BNS 6-K, filed Feb 23, 2021, 0001193125-21-051501

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 6-K

Report ofForeign Private Issuer

Pursuant to Rule 13a-16 or15d-16 of

the Securities Exchange Act of 1934

For the month of: February, 2021

Commission File Number: 002-09048

THE BANK OF NOVA SCOTIA

(Name of registrant)

44King Street West, Scotia Plaza, Toronto, Ontario, M5H 1H1

(416) 933-4103

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☐ Form 40-F ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

This report on Form 6-K shall be deemed to be incorporated by reference in The Bank of Nova Scotia’s registration statements on Form S-8 (File No. 333-199099) and Form F-3 (File No. 333-228614) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	THE BANK OF NOVA SCOTIA
Date: February 23, 2021	By:	/s/ Roula Kataras
		Name: Roula Kataras
		Title: Senior Vice-President and Chief Accountant

EXHIBIT INDEX

Exhibit		Description of Exhibit
99.1		2021 First Quarter Report to Shareholders

EX-99.1

Exhibit 99.1

LOGO

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 312021			October 31<br>2020		January 31<br>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 (<br>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<br>acceptances (annualized)(3)	****	0.49	****		0.54		0.55
Net write-offs as a % of average net loans and acceptances<br>(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<br>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<br>equivalent)(5)	****	89,808	****		91,447		99,277
Branches and offices	****	2,597	****		2,618		3,048

All values are in US Dollars.

(1)	Refer to page 4 for a discussion of Non-GAAP measures.<br>
(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.
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2Scotiabank First Quarter Report 2021 ****

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
	Management’s Discussion andAnalysis
---	---
4	Non-GAAP Measures
7	Group Financial Performance
10	Economic Outlook
11	Business Segment Review
21	Geographic Highlights
---	---
22	Quarterly Financial Highlights
23	Financial Position
23	Risk Management
38	Capital Management
39	Financial Instruments
40	Off-Balance Sheet Arrangements
---	---
40	Regulatory Developments
42	Accounting Policies and Controls
43	Share Data

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 20213

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<br>net (gain)/loss on divestitures.
•	Valuation-related adjustments, recorded in Q1 2020 – Relate to the inclusion of an additional scenario in the<br>measurement of allowance for credit losses, fair value methodology change relating to uncollateralized OTC derivatives, and a software-related impairment loss.
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4Scotiabank First Quarter Report 2021 ****

MANAGEMENT’S DISCUSSION & ANALYSIS

		For the three months ended
( millions)	January 312021				October 31<br>2020			January 31<br>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<br>(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<br>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<br>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<br>dollars)	$	1.88	****		$	1.45		$	1.83

All values are in US Dollars.

(1)	Recorded in non-interest expenses.
(2)	Recorded in provision for credit losses.
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(3)	Recorded in non-interest income.
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(4)	Recorded in non-interest income; costs related to divestitures are<br>recorded in non-interest expenses.
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Scotiabank First Quarter Report 20215

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<br>exchange			Constant<br>dollar		Reported		Foreign<br>exchange		Constant<br>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<br>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.

6Scotiabank 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 20217

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<br>vs. October 31, 2020			January 31, 2021<br>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<br>vs. October 31, 2020				January 31, 2021<br>vs. January 31, 2020
---	---	---	---	---	---	---	---
Net interest income	$	3			$	(110	)
Non-interest<br>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	)

All values are in US Dollars.

(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<br>subsidiaries	$	–
Net income attributable to equity holders of the Bank –<br>relating to divested operations	$	59

All values are in US Dollars.

(1)	The impact of divested operations is nil for the three months ended January 31, 2021 and October 31, 2020.<br>
Impact on net income (millions except EPS)	January 31, 2021<br>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	)

All values are in US Dollars.

8Scotiabank 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 20219

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.

10Scotiabank 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<br>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<br>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<br>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.<br>
•	For business line performance assessment and reporting, net income from associated corporations, which is an after tax<br>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<br>the associated corporations to the business line results.
---	---
Canadian Banking(1)	For the three months ended
---	---	---	---	---	---	---	---	---	---	---	---
(Unaudited) ( millions)(Taxable equivalent basis)	January 312021				October 31<br>2020				January 31<br>2020
Reported Results
Net interest income	$	1,984	****		$	1,954			$	2,003
Non-interest<br>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<br>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<br>(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

All values are in US Dollars.

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.<br>
(2)	Includes income (on a taxable equivalent basis) from investments in associated corporations of $20 (October 31,<br>2020 – $15; January 31, 2020 – $20).
---	---
(3)	Net interest income (TEB) as percentage of average earning assets excluding bankers’ acceptances.<br>
---	---
		For the three months ended
---	---	---	---	---	---	---	---	---	---	---
(Unaudited) ( millions)(Taxable equivalent basis)	January 312021				October 31<br>2020			January 31<br>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<br>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<br>subsidiaries	$	–	****		$	–		$	–
Net income attributable to equity holders of the Bank	$	915	****		$	782		$	908

All values are in US Dollars.

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.<br>
(2)	Includes adjustment for Allowance for credit losses – Additional scenario of $71 in the first quarter of<br>2020.
---	---
(3)	Includes adjustment for Amortization of acquisition-related intangible assets, excluding software of $6 (October<br>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 202111

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 Q12020

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.

12Scotiabank 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

Q12021 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 312021			October 31<br>2020			January 31<br>2020
Reported Results
Net interest income	$	1,788	****	$	1,785		$	2,005
Non-interest<br>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<br>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<br>(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

All values are in US Dollars.

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.<br>
(2)	Includes income (on a taxable equivalent basis) from investments in associated corporations for the three months<br>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.<br>
---	---
		For the three months ended
---	---	---	---	---	---	---	---	---	---	---
(Unaudited) ( millions)(Taxable equivalent basis)	January 312021				October 31<br>2020			January 31<br>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<br>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<br>subsidiaries	$	88	****		$	70		$	84
Net income attributable to equity holders of the Bank	$	398	****		$	283		$	615

All values are in US Dollars.

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.<br>
(2)	Includes adjustment for Allowance for credit losses – Additional scenario of $77 in the first quarter of<br>2020.
---	---
(3)	Includes adjustment for Integration costs of $16 in the fourth quarter of 2020 and $71 in the first quarter of<br>2020.
---	---
(4)	Includes adjustment for Amortization of acquisition-related intangible assets, excluding software of $13 (October<br>31, 2020 – $11; January 31, 2020 – $12).
---	---

Scotiabank First Quarter Report 202113

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<br>subsidiaries	$	–
Net income attributable to equity holders of the<br>Bank – relating to divested operations	$	59

All values are in US Dollars.

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

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

Thediscussion 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 312021			October 31<br>2020		January 31<br>2020
Constant dollars - Adjusted
Net interest income(2)	$	1,788	****	$	1,790	$	1,893
Non-interest<br>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<br>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

All values are in US Dollars.

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.<br>
(2)	Includes one additional month of earnings relating to Mexico of $50 (after tax and NCI $40) in the first quarter<br>of 2020.
---	---
(3)	Includes income (on a taxable equivalent basis) from investments in associated corporations for the three months<br>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.

14Scotiabank 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.

Q12021 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.

Q12021 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 202115

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 Q12020

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 312021			October 31<br>2020			January 31<br>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<br>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

All values are in US Dollars.

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

16Scotiabank First Quarter Report 2021 ****

MANAGEMENT’S DISCUSSION & ANALYSIS

		For the three months ended
(Unaudited) ( millions)(Taxable equivalent basis)	January 312021			October 31<br>2020		January 31<br>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<br>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<br>subsidiaries	$	3	****	$	2	$	3
Net income attributable to equity holders of the Bank	$	425	****	$	333	$	318

All values are in US Dollars.

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.<br>
(2)	Includes adjustment for Allowance for credit losses—Additional scenario of $1 in the first quarter of 2020.<br>
---	---
(3)	Includes adjustment for Integration costs of $4 in the fourth quarter of 2020 and $5 in the first quarter of<br>2020.
---	---
(4)	Includes adjustment for Amortization of acquisition-related intangible assets, excluding software of $9 (October<br>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 Q12020

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 202117

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 312021			October 31<br>2020			January 31<br>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<br>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<br>(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

All values are in US Dollars.

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.<br>
		For the three months ended
---	---	---	---	---	---	---	---	---	---	---
(Unaudited) ( millions)(Taxable equivalent basis)	January 312021				October 31<br>2020			January 31<br>2020
Adjusted Results(1)
Net interest income	$	358	****		$	350		$	325
Non-interest<br>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<br>subsidiaries	$	–	****		$	–		$	–
Net income attributable to equity holders of the Bank	$	543	****		$	460		$	451

All values are in US Dollars.

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

18Scotiabank 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

Q12021 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 202119

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 312021			October 31<br>2020			January 31<br>2020
Reported Results
Net interest income(3)	$	66	****	$	25		$	(82	)
Non-interest<br>income(3)(4)	****	71	****		(9	)		207
Total revenue	****	137	****		16			125
Provision for credit losses	****	–	****		–			–
Non-interest expenses	****	171	****		138			130
Income tax<br>expense(3)	****	(80	)		(125	)		(216	)
Net income	$	46	****	$	3		$	211
Net income attributable to non-controlling interest in<br>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

All values are in US Dollars.

(1)	Refer to Non-GAAP Measures on page 4 for adjusted results.<br>
(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<br>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)<br>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<br>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 312021				October 31<br>2020				January 31<br>2020
Adjusted Results(1)
Net interest income	$	66	****		$	25			$	(82	)
Non-interest<br>income(2)(3)	****	71	****			(9	)			(47	)
Total revenue	****	137	****			16				(129	)
Provision for credit losses	****	–	****			–				–
Non-interest<br>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<br>subsidiaries	$	(1	)		$	–			$	–
Net income attributable to equity holders	$	47	****		$	8			$	(35	)

All values are in US Dollars.

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

20Scotiabank 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			CaribbeanandCentralAmerica			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<br>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<br>and<br>Central<br>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<br>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

All values are in US Dollars.

Scotiabank First Quarter Report 202121

MANAGEMENT’S DISCUSSION & ANALYSIS

		For the three months ended January 31, 2020
(Unaudited) ( millions)	Canada			U.S.		Mexico		Peru		Chile		Colombia			Caribbean<br>and<br><br><br>Central<br>America		Other		Total
Reported results
Net interest income	$	2,097		$	159	$	433	$	435	$	353	$	223		$	495	$	197	$	4,392
Non-interest income		2,048			345		239		181		204		123			229		380		3,749
Total revenue		4,145			504		672		616		557		346			724		577		8,141
Provision for credit losses		342			3		106		114		128		88			119		26		926
Non-interest expenses		2,267			249		334		228		281		248			450		361		4,418
Income tax expense		188			58		58		70		30		(5	)		32		40		471
Net income		1,348			194		174		204		118		15			123		150		2,326
Net income attributable to non-controlling interests in subsidiaries		(29	)		–		4		10		31		4			19		–		39
Net income attributable to equity holders of the Bank	$	1,377		$	194	$	170	$	194	$	87	$	11		$	104	$	150	$	2,287
Adjusted results
Adjustments		(128	)		–		7		3		30		10			42		6		(30	)
Adjusted net income (loss) attributable to equity holders of the<br>Bank	$	1,249		$	194	$	177	$	197	$	117	$	21		$	146	$	156	$	2,257
Average Assets ( billions)	$	650		$	164	$	40	$	29	$	49	$	13		$	39	$	134	$	1,118

All values are in US Dollars.

Quarterly Financial Highlights

	For the three months ended
(Unaudited) ($ millions)	January 312021^(1)^			October 31<br>2020^(1)^		July 31<br>2020^(1)^		April 30<br>2020^(1)^		January 31<br>2020^(1)^		October 31<br>2019		July 31<br>2019		April 30<br>2019
Reported results
Net interest income	$	4,351	****	$	4,258	$	4,253	$	4,417	$	4,392	$	4,336	$	4,374	$	4,193
Non-interest income	3,721	****		3,247		3,481		3,539		3,749		3,632		3,285		3,610
Total revenue	$	8,072	****	$	7,505	$	7,734	$	7,956	$	8,141	$	7,968	$	7,659	$	7,803
Provision for credit losses	764	****		1,131		2,181		1,846		926		753		713		873
Non-interest expenses	4,208	****		4,057		4,018		4,363		4,418		4,311		4,209		4,046
Income tax expense	702	****		418		231		423		471		596		753		625
Net income	$	2,398	****	$	1,899	$	1,304	$	1,324	$	2,326	$	2,308	$	1,984	$	2,259
Basic earnings per share ()	1.87	****		1.44		1.10		1.03		1.86		1.76		1.51		1.74
Diluted earnings per share ()	1.86	****		1.42		1.04		1.00		1.84		1.73		1.50		1.73
Core banking margin (%)(2)	2.27	****		2.22		2.10		2.35		2.45		2.40		2.45		2.45
Effective tax rate (%)	22.7	****		18.0		15.1		24.2		16.8		20.5		27.5		21.7
Adjusted results(2):
Adjusted net income	$	2,418	****	$	1,938	$	1,308	$	1,371	$	2,344	$	2,400	$	2,455	$	2,263
Adjusted diluted earnings per share	$	1.88	****	$	1.45	$	1.04	$	1.04	$	1.83	$	1.82	$	1.88	$	1.70

All values are in US Dollars.

(1)	The amounts for 2021 and 2020 have been prepared in accordance with IFRS 16; prior period amounts have not been<br>restated.
(2)	Refer to page 4 for a discussion of Non-GAAP Measures.<br>
---	---

Trending analysis

After initial reductions in net income, due to the impact of the COVID-19 pandemic, earnings have been trending upwards. Results this quarter increased both quarter over quarter and year over year. The results in 2020 were negatively impacted by the COVID-19 pandemic which resulted in significantly higher provision for credit losses and lower personal and commercial revenue, partly offset by strong capital markets results. The Bank reported strong net income in the prior periods, with solid growth in revenue, prudent expense management, and stable loan loss provisions, partly offset by the impact of divestitures.

Canadian Banking income has generally increased over the period, driven by steady growth in retail and commercial loans. Results in 2020 reflected the impact of the COVID-19 pandemic, with higher loan loss provisions, lower fee revenue and lower net interest margins due to the spread compression in a lower interest rate environment.

International Banking results in the recent quarters were negatively impacted by the COVID-19 pandemic, reflecting significantly higher loan loss provisions, margin contraction and lower non-interest income, and the impact from divestitures. These were partially offset by lower expenses driven by effective cost management initiatives. The continuing pandemic has caused ongoing pressure on International results, although there has been improvement in recent quarters.

Global Banking & Markets results are mainly driven by market conditions that impact client activity in the corporate and investment banking and capital markets businesses. The strong revenue in the most recent quarters was largely driven by higher trading revenue. Capital markets businesses, especially fixed income trading, benefited from the market opportunities created by the COVID-19 pandemic. This was partly offset by higher provision for credit losses, but this has mitigated in recent quarters.

22Scotiabank First Quarter Report 2021 ****

MANAGEMENT’S DISCUSSION & ANALYSIS

Wealth Management has delivered steady earnings growth over the past eight quarters. Revenue increase was driven by strong market activity in the Canadian asset management and wealth advisory businesses. Expenses were down in the prior year, resulting from a strong focus on expense management.

Provision for credit losses

The provision for credit losses increased significantly in 2020 due largely to the COVID-19 impact on the macro-economic outlook, and its estimated future impact on credit migration. This was due primarily to higher provisions on performing loans in the International Banking and Canadian Banking retail portfolios. This trend has been improving in the last two quarters.

Non-interest expenses

Non-interest expenses steadily declined in the second half of the previous year reflecting solid expense control during the COVID-19 pandemic. In the prior periods, non-interest expenses generally trended upwards mostly from the ongoing impact of acquisitions, to support business growth, and the Bank’s investments in technology, regulatory and strategic initiatives.

Income taxes

The effective tax rate was 22.7% this quarter and averaged 20.8% over the period, with a range of 15.1% to 27.5%. Effective tax rates were impacted by divestitures, varying levels of provision for credit losses and net income earned in foreign jurisdictions, as well as the variability of tax-exempt dividend income.

Financial Position

The Bank’s total assets as at January 31, 2021 were $1,164 billion, up $28 billion or 2% from October 31, 2020. This increase was primarily in cash and deposits with financial institutions and trading securities, partially offset by decreases in investment securities. Cash and deposits with financial institutions increased $13 billion due primarily to higher balances on deposit with central banks. Trading securities increased $25 billion due primarily to higher client demand. Investment securities decreased $12 billion from October 31, 2020 due primarily to lower holdings of Canadian federal, provincial and U.S. government debt in the liquidity portfolio. As at January 31, 2021, the net unrealized gain on debt securities measured at fair value through other comprehensive income was $381 million, after the impact of qualifying hedges. Loan balances were $604 billion, consistent with October 31, 2020. Residential mortgages increased $6 billion primarily in Canada. This was substantially offset by lower personal loans and credit cards of $3 billion from decreased customer activity and the foreign currency translation impact on business and government loans.

Total liabilities were $1,093 billion as at January 31, 2021, up $27 billion or 3% from October 31, 2020. This increase was primarily in deposits and obligations related to securities sold short. Total deposits increased $18 billion. Personal deposits grew by $3 billion due primarily to growth in Canada. Business and government deposits grew by $12 billion due mainly to corporate clients maintaining higher liquidity and to support funding requirements. Deposits from financial institutions increased $3 billion due mainly to higher demand. Obligations related to securities sold short increased by $8 billion due mainly to higher trading and client activity.

Total shareholders’ equity increased $634 million from October 31, 2020. The increase was driven by current year earnings of $2,398 million and the revaluation of the Bank’s employee benefit plans of $470 million. This was partially offset by dividends paid of $1,134 million and a decrease of $1,026 million in the cumulative foreign currency translation amount.

Risk Management

The Bank’s risk management policies and practices have not substantially changed from those outlined in the Bank’s 2020 Annual Report. For a complete discussion of the risk management policies and practices and additional information on risk factors, refer to the “Risk Management” section in the 2020 Annual Report.

Significant developments that took place during this quarter are as follows:

Credit risk

Allowance for credit losses

IFRS 9 Financial Instruments, requires the consideration of past events, current conditions and reasonable and supportable forward-looking information over the life of the exposure to measure expected credit losses. Furthermore, to assess significant increases in credit risk, IFRS 9 requires that entities assess changes in the risk of a default occurring over the expected life of a financial instrument when determining staging.

The Bank’s models are calibrated to consider past performance and macroeconomic forward-looking variables as inputs as further described below. Expert credit judgement may be made in circumstances where, in the Bank’s view, the inputs, assumptions, and/or modelling techniques do not capture all relevant risk factors. Expert credit judgement was applied to consider the exceptional circumstances of COVID-19, including consideration of the significant government assistance programs, both domestically and internationally, in the assessment of underlying credit deterioration and migration of balances to progressive stages. Consistent with requirements of IFRS 9, the Bank considered both quantitative and qualitative information in the assessment of a significant increase in risk.

The Bank has generated a forward-looking base case scenario and three alternate forward-looking scenarios (one optimistic and two pessimistic scenarios) as key inputs into the expected credit loss provisioning models. In these scenarios the Bank considered economic recovery time periods ranging from more immediate (V shape), mid-term (W shape) to longer-term (L shape) periods. The pessimistic scenario featuring a W-shaped recovery includes a renewed virus-related lockdown with a resulting economic contraction in early 2021 and growth rebounding in mid-year. The more severe pessimistic front loaded scenario, with an L-shaped recovery, also features a contraction in early 2021 with a subdued rebound delayed to 2022.

While the base case scenario expects the overall economy to trace a V-shaped recovery, growth and employment in individual industries are expected to show considerable heterogeneity. Some industries either have already fully recovered or are expected to fully recover over the course of the next few quarters. In contrast, the activity in other industries is expected to remain below the pre-pandemic levels for some time. This industry-level pattern of activity is referred to as a K-shaped recovery, and while not explicitly simulated in the base case scenario, it is incorporated through the consideration of significant increase in risk through expert credit judgement.

Scotiabank First Quarter Report 202123

MANAGEMENT’S DISCUSSION & ANALYSIS

The table below shows a comparison of projections for the next 12 months, as at January 31, 2021, and October 31, 2020, of select macroeconomic variables that impact the expected credit loss calculations (see page 55 for all key variables):

	Base Case Scenario				Alternative Scenario -<br>Optimistic				Alternative Scenario -<br>Pessimistic				Alternative Scenario -<br>Pessimistic Front Loaded
Next 12 months	As at<br><br><br>January 31<br> <br>2021		As at<br><br><br>October 31<br> <br>2020		As at<br><br><br>January 31<br> <br>2021		As at<br><br><br>October 31<br> <br>2020		As at<br><br><br>January 31<br> <br>2021		As at<br><br><br>October 31<br> <br>2020		As at<br><br><br>January 31<br> <br>2021		As at<br><br><br>October 31<br> <br>2020
Canada
Real GDP growth, y/y % change	4.6	****	3.1	****	6.5	****	4.7	****	-0.6	****	-2.0	****	-6.8	****	-10.8
Unemployment rate, average %	7.9	****	7.3	****	7.4	****	6.7	****	10.1	****	9.9	****	13.0	****	14.1
US
Real GDP growth, y/y % change	4.3	****	2.5	****	5.7	****	3.6	****	0.9	****	-0.5	****	-2.9	****	-7.4
Unemployment rate, average %	6.2	****	6.3	****	5.8	****	6.1	****	7.4	****	8.1	****	8.7	****	10.5
Global
WTI oil price, average /bbl	48	****	48	****	54	****	52	****	41	****	42	****	38	****	37

All values are in US Dollars.

The table below shows a quarterly breakdown of the projections for the above macroeconomic variables, as at January 31, 2021 and October 31, 2020, under the base case scenario:

		Base Case Scenario
		Calendar Quarters												Average			Calendar Quarters								Average
Next 12 months	Q1<br><br><br>2021			Q22021			Q3<br><br><br>2021			Q4<br><br><br>2021			January 31<br><br><br>2021			Q4<br><br><br>2020		Q1<br><br><br>2021		Q2<br><br><br>2021		Q3<br><br><br>2021		October 31<br><br><br>2020
Canada
Real GDP growth, y/y % change	****	-2.2	****	****	11.8	****	****	4.2	****	****	4.6	****	****	4.6	****		-3.9		-0.4		12.9		3.7		3.1
Unemployment rate, average %	****	8.4	****	****	8.2	****	****	7.7	****	****	7.3	****	****	7.9	****		8.1		7.1		6.9		6.9		7.3
US
Real GDP growth, y/y % change	****	-1.2	****	****	10.1	****	****	3.8	****	****	4.3	****	****	4.3	****		-3.7		-1.1		9.9		4.8		2.5
Unemployment rate, average %	****	6.1	****	****	6.1	****	****	6.2	****	****	6.3	****	****	6.2	****		7.7		6.6		5.8		5.4		6.3
Global
WTI oil price, average /bbl	****	44	****	****	47	****	****	49	****	****	52	****	****	48	****		45		48		50		51		48

All values are in US Dollars.

The total allowance for credit losses as at January 31, 2021 was $7,810 million. The allowance for credit losses for loans was $7,590 million, down $49 million from the prior quarter. The decrease was due primarily to lower provision on performing loans driven by the more favourable macroeconomic outlook.

The allowance on impaired loans increased to $1,994 million from $1,957 million last quarter due primarily to higher provisions in International retail driven by credit migration due to expiry of payment deferrals in Peru and other select markets. The allowance against performing loans was lower at $5,596 million compared to $5,682 million as at October 31, 2020. The decrease was due primarily to lower International retail provisions driven by the more favourable macroeconomic outlook.

Impaired loans

Gross impaired loans increased to $5,279 million as at January 31, 2021, from $5,053 million last quarter. This was due primarily to formations in International retail driven by credit migration from the expiry of payment deferrals in Peru and other select markets, partially offset by lower formations in commercial and corporate portfolios. The gross impaired loan ratio was 84 basis points as at January 31, 2021, an increase of three basis points from last quarter.

Net impaired loans in Canadian Banking were $585 million as at January 31, 2021, an increase of $11 million from October 31, 2020. International Banking’s net impaired loans were $2,499 million as at January 31, 2021, an increase of $236 million from October 31, 2020, mainly driven by higher delinquency and credit migration in Peru and other select markets, partially offset by lower net formations in commercial portfolio. In Global Banking and Markets, net impaired loans were $173 million as at January 31, 2021, a decrease of $68 million from October 31, 2020, due to repayments and write offs net of recoveries during the quarter. In Global Wealth Management, net impaired loans were $28 million as at January 31, 2021, an increase of $10 million from October 31, 2020. Net impaired loans as a percentage of loans and acceptances were 0.52% as at January 31, 2021, an increase of two basis points from 0.50% last quarter.

Overview of loan portfolio

The Bank has a well-diversified portfolio by product, business, and geography. Details of certain portfolios of current focus are highlighted below.

Real estate secured lending

A large portion of the Bank’s lending portfolio is comprised of residential mortgages and consumer loans, which are well diversified by borrower. As at January 31, 2021, these loans amounted to $396 billion or 63% of the Bank’s total loans and acceptances outstanding (October 31, 2020 – $393 billion or 63%). Of these, $311 billion or 78% are real estate secured loans (October 31, 2020 – $306 billion or 78%). The tables below provide more details by portfolios.

24Scotiabank First Quarter Report 2021 ****

MANAGEMENT’S DISCUSSION & ANALYSIS

Insured and uninsured mortgages and home equity lines of credit

The following table presents amounts of insured and uninsured residential mortgages and home equity lines of credit (HELOCs), by geographic areas.

