%)			51.9				51.8				54.0				51.8				53.7
Adjusted provision for credit losses as a % of average net loans and acceptances (annualized)(3)			0.33				0.49				1.19				0.41				0.85
Common share information
Closing share price ($) (TSX)			78.27				68.20				55.80
Shares outstanding (millions)
Average – Basic			1,213				1,212				1,212				1,213				1,213
Average – Diluted			1,223				1,237				1,222				1,248				1,245
End of period			1,214				1,212				1,211
Dividends paid per share ($)			0.90				0.90				0.90				1.80				1.80
Dividend yield (%)(4)			4.9				5.7				5.9				5.3				5.8
Market capitalization ($ millions) (TSX)			94,988				82,684				67,594
Book value per common share ($)			52.29				52.28				53.05
Market value to book value multiple			1.5				1.3				1.1
Price to earnings multiple (trailing 4 quarters)			12.4				12.5				9.1
Other information
Employees (full-time equivalent)(5)			89,847				89,808				96,897
Branches and offices			2,569				2,597				2,953

(1)	Refer to page 5 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)	Amount for the period ended April 30, 2020 has been restated to conform with current period presentation.

 

2    Scotiabank Second Quarter Report 2021

 

Enhanced Disclosure Task Force (EDTF) Recommendations

The Enhanced Disclosure Task Force (EDTF) was established by the Financial Stability Board in May 2012 with the goal of developing fundamental disclosure principles. On October 29, 2012 the EDTF published its report, “Enhancing the Risk Disclosures of Banks”, which sets forth recommendations around improving risk disclosures and identifies existing leading practice risk disclosures.

Below is the index of all these recommendations to facilitate easy reference in the Bank’s public disclosure documents available on www.scotiabank.com/investorrelations.

 

Reference Table for EDTF
								Q2 2021												2020 Annual Report
Type of risk		Number				Disclosure		Quarterly Report				Supplementary Regulatory Capital Disclosures								MD&A				Financial Statements
General			1			The index of risks to which the business is exposed.															85-86, 91, 101
			2			The Bank’s risk to terminology, measures and key parameters.															81-84
			3			Top and emerging risks, and the changes during the reporting period.															88-90, 95-100
			4			Discussion on the regulatory development and plans to meet new regulatory ratios.			42-45												61-63, 109-110, 126-128
Risk governance, risk management and business model			5			The Bank’s Risk Governance structure.															78-80
			6			Description of risk culture and procedures applied to support the culture.															81-83
			7			Description of key risks from the Bank’s business model.															85-87
			8			Stress testing use within the Bank’s risk governance and capital management.															81-82
Capital Adequacy and risk-weighted assets			9			Pillar 1 capital requirements, and the impact for global systemically important banks.			42				3								61-63				217
			10			a) Regulatory capital components.			42, 67				18-21								64
						b) Reconciliation of the accounting balance sheet to the regulatory balance sheet.							15-16
			11			Flow statement of the movements in regulatory capital since the previous reporting period, including changes in common equity tier 1, additional tier 1 and tier 2 capital.			42				70								65-66
			12			Discussion of targeted level of capital, and the plans on how to establish this.															61-63
			13			Analysis of risk-weighted assets by risk type, business, and market risk RWAs.							5, 34-47, 55-57, 61, 73, 79								68-72, 87, 136				187, 241
			14			Analysis of the capital requirements for each Basel asset class.							13-14, 34-48, 55-57, 61, 66-69								68-72				187, 235-241
			15			Tabulate credit risk in the Banking Book.			72				13-14, 34-48, 66-69								68-72				236
			16			Flow statements reconciling the movements in risk-weighted assets for each risk-weighted asset type.							49, 60, 72								68-72
			17			Discussion of Basel III Back-testing requirement including credit risk model performance and validation.							77								69-71
Liquidity Funding			18			Analysis of the Bank’s liquid assets.			34-36												107-110
			19			Encumbered and unencumbered assets analyzed by balance sheet category.			34-36												109
			20			Consolidated total assets, liabilities and off-balance sheet commitments analyzed by remaining contractual maturity at the balance sheet date.			40-41												112-114
			21			Analysis of the Bank’s sources of funding and a description of the Bank’s funding strategy.			38-39												111-112
Market Risk			22			Linkage of market risk measures for trading and non-trading portfolios and the balance sheet.			33												106
			23			Discussion of significant trading and non-trading market risk factors.			73-74												102-107				240-241
			24			Discussion of changes in period on period VaR results as well as VaR assumptions, limitations, backtesting and validation.			32, 74												102-107				240-241
			25			Other risk management techniques e.g. stress tests, stressed VaR, tail risk and market liquidity horizon.															102-107				241
Credit Risk			26			Analysis of the aggregate credit risk exposures, including details of both personal and wholesale lending.							5, 34, 36-47, 55-57								95-100, 130- 136				198-199, 237-239
			27			Discussion of the policies for identifying impaired loans, defining impairments and renegotiated loans, and explaining loan forbearance policies.																			165-167, 199
			28			Reconciliations of the opening and closing balances of impaired loans and impairment allowances during the year.			58				31, 32								97, 130-131, 133, 134				199
			29			Analysis of counterparty credit risk that arises from derivative transactions.			43, 72				78								93-94				185-188
			30			Discussion of credit risk mitigation, including collateral held for all sources of credit risk.			72												93-94, 98
Other risks			31			Quantified measures of the management of operational risk.			74												72, 115
			32			Discussion of publicly known risk items.			43												77

 

Scotiabank Second Quarter Report 2021    3

MANAGEMENT’S DISCUSSION & ANALYSIS

 

MANAGEMENT’S DISCUSSION & ANALYSIS

The Management’s Discussion and Analysis (MD&A) is provided to enable readers to assess the Bank’s financial condition and results of operations as at and for the period ended April 30, 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 June 1, 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.

 

4    Scotiabank Second Quarter Report 2021

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.

 

Scotiabank Second Quarter Report 2021    5

MANAGEMENT’S DISCUSSION & ANALYSIS

 

		For the three months ended												For the six months ended
($ millions)		April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Reported Results
Net interest income		$	4,176			$	4,351			$	4,417			$	8,527			$	8,809
Non-interest income			3,560				3,721				3,539				7,281				7,288
Total revenue			7,736				8,072				7,956				15,808				16,097
Provision for credit losses			496				764				1,846				1,260				2,772
Non-interest expenses			4,042				4,208				4,363				8,250				8,781
Income before taxes			3,198				3,100				1,747				6,298				4,544
Income tax expense			742				702				423				1,444				894
Net income		$	2,456			$	2,398			$	1,324			$	4,854			$	3,650
Net income attributable to non-controlling interests in subsidiaries (NCI)			90				90				15				180				54
Net income attributable to equity holders			2,366				2,308				1,309				4,674				3,596
Net income attributable to common shareholders			2,289				2,265				1,243				4,554				3,505
Diluted earnings per share (in dollars)		$	1.88			$	1.86			$	1.00			$	3.74			$	2.84
Adjustments
Acquisition-related costs
Integration costs(1)		$	–			$	–			$	41			$	–			$	117
Amortization of Acquisition-related intangible assets, excluding software(1)			26				28				27				54				54
			26				28				68				54				171
Allowance for credit losses – Additional scenario(2)			–				–				–				–				155
Derivatives valuation adjustment(3)			–				–				–				–				116
Net (gain)/loss on divestitures(4)			–				–				–				–				(262	)
Impairment charge on software asset(1)			–				–				–				–				44
Adjustments (Pre-tax)		$	26			$	28			$	68			$	54			$	224
Income tax expense/(benefit)			(7	)			(8	)			(21	)			(15	)			(159	)
Adjustments (After tax)		$	19			$	20			$	47			$	39			$	65
Adjustment attributable to NCI			–				–				(7	)			–				(55	)
Adjustments (After tax and NCI)		$	19			$	20			$	40			$	39			$	10
Adjusted Results
Net interest income		$	4,176			$	4,351			$	4,417			$	8,527			$	8,809
Non-interest income			3,560				3,721				3,539				7,281				7,136
Total revenue			7,736				8,072				7,956				15,808				15,945
Provision for credit losses			496				764				1,846				1,260				2,617
Non-interest expenses			4,016				4,180				4,295				8,196				8,560
Income before taxes			3,224				3,128				1,815				6,352				4,768
Income tax expense			749				710				444				1,459				1,053
Net income		$	2,475			$	2,418			$	1,371			$	4,893			$	3,715
Net income attributable to NCI			90				90				22				180				109
Net income attributable to equity holders			2,385				2,328				1,349				4,713				3,606
Net income attributable to common shareholders		$	2,308			$	2,285			$	1,283			$	4,593			$	3,515
Adjusted diluted earnings per share (in dollars)		$	1.90			$	1.88			$	1.04			$	3.78			$	2.87

(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.

 

6    Scotiabank Second Quarter Report 2021

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 17. 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																								For the six months ended
($ millions)		January 31, 2021												April 30, 2020												April 30, 2020
(Taxable equivalent basis)		Reported				Foreign exchange				Constant dollar				Reported				Foreign exchange				Constant dollar				Reported				Foreign exchange				Constant dollar
Net interest income		$	1,788			$	49			$	1,739			$	1,907			$	132			$	1,775			$	3,912			$	244			$	3,668
Non-interest income			773				20				753				800				50				750				1,780				94				1,686
Total revenue			2,561				69				2,492				2,707				182				2,525				5,692				338				5,354
Provision for credit losses			525				16				509				1,019				60				959				1,599				83				1,516
Non-interest expenses			1,402				35				1,367				1,465				83				1,382				3,129				167				2,962
Income tax expense			157				4				153				38				4				34				197				13				184
Net income		$	477			$	14			$	463			$	185			$	35			$	150			$	767			$	75			$	692
Net income attributable to non-controlling interest in subsidiaries		$	88			$	2			$	86			$	12			$	1			$	11			$	76			$	3			$	73
Net income attributable to equity holders of the Bank		$	389			$	12			$	377			$	173			$	34			$	139			$	691			$	72			$	619
Other measures
Average assets ($ billions)		$	199			$	4			$	195			$	205			$	10			$	195			$	204			$	9			$	195
Average liabilities ($ billions)		$	153			$	3			$	150			$	154			$	6			$	148			$	152			$	5			$	147

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 9.

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.