	As at January 31, 2021
	Residential mortgages																		Home equity lines of credit
	Insured^(1)^						Uninsured						Total						Insured ^(1)^						Uninsured						Total
($ millions)	Amount			%			Amount			%			Amount			%			Amount			%			Amount			%			Amount			%
Canada:^(2)^
Atlantic provinces	$	5,643	****	****	2.3	%	$	5,542	****	****	2.2	%	$	11,185	****	****	4.5	%	$	–	****	****	–	%	$	1,062	****	****	5.3	%	$	1,062	****	****	5.3	%
Quebec	****	8,276	****	****	3.3	****	****	8,862	****	****	3.5	****	****	17,138	****	****	6.8	****	****	–	****	****	–	****	****	937	****	****	4.7	****	****	937	****	****	4.7	****
Ontario	****	40,247	****	****	16.1	****	****	92,532	****	****	37.0	****	****	132,779	****	****	53.1	****	****	–	****	****	–	****	****	11,026	****	****	54.7	****	****	11,026	****	****	54.7	****
Manitoba & Saskatchewan	****	5,566	****	****	2.2	****	****	4,277	****	****	1.7	****	****	9,843	****	****	3.9	****	****	–	****	****	–	****	****	678	****	****	3.4	****	****	678	****	****	3.4	****
Alberta	****	18,142	****	****	7.2	****	****	13,323	****	****	5.4	****	****	31,465	****	****	12.6	****	****	1	****	****	–	****	****	2,702	****	****	13.4	****	****	2,703	****	****	13.4	****
British Columbia & Territories	****	13,299	****	****	5.3	****	****	34,628	****	****	13.8	****	****	47,927	****	****	19.1	****	****	–	****	****	–	****	****	3,730	****	****	18.5	****	****	3,730	****	****	18.5	****
Canada^(3)^	$	91,173	****	****	36.4	%	$	159,164	****	****	63.6	%	$	250,337	****	****	100	%	$	1	****	****	–	%	$	20,135	****	****	100	%	$	20,136	****	****	100	%
International	****	–	****	****	–	****	****	40,137	****	****	100	****	****	40,137	****	****	100	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****
Total	$	91,173	****	****	31.4	%	$	199,301	****	****	68.6	%	$	290,474	****	****	100	%	$	1	****	****	–	%	$	20,135	****	****	100	%	$	20,136	****	****	100	%
	As at October 31, 2020
Canada^(3)^	$	93,684			38.2	%	$	151,360			61.8	%	$	245,044			100	%	$	1			–	%	$	20,978			100	%	$	20,979			100	%
International		–			–			39,640			100			39,640			100			–			–			–			–			–			–
Total	$	93,684			32.9	%	$	191,000			67.1	%	$	284,684			100	%	$	1			–	%	$	20,978			100	%	$	20,979			100	%
(1)	Default insurance is contractual coverage for the life of eligible facilities whereby the Bank’s exposure to<br>real estate secured lending is protected against potential shortfalls caused by borrower default. This insurance is provided by either government-backed entities or private mortgage insurers.
---	---
(2)	The province represents the location of the property in Canada.
---	---
(3)	Includes multi-residential dwellings (4+ units) of $3,645 (October 31, 2020 – $3,671) of which $2,705<br>are insured (October 31, 2020 – $2,630).
---	---

Amortization period ranges for residential mortgages

The following table presents the distribution of residential mortgages by remaining amortization periods, and by geographic areas.

	As at January 31, 2021
	Residential mortgages by amortization period
	Less than20 years			20-24years			25-29years			30-34years			35 yearsandgreater			Totalresidentialmortgages
Canada	****	33.2%	****	****	37.7%	****	****	27.9%	****	****	1.0%	****	****	0.2%	****	****	100%	****
International	****	63.6%	****	****	17.5%	****	****	14.5%	****	****	4.3%	****	****	0.1%	****	****	100%	****
	As at October 31, 2020
Canada		33.5%			37.5%			27.6%			1.2%			0.2%			100%
International		64.9%			17.4%			14.4%			3.2%			0.1%			100%

Loan to value ratios

The Canadian residential mortgage portfolio is 64% uninsured (October 31, 2020 – 62%). The average loan-to-value (LTV) ratio of the uninsured portfolio is 52% (October 31, 2020 – 52%).

Scotiabank First Quarter Report 202125

MANAGEMENT’S DISCUSSION & ANALYSIS

The following table presents the weighted average LTV ratio for total newly-originated uninsured residential mortgages and home equity lines of credit, which include mortgages for purchases, refinances with a request for additional funds and transfers from other financial institutions, by geographic areas in the current quarter.

		Uninsured LTV ratios
		For the three months ended January 31, 2021
		Residentialmortgages			Home equity linesof credit^(1)^
		LTV%			LTV%
Canada^(2)^
Atlantic provinces			67.1	%		62.8	%
Quebec			66.8			70.3
Ontario			64.0			63.5
Manitoba & Saskatchewan			68.0			62.9
Alberta			67.0			72.9
British Columbia & Territories			63.9			63.3
Canada^(2)^		****	64.4	%	****	64.3	%
International		****	74.4	%	****	n/a	****
		For the three months ended October 31, 2020
Canada^(2)^			64.6	%		64.8	%
International			73.8	%		n/a
(1)	Includes all home equity lines of credit (HELOC). For Scotia Total Equity Plan HELOCs, LTV is calculated based on<br>the sum of residential mortgages and the authorized limit for related HELOCs, divided by the value of the related residential property, and presented on a weighted average basis for newly originated mortgages and HELOCs.
---	---
(2)	The province represents the location of the property in Canada.
---	---

Potential impact on residential mortgages and real estate home equity lines of credit in the event of an economic downturn

The Bank undertakes regular stress testing of its mortgage book to determine the impact of various combinations of home price declines and unemployment increases. Those results continue to show that credit losses and impacts on capital ratios are within a level the Bank considers manageable. In addition, the Bank has undertaken extensive all-Bank scenario analyses to assess the impact to the enterprise of different scenarios related to COVID-19 and is confident that it has the financial resources to withstand even a very negative outlook. In practice, the mortgage portfolio is robust to such scenarios due to the low LTV of the book, the high proportion of insured exposures and the diversified composition of the portfolio.

Europeanexposures

The Bank believes that its European exposures are manageable, are sized appropriately relative to the credit worthiness of the counterparties (92% of the exposures are to investment grade counterparties based on a combination of internal and external ratings), and are modest relative to the capital levels of the Bank. The Bank’s European exposures are certified at amortized cost or fair value using observable inputs, with negligible amounts valued using models with unobservable inputs (Level 3). There were no significant events in the quarter that have materially impacted the Bank’s exposures.

The Bank’s exposure to sovereigns was $10.9 billion as at January 31, 2021 (October 31, 2020 – $12.6 billion), $4.2 billion to banks (October 31, 2020 – $4.4 billion) and $15.0 billion to corporates (October 31, 2020 – $14.6 billion).

In addition to exposures detailed in the table below, the Bank had indirect exposures consisting of securities exposures to non-European entities whose parent company is domiciled in Europe of $0.3 billion as at January 31, 2021 (October 31, 2020 – $0.3 billion).

26Scotiabank First Quarter Report 2021 ****

MANAGEMENT’S DISCUSSION & ANALYSIS

The Bank’s current European exposure is distributed as below:

	As at
	January 31, 2021																October 31,<br>2020
($ millions)	Loans and<br>loan<br>equivalents^(1)^		Deposits<br>with<br>financial<br>institutions		Securities^(2)^			SFT and<br>derivatives^(3)^		Funded<br>total		Undrawn<br>commitments^(4)^		Total			Total
Greece	$	–	$	–	$	–		$	4	$	4	$	–	$	4	****	$	–
Ireland		1,163		750		(48	)		345		2,210		460	****	2,670	****		2,608
Italy		44		–		(3	)		14		55		205	****	260	****		322
Portugal		–		–		–			2		2		–	****	2	****		3
Spain		974		1		77			60		1,112		301	****	1,413	****		1,390
Total GIIPS	$	2,181	$	751	$	26		$	425	$	3,383	$	966	$	4,349	****	$	4,323
U.K.	$	7,475	$	3,960	$	1,293		$	3,014	$	15,742	$	9,076	$	24,818	****	$	30,772
Germany		381		247		1,387			89		2,104		951	****	3,055	****		3,559
France		1,125		39		714			51		1,929		1,819	****	3,748	****		4,168
Netherlands		560		157		774			176		1,667		1,035	****	2,702	****		3,106
Switzerland		798		1		(29	)		243		1,013		987	****	2,000	****		2,018
Other		1,226		128		2,215			663		4,232		2,351	****	6,583	****		6,385
Total Non-GIIPS	$	11,565	$	4,532	$	6,354		$	4,236	$	26,687	$	16,219	$	42,906	****	$	50,008
Total Europe	$	13,746	$	5,283	$	6,380		$	4,661	$	30,070	$	17,185	$	47,255	****	$	54,331
(1)	Individual allowances for credit losses are $11. Letters of credit and guarantees are included as funded exposure<br>as they have been issued. Included in loans and loans equivalent are letters of credit and guarantees which total $3,989 as at January 31, 2021 (October 31, 2020 – $4,069).
---	---
(2)	Exposures for securities are calculated taking into account derivative positions where the security is the<br>underlying reference asset and short trading positions, with net short positions in brackets.
---	---
(3)	SFT comprise of securities purchased under resale agreements, obligations related to securities sold under<br>repurchase agreements and securities lending and borrowing transactions. Gross and net funded exposures represent all net positive positions after taking into account collateral. Collateral held against derivatives was $3,472 and collateral held<br>against SFT was $44,459.
---	---
(4)	Undrawn commitments represent an estimate of the contractual amount that may be drawn upon by the obligor and<br>include commitments to issue letters of credit on behalf of other banks in a syndicated bank lending arrangement.
---	---

Market risk

Value at Risk (VaR) is a key measure of market risk in the Bank’s trading activities. VaR includes both general market risk and debt specific risk components. The Bank also calculates a Stressed VaR measure.

		Average for the three months ended
Risk factor ( millions)	January 312021			October 31<br>2020
Credit spread plus interest rate	$	14.5	****	$	12.9
Credit spread	****	8.4	****		12.5
Interest rate	****	14.9	****		12.9
Equities	****	9.4	****		5.5
Foreign exchange	****	3.1	****		3.7
Commodities	****	5.6	****		6.7
Debt specific	****	4.1	****		5.3
Diversification effect	****	(19.1	)		(17.4	)
Total VaR	$	17.6	****	$	16.7
Total Stressed VaR	$	33.8	****	$	31.2

All values are in US Dollars.

In the first quarter of 2021, the average one-day Total VaR remained relatively flat with less than $1 million quarter-over-quarter change.

The average one-day Total Stressed VaR increased during the quarter to $33.8 million from $31.2 million in the previous quarter. The higher average one-day Total Stressed VaR was mainly due to increasing client facilitation activities in the fixed income business. In Q1 2021, the Stressed VaR was calculated from 2008/2009 credit crisis period.

There were no trading loss days in the current and the previous quarter. The quality and accuracy of the VaR models is validated by backtesting, which compares daily actual and theoretical profit and loss with the daily output of the VaR model.

Interest rate risk

Interest rate risk is the risk of loss due to the following: changes in the level, slope and curvature of the yield curve; the volatility of interest rates and changes in customer preferences (e.g. mortgage prepayment rates).

Non-trading interest rate sensitivity

The following table shows the pro-forma after tax impact on the Bank’s net interest income over the next twelve months and economic value of shareholders’ equity of an immediate and sustained 100 basis points increase and decrease in interest rate across major currencies as defined by the Bank. Corresponding with the current low interest rate environment, starting in Q2 2020, the net interest income and economic value for a down shock scenario are measured using 25 basis points decline rather than 100 basis points previously, to account for certain rates being floored at zero. These

Scotiabank First Quarter Report 202127

MANAGEMENT’S DISCUSSION & ANALYSIS

calculations are based on models that consider a number of inputs and are on a constant balance sheet and make no assumptions for management actions to mitigate the risk.

	As at
	January 31, 2021																		October 31, 2020
	Net income									Economic value
($ millions)	Canadiandollar			Othercurrencies			Total			Canadiandollar			Othercurrencies			Total			Net<br><br><br>income			Economic<br>value
+100 bps	$	160	****	$	147	****	$	307	****	$	(233	)	$	252	****	$	19	****	$	134		$	(510	)
-25 bps	****	(41	)	****	(38	)	****	(79	)	****	5	****	****	(95	)	****	(90	)		(38	)		63

During the first quarter of 2021, both interest rate sensitivities remained within the Bank’s approved consolidated limits.

The Bank’s Asset/Liability Committee provides strategic direction for the management of structural interest rate risk within the risk appetite framework authorized by the Board of Directors. The asset/liability management strategy is executed by Group Treasury with the objective of protecting and enhancing net interest income within established risk tolerances.

The Bank supplements the immediate rate change impact analysis described above with more sophisticated analyses and tools for actual risk management purposes.

Market risk linkage to Consolidated Statement of Financial Position

Trading assets and liabilities are marked to market daily and included in trading risk measures such as VaR. Derivatives captured under trading risk measures are related to the activities of Global Banking and Markets, while derivatives captured under non-trading risk measures comprise those used in asset/liability management and designated in a hedge relationship. A comparison of Consolidated Statement of Financial Position items which are covered under the trading and non-trading risk measures is provided in the table below.

Market risk linkage to Consolidated Statement of Financial Position of the Bank

As at January 31, 2021	Market risk measure
($ millions)	ConsolidatedStatement ofFinancial Position			Trading risk			Non-tradingrisk			Not subject tomarket risk			Primary risk sensitivity of<br><br><br>non-trading risk
Precious metals	$	1,107	****	$	1,107	****	$	–	****	$	–	****	****	n/a	****
Trading assets	****	141,768	****	****	141,490	****	****	278	****	****	–	****	****	Interest rate, FX	****
Derivative financial instruments	****	46,269	****	****	39,390	****	****	6,879	****	****	–	****	****	Interest rate, FX, equity	****
Investment securities	****	99,236	****	****	–	****	****	99,236	****	****	–	****	****	Interest rate, FX, equity	****
Loans	****	603,649	****	****	–	****	****	603,649	****	****	–	****	****	Interest rate, FX	****
Assets not subject to market risk^(1)^	****	272,021	****	****	–	****	****	–	****	****	272,021	****	****	n/a	****
Total assets	$	1,164,050	****	$	181,987	****	$	710,042	****	$	272,021	****
Deposits	$	768,993	****	$	–	****	$	726,346	****	$	42,647	****	****	Interest rate, FX, equity	****
Financial instruments designated at fair value through profit or loss	****	20,260	****	****	–	****	****	20,260	****	****	–	****	****	Interest rate, equity	****
Obligations related to securities sold short	****	40,119	****	****	40,119	****	****	–	****	****	–	****	****	n/a	****
Derivative financial instruments	****	41,296	****	****	35,725	****	****	5,571	****	****	–	****	****	Interest rate, FX, equity	****
Trading liabilities^(2)^	****	856	****	****	856	****	****	–	****	****	–	****	****	n/a	****
Pension and other benefit liabilities	****	2,894	****	****	–	****	****	2,894	****	****	–	****	****	Interest rate, credit spread, equity	****
Liabilities not subject to market risk^(3)^	****	218,495	****	****	–	****	****	–	****	****	218,495	****	****	n/a	****
Total liabilities	$	1,092,913	****	$	76,700	****	$	755,071	****	$	261,142	****
(1)	Includes goodwill, intangibles, other assets and securities purchased under resale agreements and securities<br>borrowed.
---	---
(2)	Gold and silver certificates and bullion included in other liabilities.
---	---
(3)	Includes obligations related to securities sold under repurchase agreements and securities lent and other<br>liabilities.
---	---

28Scotiabank First Quarter Report 2021 ****

MANAGEMENT’S DISCUSSION & ANALYSIS

As at October 31, 2020	Market risk measure
($ millions)	Consolidated<br>Statement of<br>Financial Position		Trading risk		Non-trading<br>risk		Not subject to<br>market risk		Primary risk sensitivity of<br><br><br>non-trading risk
Precious metals	$	1,181	$	1,181	$	–	$	–		n/a
Trading assets		117,839		117,492		347		–		Interest rate, FX
Derivative financial instruments		45,065		39,294		5,771		–		Interest rate, FX, equity
Investment securities		111,389		–		111,389		–		Interest rate, FX, equity
Loans		603,263		–		603,263		–		Interest rate, FX
Assets not subject to market risk^(1)^		257,729		–		–		257,729		n/a
Total assets	$	1,136,466	$	157,967	$	720,770	$	257,729
Deposits	$	750,838	$	–	$	709,850	$	40,988		Interest rate, FX, equity
Financial instruments designated at fair value through profit or loss		18,899		–		18,899		–		Interest rate, equity
Obligations related to securities sold short		31,902		31,902		–		–		n/a
Derivative financial instruments		42,247		36,038		6,209		–		Interest rate, FX, equity
Trading liabilities^(2)^		1,112		1,112		–		–		n/a
Pension and other benefit liabilities		3,464		–		3,464		–		Interest rate, credit spread, equity
Liabilities not subject to market risk^(3)^		217,501		–		–		217,501		n/a
Total liabilities	$	1,065,963	$	69,052	$	738,422	$	258,489
(1)	Includes goodwill, intangibles, other assets and securities purchased under resale agreements and securities<br>borrowed.
---	---
(2)	Gold and silver certificates and bullion included in other liabilities.
---	---
(3)	Includes obligations related to securities sold under repurchase agreements and securities lent and other<br>liabilities.
---	---

Liquidity risk

Effective liquidity risk management is essential to maintain the confidence of depositors and counterparties, manage the Bank’s cost of funds and to support core business activities, even under adverse circumstances.

Liquidity risk is managed within a framework of policies and limits that are approved by the Board of Directors, as outlined in Note 18 to the Condensed Interim Consolidated Financial Statements and in Note 36 of the Consolidated Financial Statements in the Bank’s 2020 Annual Report.

Liquid assets are a key component of this framework. The determination of the appropriate levels for liquid asset portfolios is based on the amount of liquidity the Bank might need to fund expected cash flows in the normal course of business, as well as what might be required in periods of stress to meet cash outflows. Stress events include periods when there are disruptions in the capital markets or events which may impair the Bank’s access to funding markets or liquidity. The Bank uses stress testing to assess the impact of stress events and to assess the amount of liquid assets that would be required in various stress scenarios.

Liquid assets

Liquid assets are a key component of liquidity management and the Bank holds these types of assets in sufficient quantity to meet potential needs.

Liquid assets can be used to generate cash either through sale, repurchase transactions or other transactions where these assets can be used as collateral to generate cash, or by allowing the asset to mature. Liquid assets include unrestricted deposits with central banks, deposits with financial institutions, call and other short-term loans, marketable securities, precious metals and securities received as collateral from securities financing and derivative transactions.

Marketable securities are securities traded in active markets, which can be converted to cash within a timeframe that is in accordance with the Bank’s liquidity management framework. Assets are assessed considering a number of factors, including the expected time it would take to convert them to cash.

Marketable securities included in liquid assets are comprised of securities specifically held as a liquidity buffer or for asset/liability management purposes, trading securities primarily held by Global Banking and Markets and collateral received from securities financing and derivative transactions.

The Bank maintains large holdings of unencumbered liquid assets to support its operations. These assets generally can be sold or pledged to meet the Bank’s obligations. As at January 31, 2021 unencumbered liquid assets were $261 billion (October 31, 2020 – $250 billion). Securities including National Housing Act (NHA) mortgage-backed securities, comprised 68% of liquid assets (October 31, 2020 – 72%). Other unencumbered liquid assets, comprising cash and deposits with central banks, deposits with financial institutions, precious metals and call and short loans were 32% (October 31, 2020 – 28%). The increase in total liquid assets was mainly attributable to an increase in cash and deposits with central banks and other liquid securities, which was partially offset by a decrease in Canadian and foreign government obligations and deposits with financial institutions.

The carrying values outlined in the liquid asset table are consistent with the carrying values in the Bank’s Consolidated Statement of Financial Position as at January 31, 2021. The liquidity value of the portfolio will vary under different stress events as different assumptions are used for the stress scenarios.

Scotiabank First Quarter Report 202129

MANAGEMENT’S DISCUSSION & ANALYSIS

The Bank’s liquid asset pool is summarized in the following table: ****

		As at January 31, 2021
		Bank-owned<br><br><br>liquid assets			Securities receivedas collateral fromsecurities financingand derivativetransactions			Total liquidassets			Encumbered<br><br><br>liquid assets						Unencumbered<br><br><br>liquid assets
( millions)										Pledged ascollateral			Other^(1)^			Available ascollateral			Other
Cash and deposits with central banks	$	82,571	****	$	–	****	$	82,571	****	$	–	****	$	6,835	****	$	75,736	****	$	–	****
Deposits with financial institutions	****	6,920	****	****	–	****	****	6,920	****	****	–	****	****	88	****	****	6,832	****	****	–	****
Precious metals	****	1,107	****	****	–	****	****	1,107	****	****	–	****	****	–	****	****	1,107	****	****	–	****
Securities:
Canadian government obligations	****	68,881	****	****	15,979	****	****	84,860	****	****	41,219	****	****	–	****	****	43,641	****	****	–	****
Foreign government obligations	****	71,724	****	****	83,014	****	****	154,738	****	****	92,316	****	****	–	****	****	62,422	****	****	–	****
Other securities	****	88,568	****	****	87,468	****	****	176,036	****	****	129,212	****	****	–	****	****	46,824	****	****	–	****
Loans:
NHA mortgage-backed securities	****	33,964	****	****	–	****	****	33,964	****	****	9,209	****	****	–	****	****	24,755	****	****	–	****
Call and short loans	****	114	****	****	–	****	****	114	****	****	–	****	****	–	****	****	114	****	****	–	****
Total	$	353,849	****	$	186,461	****	$	540,310	****	$	271,956	****	$	6,923	****	$	261,431	****	$	–	****
		As at October 31, 2020
		Bank-owned<br><br><br>liquid assets			Securities received<br>as collateral from<br>securities financing<br>and derivative<br>transactions			Total liquid<br>assets			Encumbered<br><br><br>liquid assets						Unencumbered<br><br><br>liquid assets
( millions)										Pledged as<br>collateral			Other^(1)^			Available as<br>collateral			Other
Cash and deposits with central banks	$	66,252		$	–		$	66,252		$	–		$	7,019		$	59,233		$	–
Deposits with financial institutions		10,208			–			10,208			–			74			10,134			–
Precious metals		1,181			–			1,181			–			–			1,181			–
Securities:
Canadian government obligations		74,943			14,890			89,833			37,991			–			51,842			–
Foreign government obligations		71,686			79,032			150,718			83,117			–			67,601			–
Other securities		69,470			78,238			147,708			114,867			–			32,841			–
Loans:
NHA mortgage-backed securities		35,267			–			35,267			8,010			–			27,257			–
Call and short loans		165			–			165			–			–			165			–
Total	$	329,172		$	172,160		$	501,332		$	243,985		$	7,093		$	250,254		$	–

All values are in US Dollars.

(1)	Assets which are restricted from being used to secure funding for legal or other reasons.

A summary of total unencumbered liquid assets held by the parent bank and its branches, and domestic and foreign subsidiaries, is presented below:

		As at
( millions)	January 312021			October 31<br>2020
The Bank of Nova Scotia (Parent)	$	197,430	****	$	192,490
Bank domestic subsidiaries	****	16,598	****		14,517
Bank foreign subsidiaries	****	47,403	****		43,247
Total	$	261,431	****	$	250,254

All values are in US Dollars.

The Bank’s liquidity pool is held across major currencies, mostly comprised of Canadian and U.S. dollar holdings. As shown above, the vast majority (82%) of liquid assets are held by the Bank’s corporate office, branches of the Bank, and Canadian subsidiaries of the Bank. To the extent a liquidity reserve held in a foreign subsidiary of the Bank is required for regulatory purposes, it is assumed to be unavailable to the rest of the Group. Other liquid assets held by a foreign subsidiary are assumed to be available only in limited circumstances. The Bank monitors and ensures compliance in relation to minimum levels of liquidity required and assets held within each entity, and/or jurisdiction.

30Scotiabank First Quarter Report 2021 ****

MANAGEMENT’S DISCUSSION & ANALYSIS

Encumbered assets

In the course of the Bank’s day-to-day activities, securities and other assets are pledged to secure an obligation, participate in clearing or settlement systems, or operate in a foreign jurisdiction. Securities are also pledged under repurchase agreements. A summary of encumbered and unencumbered assets is presented below:

	As at January 31, 2021
	Bank-owned<br><br><br>assets			Securities receivedas collateral fromsecurities financing andderivative transactions			Total assets			Encumbered assets						Unencumbered assets
( millions)									Pledged ascollateral			Other^(1)^			Available ascollateral^(2)^				Other^(3)^
Cash and deposits with central banks	$	82,571	****	$	–	****	$	82,571	****	$	–	****	$	6,835	****	$	75,736	****		$	–	****
Deposits with financial institutions	6,920	****	****	–	****	****	6,920	****	****	–	****	****	88	****	****	6,832	****		****	–	****
Precious metals	1,107	****	****	–	****	****	1,107	****	****	–	****	****	–	****	****	1,107	****		****	–	****
Liquid securities:
Canadian government obligations	68,881	****	****	15,979	****	****	84,860	****	****	41,219	****	****	–	****	****	43,641	****		****	–	****
Foreign government obligations	71,724	****	****	83,014	****	****	154,738	****	****	92,316	****	****	–	****	****	62,422	****		****	–	****
Other liquid securities	88,568	****	****	87,468	****	****	176,036	****	****	129,212	****	****	–	****	****	46,824	****		****	–	****
Other securities	3,260	****	****	9,956	****	****	13,216	****	****	3,516	****	****	–	****	****	–	****		****	9,700	****
Loans classified as liquid assets:
NHA mortgage-backed securities	33,964	****	****	–	****	****	33,964	****	****	9,209	****	****	–	****	****	24,755	****		****	–	****
Call and short loans	114	****	****	–	****	****	114	****	****	–	****	****	–	****	****	114	****		****	–	****
Other loans	577,474	****	****	–	****	****	577,474	****	****	5,077	****	****	81,487	****	****	16,338	****		****	474,572	****
Other financial assets(4)	183,059	****	****	(109,621	)	****	73,438	****	****	5,847	****	****	–	****	****	–	****		****	67,591	****
Non-financial assets	46,408	****	****	–	****	****	46,408	****	****	–	****	****	–	****	****	–	****		****	46,408	****
Total	$	1,164,050	****	$	86,796	****	$	1,250,846	****	$	286,396	****	$	88,410	****	$	277,769	****		$	598,271	****

All values are in US Dollars.

	As at October 31, 2020
	Bank-owned<br><br><br>assets		Securities received<br>as collateral from<br>securities financing and<br>derivative transactions		Total assets		Encumbered assets				Unencumbered assets
( millions)						Pledged as<br>collateral		Other^(1)^		Available as<br>collateral^(2)^			Other^(3)^
Cash and deposits with central banks	$	66,252	$	–	$	66,252	$	–	$	7,019	$	59,233		$	–
Deposits with financial institutions	10,208		–		10,208		–		74		10,134			–
Precious metals	1,181		–		1,181		–		–		1,181			–
Liquid securities:
Canadian government obligations	74,943		14,890		89,833		37,991		–		51,842			–
Foreign government obligations	71,686		79,032		150,718		83,117		–		67,601			–
Other liquid securities	69,470		78,238		147,708		114,867		–		32,841			–
Other securities	3,621		7,794		11,415		3,227		–		–			8,188
Loans classified as liquid assets:
NHA mortgage-backed securities	35,267		–		35,267		8,010		–		27,257			–
Call and short loans	165		–		165		–		–		165			–
Other loans	576,183		–		576,183		7,640		81,780		17,702			469,061
Other financial assets(4)	182,671		(109,231	)	73,440		6,182		–		–			67,258
Non-financial assets	44,819		–		44,819		–		–		–			44,819
Total	$	1,136,466	$	70,723	$	1,207,189	$	261,034	$	88,873	$	267,956		$	589,326

All values are in US Dollars.

(1)	Assets which are restricted from being used to secure funding for legal or other reasons.
(2)	Assets that are readily available in the normal course of business to secure funding or meet collateral needs<br>including central bank borrowing immediately available.
---	---
(3)	Other unencumbered assets are not subject to any restrictions on their use to secure funding or as collateral but<br>the Bank would not consider them to be readily available. These include loans, a portion of which may be used to access central bank facilities outside of the normal course or to raise secured funding through the Bank’s secured funding<br>programs.
---	---
(4)	Securities received as collateral against other financial assets are included within liquid securities and other<br>securities.
---	---

As of January 31, 2021 total encumbered assets of the Bank were $375 billion (October 31, 2020 – $350 billion). Of the remaining $876 billion (October 31, 2020 – $857 billion) of unencumbered assets, $278 billion (October 31, 2020 – $268 billion) are considered readily available in the normal course of business to secure funding or meet collateral needs as detailed above.