 

Scotiabank Second Quarter Report 2021    7

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Group Financial Performance

Impact of COVID-19

Last year, in the early days of the pandemic, uncertainty about the impact of the virus and our ability to control it led to severe stresses in financial markets. 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, which is providing an economic buffer against the surge in COVID-19 being experienced globally. Despite the current wave in the pandemic, the rebound seems well entrenched, benefitting from still low interest rates and direct support measures for firms and households.

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. These factors cloud the near-term outlook, though there is compelling evidence to suggest a strong rebound is underway and will accelerate as economies are fully re-opened. Substantial policy support remains appropriate globally to help bridge economies to the post COVID-19 state of the world.

Customer Assistance Programs

To support customers, the Bank had 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 ended on September 30, 2020. Total loans were insignificant as at April 30, 2021 (January 31, 2021 – $653 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.

During the quarter, the Bank announced its participation in the Highly Affected Sectors Credit Availability Program (HASCAP) which is part of the Government of Canada’s COVID-19 Economic Response Plan, launched on February 1, 2021. Under this program, the Business Development Bank of Canada (BDC) will fully guarantee eligible loans made by the Bank to small and medium-sized businesses heavily impacted by the COVID-19 pandemic. As at April 30, 2021, loans issued under this program of approximately $45 million were recognized on the Consolidated Statement of Financial Position.

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 April 30, 2021, total loans in deferral are $510 million (January 31, 2021 – $1,654 million⁽¹⁾). For customer accounts where payment deferrals have expired, cumulatively since the inception of the programs in Q2 2020, approximately 90% are current on payments.

Financial Performance Summary

The Bank’s reported net income this quarter was $2,456 million, compared to $1,324 million in the same period last year, and $2,398 million last quarter. Diluted earnings per share were $1.88 compared to $1.00 in the same period last year and $1.86 last quarter. Return on equity was 14.8%, compared to 7.9% in the same period last year and 14.2% last quarter.

Adjusted net income was $2,475 million compared to $1,371 million last year, an increase of 81%. Adjusted diluted earnings per share were $1.90, compared to $1.04 last year. Adjusted return on equity was 14.9% compared to 8.2% a year ago. The increase in net income was due primarily to lower provision for credit losses, as a result of a more favourable credit and macroeconomic outlook, and lower non-interest expenses, which were impacted by the metals business charges in the prior year.

Adjusted net income was $2,475 million this quarter compared to $2,418 million last quarter, up 2%. Adjusted diluted earnings per share were $1.90, compared to $1.88 last quarter, and adjusted return on equity was 14.9% compared to 14.4% last quarter. Net income increased due to lower provision for credit losses and non-interest expenses this quarter.

 

(1)	Prior period amount has been restated.

 

8    Scotiabank Second Quarter Report 2021

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 7.

 

		Average exchange rate												% Change
For the three months ended		April 30, 2021				January 31, 2021				April 30, 2020				April 30, 2021 vs. January 31, 2021				April 30, 2021 vs. April 30, 2020
U.S dollar/Canadian dollar			0.795				0.777				0.727				2.2	%			9.2	%
Mexican Peso/Canadian dollar			16.197				15.618				15.832				3.7	%			2.3	%
Peruvian Sol/Canadian dollar			2.929				2.807				2.493				4.4	%			17.5	%
Colombian Peso/Canadian dollar			2,867.219				2,753.077				2,733.884				4.1	%			4.9	%
Chilean Peso/Canadian dollar			571.409				573.961				604.011				(0.4	)%			(5.4	)%

 

		Average exchange rate								% Change
For the six months ended		April 30, 2021				April 30, 2020				April 30, 2021 vs. April 30, 2020
U.S dollar/Canadian dollar			0.786				0.744				5.6	%
Mexican Peso/Canadian dollar			15.903				15.150				5.0	%
Peruvian Sol/Canadian dollar			2.867				2.519				13.8	%
Colombian Peso/Canadian dollar			2,809.225				2,643.684				6.3	%
Chilean Peso/Canadian dollar			572.708				595.157				(3.8	)%

 

		For the three months ended								For the six months ended
Impact on net income(1) ($ millions except EPS)		April 30, 2021 vs. April 30, 2020				April 30, 2021 vs. January 31, 2021				April 30, 2021 vs. April 30, 2020
Net interest income		$	(129	)		$	(52	)		$	(238	)
Non-interest income(2)			(95	)			(50	)			(120	)
Total revenue			(224	)			(102	)			(358	)
Non-interest expenses			102				40				185
Other items (net of tax)			54				24				99
Net income		$	(68	)		$	(38	)		$	(74	)
Earnings per share (diluted)		$	(0.06	)		$	(0.03	)		$	(0.06	)
Impact by business line ($ millions)
Canadian Banking		$	(2	)		$	–			$	(2	)
Global Wealth Management			(4	)			(2	)			(7	)
International Banking(2)			(17	)			(10	)			(51	)
Global Banking and Markets			(27	)			(7	)			(30	)
Other(2)			(18	)			(19	)			16
Net income		$	(68	)		$	(38	)		$	(74	)

(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 each period from divested operations prior to the closing. Refer to Note 20 in the interim consolidated financial statements and Note 37 in the Bank’s 2020 Annual Report for the list of divested operations that have closed:

 

		For the three months ended												For the six months ended
(Unaudited) ($ millions)		April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Net interest income		$	3			$	6			$	13			$	9			$	88
Non-interest income			2				3				4				5				77
Total revenue			5				9				17				14				165
Provision for credit losses			2				3				10				5				15
Non-interest expenses			3				2				8				5				73
Income tax expense			1				1				2				2				19
Net income		$	(1	)		$	3			$	(3	)		$	2			$	58
Net income attributable to non-controlling interest in subsidiaries		$	–			$	–			$	–			$	–			$	–
Net income attributable to equity holders of the Bank – relating to divested operations		$	(1	)		$	3			$	(3	)		$	2			$	58

 

Scotiabank Second Quarter Report 2021    9

MANAGEMENT’S DISCUSSION & ANALYSIS

 

		For the three months ended								For the six months ended
Impact on net income ($ millions except EPS)		April 30, 2021 vs. January 31, 2021				April 30, 2021 vs. April 30, 2020				April 30, 2021 vs. April 30, 2020
Net interest income		$	(3	)		$	(10	)		$	(79	)
Non-interest income			(1	)			(2	)			(72	)
Total revenue			(4	)			(12	)			(151	)
Provision for credit losses			(1	)			(8	)			(10	)
Non-interest expenses			1				(5	)			(68	)
Income tax expense			–				(1	)			(17	)
Net income		$	(4	)		$	2			$	(56	)
Net income attributable to equity holders of the Bank		$	(4	)		$	2			$	(56	)
Earnings per share (diluted)		$	–			$	–			$	(0.04	)

Financial performance commentary

Net income

Q2 2021 vs Q2 2020

Net income was $2,456 million compared to $1,324 million. Adjusted net income was $2,475 million compared to $1,371 million, an increase of 81%, due mainly to lower provision for credit losses, as a result of a more favourable credit and macroeconomic outlook, and lower non-interest expenses, which were impacted by the metals business charges in the prior year.

Q2 2021 vs Q1 2021

Net income was $2,456 million compared to $2,398 million. Adjusted net income was $2,475 million compared to $2,418 million, an increase of 2%, due mainly to lower provision for credit losses and non-interest expenses, partially offset by lower revenues due to the impact of three fewer days in the quarter.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

Net income was $4,854 million compared to $3,650 million. Adjusted net income was $4,893 million compared to $3,715 million, an increase of 32%, due mainly to lower provision for credit losses, as a result of a more favourable credit and macroeconomic outlook, and lower non-interest expenses, which were impacted by the metals business charges in the prior year.

Total revenue

Q2 2021 vs Q2 2020

Revenues were $7,736 million compared to $7,956 million, down 3%, due mainly to lower net interest income, partially offset by higher non-interest income.

Q2 2021 vs Q1 2021

Revenues were $7,736 million compared to $8,072 million, down 4%, due to lower net interest income and non-interest income, primarily due to three fewer days in the quarter.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

Revenues were $15,808 million compared to $16,097 million. Adjusted revenues were $15,808 million compared to $15,945 million, down 1%, due mainly to lower net interest income, partially offset by higher non-interest income.

Net interest income

Q2 2021 vs Q2 2020

Net interest income was $4,176 million, a decrease of $241 million or 5%. The decrease was driven by the negative impact of foreign currency translation, and lower margins, partly offset by a higher contribution from asset/liability management activities.

The core banking margin was down nine basis points to 2.26%, driven primarily by lower margins in International Banking and Canadian Banking, related to changes in business mix and central bank rate cuts in 2020, as well as increased levels of high quality, lower-margin liquid assets.

Q2 2021 vs Q1 2021

Net interest income was down $175 million or 4% due to the impact of three fewer days in the quarter and the negative impact of foreign currency translation.

The core banking margin of 2.26% was down one basis point. Lower margins in International Banking primarily related to changes in business mix were largely offset by decreased levels of high quality, lower-margin liquid assets.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

Net interest income was $8,527 million, a decrease of $282 million or 3%. A higher contribution from asset/liability management activities was more than offset by the negative impact of foreign currency translation, the impact of divested operations, and lower margins.

The core banking margin was down 14 basis points to 2.26%, driven by lower margins in International Banking and Canadian Banking related to changes in business mix and central bank rate cuts in 2020, as well as increased levels of high quality, lower-margin liquid assets.

 

10    Scotiabank Second Quarter Report 2021

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Non-interest income

Q2 2021 vs Q2 2020

Non-interest income was $3,560 million, up $21 million or 1%. The increase was due to higher wealth management revenues, banking revenues, underwriting and advisory fees, and higher income from associated corporations. These were partly offset by lower trading revenues, investment gains, and the negative impact of foreign currency translation.

Q2 2021 vs Q1 2021

Non-interest income was down $161 million or 4% due to lower wealth management revenues from elevated annual performance fees in the prior quarter, lower trading revenues and investment gains. These were partly offset by higher underwriting and advisory fees, and income from associated corporations.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

Non-interest income was $7,281 million, down $7 million. Adjusted non-interest income was up $145 million or 2%, due primarily to higher wealth management revenues and underwriting and advisory fees. These were partly offset by lower trading revenues, banking revenues and insurance fees, the negative impact of foreign currency translation, and the prior year benefit of aligning the reporting period of Mexico with the Bank.

Provision for credit losses

Q2 2021 vs Q2 2020

The provision for credit losses was $496 million, compared to $1,846 million, a decrease of $1,350 million or 73%. The provision for credit losses ratio decreased 86 basis points to 33 basis points.