In some over-the-counter derivative contracts, the Bank would be required to post additional collateral or receive less collateral in the event its credit rating was downgraded. The Bank maintains access to sufficient collateral to meet these obligations in the event of a downgrade of its ratings by one or more of the rating agencies. As at January 31, 2021, the potential adverse impact on derivatives collateral that would result from a one-notch or two-notch downgrade of the Bank’s rating below its lowest current rating was $27 million or $152 million, respectively.

Encumbered liquid assets are not considered to be available for liquidity management purposes. Liquid assets which are used to hedge derivative positions in trading books or for hedging purposes are considered to be available for liquidity management provided they meet the criteria discussed in liquid assets above.

Liquidity coverage ratio

The Liquidity Coverage Ratio (LCR) measure is based on a 30-day liquidity stress scenario, with assumptions defined in the Office of the Superintendent of Financial Institutions (OSFI) Liquidity Adequacy Requirements (LAR) Guideline. The LCR is calculated as the ratio of high quality liquid assets (HQLA) to net cash outflows. The Bank is subject to a regulatory minimum LCR of 100%.

HQLA are defined in the LAR Guideline and are grouped into three main categories with varying haircuts applied to arrive at the amount included in the total weighted value in the table that follows.

The total weighted values for net cash outflows for the next 30 days are derived by applying the assumptions specified in the LAR Guideline to specific items, including loans, deposits, maturing debt, derivative transactions and commitments to extend credit.

Scotiabank First Quarter Report 202131

MANAGEMENT’S DISCUSSION & ANALYSIS

The following table presents the Bank’s LCR for the quarter ended January 31, 2021, based on the average daily positions in the quarter.

For the quarter ended January 31, 2021 ( millions)(1)	Total<br><br><br>unweighted<br> <br>value<br><br><br>(Average)^(2)^			Total<br><br><br>weighted<br> <br>value<br><br><br>(Average)^(3)^
High-quality liquid assets
Total high-quality liquid assets (HQLA)	****	*	****	$	213,013	****
Cash outflows
Retail deposits and deposits from small business customers, of which:	$	222,373		$	19,283
Stable deposits		92,785			2,996
Less stable deposits		129,588			16,287
Unsecured wholesale funding, of which:		251,307			113,948
Operational deposits (all counterparties) and deposits in networks of cooperative banks		92,264			21,712
Non-operational deposits (all counterparties)		138,421			71,614
Unsecured debt		20,622			20,622
Secured wholesale funding	****	*	****		59,780
Additional requirements, of which:		238,357			51,397
Outflows related to derivative exposures and other collateral requirements		44,094			25,629
Outflows related to loss of funding on debt products		3,195			3,195
Credit and liquidity facilities		191,068			22,573
Other contractual funding obligations		1,904			1,765
Other contingent funding obligations(4)		409,599			6,268
Total cash outflows	****	*	****	$	252,441	****
Cash inflows
Secured lending (e.g. reverse repos)	$	173,166		$	44,248
Inflows from fully performing exposures		25,198			16,575
Other cash inflows		26,592			26,592
Total cash inflows	$	224,956	****	$	87,415	****
					Total<br><br><br>adjusted<br><br><br>value^(5)^
Total HQLA	****	*	****	$	213,013	****
Total net cash outflows	****	*	****	$	165,026	****
Liquidity coverage ratio (%)	****	*	****	****	129	%
For the quarter ended October 31, 2020 ( millions)				Total<br>adjusted<br>value^(5)^
Total HQLA		*		$	209,777
Total net cash outflows		*		$	151,897
Liquidity coverage ratio (%)		*			138	%

All values are in US Dollars.

*	Disclosure is not required under regulatory guideline.
(1)	Based on the average of daily positions of the 61 business days in the quarter.
---	---
(2)	Unweighted values represent outstanding balances maturing or callable within the next 30 days.<br>
---	---
(3)	Weighted values represent balances calculated after the application of HQLA haircuts or inflow and outflow rates,<br>as prescribed by the OSFI LAR guidelines.
---	---
(4)	Total unweighted values include uncommitted credit and liquidity facilities, guarantees and letters of credit,<br>outstanding debt securities with remaining maturity greater than 30 days, and other contractual cash outflows.
---	---
(5)	Total adjusted value represents balances calculated after the application of both haircuts and inflow and outflow<br>rates and any applicable caps.
---	---

HQLA is substantially comprised of Level 1 assets (as defined in the LAR guideline), such as cash, deposits with central banks available to the Bank in times of stress, and highly rated securities issued or guaranteed by governments, central banks and supranational entities.

The decrease in the Bank’s average LCR for the quarter ended January 31, 2021 versus the average of the previous quarter was attributable to normal business activities. The Bank monitors its significant currency exposures, Canadian and U.S. dollars, in accordance with its liquidity risk management framework and risk appetite.

Net stable funding ratio

The Net Stable Funding Ratio (NSFR) requires institutions to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet exposures. It is calculated as the ratio of available stable funding (ASF) to required stable funding (RSF), with assumptions defined in the OSFI LAR Guideline. The Bank is subject to a regulatory minimum NSFR of 100%.

ASF is defined as the portion of capital and liabilities expected to be reliable over the time horizons considered by the NSFR. RSF is a function of the liquidity characteristics and residual maturities of the various assets held by the bank as well as those of its off-balance sheet exposures.

The total weighted values for ASF and RSF included in the table that follows are derived by applying the assumptions specified in the LAR Guideline to balance sheet items, including capital instruments, wholesale funding, deposits, loans and mortgages, securities, derivatives and commitments to extend credit.

32Scotiabank First Quarter Report 2021 ****

MANAGEMENT’S DISCUSSION & ANALYSIS

The following table presents the Bank’s NSFR as at January 31, 2021.

	Unweighted Value by Residual Maturity								Weighted<br>value
As at January 31 , 2021 ($ millions)	No maturity^(1)^		< 6 months		6-12 months		³ 1 year
Available StableFunding (ASF) Item											****
Capital:	$	74,761	$	–	$	–	$	547	$	75,308
Regulatory capital		74,761		–		–		–		74,761
Other capital instruments		–		–		–		547		547
Retail deposits and deposits from small business customers:		205,591		56,941		18,257		23,514		278,273
Stable deposits		88,316		16,756		5,992		6,447		111,957
Less stable deposits		117,275		40,185		12,265		17,067		166,316
Wholesale funding:		132,670		323,542		36,754		97,956		244,927
Operational deposits		76,258		13,593		–		–		44,925
Other wholesale funding		56,412		309,949		36,754		97,956		200,002
Liabilities with matching interdependent assets		–		2,404		1,083		23,280		–
Other liabilities:		66,101		74,279						22,246
NSFR derivative liabilities				8,635
All other liabilities and equity not included in the above<br>categories		66,101		42,912		971		21,761		22,246
Total ASF									$	620,754	****
Required StableFunding (RSF) Item											****
Total NSFR high-quality liquid assets (HQLA)									$	28,959
Deposits held at other financial institutions for operational purposes	$	414	$	1,335	$	352	$	–	$	1,050
Performing loans and securities:		95,430		139,974		51,619		405,815		449,780
Performing loans to financial institutions secured by Level 1 HQLA		37		35,540		3,908		110		3,978
Performing loans to financial institutions secured by<br>non-Level 1 HQLA and unsecured performing loans to financial institutions		2,083		50,165		9,269		11,349		23,655
Performing loans to non-financial corporate clients, loans to<br>retail and small business customers, and loans to sovereigns, central banks and PSEs, of which:		47,593		44,183		23,325		180,276		225,578
With a risk weight of less than or equal to 35% under the Basel II standardised approach for credit<br>risk		–		405		610		3,279		2,639
Performing residential mortgages, of which:		20,286		8,481		14,540		207,658		168,405
With a risk weight of less than or equal to 35% under the Basel II standardised approach for credit<br>risk		20,286		8,300		14,376		194,568		157,106
Securities that are not in default and do not qualify as HQLA, including exchange-traded equities		25,431		1,605		577		6,422		28,164
Assets with matching interdependent liabilities		–		2,404		1,083		23,280		–
Other assets:		1,776				106,265				43,212
Physical traded commodities, including gold		1,776								1,509
Assets posted as initial margin for derivative contracts and contributions to default funds of<br>CCPs				3,589						3,051
NSFR derivative assets				8,188						–
NSFR derivative liabilities before deduction of variation margin posted				17,582						879
All other assets not included in the above categories		–		39,171		–		37,735		37,773
Off-balance sheet items						408,385				15,973
Total RSF									$	538,974	****
Net Stable Funding Ratio (%)									****	115	%
(1)	Items in the “no maturity” time bucket do not have a stated maturity. These may include, but are not<br>limited to, items such as capital with perpetual maturity, non-maturity deposits, short positions, open maturity positions, non-HQLA equities, and physical traded commodities.
---	---

Available stable funding is primarily provided by the Bank’s large pool of retail, small business and corporate customer deposits; secured and unsecured wholesale funding and capital. Required stable funding primarily originates from the Bank’s loan and mortgage portfolio, securities holdings, off balance sheet items and other assets. Interdependent assets and liabilities are primarily comprised of transactions related to the Canada Mortgage Bond program.

Scotiabank First Quarter Report 202133

MANAGEMENT’S DISCUSSION & ANALYSIS

Funding

The Bank ensures that its funding sources are well diversified. Funding concentrations are regularly monitored and analyzed by type. The sources of funding are capital, deposits from retail and commercial clients sourced through the Canadian and international branch network, deposits from financial institutions as well as wholesale debt issuances.

Capital and personal deposits are key components of the Bank’s core funding and these amounted to $328 billion as at January 31, 2021 (October 31, 2020 – $325 billion). The increase since October 31, 2020 was due primarily to $3 billion of personal deposit growth. A portion of commercial deposits, particularly those of an operating or relationship nature, are also considered part of the Bank’s core funding. Furthermore, core funding is augmented by longer-term wholesale debt issuances (original maturity over 1 year) of $154 billion (October 31, 2020 – $168 billion). Longer-term wholesale debt issuances include senior notes, mortgage securitizations, asset-backed securities and covered bonds.

The Bank operates in many different currencies and countries. From a funding perspective, the most significant currencies are Canadian and U.S. dollars. With respect to the Bank’s operations outside Canada, there are different funding strategies depending on the nature of the activities in a country. For those countries where the Bank operates a branch banking subsidiary, the strategy is for the subsidiary to be substantially self-funding in its local market. For other subsidiaries or branches outside Canada where local deposit gathering capability is not sufficient, funding is provided through the wholesale funding activities of the Bank.

From an overall funding perspective the Bank’s objective is to achieve an appropriate balance between the cost and the stability of funding. Diversification of funding sources is a key element of the funding strategy.

The Bank’s wholesale debt diversification strategy is primarily executed via the Bank’s main wholesale funding centres, located in Toronto, New York, London and Singapore. The majority of these funds are sourced in Canadian and U.S. dollars. Where required, these funds are swapped to fund assets in different currencies. The funding strategy deployed by wholesale funding centres and the management of associated risks, such as geographic and currency risk, are managed centrally within the framework of policies and limits that are approved by the Board of Directors.

In the normal course, the Bank uses a mix of unsecured and secured wholesale funding instruments across a variety of markets. The choice of instruments and markets is based on a number of factors, including relative cost and market capacity as well as an objective of maintaining a diversified mix of sources of funding. Market conditions can change over time, impacting cost and capacity in particular markets or instruments. Changing market conditions can include periods of stress where the availability of funding in particular markets or instruments is constrained. In these circumstances, the Bank would increase its focus on sources of funding in functioning markets and secured funding instruments. Should a period of extreme stress exist such that all wholesale funding sources are constrained, the Bank maintains a pool of liquid assets to mitigate its liquidity risk. This pool includes cash, deposits with central banks and securities.

In Canada, the Bank raises short- and longer-term wholesale debt through the issuance of senior unsecured notes. Additional longer-term wholesale debt may be generated through the Bank’s Canadian Debt and Equity Shelf, the securitization of Canadian insured residential mortgages through CMHC securitization programs (such as Canada Mortgage Bonds), uninsured residential mortgages through the Bank’s Covered Bond Program, retail credit card receivables through the Trillium Credit Card Trust II program and retail indirect auto loan receivables through the Securitized Term Auto Receivables Trust program. Prior to maturities in February 2020, unsecured personal lines of credit were securitized through the Halifax Receivables Trust program. While the Bank includes CMHC securitization programs in its view of wholesale debt issuance, this source of funding does not entail the run-off risk that can be experienced in funding raised from capital markets.

Outside of Canada, short-term wholesale debt may be raised through the issuance of negotiable certificates of deposit in the United States, Hong Kong, the United Kingdom and Australia and the issuance of commercial paper in the United States. The Bank operates longer-term wholesale debt issuance registered programs in the United States, such as its SEC Registered Debt and Equity Shelf and non-registered programs, such as the securitization of retail indirect auto loan receivables through the Securitized Term Auto Receivables Trust program and the securitization of retail credit card receivables through the Trillium Credit Card Trust II program. The Bank’s Covered Bond Program is listed with the U.K. Listing Authority, and the Bank may issue under the program in Europe, the United Kingdom, the United States, Australia and Switzerland. The Bank also raises longer-term funding across a variety of currencies through its Australian Medium Term Note Programme, European Medium Term Note Programme and Singapore Medium Term Note Programme. The Bank’s European Medium Term Note Programme is listed with the U.K. Listing Authority and the Swiss Stock Exchange. The Bank’s Singapore Medium Term Note Programme is listed with the Singapore Exchange and the Taiwan Exchange.

The Department of Finance’s bail-in regulations under the Canada Deposit Insurance Corporation (CDIC) Act and the Bank Act, became effective September 23, 2018. Senior unsecured debt issued by the Bank on or after September 23, 2018, that has an original term greater than 400 days and is marketable, subject to certain exceptions, is subject to the Canadian Bank Recapitalization (Bail-in) regime. Under the Bail-in regime, in circumstances when the Superintendent of Financial Institutions has determined that a bank may no longer be viable, the Governor in Council may, upon a recommendation of the Minister of Finance that they are of the opinion that it is in the public interest to do so, grant an order directing the CDIC to convert all or a portion of certain shares and liabilities of that bank into common shares. As at January 31, 2021, issued and outstanding liabilities of $31 billion (October 31, 2020 – $33 billion) were subject to conversion under the bail-in regime.

Starting from the second quarter of 2020, the Bank accessed programs of central banks launched or amended in response to COVID-19 to supplement its funding.

34Scotiabank First Quarter Report 2021 ****

MANAGEMENT’S DISCUSSION & ANALYSIS

The table below provides the remaining contractual maturities of funding raised through wholesale funding sources. In the Consolidated Statement of Financial Position, these liabilities are primarily included in Business and Government Deposits.

Wholesale funding sources^(1)^

	As at January 31, 2021
($ millions)	Less than<br><br><br>1 month			1-3<br><br><br>months			3-6<br><br><br>months			6-9<br><br><br>months			9-12<br><br><br>months			Sub-Total<br> 1 Year		1-2<br><br><br>years			2-5<br><br><br>years			>5<br><br><br>years			Total
Deposit by banks^(2)^	$	2,602	****	$	368	****	$	185	****	$	2	****	$	39	****	$	3,196	****	$	26	****	$	–	****	$	–	****	$	3,222	****
Bearer notes, commercial paper and certificate of deposits	****	5,566	****	****	5,917	****	****	15,890	****	****	8,968	****	****	5,331	****	****	41,672	****	****	2,245	****	****	273	****	****	54	****	****	44,244	****
Asset-backed commercial paper^(3)^	****	1,212	****	****	2,376	****	****	266	****	****	–	****	****	–	****	****	3,854	****	****	–	****	****	–	****	****	–	****	****	3,854	****
Senior notes^(4)(5)^	****	13	****	****	4,641	****	****	3,816	****	****	952	****	****	2,408	****	****	11,830	****	****	15,523	****	****	9,600	****	****	10,309	****	****	47,262	****
Bail-inable notes^(5)^	****	–	****	****	–	****	****	–	****	****	–	****	****	80	****	****	80	****	****	2,032	****	****	19,575	****	****	9,622	****	****	31,309	****
Asset-backed securities	****	–	****	****	–	****	****	–	****	****	–	****	****	640	****	****	640	****	****	383	****	****	235	****	****	214	****	****	1,472	****
Covered bonds	****	–	****	****	3,198	****	****	–	****	****	5,767	****	****	1,940	****	****	10,905	****	****	2,904	****	****	13,595	****	****	2,878	****	****	30,282	****
Mortgage securitization^(6)^	****	–	****	****	243	****	****	2,161	****	****	413	****	****	669	****	****	3,486	****	****	4,776	****	****	13,904	****	****	4,630	****	****	26,796	****
Subordinated<br>debt^(7)^	****	–	****	****	–	****	****	–	****	****	–	****	****	29	****	****	29	****	****	107	****	****	1,944	****	****	6,418	****	****	8,498	****
Total wholesale funding sources	$	9,393	****	$	16,743	****	$	22,318	****	$	16,102	****	$	11,136	****	$	75,692	****	$	27,996	****	$	59,126	****	$	34,125	****	$	196,939	****
Of Which:
Unsecured funding	$	8,181	****	$	10,926	****	$	19,890	****	$	9,922	****	$	7,886	****	$	56,805	****	$	19,933	****	$	31,394	****	$	26,403	****	$	134,535	****
Secured funding	****	1,212	****	****	5,817	****	****	2,428	****	****	6,180	****	****	3,250	****	****	18,887	****	****	8,063	****	****	27,732	****	****	7,722	****	****	62,404	****
	As at October 31, 2020
($ millions)	Less than<br><br><br>1 month			1-3<br><br><br>months			3-6<br><br><br>months			6-9<br><br><br>months			9-12<br><br><br>months			Sub-Total<br> 1 Year		1-2<br><br><br>years			2-5<br><br><br>years			>5<br><br><br>years			Total
Deposit by banks^(2)^	$	1,084		$	439		$	88		$	36		$	1		$	1,648		$	–		$	–		$	–		$	1,648
Bearer notes, commercial paper and certificate of deposits		5,813			9,539			10,475			6,856			4,567			37,250			953			346			67			38,616
Asset-backed commercial paper^(3)^		606			2,307			400			–			–			3,313			–			–			–			3,313
Senior notes^(4)(5)^		144			5,642			4,822			3,843			923			15,374			14,753			12,109			10,337			52,573
Bail-inable notes^(5)^		–			1,362			–			–			–			1,362			214			21,980			9,397			32,953
Asset-backed securities		–			1,811			12			–			–			1,823			956			542			254			3,575
Covered bonds		–			–			3,330			–			5,804			9,134			3,879			13,396			4,086			30,495
Mortgage securitization^(6)^		212			1,558			243			2,161			413			4,587			3,700			14,058			5,076			27,421
Subordinated<br>debt^(7)^		69			–			–			–			–			69			79			389			8,818			9,355
Total wholesale funding sources	$	7,928		$	22,658		$	19,370		$	12,896		$	11,708		$	74,560		$	24,534		$	62,820		$	38,035		$	199,949
Of Which:
Unsecured funding	$	7,110		$	16,982		$	15,385		$	10,735		$	5,491		$	55,703		$	15,999		$	34,824		$	28,619		$	135,145
Secured funding		818			5,676			3,985			2,161			6,217			18,857			8,535			27,996			9,416			64,804

All values are in British Pounds.

(1)	Wholesale funding sources exclude obligations related to securities sold under repurchase agreements and<br>bankers’ acceptances, which are disclosed in the contractual maturities table below. Amounts are based on remaining term to maturity.
(2)	Only includes commercial bank deposits.
---	---
(3)	Wholesale funding sources also exclude asset-backed commercial paper (ABCP) issued by certain ABCP conduits that<br>are not consolidated for financial reporting purposes.
---	---
(4)	Not subject to bail-in.
---	---
(5)	Includes structured notes issued to institutional investors.
---	---
(6)	Represents residential mortgages funded through Canadian Federal Government agency sponsored programs. Funding<br>accessed through such programs does not impact the funding capacity of the Bank in its own name.
---	---
(7)	Although subordinated debentures are a component of regulatory capital, they are included in this table in<br>accordance with EDTF recommended disclosures.
---	---

Wholesale funding generally bears a higher risk of run-off in a stressed environment than other sources of funding. The Bank mitigates this risk through funding diversification, ongoing engagement with investors and by maintaining a large holding of unencumbered liquid assets. Unencumbered liquid assets of $263 billion as at January 31, 2021 (October 31, 2020 – $250 billion) were well in excess of wholesale funding sources which mature in the next twelve months.

Scotiabank First Quarter Report 202135

MANAGEMENT’S DISCUSSION & ANALYSIS

Contractual maturities

The table below provides the maturity of assets and liabilities as well as the off-balance sheet commitments as at January 31, 2021, based on the contractual maturity date. From a liquidity risk perspective the Bank considers factors other than contractual maturity in the assessment of liquid assets or in determining expected future cash flows. In particular, for securities with a fixed maturity date, the ability and time horizon to raise cash from these securities is more relevant to liquidity management than contractual maturity. For other assets and deposits the Bank uses assumptions about rollover rates to assess liquidity risk for normal course and stress scenarios. Similarly, the Bank uses assumptions to assess the potential drawdown of credit commitments in various scenarios.

	As at January 31, 2021
($ millions)	Lessthan onemonth			One tothreemonths			Threeto sixmonths			Six toninemonths			Nine totwelvemonths			One totwo years			Twoto fiveyears			Over fiveyears			Nospecificmaturity			Total
Assets
Cash and deposits with financial institutions and precious metals	$	81,322	****	$	543	****	$	503	****	$	161	****	$	159	****	$	389	****	$	744	****	$	601	****	$	6,176	****	$	90,598	****
Trading assets	****	3,037	****	****	5,678	****	****	2,811	****	****	1,316	****	****	2,818	****	****	7,714	****	****	18,913	****	****	21,190	****	****	78,291	****	****	141,768	****
Securities purchased under resale agreements and securities borrowed	****	89,050	****	****	19,210	****	****	6,841	****	****	2,732	****	****	998	****	****	–	****	****	–	****	****	–	****	****	–	****	****	118,831	****
Derivative financial instruments	****	2,230	****	****	4,427	****	****	675	****	****	2,993	****	****	3,096	****	****	8,300	****	****	7,788	****	****	16,760	****	****	–	****	****	46,269	****
Investment securities – FVOCI	****	6,589	****	****	3,837	****	****	4,078	****	****	6,061	****	****	1,931	****	****	11,794	****	****	25,933	****	****	6,819	****	****	3,496	****	****	70,538	****
Investment securities – amortized cost	****	464	****	****	3,595	****	****	2,757	****	****	1,037	****	****	575	****	****	4,421	****	****	7,504	****	****	7,360	****	****	–	****	****	27,713	****
Investment securities – FVTPL	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	985	****	****	985	****
Loans	****	44,142	****	****	28,161	****	****	34,279	****	****	28,247	****	****	32,117	****	****	91,388	****	****	249,977	****	****	42,423	****	****	52,915	****	****	603,649	****
Residential mortgages	****	2,437	****	****	4,705	****	****	10,700	****	****	12,813	****	****	11,907	****	****	48,890	****	****	164,051	****	****	31,180	****	****	3,791	^(1)^	****	290,474	****
Personal loans	****	2,853	****	****	2,281	****	****	2,887	****	****	3,177	****	****	2,757	****	****	11,566	****	****	22,184	****	****	5,990	****	****	37,747	****	****	91,442	****
Credit cards	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	14,143	****	****	14,143	****
Business and government	****	38,852	****	****	21,175	****	****	20,692	****	****	12,257	****	****	17,453	****	****	30,932	****	****	63,742	****	****	5,253	****	****	4,824	^(2)^	****	215,180	****
Allowance for credit losses	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	(7,590	)	****	(7,590	)
Customers’ liabilities under acceptances	****	5,853	****	****	1,389	****	****	86	****	****	8	****	****	11	****	****	7,428	****	****	–	****	****	–	****	****	–	****	****	14,775	****
Other assets	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	48,924	****	****	48,924	****
Total assets	$	232,687	****	$	66,840	****	$	52,030	****	$	42,555	****	$	41,705	****	$	131,434	****	$	310,859	****	$	95,153	****	$	190,787	****	$	1,164,050	****
Liabilities and equity
Deposits	$	68,636	****	$	55,146	****	$	47,146	****	$	38,264	****	$	28,659	****	$	38,019	****	$	64,354	****	$	18,848	****	$	409,921	****	$	768,993	****
Personal	****	8,261	****	****	13,665	****	****	15,309	****	****	8,548	****	****	10,920	****	****	9,099	****	****	9,122	****	****	122	****	****	174,463	****	****	249,509	****
Non-personal	****	60,375	****	****	41,481	****	****	31,837	****	****	29,716	****	****	17,739	****	****	28,920	****	****	55,232	****	****	18,726	****	****	235,458	****	****	519,484	****
Financial instruments designated at fair value through profit or loss	****	219	****	****	566	****	****	1,015	****	****	474	****	****	531	****	****	4,927	****	****	3,095	****	****	9,433	****	****	–	****	****	20,260	****
Acceptances	****	5,934	****	****	1,389	****	****	86	****	****	8	****	****	11	****	****	7,428	****	****	–	****	****	–	****	****	–	****	****	14,856	****
Obligations related to securities sold short	****	382	****	****	942	****	****	793	****	****	385	****	****	820	****	****	3,650	****	****	8,459	****	****	9,317	****	****	15,371	****	****	40,119	****
Derivative financial instruments	****	2,180	****	****	3,401	****	****	577	****	****	2,381	****	****	3,549	****	****	8,040	****	****	6,417	****	****	14,751	****	****	–	****	****	41,296	****
Obligations related to securities sold under repurchase agreements and securities lent	****	112,094	****	****	18,704	****	****	422	****	****	1,610	****	****	–	****	****	7,501	****	****	160	****	****	–	****	****	–	****	****	140,491	****
Subordinated debentures	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	1,873	****	****	4,727	****	****	–	****	****	6,600	****
Other liabilities	****	1,881	****	****	1,878	****	****	2,200	****	****	1,578	****	****	995	****	****	6,260	****	****	10,258	****	****	6,591	****	****	28,657	****	****	60,298	****
Total equity	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	71,137	****	****	71,137	****
Total liabilities and equity	$	191,326	****	$	82,026	****	$	52,239	****	$	44,700	****	$	34,565	****	$	75,825	****	$	94,616	****	$	63,667	****	$	525,086	****	$	1,164,050	****
Off-balance sheet commitments
Credit commitments^(3)^	$	5,211	****	$	14,116	****	$	23,071	****	$	18,324	****	$	20,528	****	$	38,435	****	$	104,927	****	$	4,398	****	$	–	****	$	229,010	****
Financial guarantees^(4)^	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	35,502	****	****	35,502	****
Outsourcing obligations^(5)^	****	15	****	****	30	****	****	43	****	****	43	****	****	42	****	****	1	****	****	2	****	****	–	****	****	–	****	****	176	****
(1)	Includes primarily impaired mortgages.
---	---
(2)	Includes primarily overdrafts and impaired loans.
---	---
(3)	Includes the undrawn component of committed credit and liquidity facilities.
---	---
(4)	Includes outstanding balances of guarantees, standby letters of credit and commercial letters of credit which may<br>expire undrawn.
---	---
(5)	The Bank relies on outsourcing arrangements for certain support and/or business functions, including, but not<br>limited to, computer operations and cheque and bill payment processing.
---	---