Provision on performing loans was a net reversal of $696 million, compared to $976 million, a decrease of $1,672 million. Of this decrease, $1,276 million is related to retail driven by the more favourable credit and macroeconomic outlook across the footprint and credit migration to impaired, mainly in International Banking. Commercial and corporate banking provisions decreased $396 million due primarily to this quarter’s partial reversal of Energy portfolio related provisions set up last year, as a result of improved market conditions and the more favourable macroeconomic outlook.

Provision on impaired loans was $1,192 million, compared to $870 million, an increase of $322 million or 37% due to elevated write-offs in the retail portfolio in International Banking driven by credit migration from expired payment deferrals, partially offset by lower commercial and corporate provisions. The provision for credit losses ratio on impaired loans increased 24 basis points to 80 basis points.

Q2 2021 vs Q1 2021

The provision for credit losses was $496 million, compared to $764 million, a decrease of $268 million. The provision for credit losses ratio decreased 16 basis points to 33 basis points.

Provision on performing loans was a net reversal of $696 million, compared to $2 million, a decrease of $698 million. Approximately $200 million of this decrease was due to release of allowances built in prior periods reflecting the more favourable credit quality and macroeconomic outlook. The remaining decrease was due to credit migration, the majority of which was to impaired loans in the retail portfolio, mainly in International Banking.

Provision on impaired loans was $1,192 million, an increase of $430 million or 56% due primarily to higher retail provisions in International Banking driven by credit migration of performing loans from expired payment deferrals. The provision for credit losses ratio on impaired loans was 80 basis points, an increase of 31 basis points.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

The provision for credit losses was $1,260 million, compared to $2,772 million, a decrease of $1,512 million. Adjusted provision for credit losses decreased $1,357 million or 52%. The provision for credit losses ratio decreased 49 basis point to 41 basis points and adjusted provision for credit losses ratio decreased by 44 basis points.

Provision on performing loans was a net reversal of $694 million, compared to $1,067 million, a decrease of $1,761 million. Adjusted provision for performing loans decreased $1,639 million of which $1,267 million related to retail driven by credit migration and the more favourable credit and macroeconomic outlook. Commercial and corporate banking provisions decreased $372 million driven by the favourable macroeconomic outlook, stable credit quality and reversals of Energy portfolio provisions due to improved market conditions.

The provision for credit losses on impaired loans was $1,954 million, an increase of $249 million. Adjusted provision for credit losses on impaired loans increased $282 million or 17% due to higher retail provisions in International Banking driven by credit migration from expired payment deferrals partially offset by lower provisions in Canadian retail, commercial and corporate portfolios. The provision for credit losses ratio on impaired loans increased nine basis points to 64 basis points and by 10 basis points on an adjusted basis.

Non-interest expenses

Q2 2021 vs Q2 2020

Non-interest expenses were $4,042 million, down $321 million or 7%. Adjusted non-interest expenses of $4,016 million also decreased 7%, of which 5% is related to prior year’s metals business charges. The remaining decrease was due to the impact of divested operations, foreign currency translation, lower personnel costs due partly to prior year COVID-19 related employee financial support and benefits, and lower advertising, business development and professional fees. Partly offsetting was higher performance-based compensation.

The productivity ratio was 52.2% compared to 54.8%. On an adjusted basis, the productivity ratio was 51.9% compared to 54.0%. Operating leverage was positive 4.6% on a reported basis and positive 3.8% on an adjusted basis.

Q2 2021 vs Q1 2021

Non-interest expenses were down $166 million or 4%. Adjusted non-interest expenses also decreased 4%. Decreases were due to seasonally higher share-based and performance-based compensation, including amounts related to the elevated wealth management performance fees, and the investment in the SCENE loyalty program, both in the prior quarter, as well as the positive impact of foreign currency translation and three fewer days in the quarter.

 

Scotiabank Second Quarter Report 2021    11

MANAGEMENT’S DISCUSSION & ANALYSIS

 

The productivity ratio was 52.2% compared to 52.1%. On an adjusted basis, the productivity ratio was 51.9% compared to 51.8%.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

Non-interest expenses were down $531 million or 6%. Adjusted non-interest expenses decreased 4%, of which 2% relates to prior year’s metals business charges. The remaining 2% decrease was due to lower personnel costs due partly to prior year COVID-19 related employee financial support and benefits, lower advertising, business development and professional fees expenses, the positive impact of foreign currency translation, and divestitures. Partly offsetting was the investment in the SCENE loyalty program this year, higher performance-based compensation, including amounts related to the elevated wealth management performance fees, and technology-related costs to support business growth.

The productivity ratio was 52.2% compared to 54.5%. On an adjusted basis, the productivity ratio was 51.8% compared to 53.7%. Operating leverage was positive 4.3% on a reported basis and positive 3.4% on an adjusted basis.

Taxes

Q2 2021 vs Q2 2020

The effective tax rate was 23.2% compared to 24.2% in the same quarter last year. On an adjusted basis, the effective tax rate was 23.2% compared to 24.4% due primarily to higher non-deductible expenses in the prior year and changes in business and earnings mix.

Q2 2021 vs Q1 2021

The effective tax rate was 23.2% compared to 22.7% in the previous quarter. On an adjusted basis, the effective tax rate was 23.2% compared to 22.7% due primarily to higher income in higher tax rate jurisdictions.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

The effective tax rate was 22.9% compared to 19.7% in the prior year. On an adjusted basis, the effective tax rate was 23.0% compared to 22.1% due primarily to higher income in higher tax rate jurisdictions, partially offset by lower non-deductible expenses in the current year.