36Scotiabank First Quarter Report 2021 ****

MANAGEMENT’S DISCUSSION & ANALYSIS

	As at October 31, 2020
($ millions)	Less<br>than one<br>month		One to<br>three<br>months		Three<br>to six<br>months		Six to<br>nine<br>months		Nine to<br>twelve<br>months		One to<br>two<br>years		Two to<br>five<br>years		Over<br>five<br>years		No<br>specific<br>maturity			Total
Assets
Cash and deposits with financial institutions and precious metals	$	65,983	$	469	$	471	$	225	$	187	$	496	$	904	$	767	$	8,139		$	77,641
Trading assets		2,312		4,412		4,426		1,752		2,135		6,366		21,720		16,856		57,860			117,839
Securities purchased under resale agreements and securities borrowed		83,584		21,620		10,059		2,765		1,719		–		–		–		–			119,747
Derivative financial instruments		2,026		4,140		623		2,156		2,312		8,141		7,242		18,425		–			45,065
Investment securities – FVOCI		2,755		5,041		6,941		3,213		6,374		10,179		34,214		7,948		1,832			78,497
Investment securities – amortized cost		1,196		1,707		4,155		2,787		931		4,337		7,626		8,905		–			31,644
Investment securities – FVTPL		–		–		–		–		–		–		–		–		1,248			1,248
Loans		42,908		28,913		31,072		32,724		31,159		92,194		248,377		42,114		53,802			603,263
Residential mortgages		2,938		5,271		9,009		13,400		13,458		49,948		158,050		30,012		2,598	^(1)^		284,684
Personal loans		2,827		1,605		3,290		3,227		4,358		11,053		23,137		5,279		38,982			93,758
Credit cards		–		–		–		–		–		–		–		–		14,797			14,797
Business and government		37,143		22,037		18,773		16,097		13,343		31,193		67,190		6,823		5,064	^(2)^		217,663
Allowance for credit losses		–		–		–		–		–		–		–		–		(7,639	)		(7,639	)
Customers’ liabilities under acceptances		11,756		1,986		439		30		17		–		–		–		–			14,228
Other assets		–		–		–		–		–		–		–		–		47,294			47,294
Total assets	$	212,520	$	68,288	$	58,186	$	45,652	$	44,834	$	121,713	$	320,083	$	95,015	$	170,175		$	1,136,466
Liabilities and equity
Deposits	$	65,249	$	47,997	$	53,315	$	38,786	$	23,698	$	39,350	$	73,007	$	20,614	$	388,822		$	750,838
Personal		10,231		13,741		15,088		11,626		6,192		11,691		9,861		216		167,489			246,135
Non-personal		55,018		34,256		38,227		27,160		17,506		27,659		63,146		20,398		221,333			504,703
Financial instruments designated at fair value through profit or loss		195		305		779		1,029		470		4,781		2,332		9,008		–			18,899
Acceptances		11,833		1,986		439		30		17		–		–		–		–			14,305
Obligations related to securities sold short		161		397		611		275		463		1,749		6,236		8,713		13,297			31,902
Derivative financial instruments		2,017		3,916		670		2,188		2,887		8,499		6,338		15,732		–			42,247
Obligations related to securities sold under repurchase agreements and securities lent		107,391		5,496		7,407		8,382		1,593		7,494		–		–		–			137,763
Subordinated debentures		–		–		–		–		–		–		–		7,405		–			7,405
Other liabilities		635		1,391		1,575		1,417		1,572		6,319		10,876		6,424		32,395			62,604
Total equity		–		–		–		–		–		–		–		–		70,503			70,503
Total liabilities and equity	$	187,481	$	61,488	$	64,796	$	52,107	$	30,700	$	68,192	$	98,789	$	67,896	$	505,017		$	1,136,466
Off-balance sheet commitments
Credit commitments^(3)^	$	5,374	$	13,010	$	22,643	$	24,764	$	20,386	$	34,638	$	108,929	$	5,625	$	–		$	235,369
Financial guarantees^(4)^		–		–		–		–		–		–		–		–		35,519			35,519
Outsourcing obligations^(5)^		16		31		44		43		43		41		–		–		–			218
(1)	Includes primarily impaired mortgages.
---	---
(2)	Includes primarily overdrafts and impaired loans.
---	---
(3)	Includes the undrawn component of committed credit and liquidity facilities.
---	---
(4)	Includes outstanding balances of guarantees, standby letters of credit and commercial letters of credit which may<br>expire undrawn.
---	---
(5)	The Bank relies on outsourcing arrangements for certain support and/or business functions, including, but not<br>limited to, computer operations and cheque and bill payment processing.
---	---

Credit ratings

Credit ratings are one of the factors that impact the Bank’s access to capital markets and the terms on which it can conduct derivatives, hedging transactions and borrow funds. The credit ratings and outlook that the rating agencies assign to the Bank are based on their own views and methodologies.

The Bank continues to have strong credit ratings^^and its deposits and legacy senior debt are rated AA by DBRS, Aa2 by Moody’s, A+ by Standard and Poor’s (S&P), and AA by Fitch. Fitch has a Negative outlook while the remaining rating agencies have a stable outlook on the Bank. The Bank’s bail-inable senior debt is rated AA (low) by DBRS, A2 by Moody’s, AA- by Fitch and A- by S&P.

On January 13, 2021, Fitch affirmed the Bank’s ratings and Negative outlook. No other rating agency has made affirmations of or changes to the Bank’s credit ratings or outlooks during the quarter.

Scotiabank First Quarter Report 202137

MANAGEMENT’S DISCUSSION & ANALYSIS

Capital Management

We continue to manage our capital in accordance with the capital management framework as described on pages 61 to 72 of the Bank’s 2020 Annual Report.

In the second quarter of 2020, OSFI introduced changes to regulations to keep the financial system resilient and well capitalized in response to COVID-19. A suite of temporary adjustments to existing capital and leverage requirements were introduced, as described on page 62 of the Bank’s 2020 Annual Report. The Bank adopted these changes in line with OSFI’s expectations and continues to apply them in our regulatory capital and leverage ratio calculations as at January 31, 2021.

In December 2020, OSFI announced that the Domestic Stability Buffer will remain at 1.0%. OSFI’s minimum Pillar 1 capital ratio requirements, including the D-SIB 1% surcharge and its Domestic Stability Buffer are: 9.0%, 10.5% and 12.5% for Common Equity Tier 1, Tier 1 and Total capital ratios, respectively.

Capital ratios

The Bank’s various regulatory capital measures consist of the following:

		As at
( millions)	January 312021			October 31<br>2020
Common Equity Tier 1 capital	$	49,542	****	$	49,165
Tier 1 capital	****	55,293	****		55,362
Total regulatory capital	****	63,724	****		64,512
Risk-weighted<br>assets(1)	$	406,780	****	$	417,138
Capital ratios (%):
Common Equity Tier 1 capital ratio	****	12.2	****		11.8
Tier 1 capital ratio	****	13.6	****		13.3
Total capital ratio	****	15.7	****		15.5
Leverage:
Leverage exposures	$	1,179,755	****	$	1,170,290
Leverage ratio<br>(%)	****	4.7	****		4.7

All values are in US Dollars.

(1)	As at January 31, 2021 and October 31, 2020, the Bank did not have a regulatory capital floor add-on for CET1, Tier 1 and Total capital RWA.

The Bank’s Common Equity Tier 1 (CET1) capital ratio was 12.2% at January 31, 2021, an increase of approximately 40 basis points from the prior quarter, due primarily to strong internal capital generation, lower risk-weighted assets and the impact from employee pension and post-retirement benefits, partly offset by the transitional phase-out of OSFI’s partial inclusion of Stage 1 and Stage 2 expected credit losses (ECL). As at January 31, 2021, the Bank’s CET1 ratio included a benefit of 22 basis points (October 31, 2020 – 30 basis points) from OSFI’s transitional adjustment for the partial inclusion of increases in Stage 1 and Stage 2 expected credit losses (ECL) relative to their pre-crisis baseline levels.

The Bank’s Tier 1 capital ratio increased by approximately 30 basis points from the prior quarter to 13.6%, due primarily to the above noted impacts to the CET1 ratio, partly offset by the Basel III phase-out of non-qualifying additional Tier 1 capital. The Total capital ratio of 15.7% increased by 20 basis points primarily due to the above noted impacts to the Tier 1 capital ratios, partly offset by the redemption of $750 million of subordinated debentures.

As at January 31, 2021, the CET1, Tier 1, Total capital and Leverage ratios were well above OSFI’s minimum capital ratios.

Changes in regulatory capital

The Bank’s Common Equity Tier 1 capital was $49.5 billion, as at January 31, 2021, an increase of approximately $0.4 billion from the prior quarter due primarily to internal capital generation of $1.2 billion, partly offset by lower accumulated other comprehensive income of $0.5 billion, excluding the impact from cashflow hedges, and the phase-out of OSFI’s transitional adjustment for the partial inclusion of ECL of $0.4 billion.

Risk-weighted assets

CET1 risk-weighted assets (RWA) decreased during the quarter by $10.4 billion or 2.5% to $406.8 billion, due primarily to lower RWA for retail mortgages and business banking and the negative impact of foreign currency translation.

Global Systemically Important Bank (G-SIB) Disclosures

In 2013, the Basel Committee on Banking Supervision (BCBS), in conjunction with the Financial Stability Board (FSB), issued “Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement” which assesses the systemic importance of banks to the global financial system and wider economy. Banks with Basel III leverage exposures in excess of EUR 200 billion or those classified as a G-SIB in the past year are required to participate in an annual survey.

The G-SIB indicators as defined by the BCBS, are intended to reflect the size of banks, their interconnectedness, the amount of financial institution infrastructure they provide, their cross-jurisdictional activity and their complexity. According to the most recent assessment by the FSB communicated in November 2020, the Bank is not considered to be a G-SIB based on October 31, 2019 indicators. However, the Bank is required to disclose the values

38Scotiabank First Quarter Report 2021 ****

MANAGEMENT’S DISCUSSION & ANALYSIS

of its indicators in accordance with the “Global systemically important banks – Public disclosure requirements” as revised by OSFI in 2015. The G-SIB indicators provided below are calculated based on specific instructions issued by the BCBS and may not be directly comparable against other disclosed information.

		As at and for the year endedOctober 31 ( millions) (1)
Category ^(2)^	Indicator ^(2)^	2020			2019
Cross-jurisdictional activity	Cross-jurisdictional claims	$	475,524	****		$	504,783
	Cross-jurisdictional liabilities	****	336,984	****			374,593
Size	Total exposures as defined for use in the Basel III leverage ratio	****	1,303,827	****			1,246,407
Interconnectedness	Intra-financial system assets	****	137,676	****			141,639
	Intra-financial system liabilities	****	103,775	****			104,512
	Securities outstanding	****	249,326	****			306,238
Substitutability/financial institution infrastructure	Payments activity	****	14,493,394	****			16,822,122
	Assets under custody	****	309,082	****			291,894
	Underwritten transactions in debt and equity markets	****	99,829	****			55,452
Complexity	Notional amount of over-the-counter derivatives	****	5,428,606	****			5,668,590
	Trading, FVTPL, and FVOCI securities^^	****	45,575	****			49,699
	Level 3 assets	****	935	****			941

All values are in US Dollars.

(1)	Disclosures are based on the regulatory definition of consolidation.
(2)	As defined by the BCBS publication “Global systemically important banks: updated assessment methodology and<br>the higher loss absorbency requirement” (July 2013).
---	---

Changes in G-SIB Indicators

During 2020, securities outstanding decreased primarily due to lower certificates of deposit and commercial paper. Payment activity decreased primarily due to lower volumes in U.S. dollars. Other year-over-year movements generally reflect changes in business activity or impacts from foreign currency translation.

Normal Course Issuer Bid

On March 13, 2020, OSFI advised federally regulated deposit taking institutions to suspend common share buybacks as part of COVID-19 measures. The Bank does not have an active normal course issuer bid and did not repurchase any common shares during the quarter ended January 31, 2021.

The Bank’s previous normal course issuer bid terminated on June 3, 2020. Under this program, the Bank repurchased and cancelled approximately 11.8 million common shares at an average price of $72.41 per share. These repurchases were carried out before March 13, 2020.

Common dividend

The Board of Directors, at its meeting on February 22, 2021, approved a dividend of 90 cents per share. This quarterly dividend is payable to shareholders of record as of April 6, 2021 on April 28, 2021.

On March 13, 2020, OSFI advised federally regulated deposit taking institutions to suspend dividend increases as part of COVID-19 measures.

Financial Instruments

Given the nature of the Bank’s main business activities, financial instruments make up a substantial portion of the balance sheet and are integral to the Bank’s business. There are various measures that reflect the level of risk associated with the Bank’s portfolio of financial instruments. Further discussion of some of these risk measures is included in the Risk Management section. The methods of determining the fair value of financial instruments are detailed on page 177 of the Bank’s 2020 Annual Report.

Management’s judgment on valuation inputs is necessary when observable market data is not available, and in the selection of appropriate valuation models. Uncertainty in these estimates and judgments can affect fair value and financial results recorded. During the quarter, changes in the fair value of financial instruments reflect the current economic environment, including that from COVID-19, industry and market conditions.

Many financial instruments are traded products such as derivatives, and are generally transacted under industry standard International Swaps and Derivatives Association (ISDA) master netting agreements with counterparties, which allow for a single net settlement of all transactions covered by that agreement in the event of a default or early termination of the transactions. ISDA agreements are frequently accompanied by an ISDA Credit Support Annex (CSA), the terms of which may vary according to each party’s view of the other party’s creditworthiness. CSAs can require one party to post initial margin at the onset of each transaction. CSAs also allow for variation margin to be called if total uncollateralized mark-to-market exposure exceeds an agreed upon threshold. Such variation margin provisions can be one-way (only one party will ever post collateral) or bi-lateral (either party may post depending upon which party is in-the-money). The CSA will also detail the types of collateral that are acceptable to each party, and the haircuts that will be applied against each collateral type. The terms of the ISDA master netting agreements and CSAs are taken into consideration in the calculation of counterparty credit risk exposure (see also page 94 of the Bank’s 2020 Annual Report).

Total derivative notional amounts were $5,432 billion as at January 31, 2021, compared to $5,621 billion as at October 31, 2020. The quarterly decrease was due primarily to foreign currency translation partially offset by higher volumes of foreign exchange and equity contracts. The total notional amount of over-the-counter derivatives was $5,243 billion compared to $5,426 billion as at October 31, 2020, of which $3,657 billion was settled through central counterparties as at January 31, 2021 (October 31, 2020 – $3,834 billion). The credit equivalent amount, after taking master netting arrangements into account, was $31.1 billion, compared to $30.4 billion at October 31, 2020. The increase was primarily attributable to the higher exposure of foreign exchange and equity contracts offset by foreign currency translation.

Scotiabank First Quarter Report 202139

MANAGEMENT’S DISCUSSION & ANALYSIS

Selected credit instruments

A complete discussion of selected credit instruments which markets regarded as higher risk during the financial crisis was provided on page 77 of the Bank’s 2020 Annual Report. The Bank’s net exposures have substantially remained unchanged from year end.

Off-Balance Sheet Arrangements

In the normal course of business, the Bank enters into contractual arrangements that are either consolidated or not required to be consolidated in its financial statements, but could have a current or future impact on the Bank’s financial performance or financial condition. These arrangements can be classified into the following categories: structured entities, securitizations and guarantees and other commitments.

No material contractual obligations were entered into this quarter by the Bank with the structured entities that are not in the ordinary course of business. Processes for review and approval of these contractual arrangements are unchanged from last year. For a complete discussion of these types of arrangements, please refer to pages 72 to 75 of the Bank’s 2020 Annual Report.

Structured entities

The Bank sponsors two Canadian multi-seller conduits that are not consolidated. These multi-seller conduits purchase high-quality financial assets and finance these assets through the issuance of highly rated commercial paper.

Although the Bank has power over the relevant activities of the conduits, it has limited exposure to variability in returns, which results in the Bank not consolidating the two Canadian conduits.

A significant portion of the conduits’ assets have been structured to receive credit enhancements from the sellers, including overcollateralization protection and cash reserve accounts. Each asset purchased by the conduits is supported by a backstop liquidity facility provided by the Bank in the form of a liquidity asset purchase agreement (LAPA). The primary purpose of the backstop liquidity facility is to provide an alternative source of financing in the event the conduits are unable to access the commercial paper market. Under the terms of the LAPA, in most cases, the Bank is not obliged to purchase defaulted assets.

The Bank’s primary exposure to the Canadian-based conduits is the liquidity support provided, with total liquidity facilities of $4.0 billion as at January 31, 2021 (October 31, 2020 – $4.2 billion). As at January 31, 2021, total commercial paper outstanding for these conduits was $2.7 billion (October 31, 2020 – $3.1 billion). Funded assets purchased and held by these conduits as at January 31, 2021, as reflected at original cost, were $2.7 billion (October 31, 2020 – $3.1 billion). The fair value of these assets approximates original cost. There has been no significant change in the composition or risk profile of these conduits since October 31, 2020.

Other off-balance sheet arrangements

Guarantees and other indirect commitments were unchanged compared to October 31, 2020. Fees from guarantees and loan commitment arrangements recorded as credit fees in non-interest income – banking were $168 million for the three months ended January 31, 2021, compared to $166 million in the previous quarter.

Regulatory Developments

The Bank continues to monitor and respond to global regulatory developments relating to a broad spectrum of topics, in order to ensure that control functions and business lines are responsive on a timely basis and business impacts, if any, are minimized. A high-level summary of some of the key regulatory developments that have the potential of impacting the Bank’s operations is included in the Legal and compliance risk section of the Bank’s 2020 Annual Report, as may be updated below.

Regulatory Response to COVID-19

In March 2020, the Government of Canada and financial institution regulators introduced many new measures and economic relief initiatives to keep the financial system resilient and well capitalized in response to COVID-19. The Bank is actively monitoring these measures and initiatives and participating in certain government and regulatory programs. For more details on such programs and initiatives and the impact on the Bank’s operations, refer to page 25 of the Bank’s 2020 Annual Report.

The regulatory environment experienced increased regulatory reporting requirements with respect to prudential regulation, consumer protection and customer assistance programs. In response to the increased requirements, the Bank has mobilized projects to support.

Regulatory Initiatives Impacting Financial Services in Canada

On November 17, 2020, the Canadian government tabled two new statutes under Bill C-11, The Consumer Privacy Protection Act (CPPA) and The Personal Information and Data Protection Tribunal Act (PIDPTA). The Bill will replace the Personal Information Protection and Electronic Documents Act (PIPEDA) and introduce the following key changes: enhanced enforcement powers to the Office of the Privacy Commissioner of Canada (OPC), new monetary penalties for non-compliance, recognition of codes of practice and certification systems, rights in relation to data mobility, disposal of personal information and information on automatic decision-making, and modernized consent requirements such as introducing exceptions to consent among others. The Bank is actively monitoring these developments and engaging business stakeholders and key groups to discuss potential impact to its operations and participating in industry submissions with the Canadian Bankers Association (CBA). With all pending legislation, this Bill may be interrupted in the event a federal election is called.

On June 12, 2020, Bill 64, an Act to modernize legislative provisions as regards the protection of personal information, was tabled at the National Assembly of Quebec. This Bill will reform the Quebec private-sector privacy act. Some of the key changes in this Bill are: increase of enforcement powers for the Commission d’accès à l’information, new monetary penalties for non-compliance, mandatory privacy impact assessments of transborder data flows, mandatory breach notification and record keeping, and enhanced consent requirements. On February 2021, the Bill will start being subject to a clause-by-clause consideration by a special Committee and further debate. It will come into force one year after the date of its assent. The Bank is actively monitoring these developments and engaging business stakeholders and key groups to discuss potential impact to its operations.

The Commodity Futures Trading Commission (CFTC) Position Limit and Cross-Border Rules

The CFTC has adopted final rules addressing the cross-border application of certain swap dealer provisions of the Commodity Exchange Act. The Bank is on track for implementing changes effective September 14, 2021.

40Scotiabank First Quarter Report 2021 ****

MANAGEMENT’S DISCUSSION & ANALYSIS

The CFTC has approved final position limit rules for twenty-five commodity derivatives and their linked cash-settled futures, options on futures, and economically equivalent swaps. The compliance dates are tiered between January 2022 and January 2023. The Bank is on track with the implementation.

United Kingdom and European Regulatory Reform

The UK formally left the EU on January 31, 2020, with the subsequent transition period ending on December 31, 2020.

The UK’s exit from the EU may result in significant changes in law(s), which may impact the Bank’s business, financial condition and/or results of operations and could adversely impact the Bank’s cost of funding in Europe. To-date, the Bank has addressed all material priorities in connection with UK’s exit from the EU.

The Securities Exchange Commission (SEC) SBSD Registration and Compliance Date

The SEC has published a series of compliance dates for Security-Based Swap Dealers and Major Security-Based Swap Participants as part of its Security-Based Swap Dealer regulations. August 6, 2021 is the de minimis threshold counting requirement deadline which determines whether firms have a registration requirement, and November 1, 2021 is the final date for registration submission to the SEC for entities registering as a Security Based Swap Dealer (SBSD). In addition, October 6, 2021 marks the compliance date for several rules applicable to registered SBSDs. These rules include security-based swap margin, segregation, recordkeeping and reporting, business conduct, trade acknowledgment and risk mitigation rules. December 1, 2021 is a compliance deadline to start trade reporting to a Swap Data Repository.

The Bank has established governance and a program of work designed to meet the relevant compliance deadlines and be compliant with applicable SEC rules. One aspect of this program entails applying to the SEC for substituted compliance with respect to certain of its rules, based upon a determination of comparability with analogous rules in place in Canada under the prudential oversight of OSFI. The Bank is engaged in discussions in order to help facilitate the arrangements between the SEC and OSFI that are required in order for substituted compliance to be obtained.

Basel Committee on Banking Supervision – Finalized Basel III Reforms

In December 2017, the Group of Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision (BCBS), announced that they have agreed on an output floor of 72.5% and have finalized the remaining Basel III reforms.

The final Basel III reform package includes: a revised standardized approach for credit risk; revisions to the internal ratings-based approach for credit risk; revisions to the credit valuation adjustment (CVA) framework, including the removal of the internally modelled approach and the introduction of a revised standardized approach; a revised standardized approach for operational risk, which will replace the existing standardized approaches and the advanced measurement approach; revisions to the measurement of the leverage ratio and a leverage ratio buffer for global systemically important banks (G-SIBs), which will take the form of a Tier 1 capital buffer set at 50% of a G-SIB’s risk-weighted capital buffer; and an aggregate output floor, which will ensure that banks’ risk-weighted assets (RWAs) generated by internal models are no lower than 72.5% of RWAs as calculated by the Basel III framework’s standardized approaches. Banks will also be required to disclose their RWAs based on these standardized approaches. Implementation of the new Basel III standards will be required in 2022. This includes the Fundamental Review of the Trading Book (FRTB) rules, which represents a delay from 2020. There is a phase-in period for the 72.5% output floor from January 1, 2022 until January 2027.

In March 2020, the GHOS announced a delay in the international implementation of the Basel III reform package. The delay was introduced to provide additional operational capacity for banks and supervisors to respond to immediate financial stability priorities resulting from COVID-19 on the global banking system. In line with that extension, OSFI is deferring the implementation date for the final set of Basel III reforms published by the BCBS in December 2017 to Q1 2023. This includes revisions to the Standardized Approach and Internal Ratings-Based Approach to credit risk, the operational risk framework, and the leverage ratio framework, as well as the introduction of the new capital floor. Consistent with this delay, OSFI’s implementation date of the revised Pillar 3 disclosure requirements as finalized by the BCBS in December 2018, which include the second and third phases of the BCBS’ Pillar 3 disclosure project, will be delayed until Q1 2023 at the earliest. In addition, OSFI’s implementation date of the final set of revisions to the BCBS market risk framework (FRTB) published in January 2019 is being delayed until Q1 2024. This extended timeline recognizes the complexity of the FRTB framework and the required infrastructure enhancements needed to adhere to it. OSFI’s implementation date of revised credit valuation adjustment risk framework is also being delayed to Q1 2024.

The Bank will continue to monitor and prepare for developments impacting regulatory capital requirements.

Interest Rate Benchmark Reform

In July 2017, the UK Financial Conduct Authority (FCA), which began regulating the London Interbank Offered Rate (LIBOR) in 2013, announced that after December 31, 2021, it would stop making efforts to sustain the rate. The FCA and regulators in other jurisdictions, have urged markets to transition away from the use of LIBOR and other interbank offered rates (IBORs), including the Canadian Dollar Offered Rate (CDOR), in favour of alternative risk-free rates (RFRs). RFRs differ inherently from LIBOR and other interbank offered rates, lacking both a term structure and a credit component. These differences add complexity to the transition, resulting in the fact that some markets, such as those based on new rates like the Secured Overnight Funding Rate, have been slower to develop.

The Bank has established an enterprise-wide program (the Transition Program) aimed at ensuring a smooth transition from LIBOR and other IBORs to RFRs. The Transition Program has been focused on identifying and quantifying our exposures to various IBORs, providing the capability to trade products referencing alternative RFRs and evaluating our existing contract amendment language in the event LIBOR ceases to exist. The Transition Program is reviewing contracts that reference LIBOR and other IBORs, with due consideration for those extending beyond the end of calendar year 2021 and is assessing its technology to ensure that it is fit for use in connection with RFRs. In summary, the Bank’s approach contemplates transition risks as part of a comprehensive program of change to ensure that systems, processes and strategy provide for a smooth transition from the use of legacy rates and supports trading in RFRs.

In developing these transition strategies, the Transition Program has integrated into its plans recommendations from industry groups and regulatory bodies, such as the Alternative Reference Rate Committee in the US and the FCA regarding timing of key transition activities, such as ceasing to issue certain LIBOR-based products, and incorporating fallback language in specific instruments.

Refinitiv, the benchmark administrator for CDOR, announced that the calculation and publication of the 6-month and 12-month tenors of CDOR will cease indefinitely effective as of May 17, 2021. The Bank has a plan to phase out use of these CDOR tenors.

The Bank is keeping apprised of recent developments involving the ICE Benchmark Administrator, the FCA and the Federal Reserve Board regarding the future of certain LIBOR tenors and currencies, and in particular for USD LIBOR, as well as any guidance from relevant regulatory agencies to cease issuance of LIBOR products in 2021. The Bank’s transition efforts reflect these revised regulatory recommendations, including technological readiness to issue and trade RFR-based products, preparing to amend and transition legacy contracts and transactions, and supporting clients through active engagement on the subject of rate reform. The Bank is progressing well in adhering to the ISDA IBOR Fallbacks Protocol lending its support to this important industry tool in the transition of legacy derivatives products.

Scotiabank First Quarter Report 202141

MANAGEMENT’S DISCUSSION & ANALYSIS

The International Accounting Standards Board (IASB) has approached the impact of Interest Rate Benchmark Reform on financial reporting in two phases. Phase 1 addressed issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative RFR; and Phase 2 focused on issues that might affect financial reporting when an existing interest rate benchmark is replaced with an RFR. The IASB issued the Phase 1 and Phase 2 amendments in September 2019 and August 2020, respectively. The Bank adopted the Phase 1 amendments effective November 1, 2019, and early adopted the Phase 2 amendments effective November 1, 2020.

Use of the Advanced Measurement Approach for Operational Risk Capital

In January 2020, OSFI revised its capital requirements for operational risk in consideration of the final Basel III revisions published by the BCBS in December 2017. Effective Q1 2023, institutions will be required to use the revised Basel III Standardized Approach for operational risk. OSFI has plans for further consultation related to the 2023 domestic implementation of the final Basel III reforms.

In the interim, for fiscal years 2020, 2021 and 2022, institutions previously approved for the Basel II Advanced Measurement Approach (AMA) for operational risk capital are to report using the existing Basel II Standardized Approach (TSA).

Accounting Policies and Controls

Accounting policies and estimates

The condensed interim consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The significant accounting policies used in the preparation of the condensed interim consolidated financial statements are consistent with those used in the Bank’s audited consolidated financial statements for the year ended October 31, 2020 as described in Note 3 of the Bank’s 2020 annual consolidated financial statements, except for changes to definition of business resulting from the amendment to IFRS 3 Business Combinations, and changes to the modifications of financial instruments from amendments to IFRS 9 Financial Instruments, and changes to hedge accounting from amendments to IAS 39 Financial Instruments: Recognition and Measurement, both of which are part of the IASB’s Interest Rate Benchmark Reform – Phase 2 Amendments. These are discussed in Note 3 of the condensed interim consolidated financial statements.

Future accounting developments

There are no significant updates to the future accounting developments disclosed in Note 5 of the Bank’s audited consolidated financial statements in the 2020 Annual Report.

Changes in internal control over financial reporting

There have been no changes in the Bank’s internal control over financial reporting during the three months ended January 31, 2021, that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.

Related party transactions

There were no changes to the Bank’s procedures and policies for related party transactions from those outlined in the Bank’s 2020 Annual Report. All transactions with related parties continued to be at market terms and conditions.

42Scotiabank First Quarter Report 2021 ****

MANAGEMENT’S DISCUSSION & ANALYSIS

Share Data

January 31, 2021	Amount( millions)		Dividendsdeclared pershare^(1)^			Numberoutstanding(000s)			Conversionfeature
Common shares^(2)^	$	18,297		$	0.90			1,212,368				n/a
Preferred shares
Preferred shares Series 32^(3)(4)^		279			–			11,162				Series 33
Preferred shares Series 33^(3)(4)^		130			–			5,184				Series 32
Preferred shares Series 34^(3)(5)^		350			0.343750			14,000				Series 35
Preferred shares Series 36^(3)(5)^		500			0.343750			20,000				Series 37
Preferred shares Series 38^(3)(5)^		500			0.303125			20,000				Series 39
Preferred shares Series 40^(3)(5)^		300			0.303125			12,000				Series 41
Additional Tier 1 securities	Amount( millions)		Distribution^(6)^			Yield (%)			Numberoutstanding(000s)
Scotiabank Trust Securities –<br>Series 2006-1 issued by Scotiabank Capital Trust^(7)^	$	750		$	28.25			5.650				750
Subordinated additional Tier 1 capital securities<br>(NVCC)^(5)(8)^	US$	1,250		US$	23.25			4.650				1,250
Subordinated additional Tier 1 capital securities<br>(NVCC)^(5)(9)^	US$	1,250		US$	12.25			4.900				1,250
NVCC Subordinated debentures^(5)^							Amount( millions)			Interest rate(%)
Subordinated debentures due March 2027							$	1,250				2.58
Subordinated debentures due December 2025^(10)^								–				3.37
Subordinated debentures due December 2025							US$	1,250				4.50
Subordinated debentures due January 2029								1,750				3.89
Subordinated debentures due July 2029								1,500				2.84
Options											Numberoutstanding(000s)
Outstanding options granted under the Stock Option Plans to<br>purchase common shares^(2)^												12,752

All values are in US Dollars.

(1)	Dividends on common shares are paid quarterly, if and when declared. Dividends declared as at February 23,<br>2021. The Board of Directors, at its meeting on February 22, 2021, approved a dividend of 90 cents per share payable to shareholders of record as of April 6, 2021 on April 28, 2021.
(2)	As at February 12, 2021, the number of outstanding common shares and options were 1,212,448 thousand and<br>12,672 thousand, respectively.
---	---
(3)	These preferred shares are entitled to non-cumulative preferential cash<br>dividends payable quarterly. These preferred shares have conversion features. Refer to Note 24 of the Consolidated Financial Statements in the Bank’s 2020 Annual Report for further details.
---	---
(4)	On February 2, 2021, the Bank redeemed all outstanding<br>Non-cumulative Preferred shares Series 32 and Series 33 at a price equal to $25.00 per share plus dividends declared on January 26, 2021 of $0.009891 per Series 32 share and $0.006976 per Series 33 share.<br>
---	---
(5)	These securities contain Non-Viability Contingent Capital (NVCC)<br>provisions necessary to qualify as regulatory capital under Basel III. The Bank’s 2020 Annual Report describes the conditions under which the conversion occurs and the conversion mechanics of NVCC Subordinated Debentures (Note 21), NVCC<br>Subordinated additional Tier 1 capital securities (Note 24) and NVCC Preferred Shares (Note 24). The maximum number of common shares issuable on conversion of NVCC subordinated debentures, NVCC subordinated additional Tier 1 capital securities, and<br>NVCC preferred shares as at January 31, 2021 would be 2,959 million common shares based on the floor price and excluding the impact of any accrued and unpaid interest and any declared but unpaid dividends.
---	---
(6)	Distributions made per face amount of $1,000 or US$1,000 semi-annually or quarterly, as applicable.<br>
---	---
(7)	These securities have exchange features. Refer to Table 30 in the Bank’s 2020 Annual Report for further<br>details.
---	---
(8)	Semi-annual distributions are recorded in the second and fourth fiscal quarters, if and when paid.<br>
---	---
(9)	Quarterly distributions are recorded in each fiscal quarter, if and when paid.
---	---
(10)	On December 8, 2020, the Bank redeemed all outstanding CDN $750 million 3.367% Debentures (Non-Viability Contingent Capital (NVCC)) due December 8, 2025 at 100% of their principal amount plus accrued interest.
---	---

For further details on outstanding securities of the Bank, including convertibility features, refer to Notes 21, 24 and 26 of the Bank’s consolidated financial statements in the 2020 Annual Report.

Scotiabank First Quarter Report 202143

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Condensed Interim Consolidated Financial Statements (unaudited)<br><br><br>TABLE OF CONTENTS
45	Condensed Interim Consolidated Financial Statements
---	---	---
50	Notes to the Condensed Interim Consolidated Financial Statements
	50	Note 1 - Reporting entity
	50	Note 2 - Basis of preparation
	50	Note 3 - Significant accounting policies
	52	Note 4 - Future accounting developments
	52	Note 5 - Cash and deposits with financial<br>institutions
	52	Note 6 - Investment securities
	54	Note 7 - Loans, impaired loans and allowance for credit<br>losses
	61	Note 8 - Derecognition of financial assets
62	Note 9 - Investments in associates
---	---
62	Note 10 - Deposits
62	Note 11 - Capital and financing transactions
63	Note 12 - Capital management
63	Note 13 - Share-based payments
63	Note 14 - Employee benefits
64	Note 15 - Operating segments
65	Note 16 - Interest income and expense
65	Note 17 - Earnings per share
66	Note 18 - Financial instruments
72	Note 19 - Corporate income taxes

44Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statement of Financial Position

			As at
(Unaudited) ( millions)	Note	****	January 312021	****			October 31<br>2020
Assets
Cash and deposits with financial institutions	5	$	89,491	****		$	76,460
Precious metals		****	1,107	****			1,181
Trading assets
Securities		****	133,197	****			108,331
Loans		****	7,903	****			8,352
Other		****	668	****			1,156
			****	141,768	****			117,839
Securities purchased under resale agreements and securities borrowed		****	118,831	****			119,747
Derivative financial instruments		****	46,269	****			45,065
Investment securities	6	****	99,236	****			111,389
Loans
Residential mortgages	7	****	290,474	****			284,684
Personal loans	7	****	91,442	****			93,758
Credit cards	7	****	14,143	****			14,797
Business and government	7	****	215,180	****			217,663
			****	611,239	****			610,902
Allowance for credit losses	7(c)	****	7,590	****			7,639
			****	603,649	****			603,263
Other
Customers’ liability under acceptances, net of allowance		****	14,775	****			14,228
Property and equipment		****	5,730	****			5,897
Investments in associates	9	****	2,516	****			2,475
Goodwill and other intangible assets		****	16,977	****			17,015
Deferred tax assets		****	2,116	****			2,185
Other assets		****	21,585	****			19,722
			****	63,699	****			61,522
Total assets		$	1,164,050	****		$	1,136,466
Liabilities
Deposits
Personal	10	$	249,509	****		$	246,135
Business and government	10	****	476,334	****			464,619
Financial institutions	10	****	43,150	****			40,084
			****	768,993	****			750,838
Financial instruments designated at fair value through profit or loss	18(b)	****	20,260	****			18,899
Other
Acceptances		****	14,856	****			14,305
Obligations related to securities sold short		****	40,119	****			31,902
Derivative financial instruments		****	41,296	****			42,247
Obligations related to securities sold under repurchase agreements and securities<br>lent		****	140,491	****			137,763
Subordinated debentures	11	****	6,600	****			7,405
Other liabilities		****	60,298	****			62,604
			****	303,660	****			296,226
Total liabilities		****	1,092,913	****			1,065,963
Equity
Common equity
Common shares	11	****	18,297	****			18,239
Retained earnings		****	47,519	****			46,345
Accumulated other comprehensive income (loss)		****	(2,785	)			(2,125	)
Other reserves		****	356	****			360
Total common equity		****	63,387	****			62,819
Preferred shares and other equity instruments	11	****	5,308	****			5,308
Total equity attributable to equity holders of the Bank		****	68,695	****			68,127
Non-controlling interests in<br>subsidiaries		****	2,442	****			2,376
Total equity		****	71,137	****			70,503
Total liabilities and equity		$	1,164,050	****		$	1,136,466

All values are in US Dollars.

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Scotiabank First Quarter Report 202145

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statement of Income

				For the three months ended
(Unaudited) ( millions)	Note		****	January 312021	****			October 31<br>2020			January 31<br>2020
Revenue<br>Interest income(1)
Loans			$	6,048	****		$	6,104		$	7,387
Securities			****	380	****			458			550
Securities purchased under resale agreements and securities borrowed			****	43	****			51			99
Deposits with financial institutions			****	41	****			39			200
		16		****	6,512	****			6,652			8,236
Interest expense
Deposits			****	1,793	****			2,055			3,329
Subordinated debentures			****	47	****			50			70
Other			****	321	****			289			445
		16		****	2,161	****			2,394			3,844
Net interest income			****	4,351	****			4,258			4,392
Non-interest income
Card revenues			****	204	****			181			265
Banking services fees			****	385	****			376			441
Credit fees			****	358	****			345			340
Mutual funds			****	661	****			506			495
Brokerage fees			****	252	****			225			224
Investment management and trust			****	246	****			238			251
Underwriting and other advisory			****	166	****			152			164
Non-trading foreign exchange			****	204	****			169			185
Trading revenues			****	621	****			498			486
Net gain on sale of investment securities			****	119	****			182			41
Net income from investments in associated corporations			****	57	****			49			91
Insurance underwriting income, net of claims			****	113	****			120			149
Other fees and commissions			****	164	****			151			188
Other			****	171	****			55			429
				****	3,721	****			3,247			3,749
Total revenue			****	8,072	****			7,505			8,141
Provision for credit losses			****	764	****			1,131			926
				****	7,308	****			6,374			7,215
Non-interest expenses
Salaries and employee benefits			****	2,228	****			2,071			2,295
Premises and technology			****	575	****			607			610
Depreciation and amortization			****	380	****			407			399
Communications			****	96	****			93			109
Advertising and business development			****	91	****			96			133
Professional			****	157	****			184			185
Business and capital taxes			****	143	****			123			141
Other			****	538	****			476			546
				****	4,208	****			4,057			4,418
Income before taxes			****	3,100	****			2,317			2,797
Income tax expense	19		****	702	****			418			471
Net income			$	2,398	****		$	1,899		$	2,326
Net income attributable to<br>non-controlling interests in subsidiaries			****	90	****			72			39
Net income attributable to equity holders of the Bank			$	2,308	****		$	1,827		$	2,287
Preferred shareholders and other equity instrument holders			****	43	****			82			25
Common shareholders			$	2,265	****		$	1,745		$	2,262
Earnings per common share (in dollars)
Basic	17		$	1.87	****		$	1.44		$	1.86
Diluted	17		****	1.86	****			1.42			1.84
Dividends paid per common share (in dollars)			****	0.90	****			0.90			0.90

All values are in US Dollars.

(1)	Includes interest income on financial assets measured at amortized cost and FVOCI, calculated using the effective<br>interest method, of $6,400 for the quarter ended January 31, 2021 (October 31, 2020 – $6,510; January 31, 2020 – $8,115).

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

46Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income

		For the three months ended
(Unaudited) ( millions)	January 312021				October 31<br>2020				January 31<br>2020
Net income	$	2,398	****		$	1,899			$	2,326
Other comprehensive income (loss)
Items that will be reclassified subsequently to net income
Net change in unrealized foreign currency translation gains (losses):
Net unrealized foreign currency translation gains (losses)	****	(1,406	)			(548	)			(1,186	)
Net gains (losses) on hedges of net investments in foreign operations	****	506	****			6				229
Income tax expense (benefit):
Net unrealized foreign currency translation gains (losses)	****	(7	)			16				1
Net gains (losses) on hedges of net investments in foreign<br>operations	****	133	****			1				60
		****	(1,026	)			(559	)			(1,018	)
Net change in fair value due to change in debt instruments measured at fair value through other comprehensive<br>income:
Net gains (losses) in fair value	****	(59	)			(235	)			174
Reclassification of net (gains) losses to net income	****	106	****			139				(75	)
Income tax expense (benefit):
Net gains (losses) in fair value	****	(17	)			(59	)			72
Reclassification of net (gains) losses to net income	****	24	****			37				(25	)
		****	40	****			(74	)			52
Net change in gains (losses) on derivative instruments designated as <br>cash flow hedges:
Net gains (losses) on derivative instruments designated as cash flow hedges	****	1,138	****			(661	)			227
Reclassification of net (gains) losses to net income	****	(1,392	)			385				(122	)
Income tax expense (benefit):
Net gains (losses) on derivative instruments designated as cash flow hedges	****	306	****			(181	)			67
Reclassification of net (gains) losses to net income	****	(362	)			106				(37	)
		****	(198	)			(201	)			75
Other comprehensive income (loss) from investments in<br>associates	****	12	****			7				(27	)
Items that will not be reclassified subsequently to net income
Net change in remeasurement of employee benefit plan asset and liability:
Actuarial gains (losses) on employee benefit plans	****	641	****			291				(358	)
Income tax expense (benefit)	****	171	****			76				(93	)
		****	470	****			215				(265	)
Net change in fair value due to change in equity instruments designated at fair value through other<br>comprehensive income:
Net gains (losses) in fair value	****	169	****			(44	)			54
Income tax expense (benefit)	****	22	****			(17	)			18
		****	147	****			(27	)			36
Net change in fair value due to change in own credit risk on financial liabilities designated underthe<br>fair value option:
Change in fair value due to change in own credit risk on financial liabilities designated underthe fair<br>value option	****	(178	)			(211	)			(12	)
Income tax expense (benefit)	****	(47	)			(55	)			(3	)
		****	(131	)			(156	)			(9	)
Other comprehensive income (loss) from investments in<br>associates	****	19	****			–				(7	)
Other comprehensive income (loss)	****	(667	)			(795	)			(1,163	)
Comprehensive income	$	1,731	****		$	1,104			$	1,163
Comprehensive income (loss) attributable to non-controlling interests	****	83	****			–				(38	)
Comprehensive income attributable to equity holders of the Bank	****	1,648	****			1,104				1,201
Preferred shareholders and other equity instrument holders	****	43	****			82				25
Common shareholders	$	1,605	****		$	1,022			$	1,176

All values are in US Dollars.

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Scotiabank First Quarter Report 202147

Consolidated Statement of Changes in Equity

							Accumulated other comprehensive income (loss)
(Unaudited) ($ millions)	Common<br>shares			Retained<br>earnings^(1)^			Foreign<br>currency<br>translation			Debt<br>instruments<br>FVOCI			Equity<br>instruments<br>FVOCI			Cash<br>flow<br>hedges			Other^(2)^			Other<br>reserves			Total<br>common<br>equity			Preferred<br>shares and<br>other<br>equity<br>instruments			Total<br>attributable<br>to equity<br>holders			Non-<br>controlling<br>interests in<br>subsidiaries			Total
Balance as at October 31, 2020	$	18,239	****	$	46,345	****	$	(1,328	)	$	330	****	$	(163	)	$	639	****	$	(1,603	)	$	360	****	$	62,819	****	$	5,308	****	$	68,127	****	$	2,376	****	$	70,503	****
Net income	****	–	****	****	2,265	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	2,265	****	****	43	****	****	2,308	****	****	90	****	****	2,398	****
Other comprehensive income (loss)	****	–	****	****	–	****	****	(1,030	)	****	40	****	****	146	****	****	(182	)	****	366	****	****	–	****	****	(660	)	****	–	****	****	(660	)	****	(7	)	****	(667	)
Total comprehensive income	$	–	****	$	2,265	****	$	(1,030	)	$	40	****	$	146	****	$	(182	)	$	366	****	$	–	****	$	1,605	****	$	43	****	$	1,648	****	$	83	****	$	1,731	****
Shares issued	****	58	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	(8	)	****	50	****	****	–	****	****	50	****	****	–	****	****	50	****
Shares repurchased/redeemed	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****
Dividends and distributions paid to equity holders	****	–	****	****	(1,091	)	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	(1,091	)	****	(43	)	****	(1,134	)	****	(17	)	****	(1,151	)
Share-based payments^(3)^	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	4	****	****	4	****	****	–	****	****	4	****	****	–	****	****	4	****
Other	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****	****	–	****
Balance as at January 31, 2021	$	18,297	****	$	47,519	****	$	(2,358	)	$	370	****	$	(17	)	$	457	****	$	(1,237	)	$	356	****	$	63,387	****	$	5,308	****	$	68,695	****	$	2,442	****	$	71,137	****
Balance as at October 31, 2019	$	18,264		$	44,439		$	800		$	37		$	(55	)	$	650		$	(862	)	$	365		$	63,638		$	3,884		$	67,522		$	2,670		$	70,192
Net income		–			2,262			–			–			–			–			–			–			2,262			25			2,287			39			2,326
Other comprehensive income (loss)		–			–			(941	)		52			39			75			(311	)		–			(1,086	)		–			(1,086	)		(77	)		(1,163	)
Total comprehensive income	$	–		$	2,262		$	(941	)	$	52		$	39		$	75		$	(311	)	$	–		$	1,176		$	25		$	1,201		$	(38	)	$	1,163
Shares issued		38			–			–			–			–			–			–			(6	)		32			–			32			–			32
Shares repurchased/redeemed		(54	)		(214	)		–			–			–			–			–			–			(268	)		–			(268	)		–			(268	)
Dividends and distributions paid to equity holders		–			(1,092	)		–			–			–			–			–			–			(1,092	)		(25	)		(1,117	)		(30	)		(1,147	)
Share-based payments^(3)^		–			–			–			–			–			–			–			3			3			–			3			–			3
Other		–			23			–			–			(27	)		–			–			–			(4	)		–			(4	)		(110	)^(4)^		(114	)
Balance as at January 31, 2020	$	18,248		$	45,418		$	(141	)	$	89		$	(43	)	$	725		$	(1,173	)	$	362		$	63,485		$	3,884		$	67,369		$	2,492		$	69,861
(1)	Includes undistributed retained earnings of $61 (January 31, 2020 – $61) related to a foreign<br>associated corporation, which is subject to local regulatory restriction.
---	---
(2)	Includes Share from associates, Employee benefits and Own credit risk.
---	---
(3)	Represents amounts on account of share-based payments (refer to Note 13).
---	---
(4)	Includes changes to non-controlling interests arising from business<br>combinations and related transactions.
---	---

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

48Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statement of Cash Flows

(Unaudited) ( millions)	For the three months ended
Sources (uses) of cash flows	January 312021			January 31<br>2020
Cash flows from operating activities
Net income	$	2,398	****	$	2,326
Adjustment for:
Net interest income	****	(4,351	)		(4,392	)
Depreciation and amortization	****	380	****		399
Provision for credit losses	****	764	****		926
Equity-settled share-based payment expense	****	4	****		3
Net gain on sale of investment securities	****	(119	)		(41	)
Net (gain)/loss on divestitures	****	–	****		(262	)
Net income from investments in associated corporations	****	(57	)		(91	)
Income tax expense	****	702	****		471
Changes in operating assets and liabilities:
Trading assets	****	(25,827	)		(16,913	)
Securities purchased under resale agreements and securities borrowed	****	(1,529	)		(14,576	)
Loans	****	(5,851	)		(6,903	)
Deposits	****	28,985	****		36,790
Obligations related to securities sold short	****	8,426	****		1,880
Obligations related to securities sold under repurchase agreements and securities lent	****	5,550	****		18,234
Net derivative financial instruments	****	(627	)		(1,830	)
Other, net	****	(5,887	)		(2,585	)
Dividends received	****	217	****		196
Interest received	****	6,820	****		8,332
Interest paid	****	(2,523	)		(4,135	)
Income tax paid	****	(842	)		(616	)
Net cash from/(used in) operating activities	****	6,633	****		17,213
Cash flows from investing activities
Interest-bearing deposits with financial institutions	****	(16,374	)		(24,526	)
Purchase of investment securities	****	(17,045	)		(15,261	)
Proceeds from sale and maturity of investment securities	****	27,559	****		19,262
Acquisition/divestiture of subsidiaries, associated corporations or business units,<br>net of cash acquired	****	–	****		3,807
Property and equipment, net of disposals	****	(45	)		(95	)
Other, net	****	(103	)		(282	)
Net cash from/(used in) investing activities	****	(6,008	)		(17,095	)
Cash flows from financing activities
Redemption of subordinated debentures	****	(750	)		–
Proceeds from common shares issued	****	58	****		38
Common shares purchased for cancellation	****	–	****		(268	)
Cash dividends and distributions paid	****	(1,134	)		(1,117	)
Distributions to non-controlling interests	****	(17	)		(30	)
Payment of lease liabilities	****	(89	)		(88	)
Other, net	****	(187	)		692
Net cash from/(used in) financing activities	****	(2,119	)		(773	)
Effect of exchange rate changes on cash and cash equivalents	****	(186	)		(16	)
Net change in cash and cash equivalents	****	(1,680	)		(671	)
Cash and cash equivalents at beginning of period(1)	****	11,123	****		10,904
Cash and cash equivalents at end of period(1)	$	9,443	****	$	10,233

All values are in US Dollars.

(1)	Represents cash and non-interest-bearing deposits with financial<br>institutions (refer to Note 5).

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)

1.	Reporting entity

The Bank of Nova Scotia (the Bank) is a chartered bank under the Bank Act (Canada) (the Bank Act). The Bank is a Schedule I bank under the Bank Act and is regulated by the Office of the Superintendent of Financial Institutions (OSFI). The Bank is a global financial services provider offering a diverse range of products and services, including personal, commercial, corporate and investment banking. The head office of the Bank is located at 1709 Hollis Street, Halifax, Nova Scotia, Canada and its executive offices are at Scotia Plaza, 44 King Street West, Toronto, Canada. The common shares of the Bank are listed on the Toronto Stock Exchange and the New York Stock Exchange.

2.	Basis of preparation

Statement of compliance

These condensed interim consolidated financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and accounting requirements of OSFI in accordance with Section 308 of the Bank Act. Section 308 states that except as otherwise specified by OSFI, the financial statements are to be prepared in accordance with IFRS.

These condensed interim consolidated financial statements were prepared in accordance with International Accounting Standard 34, Interim FinancialReporting (IAS 34) and do not include all of the information required for full annual financial statements. These condensed interim consolidated financial statements should be read in conjunction with the Bank’s annual audited consolidated financial statements for the year ended October 31, 2020.

The condensed interim consolidated financial statements for the quarter ended January 31, 2021 have been approved by the Board of Directors for issue on February 23, 2021.

Certain comparative amounts have been restated to conform with the basis of presentation in the current period.

Basis of measurement

The condensed interim consolidated financial statements have been prepared on the historical cost basis except for the following material items that are measured at fair value in the Consolidated Statement of Financial Position:

•	Financial assets and liabilities measured at fair value through profit or loss
•	Financial assets and liabilities designated at fair value through profit or loss
---	---
•	Derivative financial instruments
---	---
•	Equity instruments designated at fair value through other comprehensive income
---	---
•	Debt instruments measured at fair value through other comprehensive income
---	---

Functional and presentation currency

These condensed interim consolidated financial statements are presented in Canadian dollars, which is the Bank’s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest million unless otherwise stated.

Use of estimates and judgments

The preparation of financial statements, in conformity with IFRS, requires management to make estimates, apply judgments and make assumptions that affect the reported amount of assets and liabilities at the date of the condensed interim consolidated financial statements, and income and expenses during the reporting period. Estimates made by management are based on historical experience and other assumptions that are believed to be reasonable. Key areas where management has made difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain, include those relating to the allowance for credit losses, the fair value of financial instruments (including derivatives), corporate income taxes, employee benefits, the fair value of all identifiable assets and liabilities as a result of business combinations, impairment of non-financial assets and derecognition of financial assets and liabilities.

The allowance for credit losses, using an expected credit loss approach as required under IFRS 9, is estimated using complex models and incorporates inputs, assumptions and techniques that require a high degree of judgement. These include assessment of significant increase in credit risk, the forecast of macroeconomic variables for multiple scenarios and probability weightings of the scenarios. In the current economic environment resulting from COVID-19, the models in isolation may not capture all the uncertainty as well as the impact of the public support programs by the governments and central banks. This is reflected in the expert credit judgment applied in the determination of the allowance for credit losses.

While management makes its best estimates and assumptions, actual results could differ from these estimates and assumptions.

3.	Significant accounting policies

These condensed interim consolidated financial statements should be read in conjunction with the Bank’s audited consolidated financial statements for the year ended October 31, 2020.

Except for the changes described below, the significant accounting policies used in the preparation of the condensed interim consolidated financial statements are consistent with those used in the Bank’s audited consolidated financial statements for the year ended October 31, 2020 as described in Note 3 of the Bank’s 2020 annual consolidated financial statements.