Economic Outlook

The global economy remains on track to recover very strongly from the pandemic. Indicators of economic activity in most countries continue to generally surprise on the upside, though lockdown measures put in place to control the spread of the virus in recent weeks will temporarily soften readings for key data. With vaccination rates rising across our footprint, it seems clear that we are slowly gaining control over the pandemic and this suggests a prompt acceleration of economic activity once the current wave passes. The strength observed so far, along with expectations of even stronger growth post-pandemic, has fuelled a very significant increase in commodity prices, which provide a robust economic backdrop for the principal countries in which we operate.

In Canada, we expect growth over the next two years to be the strongest observed since 1985/86. This growth reflects in part a rebound from the impacts of the pandemic last year, but it is also being fuelled by high commodity prices, strong wealth effects from equities and the housing market, record levels of personal and corporate deposits, a continuation of the low interest rate policy by the Bank of Canada, and very robust growth in Canada’s principal trading partner, the United States. Risks appear generally tilted to the upside owing largely to the likelihood of additional fiscal support in the United States. Supply chain delays and rising input prices are an increasing challenge for some firms, and this is likely to lead to a temporary rise in inflation. We expect the Bank of Canada will look through this and only raise its policy rate in the second half of next year. The risk, however, is that rates rise sooner than that, particularly if upside risks to the economic outlook materialize.

The recovery is also underway elsewhere in the world. The United States is forecast to grow more rapidly than Canada given the deployment of large amounts of fiscal spending this year and beyond. With employment growth lagging that in Canada, the Federal Reserve is likely to raise interest rates only in 2023.

The global backdrop is very favourable for the Pacific Alliance countries. Strong growth in China and the US, in addition to the associated jump in commodity prices, and copper prices in particular, is providing a powerful economic impetus for the Pacific Alliance countries. Growth in the region is expected to average 6.5% in 2021, ranging from 4.9% in Mexico to close to 9% in Peru. Political developments are a headwind, with the election in Peru of particular importance. In Chile, the constitutional reform process is underway. Mexico holds mid-term elections in June.

 

12    Scotiabank Second 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		For the three months ended												For the six months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Reported Results
Net interest income		$	1,934			$	1,984			$	1,951			$	3,918			$	3,954
Non-interest income(1)			690				664				575				1,354				1,279
Total revenue			2,624				2,648				2,526				5,272				5,233
Provision for credit losses			145				215				670				360				991
Non-interest expenses			1,229				1,204				1,220				2,433				2,453
Income tax expense			323				318				159				641				460
Net income		$	927			$	911			$	477			$	1,838			$	1,329
Net income attributable to non-controlling interest in subsidiaries		$	–			$	–			$	–			$	–			$	–
Net income attributable to equity holders of the Bank		$	927			$	911			$	477			$	1,838			$	1,329
Other financial data and measures
Return on equity(2)			23.5	%			21.9	%			11.4	%			22.7	%			16.0	%
Net interest margin(2)(3)			2.26	%			2.26	%			2.33	%			2.26	%			2.35	%
Provision for credit losses – performing (Stage 1 and 2)		$	(97	)		$	1			$	357			$	(96	)		$	416
Provision for credit losses – impaired (Stage 3)		$	242			$	214			$	313			$	456			$	575
Provision for credit losses as a percentage of average net loans and acceptances (annualized)			0.16	%			0.23	%			0.77	%			0.20	%			0.57	%
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)			0.27	%			0.23	%			0.36	%			0.25	%			0.33	%
Net write-offs as a percentage of average net loans and acceptances (annualized)			0.24	%			0.22	%			0.31	%			0.23	%			0.30	%
Average assets ($ billions)		$	372			$	368			$	359			$	370			$	357
Average liabilities ($ billions)		$	311			$	306			$	265			$	308			$	264

(1)	Includes income (on a taxable equivalent basis) from investments in associated corporations for the three months ended April 30, 2021 – $26 (January 31, 2021 – $20; April 30, 2020 – $12) and for the six months ended April 30, 2021 – $46 (April 30, 2020 – $32).

(2)	Refer to Non-GAAP Measures on page 5.

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

 

		For the three months ended												For the six months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Adjusted Results(1)
Net interest income		$	1,934			$	1,984			$	1,951			$	3,918			$	3,954
Non-interest income			690				664				575				1,354				1,279
Total revenue			2,624				2,648				2,526				5,272				5,233
Provision for credit losses(2)			145				215				670				360				920
Non-interest expenses(3)			1,224				1,198				1,214				2,422				2,442
Income tax expense			324				320				161				644				482
Net income		$	931			$	915			$	481			$	1,846			$	1,389
Net income attributable to non-controlling interest in subsidiaries		$	–			$	–			$	–			$	–			$	–
Net income attributable to equity holders of the Bank		$	931			$	915			$	481			$	1,846			$	1,389

(1)	Refer to Non-GAAP Measures on page 5 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 for the three months ended April 30, 2021 – $5 (January 31, 2021 – $6; April 30, 2020 – $6) and for the six months ended April 30, 2021 – $11 (April 30, 2020 – $11).