Amendments to IFRS 3: Definition of a Business

On October 22, 2018, the IASB issued a narrow-scope amendment to IFRS 3 Business Combinations. The amendment clarifies determination of whether an acquisition is of a business or a group of assets. Distinguishing between a business and a group of assets is important because an

50Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

acquirer recognizes goodwill only when acquiring a business. A business at a minimum, is required to include an input and a substantive process that together significantly contribute to the ability to create outputs. The Bank may elect to apply an “optional concentration test” on a transaction-by-transaction basis that permits a simplified assessment of whether an acquired set of activities and assets is not a business. This test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identified asset (or a group of similar assets). If the test is not met, or if the Bank elects not to apply the test, it must evaluate whether it meets the definition of a business. The amendments will apply prospectively to new transactions occurring after November 1, 2020.

Interest Rate Benchmark Reform

On August 27, 2020, the IASB issued Interest Rate Benchmark Reform – Phase 2, Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (the amendments). The amendments introduce a practical expedient to account for a change in the basis for determining the contractual cash flows of financial instruments that are impacted by interest rate benchmark reform (IBOR reform). Under the practical expedient, the Bank does not derecognize or adjust the carrying amount of financial instruments for modifications required by IBOR reform but instead updates the effective interest rate to reflect the change in the interest rate benchmark. The practical expedient is applied when the modification is required as a direct consequence of IBOR reform, and the new basis for determining the contractual cash flows is economically equivalent to the previous basis. If changes are made to a financial asset or financial liability in addition to changes to the basis for determining the contractual cash flows required by the interest rate benchmark reform, then the Bank first updates the effective interest of the financial asset or financial liability to reflect the change that is required by IBOR reform. After that, the Bank applies the policies on accounting for modifications set out in Note 3 of the Bank’s consolidated financial statements in the 2020 Annual Report to the remaining modifications.

In conjunction, the amendments also provide relief from specific hedge accounting requirements, such that when the basis for determining the contractual cash flows of existing hedge relationship changes as a result of IBOR reform, the Bank may amend the hedge documentation without discontinuing the hedging relationship. For cash flow hedges where the interest benchmark changes as a result of IBOR reform, the Bank deems that the corresponding hedge reserve in OCI is based on the alternative benchmark rate to determine whether the hedged future cash flows are expected to occur. For changes that are in addition to those required by IBOR reform, the Bank first determines whether the additional changes result in discontinuation of hedge relationships before applying the relief. In addition, when determining the hedged risk, the Bank may designate an alternative benchmark rate risk component that is not currently separately identifiable, as long as it is reasonable to expect that the alternative benchmark rate will become separately identifiable within a 24-month period. For aspects of hedge accounting not covered by the amendments and hedges that are not directly impacted by the IBOR reform, the accounting policies as described in Note 3 of the Bank’s consolidated financial statements in the 2020 Annual Report continue to apply.

Under the amendments, additional disclosures are required in the financial statements to outline the effect of the reform on the financial instruments and risk management strategy. The Bank early adopted the amendments effective November 1, 2020, as permitted by the standard. The amendments apply retrospectively, but the Bank is not required to restate comparative information. There was no impact on opening shareholders’ equity.

Overview

Major interest rate benchmark review and reform has been undertaken globally, with a view to either reforming or phasing out certain interbank offered rates (IBORs), including the Canadian Dollar Offered Rate (CDOR). As alternatives to IBORs, regulators have recommended markets begin adopting alternative risk-free rates (RFRs). The Bank has significant exposures to the London Interbank Offered Rate (LIBOR), particularly USD and GBP LIBOR, which are slated to be discontinued from December 31, 2021.

Depending on the outcome of recent public consultations, it is possible that the most widely used USD LIBOR tenors will continue to be published until June 30, 2023, while all other LIBOR currencies and tenors will cease to be published from December 31, 2021.

IBOR reform and the associated move from IBORs to RFRs carries systemic and market risks. These risks, such as increased volatility, lack of liquidity and uneven fallback practices, may impact market participants. In addition to these inherent risks, the Bank is exposed to operational risk arising from the renegotiation of contracts, technology readiness to issue and trade products referencing RFRs, and conduct with clients and counterparties.

The Bank has established an enterprise-wide program (the Transition Program) to support the Bank’s transition away from LIBOR and other IBORs to RFRs. The focus of the Transition Program is to address risks by identifying the exposures to various IBORs, evaluating the contract language in the event IBORs cease to be published or available, developing the capabilities to issue and trade products referencing RFRs and communicating with clients and counterparties regarding industry developments pertaining to IBOR reform. The Transition Program provides quarterly updates to the Bank’s Regulatory Oversight Committee, and annually, to the Risk Committee of the Board of Directors, regarding the status of transition plans for migrating the Bank’s IBOR-linked products and upgrading systems and processes.

The Transition Program monitors and integrates recommendations from industry groups and regulatory bodies, such as the Alternative Reference Rate Committee (ARRC) in the U.S. and the Financial Conduct Authority regarding the timing of key transition activities. For example, the ARRC recommended that derivatives dealers adhere to the ISDA IBOR Fallbacks Protocol (the ISDA Protocol) prior to the effective date on January 25, 2021. The Bank is progressing well in adhering to the ISDA Protocol marking a significant risk-mitigating step for the Bank’s IBOR-based derivatives contracts and exposures.

Non-derivative financial assets and financial liabilities

The following table shows the Bank’s non-derivative financial assets and financial liabilities exposures to significant IBORs subject to reform that have yet to transition to alternative benchmark rates with most maturing after December 31, 2021. These exposures will remain outstanding until the IBOR ceases and will therefore transition in the future.

		Carrying amount
As at November 1, 2020 ( millions)	USD<br>LIBOR		GBP<br>LIBOR		Other<br>Rates^(1)^		Total
Non-derivative financial assets(2)	$	51,140	$	1,468	$	2,876	$	55,484
Non-derivative financial<br>liabilities(3)(4)		3,378		949		1,914		6,241

All values are in US Dollars.

(1)	Other rates include exposures to EUR LIBOR, EONIA, CHF LIBOR, JPY LIBOR and<br>six-month and twelve-month CDOR. These CDOR tenors will cease to be published after May 17, 2021.
(2)	Non derivative financial assets include carrying amounts of debt securities and loans (debt securities and loans<br>measured at amortized cost are gross of allowance for credit losses).
---	---
(3)	Non-derivative financial liabilities include carrying amounts of<br>deposits, subordinated debentures and other liabilities.
---	---
(4)	Non-derivative financial liabilities exclude additional Tier 1 capital<br>instruments of $1.56 billion (US$1.25 billion) that are currently at a fixed rate and subsequently reset to three-month USD LIBOR on October 12, 2022.
---	---

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Derivatives and undrawn commitments

The following table shows the notional balance of the Bank’s derivative exposures and undrawn commitments to significant IBORs subject to reform that have yet to transition to alternative benchmark rates with most maturing after December 31, 2021. These exposures will remain outstanding until the IBOR ceases and will therefore transition in the future.

		Notional amount
As at November 1, 2020 ( millions)	LIBOR		LIBOR		Other<br>Rates^(1)^		Total
Derivatives
Single currency interest rate swaps	$	630,265		$	699,339	$	216,646	$	1,546,250
Cross currency interest rate swaps(2)		322,426			31,052		138,740		492,218
Other(3)		48,297			29,486		34,908		112,691
Undrawn commitments		35,900			1,094		613		37,607

All values are in US Dollars.

(1)	Other rates include exposures to EUR LIBOR, EONIA, CHF LIBOR, JPY LIBOR and six-month and twelve-month CDOR.<br>These CDOR tenors will cease to be published after May 17, 2021.
(2)	For cross currency interest rate swaps, where both legs are referencing rates directly impacted by the benchmark<br>reform, the relevant notional amount for both legs are shown separately to reflect the risks relating to the reform for each rate.
---	---
(3)	Other derivatives include futures, forward rate agreements and options.
---	---
4.	Future accounting developments
---	---

There are no significant updates to the future accounting developments disclosed in Note 5 of the Bank’s audited consolidated financial statements in the 2020 Annual Report.

5.	Cash and deposits with financial institutions
		As at
---	---	---	---	---	---	---	---	---
( millions)	January 312021				October 31<br>2020
Cash and non-interest-bearing deposits with financial<br>institutions	$	9,443	****		$	11,123
Interest-bearing deposits with financial institutions	****	80,048	****			65,337
Total	$	89,491	^(1)^		$	76,460	^(1)^

All values are in US Dollars.

(1)	Net of allowances of $1 (October 31, 2020 – $1).

The Bank is required to maintain balances with central banks, other regulatory authorities and certain counterparties and these amounted to $6,411 million (October 31, 2020 – $7,121 million) and are included above.

6.	Investment securities

The following table presents the carrying amounts of the Bank’s investment securities per measurement category.

		As at
( millions)	January 312021			October 31<br>2020
Debt investment securities measured at FVOCI	$	68,259	****	$	76,638
Debt investment securities measured at amortized cost	****	27,713	****		31,644
Equity investment securities designated at FVOCI	****	2,279	****		1,859
Equity investment securities measured at FVTPL	****	960	****		1,222
Debt investment securities measured at FVTPL	****	25	****		26
Total investment securities	$	99,236	****	$	111,389

All values are in US Dollars.

52Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(a) Debt investment securities measured at fair value through other comprehensive income (FVOCI)

As at January 31, 2021 ( millions)	Cost			Grossunrealizedgains			Grossunrealizedlosses			Fair value
Canadian federal government issued or guaranteed debt	$	14,247	****	$	388	****	$	1	****	$	14,634	****
Canadian provincial and municipal debt	****	13,485	****	****	205	****	****	1	****	****	13,689	****
U.S. treasury and other U.S. agency debt	****	9,664	****	****	408	****	****	3	****	****	10,069	****
Other foreign government debt	****	28,617	****	****	409	****	****	186	****	****	28,840	****
Other debt	****	1,006	****	****	21	****	****	–	****	****	1,027	****
Total	$	67,019	****	$	1,431	****	$	191	****	$	68,259	****
As at October 31, 2020 ( millions)	Cost			Gross<br>unrealized<br>gains			Gross<br>unrealized<br>losses			Fair<br><br><br>value
Canadian federal government issued or guaranteed debt	$	16,374		$	454		$	–		$	16,828
Canadian provincial and municipal debt		17,295			253			1			17,547
U.S. treasury and other U.S. agency debt		12,634			595			–			13,229
Other foreign government debt		27,643			274			17			27,900
Other debt		1,115			19			–			1,134
Total	$	75,061		$	1,595		$	18		$	76,638

All values are in US Dollars.

(b) Debt investment securities measured at amortized cost

		As at
		January 31, 2021						October 31, 2020
( millions)	Fair value			Carryingvalue^(1)^			Fair value		Carrying<br>value^(1)^
Canadian federal and provincial government issued or guaranteed debt	$	17,318	****	$	17,164	****	$	17,955	$	17,819
U.S. treasury and other U.S. agency debt	****	8,305	****	****	8,029	****		11,048		10,726
Other foreign government debt	****	1,716	****	****	1,695	****		1,766		1,744
Corporate debt	****	828	****	****	825	****		1,360		1,355
Total	$	28,167	****	$	27,713	****	$	32,129	$	31,644

All values are in US Dollars.

(1)	Balances are net of allowances, which are not significant.

The Bank has designated certain instrument at FVOCI shown in the following table as these equity securities are held for strategic purposes.

As at January 31, 2021 ( millions)	Cost			Grossunrealizedgains			Grossunrealizedlosses			Fair value
Preferred equity instruments	$	14	****	$	–	****	$	3	****	$	11	****
Common shares	****	2,021	****	****	316	****	****	69	****	****	2,268	****
Total	$	2,035	****	$	316	****	$	72	****	$	2,279	****
As at October 31, 2020 ( millions)	Cost			Gross<br>unrealized<br>gains			Gross<br>unrealized<br>losses			Fair value
Preferred equity instruments	$	11		$	–		$	3		$	8
Common shares		1,735			228			112			1,851
Total	$	1,746		$	228		$	115		$	1,859

All values are in US Dollars.

Dividend income earned on equity securities designated at FVOCI of $26 million for the three months ended January 31, 2021 (October 31, 2020 – $16 million; January 31, 2020 – $17 million) has been recognized in interest income.

During the three months ended January 31, 2021, the Bank has disposed of certain equity securities designated at FVOCI with a fair value of $181 million (October 31, 2020 – $38 million; January 31, 2020 – $342 million). This has resulted in a gain of $39 million in the three months ended January 31, 2021 (October 31, 2020 – $8 million gain; January 31, 2020 – $20 million loss).

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

7.	Loans, impaired loans and allowance for credit losses

(a) Loans at amortized cost

		As at
		January 31, 2021									October 31, 2020
( millions)	Grosscarryingamount			Allowancefor creditlosses			Net<br><br><br>carryingamount			Gross<br>carrying<br>amount		Allowance<br>for credit<br>losses		Net<br><br><br>carrying<br>amount
Residential mortgages	$	290,474	****	$	864	****	$	289,610	****	$	284,684	$	884	$	283,800
Personal loans	****	91,442	****	****	3,150	****	****	88,292	****		93,758		3,155		90,603
Credit cards	****	14,143	****	****	1,915	****	****	12,228	****		14,797		1,886		12,911
Business and government	****	215,180	****	****	1,661	****	****	213,519	****		217,663		1,714		215,949
Total	$	611,239	****	$	7,590	****	$	603,649	****	$	610,902	$	7,639	$	603,263

All values are in US Dollars.

(b) Impaired loans^(1)(2)^

		As at
		January 31, 2021									October 31, 2020
( millions)	Grossimpairedloans			Allowancefor creditlosses			Net			Gross<br>impaired<br>loans		Allowance<br>for credit<br>losses		Net
Residential mortgages	$	1,563	****	$	406	****	$	1,157	****	$	1,490	$	392	$	1,098
Personal loans	****	1,302	****	****	849	****	****	453	****		1,032		820		212
Credit cards	****	–	****	****	–	****	****	–	****		–		–		–
Business and government	****	2,414	****	****	739	****	****	1,675	****		2,531		745		1,786
Total	$	5,279	****	$	1,994	****	$	3,285	****	$	5,053	$	1,957	$	3,096
By geography:
Canada	$	1,168	****	$	497	****	$	671	****	$	1,127	$	487	$	640
United States	****	57	****	****	3	****	****	54	****		116		4		112
Mexico	****	674	****	****	260	****	****	414	****		570		222		348
Peru	****	973	****	****	475	****	****	498	****		824		498		326
Chile	****	715	****	****	228	****	****	487	****		775		233		542
Colombia	****	541	****	****	130	****	****	411	****		459		102		357
Other international	****	1,151	****	****	401	****	****	750	****		1,182		411		771
Total	$	5,279	****	$	1,994	****	$	3,285	****	$	5,053	$	1,957	$	3,096

All values are in US Dollars.

(1)	Interest income recognized on impaired loans during the three months ended January 31, 2021 was $16 (October<br>31, 2020 – $11).
(2)	Additional interest income of approximately $78 would have been recorded if the above loans had not been<br>classified as impaired (October 31, 2020 – $71).
---	---
(c)	Allowance for credit losses
---	---
(i)	Key inputs and assumptions
---	---

The Bank’s allowance for credit losses is measured using a three-stage approach based on the extent of credit deterioration since origination. The calculation of the Bank’s allowance for credit losses is an output of complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. Some of the key drivers include the following:

•	Changes in risk ratings of the borrower or instrument reflecting changes in their credit quality;
•	Changes in the volumes of transactions;
---	---
•	Changes in the forward-looking macroeconomic environment reflected in the variables used in the models such as GDP growth,<br>unemployment rates, commodity prices, and house price indices, which are most closely related with credit losses in the relevant portfolio;
---	---
•	Changes in macroeconomic scenarios and the probability weights assigned to each scenario; and
---	---
•	Borrower migration between the three stages.
---	---

The Bank determines its allowance for credit losses using four probability-weighted forward-looking scenarios (base case, optimistic, pessimistic and pessimistic front loaded).

The Bank considers both internal and external sources of information and data to achieve unbiased projections and forecasts in determining the allowance for credit losses. The Bank prepares the scenarios using forecasts generated by Scotiabank Economics (SE). The forecasts are generated using models whose outputs are modified by SE as necessary to formulate a ‘base case’ view of the most probable future direction of economic developments. The development of the baseline and alternative scenarios is overseen by a governance committee that consists of internal stakeholders from across the Bank. The final baseline and alternative scenarios reflect significant review and oversight, and incorporate judgment both in the determination of the scenarios’ forecasts and the probability weights that are assigned to them.

54Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(ii)	Key macroeconomic variables

The inputs and models used for calculating expected credit losses may not always capture all characteristics of the market at the date of the financial statements. Qualitative adjustments or overlays may be made for certain portfolios or geographies as temporary adjustments in circumstances where, in the Bank’s view, the inputs, assumptions, and/or modelling techniques do not capture all relevant risk factors, including the emergence of economic or political events.

The Bank has applied expert credit judgement in the assessment of underlying credit deterioration and migration of balances to progressive stages. The Bank considered both quantitative and qualitative information in the assessment of significant increase in credit risk.

The Bank’s models are calibrated to consider past performance and macroeconomic forward-looking variables as inputs. The Bank has generated a forward-looking base case scenario and three alternate forward-looking scenarios. In these scenarios the Bank considered recovery time periods ranging from more immediate (V shape), mid-term (W shape) to longer-term (L shape) periods.

The following table shows certain key macroeconomic variables used to estimate the allowance for credit losses. For the base case, optimistic and pessimistic scenarios, the projections are provided for the next 12 months and for the remaining forecast period, which represents a medium-term view.

		Base Case Scenario						Alternative Scenario -<br>Optimistic						Alternative Scenario -<br>Pessimistic						Alternative Scenario -<br>Pessimistic Front<br>Loaded
As at January 31, 2021	Next 12<br>Months			Remaining<br>Forecast<br>Period			Next 12<br>Months			Remaining<br>Forecast<br>Period			Next 12<br>Months			Remaining<br>Forecast<br>Period			Next 12<br>Months			Remaining<br>Forecast<br>Period
Canada
Real GDP growth, y/y % change	****	4.6	****	****	2.3	****	****	6.5	****	****	3.4	****	****	-0.6	****	****	3.2	****	****	-6.8	****	****	4.4	****
Unemployment rate, average %	****	7.9	****	****	6.1	****	****	7.4	****	****	4.7	****	****	10.1	****	****	6.6	****	****	13.0	****	****	8.5	****
Bank of Canada overnight rate target, average %	****	0.3	****	****	1.0	****	****	0.6	****	****	1.8	****	****	0.3	****	****	0.7	****	****	0.3	****	****	0.5	****
HPI - Housing Price Index, y/y % change	****	4.0	****	****	1.7	****	****	5.3	****	****	3.1	****	****	-6.6	****	****	4.2	****	****	-12.6	****	****	6.4	****
USDCAD exchange rate, average	****	1.26	****	****	1.25	****	****	1.25	****	****	1.23	****	****	1.34	****	****	1.26	****	****	1.35	****	****	1.27	****
US
Real GDP growth, y/y % change	****	4.3	****	****	2.5	****	****	5.7	****	****	3.3	****	****	0.9	****	****	3.2	****	****	-2.9	****	****	4.2	****
Unemployment rate, average %	****	6.2	****	****	5.0	****	****	5.8	****	****	4.5	****	****	7.4	****	****	5.7	****	****	8.7	****	****	7.1	****
Mexico
Real GDP growth, y/y % change	****	3.8	****	****	1.9	****	****	5.6	****	****	2.7	****	****	0.6	****	****	2.7	****	****	-3.3	****	****	3.8	****
Unemployment rate, average %	****	4.7	****	****	4.3	****	****	4.3	****	****	3.4	****	****	7.3	****	****	4.9	****	****	10.2	****	****	6.8	****
Chile
Real GDP growth, y/y % change	****	5.5	****	****	3.0	****	****	8.2	****	****	4.5	****	****	2.2	****	****	3.9	****	****	-1.8	****	****	5.0	****
Unemployment rate, average %	****	11.7	****	****	7.8	****	****	11.0	****	****	6.9	****	****	14.2	****	****	8.4	****	****	17.1	****	****	10.3	****
Peru
Real GDP growth, y/y % change	****	8.7	****	****	3.6	****	****	11.4	****	****	5.2	****	****	5.5	****	****	4.5	****	****	1.6	****	****	5.5	****
Unemployment rate, average %	****	12.0	****	****	7.5	****	****	9.3	****	****	4.4	****	****	14.5	****	****	8.0	****	****	17.4	****	****	9.9	****
Colombia
Real GDP growth, y/y % change	****	5.0	****	****	3.6	****	****	6.8	****	****	4.8	****	****	1.8	****	****	4.5	****	****	-2.1	****	****	5.5	****
Unemployment rate, average %	****	13.2	****	****	9.0	****	****	11.1	****	****	6.4	****	****	15.7	****	****	9.5	****	****	18.6	****	****	11.4	****
Caribbean
Real GDP growth, y/y % change	****	3.6	****	****	4.1	****	****	5.4	****	****	4.9	****	****	0.4	****	****	5.4	****	****	-3.4	****	****	6.5	****
Global
WTI oil price, average /bbl	****	48	****	****	57	****	****	54	****	****	81	****	****	41	****	****	52	****	****	38	****	****	44	****
Copper price, average /lb	****	3.11	****	****	3.24	****	****	3.28	****	****	3.78	****	****	2.90	****	****	3.15	****	****	2.82	****	****	2.94	****
Global GDP, y/y % change	****	5.31	****	****	3.36	****	****	7.18	****	****	4.39	****	****	2.64	****	****	3.89	****	****	-0.02	****	****	4.63

All values are in US Dollars.

Scotiabank First Quarter Report 202155

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

		Base Case Scenario				Alternative Scenario -<br>Optimistic				Alternative Scenario -<br>Pessimistic				Alternative Scenario -<br>Pessimistic Front<br>Loaded
As at October 31, 2020	Next 12<br>Months		Remaining<br>Forecast<br>Period		Next 12<br>Months		Remaining<br>Forecast<br>Period		Next 12<br>Months		Remaining<br>Forecast<br>Period		Next 12<br>Months		Remaining<br>Forecast<br>Period
Canada
Real GDP growth, y/y % change		3.1		2.2		4.7		2.7		-2.0		3.8		-10.8		6.4
Unemployment rate, average %		7.3		5.5		6.7		4.7		9.9		5.8		14.1		7.1
Bank of Canada overnight rate target, average %		0.3		0.8		0.5		1.2		0.3		0.4		0.3		0.3
HPI - Housing Price Index, y/y % change		0.4		2.8		1.9		3.3		-6.3		4.6		-15.2		6.8
USDCAD exchange rate, average		1.30		1.25		1.30		1.25		1.37		1.27		1.40		1.33
US
Real GDP growth, y/y % change		2.5		2.2		3.6		2.4		-0.5		3.1		-7.4		5.2
Unemployment rate, average %		6.3		3.5		6.1		3.3		8.1		4.1		10.5		7.0
Mexico
Real GDP growth, y/y % change		1.0		2.3		2.5		2.6		-1.8		3.1		-8.7		5.3
Unemployment rate, average %		7.3		4.5		6.8		3.9		9.9		4.9		14.1		6.2
Chile
Real GDP growth, y/y % change		3.8		2.6		5.6		3.2		0.8		3.4		-6.2		5.6
Unemployment rate, average %		12.1		7.3		11.6		6.9		14.7		7.7		18.9		8.9
Peru
Real GDP growth, y/y % change		3.7		3.8		5.0		4.4		2.9		4.4		-3.5		6.3
Unemployment rate, average %		12.4		8.1		11.3		6.3		14.2		8.5		18.5		9.7
Colombia
Real GDP growth, y/y % change		1.9		3.5		3.0		4.0		1.1		4.0		-5.2		6.0
Unemployment rate, average %		14.4		8.2		13.6		6.8		16.2		8.7		20.5		9.8
Caribbean
Real GDP growth, y/y % change		2.2		4.1		3.3		4.4		1.0		4.7		-6.6		5.9
Global
WTI oil price, average /bbl		48		58		52		68		42		54		37		38
Copper price, average /lb		3.00		3.19		3.09		3.42		2.79		3.06		2.66		2.64
Global GDP, y/y % change		4.44		3.28		5.63		3.72		2.36		3.91		-2.67		5.34

All values are in US Dollars.

(iii)	Sensitivity

The weighting of these multiple scenarios increased our reported allowance for credit losses for financial assets in Stage 1 and Stage 2, relative to our base case scenario, to $5,816 million (October 31, 2020 – $5,863 million) from $5,464 million (October 31, 2020 – $5,407 million). If we were to only use our pessimistic front loaded scenario for the measurement of allowance for credit losses for such assets, our allowance for credit losses on performing financial instruments would be $1,397 million (October 31, 2020 – $1,944 million) higher than the reported allowance for credit losses as at January 31, 2021. Actual results will differ as this does not consider the migration of exposures or incorporate changes that would occur in the portfolio due to risk mitigation actions and other factors.

Under our current probability-weighted scenarios, if all of our performing financial assets were in Stage 1, reflecting a 12 month expected loss period, the allowance for credit losses would be $528 million (October 31, 2020 – $495 million) lower than the reported allowance for credit losses on performing financial assets.

(iv)	Allowance for credit losses
Allowance for credit losses
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
( millions)	Balance as at<br>November 1,<br>2020			Provision for<br>credit losses				Net write-offs				Other, including<br>foreign currency<br>adjustment				Balance as atJanuary 31,<br><br><br>2021
Residential mortgages	$	884		$	25			$	(33	)		$	(12	)		$	864	****
Personal loans		3,155			367				(343	)			(29	)		****	3,150	****
Credit cards		1,886			261				(216	)			(16	)		****	1,915	****
Business and government		1,892			111				(82	)			(43	)		****	1,878	****
		$	7,817		$	764			$	(674	)		$	(100	)		$	7,807	****
Presented as:
Allowance for credit losses on loans	$	7,639														$	7,590	****
Allowance for credit losses on acceptances(1)		77														****	80	****
Allowance for credit losses on<br>off-balance sheet exposures(2)		101														****	137	****

All values are in US Dollars.

(1)	Allowance for credit losses on acceptances are recorded against the financial asset in the Consolidated Statement<br>of Financial Position.
(2)	Allowance for credit losses on off-balance sheet exposures is recorded in<br>other liabilities in the Consolidated Statement of Financial Position.
---	---

56Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

( millions)	Balance as at<br>November 1,<br>2019			Provision for<br>credit losses			Net write-offs				Other, including<br>foreign currency<br>adjustment				Balance as at<br>January 31,<br>2020
Residential mortgages	$	680		$	50		$	(23	)		$	(68	)		$	639
Personal loans		2,065			463			(410	)			(28	)			2,090
Credit cards		1,255			303			(304	)			(10	)			1,244
Business and government		1,139			110			(90	)			(46	)			1,113
		$	5,139		$	926		$	(827	)		$	(152	)		$	5,086
Presented as:
Allowance for credit losses on loans	$	5,077													$	5,021
Allowance for credit losses on acceptances(1)		6														15
Allowance for credit losses on<br>off-balance sheet exposures(2)		56														50

All values are in US Dollars.

(1)	Allowance for credit losses on acceptances are recorded against the financial asset in the Consolidated Statement<br>of Financial Position.
(2)	Allowance for credit losses on off-balance sheet exposures is recorded in<br>other liabilities in the Consolidated Statement of Financial Position.
---	---
Allowance for credit losses on loans	As at January 31, 2021
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
( millions)	Stage 1				Stage 2				Stage 3				Total
Residential mortgages	$	161	****		$	297	****		$	406	****		$	864	****
Personal loans	****	787	****		****	1,514	****		****	849	****		****	3,150	****
Credit cards	****	448	****		****	1,467	****		****	–	****		****	1,915	****
Business and government	****	384	****		****	538	****		****	739	****		****	1,661	****
Total(1)	$	1,780	****		$	3,816	****		$	1,994	****		$	7,590	****

All values are in US Dollars.

(1)	Excludes allowance for credit losses for other financial assets including acceptances, investment securities,<br>deposits with banks and off-balance sheet credit risks amounted to $220.
		As at October 31, 2020
---	---	---	---	---	---	---	---	---	---	---	---	---
( millions)	Stage 1			Stage 2			Stage 3			Total
Residential mortgages	$	190		$	302		$	392		$	884
Personal loans		864			1,471			820			3,155
Credit cards		501			1,385			–			1,886
Business and government		409			560			745			1,714
Total(1)	$	1,964		$	3,718		$	1,957		$	7,639

All values are in US Dollars.

(1)	Excludes allowance for credit losses for other financial assets including acceptances, investment securities,<br>deposits with banks and off-balance sheet credit risks amounted to $181.
		As at January 31, 2020
---	---	---	---	---	---	---	---	---	---	---	---	---
( millions)	Stage 1			Stage 2			Stage 3			Total
Residential mortgages	$	133		$	218		$	288		$	639
Personal loans		619			878			593			2,090
Credit cards		407			837			–			1,244
Business and government		160			236			652			1,048
Total(1)	$	1,319		$	2,169		$	1,533		$	5,021

All values are in US Dollars.

(1)	Excludes allowance for credit losses for other financial assets including acceptances, investment securities,<br>deposits with banks and off-balance sheet credit risks amounted to $74.

Scotiabank First Quarter Report 202157

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the changes to the allowance for credit losses on loans.

	As at January 31, 2021												As at January 31, 2020
( millions)	Stage 1	****	****	Stage 2	****	****	Stage 3	****	****	Total	****		Stage 1		Stage 2		Stage 3		Total
Residential mortgages
Balance at beginning of period	$	190	****	$	302	****	$	392	****	$	884	****	$	126	$	229	$	325	$	680
Provision for credit losses
Remeasurement(1)	(65	)	****	29	****	****	59	****	****	23	****		(8	)	10		14		16
Newly originated or purchased financial assets	11	****	****	–	****	****	–	****	****	11	****		6		–		–		6
Derecognition of financial assets and maturities	(3	)	****	(6	)	****	–	****	****	(9	)		–		(2	)	–		(2	)
Changes in models and methodologies	–	****	****	–	****	****	–	****	****	–	****		7		6		17		30
Transfer to (from):
Stage 1	32	****	****	(27	)	****	(5	)	****	–	****		15		(13	)	(2	)	–
Stage 2	(3	)	****	20	****	****	(17	)	****	–	****		(5	)	24		(19	)	–
Stage 3	–	****	****	(12	)	****	12	****	****	–	****		–		(11	)	11		–
Gross write-offs	–	****	****	–	****	****	(37	)	****	(37	)		–		–		(30	)	(30	)
Recoveries	–	****	****	–	****	****	4	****	****	4	****		–		–		7		7
Foreign exchange and other movements	(1	)	****	(9	)	****	(2	)	****	(12	)		(8	)	(25	)	(35	)	(68	)
Balance at end of period^(2)^	$	161	****	$	297	****	$	406	****	$	864	****	$	133	$	218	$	288	$	639
Personal loans
Balance at beginning of period	$	864	****	$	1,471	****	$	820	****	$	3,155	****	$	609	$	865	$	591	$	2,065
Provision for credit losses
Remeasurement(1)	(422	)	****	536	****	****	252	****	****	366	****		(142	)	151		342		351
Newly originated or purchased financial assets	99	****	****	–	****	****	–	****	****	99	****		98		–		–		98
Derecognition of financial assets and maturities	(28	)	****	(70	)	****	–	****	****	(98	)		(24	)	(27	)	–		(51	)
Changes in models and methodologies	–	****	****	–	****	****	–	****	****	–	****		16		33		16		65
Transfer to (from):
Stage 1	401	****	****	(398	)	****	(3	)	****	–	****		131		(128	)	(3	)	–
Stage 2	(92	)	****	111	****	****	(19	)	****	–	****		(51	)	68		(17	)	–
Stage 3	(31	)	****	(126	)	****	157	****	****	–	****		(1	)	(89	)	90		–
Gross write-offs	–	****	****	–	****	****	(406	)	****	(406	)		–		–		(476	)	(476	)
Recoveries	–	****	****	–	****	****	63	****	****	63	****		–		–		66		66
Foreign exchange and other movements	(4	)	****	(10	)	****	(15	)	****	(29	)		(17	)	5		(16	)	(28	)
Balance at end of period^(2)^	$	787	****	$	1,514	****	$	849	****	$	3,150	****	$	619	$	878	$	593	$	2,090
Credit cards
Balance at beginning of period	$	501	****	$	1,385	****	$	–	****	$	1,886	****	$	424	$	831	$	–	$	1,255
Provision for credit losses
Remeasurement(1)	(133	)	****	258	****	****	151	****	****	276	****		(75	)	123		205		253
Newly originated or purchased financial assets	29	****	****	–	****	****	–	****	****	29	****		46		–		–		46
Derecognition of financial assets and maturities	(15	)	****	(29	)	****	–	****	****	(44	)		(16	)	(15	)	–		(31	)
Changes in models and methodologies	–	****	****	–	****	****	–	****	****	–	****		6		29		–		35
Transfer to (from):
Stage 1	113	****	****	(113	)	****	–	****	****	–	****		62		(62	)	–		–
Stage 2	(43	)	****	43	****	****	–	****	****	–	****		(34	)	34		–		–
Stage 3	–	****	****	(70	)	****	70	****	****	–	****		–		(78	)	78		–
Gross write-offs	–	****	****	–	****	****	(260	)	****	(260	)		–		–		(361	)	(361	)
Recoveries	–	****	****	–	****	****	44	****	****	44	****		–		–		57		57
Foreign exchange and other movements	(4	)	****	(7	)	****	(5	)	****	(16	)		(6	)	(25	)	21		(10	)
Balance at end of period^(2)^	$	448	****	$	1,467	****	$	–	****	$	1,915	****	$	407	$	837	$	–	$	1,244
Business and government
Balance at beginning of period	$	478	****	$	592	****	$	745	****	$	1,815	****	$	191	$	263	$	679	$	1,133
Provision for credit losses
Remeasurement(1)	(10	)	****	21	****	****	106	****	****	117	****		(15	)	9		102		96
Newly originated or purchased financial assets	89	****	****	–	****	****	–	****	****	89	****		39		–		–		39
Derecognition of financial assets and maturities	(83	)	****	(13	)	****	(2	)	****	(98	)		(32	)	(7	)	(5	)	(44	)
Changes in models and methodologies	–	****	****	–	****	****	–	****	****	–	****		13		9		–		22
Transfer to (from):
Stage 1	18	****	****	(18	)	****	–	****	****	–	****		8		(8	)	–		–
Stage 2	(24	)	****	24	****	****	–	****	****	–	****		(3	)	3		–		–
Stage 3	–	****	****	(1	)	****	1	****	****	–	****		(2	)	(4	)	6		–
Gross write-offs	–	****	****	–	****	****	(87	)	****	(87	)		–		–		(96	)	(96	)
Recoveries	–	****	****	–	****	****	5	****	****	5	****		–		–		6		6
Foreign exchange and other movements	(9	)	****	(5	)	****	(29	)	****	(43	)		(2	)	(16	)	(40	)	(58	)
Balance at end of period including off-balance sheet exposures^(2)^	$	459	****	$	600	****	$	739	****	$	1,798	****	$	197	$	249	$	652	$	1,098
Less: Allowance for credits losses on off-balance sheet exposures(3)	(75	)	****	(62	)	****	–	****	****	(137	)		(37	)	(13	)	–		(50	)
Balance at end of period^(2)^	$	384	****	$	538	****	$	739	****	$	1,661	****	$	160	$	236	$	652	$	1,048

All values are in US Dollars.

(1)	Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did<br>not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments.
(2)	Interest income on impaired loans for residential mortgages, personal and credit cards, and business and<br>government loans totaled $78 (January 31, 2020 – $81).
---	---
(3)	Allowance for credit losses on off-balance sheet exposures is recorded in<br>other liabilities in the Consolidated Statement of Financial Position.
---	---

58Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(d)	Carrying value of exposures by risk rating
Residential mortgages	As at January 31, 2021												As at October 31, 2020
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Category of PD grades ($ millions)	Stage 1			Stage 2			Stage 3^(1)^			Total			Stage 1		Stage 2		Stage 3^(1)^		Total
Very low	$	173,748	****	$	1,504	****	$	–	****	$	175,252	****	$	167,233	$	1,892	$	–	$	169,125
Low	****	59,831	****	****	3,538	****	****	–	****	****	63,369	****		61,988		1,495		–		63,483
Medium	****	12,603	****	****	1,764	****	****	–	****	****	14,367	****		10,914		2,071		–		12,985
High	****	1,151	****	****	2,907	****	****	–	****	****	4,058	****		1,197		3,435		–		4,632
Very high	****	12	****	****	763	****	****	–	****	****	775	****		13		596		–		609
Loans not graded^(2)^	****	27,668	****	****	3,422	****	****	–	****	****	31,090	****		28,787		3,573		–		32,360
Default	****	–	****	****	–	****	****	1,563	****	****	1,563	****		–		–		1,490		1,490
Total	$	275,013	****	$	13,898	****	$	1,563	****	$	290,474	****	$	270,132	$	13,062	$	1,490	$	284,684
Allowance for credit losses	****	161	****	****	297	****	****	406	****	****	864	****		190		302		392		884
Carrying value	$	274,852	****	$	13,601	****	$	1,157	****	$	289,610	****	$	269,942	$	12,760	$	1,098	$	283,800
(1)	Stage 3 includes purchased or originated credit-impaired loans.
---	---
(2)	Portfolios where the customer account level ‘Probability of Default’ has not been determined have been<br>included in the ‘Loans not graded’ category.
---	---
Personal loans	As at January 31, 2021												As at October 31, 2020
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Category of PD grades ($ millions)	Stage 1			Stage 2			Stage 3^(1)^			Total			Stage 1		Stage 2		Stage 3^(1)^		Total
Very low	$	29,793	****	$	564	****	$	–	****	$	30,357	****	$	29,557	$	499	$	–	$	30,056
Low	****	25,350	****	****	1,372	****	****	–	****	****	26,722	****		25,508		1,793		–		27,301
Medium	****	7,182	****	****	2,057	****	****	–	****	****	9,239	****		6,619		2,779		–		9,398
High	****	5,341	****	****	2,766	****	****	–	****	****	8,107	****		5,809		2,964		–		8,773
Very high	****	161	****	****	1,347	****	****	–	****	****	1,508	****		318		1,367		–		1,685
Loans not graded^(2)^	****	12,501	****	****	1,706	****	****	–	****	****	14,207	****		13,629		1,884		–		15,513
Default	****	–	****	****	–	****	****	1,302	****	****	1,302	****		–		–		1,032		1,032
Total	$	80,328	****	$	9,812	****	$	1,302	****	$	91,442	****	$	81,440	$	11,286	$	1,032	$	93,758
Allowance for credit losses	****	787	****	****	1,514	****	****	849	****	****	3,150	****		864		1,471		820		3,155
Carrying value	$	79,541	****	$	8,298	****	$	453	****	$	88,292	****	$	80,576	$	9,815	$	212	$	90,603
(1)	Stage 3 includes purchased or originated credit-impaired loans.
---	---
(2)	Portfolios where the customer account level ‘Probability of Default’ has not been determined have been<br>included in the ‘Loans not graded’ category.
---	---
Credit cards	As at January 31, 2021												As at October 31, 2020
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Category of PD grades ($ millions)	Stage 1			Stage 2			Stage 3			Total			Stage 1		Stage 2		Stage 3		Total
Very low	$	1,356	****	$	16	****	$	–	****	$	1,372	****	$	1,318	$	20	$	–	$	1,338
Low	****	1,997	****	****	249	****	****	–	****	****	2,246	****		1,971		184		–		2,155
Medium	****	2,432	****	****	371	****	****	–	****	****	2,803	****		2,416		393		–		2,809
High	****	1,918	****	****	1,746	****	****	–	****	****	3,664	****		2,229		1,799		–		4,028
Very high	****	21	****	****	764	****	****	–	****	****	785	****		41		843		–		884
Loans not graded^(1)^	****	1,923	****	****	1,350	****	****	–	****	****	3,273	****		2,414		1,169		–		3,583
Default	****	–	****	****	–	****	****	–	****	****	–	****		–		–		–		–
Total	$	9,647	****	$	4,496	****	$	–	****	$	14,143	****	$	10,389	$	4,408	$	–	$	14,797
Allowance for credit losses	****	448	****	****	1,467	****	****	–	****	****	1,915	****		501		1,385		–		1,886
Carrying value	$	9,199	****	$	3,029	****	$	–	****	$	12,228	****	$	9,888	$	3,023	$	–	$	12,911
(1)	Portfolios where the customer account level ‘Probability of Default’ has not been determined have been<br>included in the ‘Loans not graded’ category.
---	---
Undrawn loancommitments – Retail	As at January 31, 2021												As at October 31, 2020
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Category of PD grades ($ millions)	Stage 1			Stage 2			Stage 3			Total			Stage 1		Stage 2		Stage 3		Total
Very low	$	87,265	****	$	1	****	$	–	****	$	87,266	****	$	85,242	$	6	$	–	$	85,248
Low	****	16,838	****	****	24	****	****	–	****	****	16,862	****		16,775		39		–		16,814
Medium	****	6,280	****	****	52	****	****	–	****	****	6,332	****		5,739		123		–		5,862
High	****	2,637	****	****	818	****	****	–	****	****	3,455	****		2,201		705		–		2,906
Very high	****	17	****	****	242	****	****	–	****	****	259	****		3		134		–		137
Loans not graded^(1)^	****	9,586	****	****	4,349	****	****	–	****	****	13,935	****		11,113		4,501		–		15,614
Default	****	–	****	****	–	****	****	–	****	****	–	****		–		–		–		–
Carrying value	$	122,623	****	$	5,486	****	$	–	****	$	128,109	****	$	121,073	$	5,508	$	–	$	126,581
(1)	Portfolios where the customer account level ‘Probability of Default’ has not been determined have been<br>included in the ‘Loans not graded’ category.
---	---

Scotiabank First Quarter Report 202159

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Business and<br>government loans	As at January 31, 2021												As at October 31, 2020
Grade ( millions)	Stage 1			Stage 2			Stage 3^(1)^			Total			Stage 1		Stage 2		Stage 3^(1)^		Total
Investment grade	$	104,061	****	$	1,768	****	$	–	****	$	105,829	****	$	105,757	$	1,290	$	–	$	107,047
Non-investment grade	****	92,186	****	****	9,270	****	****	–	****	****	101,456	****		93,998		8,840		–		102,838
Watch list	****	33	****	****	3,376	****	****	–	****	****	3,409	****		47		3,101		–		3,148
Loans not graded(2)	****	2,065	****	****	7	****	****	–	****	****	2,072	****		2,063		36		–		2,099
Default	****	–	****	****	–	****	****	2,414	****	****	2,414	****		–		–		2,531		2,531
Total	$	198,345	****	$	14,421	****	$	2,414	****	$	215,180	****	$	201,865	$	13,267	$	2,531	$	217,663
Allowance for credit losses	****	384	****	****	538	****	****	739	****	****	1,661	****		409		560		745		1,714
Carrying value	$	197,961	****	$	13,883	****	$	1,675	****	$	213,519	****	$	201,456	$	12,707	$	1,786	$	215,949

All values are in US Dollars.

(1)	Stage 3 includes purchased or originated credit-impaired loans.
(2)	Portfolios where the customer account level ‘Probability of Default’ has not been determined have been<br>included in the ‘Loans not graded’ category.
---	---
Undrawn loancommitments – Businessand government	As at January 31, 2021																As at October 31, 2020
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Grade ( millions)	Stage 1				Stage 2				Stage 3^(1)^				Total				Stage 1			Stage 2			Stage 3^(1)^			Total
Investment grade	$	180,456	****		$	1,273	****		$	–	****		$	181,729	****		$	182,580		$	1,280		$	–		$	183,860
Non-investment grade	****	61,449	****		****	3,532	****		****	–	****		****	64,981	****			59,600			4,336			–			63,936
Watch list	****	15	****		****	1,777	****		****	–	****		****	1,792	****			6			1,704			–			1,710
Loans not graded(2)	****	3,745	****		****	312	****		****	–	****		****	4,057	****			3,702			309			–			4,011
Default	****	–	****		****	–	****		****	151	****		****	151	****			–			–			161			161
Total	$	245,665	****		$	6,894	****		$	151	****		$	252,710	****		$	245,888		$	7,629		$	161		$	253,678
Allowance for credit losses	****	75	****		****	62	****		****	–	****		****	137	****			69			32			–			101
Carrying value	$	245,590	****		$	6,832	****		$	151	****		$	252,573	****		$	245,819		$	7,597		$	161		$	253,577

All values are in US Dollars.

(1)	Stage 3 includes purchased or originated credit-impaired loans.
(2)	Portfolios where the customer account level ‘Probability of Default’ has not been determined have been<br>included in the ‘Loans not graded’ category.
---	---
(e)	Loans past due but not impaired^(1)^
---	---

A loan is considered past due when a counterparty has not made a payment by the contractual due date. The following table presents the carrying value of loans that are contractually past due but not classified as impaired because they are either less than 90 days past due or fully secured and collection efforts are reasonably expected to result in repayment, or restoring it to a current status in accordance with the Bank’s policy. In cases where borrowers have opted to participate in payment deferral programs as a result of COVID-19, deferral of payments is not considered past due and such loans are not aged further during the deferral period.

		As at January 31, 2021 ^(2)^												As at October 31, 2020^(2)^
( millions)	31-60days			61-90days			91 daysand greater^(3)^			Total			31-60<br>days		61-90<br>days		91 days<br>and greater^(3)^		Total
Residential mortgages	$	799	****	$	382	****	$	–	****	$	1,181	****	$	663	$	282	$	–	$	945
Personal loans	****	529	****	****	322	****	****	–	****	****	851	****		604		273		–		877
Credit cards	****	320	****	****	231	****	****	629	****	****	1,180	****		401		166		277		844
Business and government	****	89	****	****	44	****	****	–	****	****	133	****		288		103		–		391
Total	$	1,737	****	$	979	****	$	629	****	$	3,345	****	$	1,956	$	824	$	277	$	3,057

All values are in US Dollars.

(1)	Loans past due 30 days or less are not presented in this analysis as they are not administratively considered<br>past due.
(2)	For loans where payment deferrals were granted, deferred payments are not considered past due and such loans are<br>not aged further during the deferral period. Regular ageing of the loans resumes, after the end of the deferral period.
---	---
(3)	All loans that are over 90 days past due are considered impaired with the exception of credit card receivables<br>which are considered impaired when 180 days past due.
---	---
(f)	Purchased credit-impaired loans
---	---

Certain financial assets including loans are credit-impaired on initial recognition. The following table provides details of such assets:

		As at
( millions)	January 312021			October 31<br>2020
Unpaid principal balance(1)	$	376	****	$	393
Credit related fair value adjustments	****	(88	)		(93	)
Carrying value	****	288	****		300
Stage 3 allowance	****	(14	)		(10	)
Carrying value net related allowance	$	274	****	$	290

All values are in US Dollars.

(1)	Represents principal amount owed net of write-offs.

60Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

8.	Derecognition of financial assets

Securitization of residential mortgage loans

The Bank securitizes fully insured residential mortgage loans, Bank originated and others, through the creation of mortgage-backed securities (MBS) under the National Housing Act (NHA) MBS program, sponsored by Canada Mortgage and Housing Corporation (CMHC). MBS created under the program are sold to Canada Housing Trust (the Trust), a government sponsored entity under the Canada Mortgage Bond (CMB) program. The Trust issues securities to third-party investors. The CMHC also purchased insured mortgage pools from the Bank under the Insured Mortgage Purchase Program (IMPP).

The sale of mortgages under the above programs do not meet the derecognition requirements, where the Bank retains the pre-payment and interest rate risks associated with the mortgages, which represent substantially all the risks and rewards associated with the transferred assets.

The transferred mortgages continue to be recognized on the Consolidated Statement of Financial Position as residential mortgage loans. Cash proceeds from the transfer are treated as secured borrowings and included in Deposits – Business and government on the Consolidated Statement of Financial Position.

The following table provides the carrying amount of transferred assets that do not qualify for derecognition and the associated liabilities:

		As at
( millions)	January 312021^(1)^			October 31<br>2020^(1)^
Assets
Carrying value of residential mortgage loans	$	19,149	****	$	20,586
Other related assets(2)	****	10,276	****		9,548
Liabilities
Carrying value of associated liabilities	****	27,143	****		27,819

All values are in US Dollars.

(1)	The fair value of the transferred assets is $28,892 (October 31, 2020 – $29,415) and the fair value of the<br>associated liabilities is $28,211 (October 31, 2020 – $28,920) for a net position of $681 (October 31, 2020 – $495).
(2)	These include cash held in trust and trust permitted investment assets, including repurchase style transactions<br>of mortgage-backed securities, acquired as part of the principal reinvestment account that the Bank is required to maintain in order to participate in the programs.
---	---

Securitization of personal lines of credit, credit cards and auto loans

The Bank securitizes a portion of its credit card and auto loan receivables and previously securitized a portion of its unsecured personal lines of credit through consolidated structured entities. These receivables continue to be recognized on the Consolidated Statement of Financial Position as personal loans and credit card loans.

During the first quarter, the Bank did not enter into any new securitization arrangements.

Securities sold under repurchase agreements and securities lent

The Bank enters into transactions, such as repurchase agreements and securities lending agreements, where the Bank transfers assets under agreements to repurchase them on a future date and retains all the substantial risks and rewards associated with the assets. The transferred securities remain on the Consolidated Statement of Financial Position.

The following table provides the carrying amount of the transferred assets and the associated liabilities:

		As at
( millions)	January 312021^(1)^			October 31<br>2020^(1)^
Carrying value of securities associated with:
Repurchase agreements(2)	$	121,733	****	$	121,918
Securities lending agreements	****	63,756	****		53,082
Total	****	185,489	****		175,000
Carrying value of associated liabilities(3)	$	140,491	****	$	137,763

All values are in US Dollars.

(1)	The fair value of transferred assets is $185,489 (October 31, 2020 – $175,000) and the fair value of the<br>associated liabilities is $140,491 (October 31, 2020 – $137,763) for a net position of $44,998 (October 31, 2020 – $37,237).
(2)	Does not include over-collateralization of assets pledged.
---	---
(3)	Liabilities for securities lending arrangements only include amounts related to cash collateral received. In most<br>cases, securities are received as collateral.
---	---

Scotiabank First Quarter Report 202161

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

9.	Investments in associates

The Bank had significant investments in the following associates:

											As at
											January 312021			October 31<br>2020
( millions)	Country of<br>incorporation		Nature of<br>business		Ownership<br>percentage			Date of financial<br>statements^(1)^		Carryingvalue			Carrying<br>value
Canadian Tire Financial Services business<br>(CTFS)(2)		Canada		Financial<br> <br>Services		20.00	%		December 31, 2020	****	533	****		534
Bank of Xi’an Co. Ltd.(3)		China		Banking		17.99	%		December 31, 2020	****	955	****		926
Maduro & Curiel’s Bank N.V.(4)		Curacao		Banking		48.10	%		December 31, 2020	****	365	****		355

All values are in US Dollars.

(1)	Represents the date of the most recent financial statements made available to the Bank by the associates’<br>management.
(2)	Canadian Tire has an option to sell to the Bank up to an additional 29% equity interest until the end of the 10th<br>anniversary (October 1, 2024) at the then fair value, that can be settled, at the Bank’s discretion, by issuance of common shares or cash. After October 1, 2024 for a period of six months, the Bank has the option to sell its equity<br>interest back to Canadian Tire at the then fair value.
---	---
(3)	Based on the quoted price on the Shanghai Stock Exchange, the Bank’s Investment in Bank of Xi’an Co.<br>Ltd. was $826 (October 31, 2020 – $818).
---	---
(4)	The local regulator requires financial institutions to set aside reserves for general banking risks. These<br>reserves are not required under IFRS, and represent undistributed retained earnings related to a foreign associated corporation, which are subject to local regulatory restrictions. As of January 31, 2021, these reserves amounted to $61 (October<br>31, 2020 – $64).
---	---
10.	Deposits
---	---
		As at
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
		January 31, 2021																				October 31<br>2020
		Payable on demand^(1)^								Payable<br><br><br>afternotice^(2)^
( millions)	Interest-bearing				Non-interest-bearing								Payable on afixed date^(3)^				Total				Total
Personal	$	9,081	****		$	9,958	****		$	155,424	****		$	75,046	****		$	249,509	****		$	246,135
Business and government	****	148,191	****		****	31,551	****		****	44,326	****		****	252,266	****		****	476,334	****			464,619
Financial institutions	****	9,013	****		****	976	****		****	1,401	****		****	31,760	****		****	43,150	****			40,084
		$	166,285	****		$	42,485	****		$	201,151	^(4)^		$	359,072	****		$	768,993	****		$	750,838
Recorded in:
Canada	$	115,154	****		$	23,214	****		$	170,304	****		$	242,792	****		$	551,464	****		$	541,589
United States	****	36,709	****		****	58	****		****	2,142	****		****	29,533	****		****	68,442	****			60,747
United Kingdom	****	–	****		****	–	****		****	280	****		****	18,947	****		****	19,227	****			14,977
Mexico	****	–	****		****	5,580	****		****	6,410	****		****	12,792	****		****	24,782	****			25,294
Peru	****	5,810	****		****	68	****		****	5,554	****		****	5,666	****		****	17,098	****			17,694
Chile	****	4,059	****		****	6,680	****		****	150	****		****	13,039	****		****	23,928	****			23,592
Colombia	****	48	****		****	703	****		****	4,845	****		****	3,974	****		****	9,570	****			9,308
Other International	****	4,505	****		****	6,182	****		****	11,466	****		****	32,329	****		****	54,482	****			57,637
Total(5)	$	166,285	****		$	42,485	****		$	201,151	****		$	359,072	****		$	768,993	****		$	750,838

All values are in US Dollars.

(1)	Deposits payable on demand include all deposits for which we do not have the right to notice of withdrawal,<br>generally chequing accounts.
(2)	Deposits payable after notice include all deposits for which we require notice of withdrawal, generally savings<br>accounts.
---	---
(3)	All deposits that mature on a specified date, generally term deposits, guaranteed investments certificates and<br>similar instruments.
---	---
(4)	Includes $162 (October 31, 2020 – $158) of non-interest-bearing<br>deposits.
---	---
(5)	Deposits denominated in U.S. dollars amount to $233,223 (October 31, 2020 – $215,836), deposits denominated<br>in Chilean pesos amount to $21,050 (October 31, 2020 – $21,099), deposits denominated in Mexican pesos amount to $22,674 (October 31, 2020 – $22,765) and deposits denominated in other foreign currencies amount to $82,458 (October 31, 2020<br>– $83,706).
---	---

The following table presents the maturity schedule for term deposits in Canada greater than $100,000^(1)^.