Net income

Q2 2021 vs Q2 2020

Net income attributable to equity holders was $927 million, compared to $477 million. Adjusted net income was $931 million, an increase of $450 million or 94%. The increase was due primarily to lower provision for credit losses and higher non-interest income, partly offset by lower net interest income and higher non-interest expenses.

 

Scotiabank Second Quarter Report 2021    13

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Q2 2021 vs Q1 2021

Net income attributable to equity holders increased $16 million or 2%. The increase was due primarily to lower provision for credit losses and higher non-interest income, partly offset by lower net interest income and higher non-interest expenses.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

Net income attributable to equity holders was $1,838 million, an increase of $509 million or 38%. Adjusted net income was $1,846 million, an increase of $457 million or 33%. The increase was due primarily to lower provision for credit losses, higher non-interest income and lower non-interest expenses, partly offset by lower net interest income.

Average assets

Q2 2021 vs Q2 2020

Average assets increased $14 billion or 4% to $372 billion. The growth included $17 billion or 8% in residential mortgages and $2 billion or 4% in business loans and acceptances, partially offset by declines of $3 billion or 4% in personal loans and $1 billion or 20% in credit card receivables.

Q2 2021 vs Q1 2021

Average assets increased $4 billion or 1%. The growth included $4 billion or 2% in residential mortgages and $2 billion or 4% in business loans and acceptances, partially offset by a decline of $1 billion or 2% in personal loans.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

Average assets increased $14 billion or 4% to $370 billion. The growth included $16 billion or 8% in residential mortgages and $2 billion or 4% in business loans and acceptances, partially offset by declines of $3 billion or 4% in personal loans and $1 billion or 20% in credit card receivables.

Average liabilities

Q2 2021 vs Q2 2020

Average liabilities increased $46 billion or 17% to $311 billion. The growth included $24 billion or 31% in non-personal deposits and $18 billion or 11% in personal deposits.

Q2 2021 vs Q1 2021

Average liabilities increased $4 billion or 1% largely due to non-personal deposits.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

Average liabilities increased $44 billion or 17% to $308 billion. The growth included $23 billion or 29% in non-personal deposits and $19 billion or 11% in personal deposits.

Total revenue

Q2 2021 vs Q2 2020

Revenues were $2,624 million, up $98 million or 4%, due primarily to higher non-interest income.

Q2 2021 vs Q1 2021

Revenues declined $24 million or 1%, due primarily to lower net interest income driven by fewer days in the quarter. This was partially offset by higher non-interest income.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

Revenues of $5,272 million were up $39 million or 1%. The increase was due primarily to higher non-interest income partially offset by lower net interest income.

Net interest income

Q2 2021 vs Q2 2020

Net interest income of $1,934 million decreased $17 million or 1%, due primarily to margin compression, partially offset by solid volume growth. The net interest margin declined seven basis points to 2.26%, primarily driven by changes in business mix and Bank of Canada interest rate cuts.

Q2 2021 vs Q1 2021

Net interest income decreased $50 million or 2%, driven by three fewer days in the quarter. The margin of 2.26% was in line with the prior quarter.

 

14    Scotiabank Second Quarter Report 2021

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Year-to-date Q2 2021 vs Year-to-date Q2 2020

Net interest income of $3,918 million decreased $36 million or 1%, due primarily to margin compression partly offset by solid volume growth. The net interest margin declined nine basis points to 2.26%, primarily driven by changes in business mix and Bank of Canada interest rate cuts.

Non-interest income

Q2 2021 vs Q2 2020

Non-interest income of $690 million increased $115 million or 20%. The increase was due primarily to higher banking fees, mutual fund distribution fees and income from associated corporations.

Q2 2021 vs Q1 2021

Non-interest income increased $26 million or 4% due primarily to higher banking fees, income from associated corporations, and mutual fund distribution fees.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

Non-interest income of $1,354 million increased $75 million or 6%. The increase was due primarily to higher banking fees, mutual fund distribution fees, and income from associated corporations, partially offset by lower foreign exchange revenues.

Provision for credit losses

Q2 2021 vs Q2 2020

The provision for credit losses was $145 million, compared to $670 million, down $525 million or 78%. The provision for credit losses ratio decreased 61 basis points to 16 basis points.

Provision on performing loans was a net reversal of $97 million compared to $357 million, a decrease of $454 million of which $318 million was related to retail, driven by the more favourable macroeconomic outlook. Commercial provisions decreased $136 million due primarily to the more favourable credit and macroeconomic outlook.

Provision on impaired loans decreased $71 million to $242 million, down 23% due to lower retail and commercial provisions. The provision for credit losses ratio on impaired loans was 27 basis points, a decrease of nine basis points.

Q2 2021 vs Q1 2021

The provision for credit losses was $145 million compared to $215 million, down $70 million or 32%. The provision for credit losses ratio decreased seven basis points to 16 basis points.

Provision on performing loans was a net reversal of $97 million compared to $1 million, a decrease of $98 million, $54 million in commercial and $44 million in retail provisions. These were driven by improving credit quality and releases for the more favourable credit and macroeconomic outlook.

Provision on impaired loans increased $28 million to $242 million due primarily to higher retail and commercial banking provisions. The provision for credit losses ratio on impaired loans was 27 basis points, an increase of four basis points.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

The provision for credit losses was $360 million compared to $991 million, a decrease of $631 million. Adjusted provision for credit losses decreased $560 million or 61%. The provision for credit losses ratio was 20 basis points, a decrease of 37 basis points and adjusted provision for credit losses ratio decreased by 33 basis points.

Provision on performing loans was a net reversal of $96 million, a decrease of $512 million. Adjusted provision on performing loans was down $445 million, mostly in retail, due primarily to the more favourable credit and macroeconomic outlook. Adjusted commercial provisions decreased $132 million due primarily to stable credit quality and more favourable macroeconomic outlook.

Provision on impaired loans was $456 million, down $119 million. Adjusted provision on impaired loans was down $115 million due to lower retail provisions. The provision for credit losses ratio on impaired loans was 25 basis points, a decrease of eight basis points and adjusted provision for credit losses ratio also decreased by eight basis points.

Non-interest expenses

Q2 2021 vs Q2 2020

Non-interest expenses were $1,229 million, up $9 million or 1%, due largely to higher technology costs to support business development, partially offset by lower personnel, communications and travel expenses.

Q2 2021 vs Q1 2021

Non-interest expenses were up $25 million or 2%, driven mainly by higher personnel costs to support business development and advertising.

Year-to-date Q2 2021 vs Year-to-date Q2 2020

Non-interest expenses were $2,433 million, down $20 million or 1%, driven mainly by lower personnel, advertising and business travel costs, partially offset by higher technology costs to support business development.

 

Scotiabank Second Quarter Report 2021    15

MANAGEMENT’S DISCUSSION & ANALYSIS

 

Taxes

The effective tax rate was 25.8% compared to 25.0% in the prior year and 25.9% in the prior quarter

Year-to-date Q2 2021 vs Year-to-date Q2 2020

The effective tax rate of 25.9% increased from 25.7% in the prior year.

 

International Banking		For the three months ended												For the six months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Reported Results
Net interest income		$	1,662			$	1,788			$	1,907			$	3,450			$	3,912
Non-interest income(1)(2)			716				773				800				1,489				1,780
Total revenue			2,378				2,561				2,707				4,939				5,692
Provision for credit losses			396				525				1,019				921				1,599
Non-interest expenses			1,294				1,402				1,465				2,696				3,129
Income tax expense/(benefit)			181				157				38				338				197
Net income (loss)		$	507			$	477			$	185			$	984			$	767
Net income (loss) attributable to non-controlling interest in subsidiaries		$	87			$	88			$	12			$	175			$	76
Net income attributable to equity holders of the Bank		$	420			$	389			$	173			$	809			$	691
Other financial data and measures
Return on equity(3)			9.9	%			8.5	%			3.5	%			9.2	%			7.0	%
Net interest margin(3)(4)			3.95	%			4.03	%			4.28	%			4.00	%			4.40	%
Provision for credit losses – performing (Stage 1 and 2)		$	(545	)		$	(3	)		$	488			$	(548	)		$	532
Provision for credit losses – impaired (Stage 3)		$	941			$	528			$	531			$	1,469			$	1,067
Provision for credit losses as a percentage of average net loans and acceptances (annualized)			1.18	%			1.49	%			2.78	%			1.34	%			2.17	%
Provision for credit losses on impaired loans as a percentage of average net loans and acceptances (annualized)			2.81	%			1.50	%			1.45	%			2.14	%			1.45	%
Net write-offs as a percentage of average net loans and acceptances (annualized)			2.72	%			1.27	%			1.24	%			1.98	%			1.35	%
Average assets ($ billions)		$	194			$	199			$	205			$	197			$	204
Average liabilities ($ billions)		$	149			$	153			$	154			$	151			$	152

(1)	Includes income (on a taxable equivalent basis) from investments in associated corporations for the three months ended April 30, 2021 – $53 (January 31, 2021 – $49; April 30, 2020 – $65) and for the six months ended April 30, 2021 – $102 (April 30, 2020 – $158).

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

(3)	Refer to Non-GAAP Measures on page 5.

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

 

		For the three months ended												For the six months ended
(Unaudited) ($ millions) (Taxable equivalent basis)		April 30 2021				January 31 2021				April 30 2020				April 30 2021				April 30 2020
Adjusted Results(1)
Net interest income		$	1,662			$	1,788			$	1,907			$	3,450			$	3,912
Non-interest income			716				773				800				1,489				1,780
Total revenue			2,378				2,561				2,707				4,939				5,692
Provision for credit losses(2)			396				525				1,019				921				1,522
Non-interest expenses(3)(4)			1,283				1,389				1,420				2,672				3,001
Income tax expense/(benefit)			183				161				52				344				254
Net income		$	516			$	486			$	216			$	1,002			$	915
Net income (loss) attributable to non-controlling interest in subsidiaries		$	87			$	88			$	19			$	175			$	103
Net income attributable to equity holders of the Bank		$	429			$	398			$	197			$	827			$	812

(1)	Refer to Non-GAAP Measures on page 5 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 for the three months ended April 30, 2020 – $33 and for the six months ended April 30, 2020 – $104.

(4)	Includes adjustment for Amortization of acquisition-related intangible assets, excluding software for the three months ended April 30, 2021 – $11 (January 31, 2021 – $13; April 30, 2020 – $12) and for the six months ended April 30, 2021 – $24 (April 30, 2020 – $24).

 

16    Scotiabank Second Quarter Report 2021