( millions)	Within<br>three months				Three to<br>six months				Six to<br>twelve months				One to<br>five years				Over<br>five years				Total
As at January 31, 2021	$	41,497	****		$	24,682	****		$	31,143	****		$	84,548	****		$	16,341	****		$	198,211	****
As at October 31, 2020	$	38,739			$	22,498			$	30,850			$	92,589			$	18,072			$	202,748

All values are in US Dollars.

(1)	The majority of foreign term deposits are in excess of $100,000.
11.	Capital and financing transactions
---	---

Subordinated debentures

On December 8, 2020, the Bank redeemed all outstanding CDN $750 million 3.367% Debentures (Non-Viability Contingent Capital (NVCC)) due December 8, 2025 at 100% of their principal amount plus accrued interest.

62Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Common shares

Normal Course Issuer Bid

Preferred shares and other equity instruments

Subsequent to the reporting date, on February 2, 2021, the Bank redeemed all outstanding Non-cumulative Preferred shares Series 32 and Series 33 at a price equal to $25.00 per share plus dividends declared on January 26, 2021 of $0.009891 per Series 32 share and $0.006976 per Series 33 share.

12.	Capital management

The Bank’s regulatory capital and leverage position were as follows:

	As at
($ millions)	January 31,2021			October 31,<br>2020
Capital
Common Equity Tier 1 capital	$	49,542	****	$	49,165
Net Tier 1 capital	****	55,293	****		55,362
Total regulatory capital	****	63,724	****		64,512
Risk-weighted assets/exposures used in calculation of capital ratios
Risk-weighted assets^(1)^	$	406,780	****	$	417,138
Leverage exposures	****	1,179,755	****		1,170,290
Capital ratios
Common Equity Tier 1 capital ratio	****	12.2	%		11.8	%
Tier 1 capital ratio	****	13.6	%		13.3	%
Total capital ratio	****	15.7	%		15.5	%
Leverage ratio	****	4.7	%		4.7	%
(1)	As at January 31, 2021 and October 31, 2020, the Bank did not have a regulatory capital floor add-on for CET1, Tier 1 and Total capital RWA.
---	---

The Bank substantially exceeded the OSFI minimum capital ratios as at January 31, 2021, including the Domestic Stability Buffer requirement.

13.	Share-based payments

During the first quarter, the Bank granted 1,876,066 options with an exercise price of $68.36 per option and a weighted average fair value of $4.60 to select employees, under the terms of the Employee Stock Option Plan. These stock options vest 50% at the end of the third year and 50% at the end of the fourth year. Options granted prior to December 2014 vest evenly over a four-year period.

The Bank recorded an increase to equity – other reserves of $4 million for the three months ended January 31, 2021 (January 31, 2020 – $3 million) as a result of equity-classified share-based payment expense.

14.	Employee benefits

Employee benefits include pensions, other post-retirement benefits, and post-employment benefits. The following table summarizes the expenses for the Bank’s principal plans^(1)^.

		For the three months ended
		Pension plans						Other benefit plans
( millions)	January 312021			January 31<br>2020			January 312021			January 31<br>2020
Defined benefit service cost	$	95	****	$	91		$	6	****	$	13
Interest on net defined benefit (asset) liability	****	9	****		6		****	11	****		12
Other	****	3	****		4		****	–	****		2
Defined benefit expense	$	107	****	$	101		$	17	****	$	27
Defined contribution expense	$	23	****	$	19		****	–	****		–
Increase (Decrease) in other comprehensive income related to<br>employee benefits(2)	$	637	****	$	(316	)	$	4	****	$	(42	)

All values are in US Dollars.

(1)	Other plans operated by certain subsidiaries of the Bank are not considered material and are not included in this<br>note.
(2)	Changes in discount rates and return on plan assets are reviewed and updated on a quarterly basis. In the absence<br>of legislated changes, all other assumptions are updated annually.
---	---

Scotiabank First Quarter Report 202163

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

15.	Operating segments

Scotiabank is a diversified financial services institution that provides a wide range of financial products and services to retail, commercial and corporate customers around the world. The Bank’s businesses are grouped into four business lines: Canadian Banking, International Banking, Global Banking and Markets and Global Wealth Management. Other smaller business segments are included in the Other segment. The results of these business segments are based upon the internal financial reporting systems of the Bank. The accounting policies used in these segments are generally consistent with those followed in the preparation of the consolidated financial statements as disclosed in Note 3 of the Bank’s audited consolidated financial statements in the 2020 Annual Report. Notable accounting measurement differences are:

•	tax normalization adjustments related to the gross-up of income from associated<br>corporations. This adjustment normalizes the effective tax rate in the divisions to better present the contribution of the associated companies to the divisional results.
•	the grossing up of tax-exempt net interest income and<br>non-interest income to an equivalent before-tax basis for those affected segments. This change in measurement enables comparison of net interest income and non-interest income arising from taxable and tax-exempt sources.
---	---

Scotiabank’s results, and average assets and liabilities, allocated by these operating segments, are as follows:

	For the three months ended January 31, 2021
Taxable equivalent basis ($ millions)	CanadianBanking			InternationalBanking			GlobalWealthManagement			GlobalBanking andMarkets			Other^(1)^			Total
Net interest income^(2)^	$	1,984	****	$	1,788	****	$	155	****	$	358	****	$	66	****	$	4,351	****
Non-interest income^(3)(4)^	****	664	****	****	773	****	****	1,235	****	****	978	****	****	71	****	****	3,721	****
Total revenues	****	2,648	****	****	2,561	****	****	1,390	****	****	1,336	****	****	137	****	****	8,072	****
Provision for credit losses	****	215	****	****	525	****	****	4	****	****	20	****	****	–	****	****	764	****
Non-interest expenses	****	1,204	****	****	1,402	****	****	817	****	****	614	****	****	171	****	****	4,208	****
Provision for income taxes	****	318	****	****	157	****	****	148	****	****	159	****	****	(80	)	****	702	****
Net income	$	911	****	$	477	****	$	421	****	$	543	****	$	46	****	$	2,398	****
Net income attributable to<br>non-controlling interests in subsidiaries	$	–	****	$	88	****	$	3	****	$	–	****	$	(1	)	$	90	****
Net income attributable to equity holders of the Bank	$	911	****	$	389	****	$	418	****	$	543	****	$	47	****	$	2,308	****
Average assets ($ billions)	$	368	****	$	199	****	$	27	****	$	395	****	$	166	****	$	1,155	****
Average liabilities ($ billions)	$	306	****	$	153	****	$	42	****	$	387	****	$	196	****	$	1,084	****
(1)	Includes all other smaller operating segments and corporate adjustments, such as the elimination of the tax-exempt income gross-up reported in net interest income and non-interest income and provision for income taxes of $69 to arrive at<br>the amounts reported in the Consolidated Statement of Income and differences in the actual amount of costs incurred and charged to the operating segments.
---	---
(2)	Interest income is reported net of interest expense as management relies primarily on net interest income as a<br>performance measure.
---	---
(3)	Card revenues and Banking services fees are mainly earned in Canadian and International Banking. Mutual fund,<br>Brokerage fees and Investment management and trust fees are primarily earned in Global Wealth Management. Underwriting and other advisory fees are predominantly earned in Global Banking and Markets.
---	---
(4)	Includes income (on a taxable equivalent basis) from investments in associated corporations for Canadian Banking<br>– $20; International Banking – $49, Global Wealth Management – $3, and Other – $(15).
---	---
		For the three months ended October 31, 2020
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Taxable equivalent basis ( millions)	Canadian<br>Banking			International<br>Banking			Global<br>Wealth<br>Management			Global<br>Banking and<br>Markets			Other^(1)^				Total
Net interest income(2)	$	1,954		$	1,785		$	144		$	350		$	25			$	4,258
Non-interest income(3)(4)		612			763			1,021			860			(9	)			3,247
Total revenues		2,566			2,548			1,165			1,210			16				7,505
Provision for credit losses		330			736			3			62			–				1,131
Non-interest expenses		1,186			1,424			726			583			138				4,057
Provision for income taxes		272			55			111			105			(125	)			418
Net income	$	778		$	333		$	325		$	460		$	3			$	1,899
Net income attributable to<br>non-controlling interests in subsidiaries	$	–		$	70		$	2		$	–		$	–			$	72
Net income attributable to equity holders of the Bank	$	778		$	263		$	323		$	460		$	3			$	1,827
Average assets ( billions)	$	363		$	202		$	27		$	389		$	159			$	1,140
Average liabilities ( billions)	$	295		$	153		$	40		$	387		$	195			$	1,070

All values are in US Dollars.

(1)	Includes all other smaller operating segments and corporate adjustments, such as the elimination of the tax-exempt income gross-up reported in net interest income and non-interest income and provision for income taxes of $67 to arrive at<br>the amounts reported in the Consolidated Statement of Income and differences in the actual amount of costs incurred and charged to the operating segments.
(2)	Interest income is reported net of interest expense as management relies primarily on net interest income as a<br>performance measure.
---	---
(3)	Card revenues and Banking services fees are mainly earned in Canadian and International Banking. Mutual fund,<br>Brokerage fees and Investment management and trust fees are primarily earned in Global Wealth Management. Underwriting and other advisory fees are predominantly earned in Global Banking and Markets.
---	---
(4)	Includes income (on a taxable equivalent basis) from investments in associated corporations for Canadian Banking<br>– $15; International Banking – $38, Global Wealth Management – $3, and Other – $(7).
---	---

64Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

		For the three months ended January 31, 2020
Taxable equivalent basis ( millions)	Canadian<br>Banking		International<br>Banking		Global<br>Wealth<br>Management		Global<br>Banking and<br>Markets		Other^(1)^			Total
Net interest income(2)	$	2,003	$	2,005	$	141	$	325	$	(82	)	$	4,392
Non-interest income(3)(4)		704		980		1,016		842		207			3,749
Total revenues		2,707		2,985		1,157		1,167		125			8,141
Provision for credit losses		321		580		1		24		–			926
Non-interest expenses		1,233		1,664		737		654		130			4,418
Provision for income taxes		301		159		110		117		(216	)		471
Net income	$	852	$	582	$	309	$	372	$	211		$	2,326
Net income attributable to<br>non-controlling interests in subsidiaries	$	–	$	64	$	3	$	–	$	(28	)	$	39
Net income attributable to equity holders of the Bank	$	852	$	518	$	306	$	372	$	239		$	2,287
Represented by:
Net income attributable to equity holders of the Bank – relating to divested operations(5)	$	–	$	59	$	–	$	–	$	–		$	59
Net income attributable to equity holders of the Bank – relating<br>to operations other than divested operations		852		459		306		372		239			2,228
Average assets ( billions)	$	355	$	203	$	25	$	411	$	124		$	1,118
Average liabilities ( billions)	$	263	$	151	$	35	$	337	$	262		$	1,048

All values are in US Dollars.

(1)	Includes all other smaller operating segments and corporate adjustments, such as the elimination of the tax-exempt income gross-up reported in net interest income and non-interest income and provision for income taxes of $68 to arrive at<br>the amounts reported in the Consolidated Statement of Income and differences in the actual amount of costs incurred and charged to the operating segments.
(2)	Interest income is reported net of interest expense as management relies primarily on net interest income as a<br>performance measure.
---	---
(3)	Card revenues and Banking services fees are mainly earned in Canadian and International Banking. Mutual fund,<br>Brokerage fees and Investment management and trust fees are primarily earned in Global Wealth Management. Underwriting and other advisory fees are predominantly earned in Global Banking and Markets.
---	---
(4)	Includes income (on a taxable equivalent basis) from investments in associated corporations for Canadian Banking<br>– $20; International Banking – $93, Global Wealth Management – $3, and Other – $(25).
---	---
(5)	Refer to Note 37 in the Bank’s 2020 Annual Report for details on divested operations. The impact of divested<br>operations is nil for the three months ended January 31, 2021 and October 31, 2020.
---	---
16.	Interest income and expense
---	---
	For the three months ended
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	January 31, 2021						October 31, 2020						January 31, 2020
($ millions)	Interestincome			Interestexpense			Interest<br>income			Interest<br>expense			Interest<br>income			Interest<br>expense
Measured at amortized cost^(1)^	$	6,212	****	$	2,126	****	$	6,280		$	2,356		$	7,797		$	3,777
Measured at<br>FVOCI^(1)^	****	188	****	****	–	****		230			–			318			–
	****	6,400	****	****	2,126	****		6,510			2,356			8,115			3,777
Other	****	112	^(2)^	****	35	^(3)^		142	^(2)^		38	^(3)^		121	^(2)^		67	^(3)^
Total	$	6,512	****	$	2,161	****	$	6,652		$	2,394		$	8,236		$	3,844
(1)	The interest income/expense on financial assets/liabilities are calculated using the effective interest method.<br>
---	---
(2)	Includes dividend income on equity securities.
---	---
(3)	Includes interest on lease liabilities for the three months ended January 31, 2021 of $27 (October 31, 2020<br>– $27; January 31, 2020 – $30).
---	---
17.	Earnings per share
---	---
		For the three months ended
---	---	---	---	---	---	---	---	---	---	---
( millions)	January 312021				October 31<br>2020			January 31<br>2020
Basic earnings per common share
Net income attributable to common shareholders	$	2,265	****		$	1,745		$	2,262
Weighted average number of common shares outstanding<br>(millions)	****	1,212	****			1,211			1,214
Basic earnings per common share(1) (in dollars)	$	1.87	****		$	1.44		$	1.86
Diluted earnings per common share
Net income attributable to common shareholders	$	2,265	****		$	1,745		$	2,262
Dilutive impact of share-based payment options and others(2)	****	41	****			19			27
Net income attributable to common shareholders (diluted)	$	2,306	****		$	1,764		$	2,289
Weighted average number of common shares outstanding (millions)	****	1,212	****			1,211			1,214
Dilutive impact of share-based payment options and others(2) (millions)	****	25	****			35			33
Weighted average number of diluted common shares outstanding<br>(millions)	****	1,237	****			1,246			1,247
Diluted earnings per common share(1) (in dollars)	$	1.86	****		$	1.42		$	1.84

All values are in US Dollars.

(1)	Earnings per share calculations are based on full dollar and share amounts.
(2)	Certain options as well as acquisition-related put/call options that the Bank may settle at its own discretion by<br>issuing common shares were not included in the calculation of diluted earnings per share as they were anti-dilutive.
---	---

Scotiabank First Quarter Report 202165

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

18.	Financial instruments

(a) Risk management

The Bank’s principal business activities result in a balance sheet that consists primarily of financial instruments. In addition, the Bank uses derivative financial instruments for both trading and hedging purposes. The principal financial risks that arise from transacting financial instruments include credit risk, liquidity risk and market risk. The Bank’s framework to monitor, evaluate and manage these risks is consistent with that in place as at October 31, 2020.

(i) Credit risk

Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to honour its financial or contractual obligations to the Bank.

Credit risk exposures disclosed below are presented based on the Basel framework utilized by the Bank. The Bank uses the Advanced Internal Ratings-Based approach (AIRB) for all material Canadian, U.S. and European portfolios, and for a significant portion of the international corporate and commercial portfolios. The remaining portfolios, including other international portfolios, are treated under the standardized approach. Under the AIRB approach, the Bank uses internal risk parameter estimates, based on historical experience.

Under the standardized approach, credit risk is estimated using the risk weights as prescribed by the Basel framework, either based on credit assessments by external rating agencies or based on the counterparty type for non-retail exposures and product type for retail exposures.

Exposure at default(1)	As at
		January 31, 2021									October 31<br>2020
( millions)	AIRB			Standardized			Total			Total
By exposure sub-type
Non-retail
Drawn(2)(3)	$	418,274	****	$	65,279	****	$	483,553	****	$	486,658
Undrawn commitments	****	107,724	****	****	3,683	****	****	111,407	****		115,420
Other<br>exposures(4)	****	119,076	****	****	9,602	****	****	128,678	****		120,903
Total non-retail	$	645,074	****	$	78,564	****	$	723,638	****	$	722,981
Retail
Drawn(5)	$	228,278	****	$	87,054	****	$	315,332	****	$	308,408
Undrawn commitments	****	51,486	****	****	–	****	****	51,486	****		52,835
Total retail	$	279,764	****	$	87,054	****	$	366,818	****	$	361,243
Total	$	924,838	****	$	165,618	****	$	1,090,456	****	$	1,084,224

All values are in US Dollars.

(1)	After credit risk mitigation and excludes equity securities and other assets.
(2)	Non-retail AIRB drawn exposures include government guaranteed and<br>privately insured mortgages.
---	---
(3)	Non-retail drawn includes loans, bankers’ acceptances, deposits with<br>financial institutions and FVOCI debt securities.
---	---
(4)	Includes off-balance sheet lending instruments such as letters of credit,<br>letters of guarantee, securitizations, over-the-counter derivatives and repo-style transactions net of related collateral.
---	---
(5)	Retail drawn includes residential mortgages, credit cards, lines of credit and other personal loans.<br>
---	---

Credit quality of non-retail exposures

The Bank’s non-retail portfolio is well diversified by industry. A significant portion of the authorized corporate and commercial lending portfolio was internally assessed at a grade that would generally equate to an investment grade rating by external rating agencies. There has not been a significant change in concentrations of credit risk since October 31, 2020.

Credit quality of retail exposures

The Bank’s retail portfolios consist of a number of relatively small loans to a large number of borrowers. The portfolios are distributed across Canada and a wide range of countries. As such, the portfolios inherently have a high degree of diversification. In addition, as of January 31, 2021, 36% (October 31, 2020 – 38%) of the Canadian residential mortgage portfolio is insured. The average loan-to-value ratio of the uninsured portion of the Canadian residential mortgage portfolio is 52% (October 31, 2020 – 52%).

Retail standardized portfolio

The retail standardized portfolio of $87 billion as at January 31, 2021 (October 31, 2020 – $87 billion) was comprised of residential mortgages, personal loans, credit cards and lines of credit to individuals, mainly in Latin America and the Caribbean. Of the total retail standardized exposures, $49 billion (October 31, 2020 – $48 billion) was represented by mortgages and loans secured by residential real estate, mostly with a loan-to-value ratio of below 80%.

(ii) Liquidity risk

Liquidity risk is the risk that the Bank is unable to meet its financial obligations in a timely manner at reasonable prices. The Bank’s liquidity risk is subject to extensive risk management controls and is managed within the framework of policies and limits approved by the Board. The Board receives reports on risk exposures and performance against approved limits. The Asset/Liability Committee (ALCO) provides senior management oversight of liquidity risk.

66Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The key elements of the Bank’s liquidity risk management framework include:

•	liquidity risk measurement and management limits, including limits on maximum net cash outflow by currency over specified<br>short-term horizons;
•	prudent diversification of its wholesale funding activities by using a number of different funding programs to access the<br>global financial markets and manage its maturity profile, as appropriate;
---	---
•	large holdings of liquid assets to support its operations, which can generally be sold or pledged to meet the Bank’s<br>obligations;
---	---
•	liquidity stress testing, including Bank-specific, global-systemic, and combination systemic/specific scenarios; and<br>
---	---
•	liquidity contingency planning.
---	---

The Bank’s foreign operations have liquidity management frameworks that are similar to the Bank’s framework. Local deposits are managed from a liquidity risk perspective based on the local management frameworks and regulatory requirements.

(iii) Market risk

Market risk arises from changes in market prices and rates (including interest rates, credit spreads, equity prices, foreign exchange rates and commodity prices), the correlations among them, and their levels of volatility.

Interest rate risk

Interest rate risk is the risk of loss due to the following: changes in the level, slope and curvature of the yield curve; the volatility of interest rates and changes in customers’ preferences (e.g. mortgage prepayment rates).

Non-trading foreign currency risk

Foreign currency risk is the risk of loss due to changes in spot and forward rates.

As at January 31, 2021, a one per cent increase (decrease) in the Canadian dollar against all currencies in which the Bank operates decreases (increases) the Bank’s before-tax annual earnings by approximately $69 million (October 31, 2020 – $66 million, January 31, 2020 – $65 million) in the absence of hedging activity, primarily from exposure to U.S. dollars. The Bank hedges a portion of this foreign currency risk.

A similar change in the Canadian dollar as at January 31, 2021, would increase (decrease) the unrealized foreign currency translation losses in the accumulated other comprehensive income section of shareholders’ equity by approximately $347 million (October 31, 2020 – $354 million), net of hedging.

Non-trading equity risk

Equity risk is the risk of loss due to adverse movements in equity prices. The Bank is exposed to equity risk through its investment equity portfolios. The fair value of investment equity securities is shown in Note 6.

Trading portfolio risk management

The table below shows the Bank’s VaR by risk factor along with Stressed VaR:

		For the three months ended									As at			As at
		January 31, 2021									January 31			October 31			January 31
( millions)	Average			High			Low			2021			2020			2020
Credit spread plus interest rate	$	14.5	****	$	23.2	****	$	9.4	****	$	15.4	****	$	11.5		$	17.8
Credit spread	****	8.4	****	****	12.7	****	****	4.7	****	****	7.7	****		11.1			11.1
Interest rate	****	14.9	****	****	22.0	****	****	8.0	****	****	17.9	****		11.4			11.7
Equities	****	9.4	****	****	20.8	****	****	3.3	****	****	5.9	****		3.1			7.0
Foreign exchange	****	3.1	****	****	5.4	****	****	1.9	****	****	2.4	****		4.6			9.1
Commodities	****	5.6	****	****	8.5	****	****	3.5	****	****	5.5	****		5.0			3.7
Debt specific	****	4.1	****	****	5.1	****	****	3.7	****	****	3.7	****		5.2			3.1
Diversification effect	****	(19.1	)	****	n/a	****	****	n/a	****	****	(15.9	)		(14.8	)		(25.0	)
Total VaR	$	17.6	****	$	32.8	****	$	13.3	****	$	17.0	****	$	14.6		$	15.7
Total Stressed VaR	$	33.8	****	$	45.4	****	$	22.0	****	$	43.8	****	$	37.0		$	51.6

All values are in US Dollars.

(iv) Operational risk

Operational risk is the risk of loss, whether direct or indirect, to which the Bank is exposed due to inadequate or failed internal processes or systems, human error, or external events. Operational risk includes legal and regulatory risk, business process and change risk, fiduciary or disclosure breaches, cyber risks, technology failure, financial crime and environmental risk. It exists in some form in every Bank business and function.

Operational risk can not only result in financial loss, but also regulatory sanctions and damage to the Bank’s reputation. The Bank has developed policies, processes and assessment methodologies to ensure that operational risk is appropriately identified and managed with effective controls.

Scotiabank First Quarter Report 202167

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(b) Financial instruments designated at fair value through profit or loss

In accordance with its risk management strategy, the Bank has elected to designate certain senior note liabilities at fair value through profit or loss to reduce an accounting mismatch between fair value changes in these instruments and fair value changes in related derivatives, and where a hybrid financial liability contains one or more embedded derivatives that are not closely related to the host contract. Changes in fair value of financial liabilities arising from the Bank’s own credit risk are recognized in other comprehensive income, without subsequent reclassification to net income.

The cumulative fair value adjustment due to own credit risk is determined at a point in time by comparing the present value of expected future cash flows over the term of these liabilities discounted at the Bank’s effective funding rate, and the present value of expected future cash flows discounted under a benchmark rate.

The following table presents the fair value of liabilities designated at fair value through profit or loss and their changes in fair value.

	Fair value					Change in fair value								Cumulative change in fair value^(1)^
	As at					For the three months ended								As at
($ millions)	January 312021			October 31<br>2020		January 312021			October 31<br>2020		January 31<br>2020			January 312021			October 31<br>2020		January 31<br>2020
Liabilities
Senior note liabilities^(2)^	$	20,260	****	$	18,899	$	(746	)	$	235	$	(122	)	$	(547	)	$	199	$	(574	)
(1)	The cumulative change in fair value is measured from the instruments’ date of initial recognition.<br>
---	---
(2)	Changes in fair value attributable to changes in the Bank’s own credit risk are recorded in other<br>comprehensive income. Other changes in fair value are recorded in non-interest income – trading revenues. The offsetting fair value changes from associated derivatives is also recorded in non-interest income – trading revenues.
---	---

The following table presents the changes in fair value attributable to changes in the Bank’s own credit risk for financial liabilities designated at fair value through profit or loss as well as their contractual maturity and carrying amounts.

		Senior Note Liabilities
( millions)		Contractual<br>maturity<br>amount	^(1)^		Carrying value			Difference<br>between<br>carrying<br>value and<br>contractual<br>maturity<br>amount			Changes in fair value<br>for the three month<br>period attributable<br>to<br>changes in own<br>credit risk<br>recorded in other<br>comprehensive<br>income			Cumulative changes<br>in fair value<br>attributable to<br>changes in own<br>credit risk	^(1)^
As at January 31, 2021	$	19,713	****	$	20,260	****	$	(547	)	$	(178	)	$	(637	)
As at October 31, 2020		19,098			18,899			199			(211	)		(459	)
As at January 31, 2020		12,420			12,994			(574	)		(12	)		(67	)

All values are in US Dollars.

(1)	The cumulative change in fair value is measured from the instruments’ date of initial recognition.<br>

68Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Fair value of financial instruments

The calculation of fair value is based on market conditions at a specific point in time and therefore may not be reflective of future fair values. The Bank has controls and processes in place to ensure that the valuation of financial instruments is appropriately determined.

Refer to Note 7 of the Bank’s consolidated financial statements in the 2020 Annual Report for the valuation techniques used to fair value its significant financial assets and liabilities.

The following table sets out the fair values of financial instruments of the Bank and excludes non-financial assets, such as property and equipment, investments in associates, precious metals, goodwill and other intangible assets.

		As at
		January 31, 2021						October 31, 2020
( millions)	Total fairvalue			Totalcarryingvalue			Total fair<br>value		Total<br>carrying<br>value
Assets:
Cash and deposits with financial institutions	$	89,491	****	$	89,491	****	$	76,460	$	76,460
Trading assets	****	141,768	****	****	141,768	****		117,839		117,839
Securities purchased under resale agreements and securities borrowed	****	118,831	****	****	118,831	****		119,747		119,747
Derivative financial instruments	****	46,269	****	****	46,269	****		45,065		45,065
Investment securities – fair value	****	71,523	****	****	71,523	****		79,745		79,745
Investment securities – amortized cost	****	28,167	****	****	27,713	****		32,129		31,644
Loans	****	612,277	****	****	603,649	****		612,368		603,263
Customers’ liability under acceptances	****	14,775	****	****	14,775	****		14,228		14,228
Other financial assets	****	14,328	****	****	14,328	****		12,700		12,700
Liabilities:
Deposits	****	773,422	****	****	768,993	****		755,395		750,838
Financial instruments designated at fair value through profit or loss	****	20,260	****	****	20,260	****		18,899		18,899
Acceptances	****	14,856	****	****	14,856	****		14,305		14,305
Obligations related to securities sold short	****	40,119	****	****	40,119	****		31,902		31,902
Derivative financial instruments	****	41,296	****	****	41,296	****		42,247		42,247
Obligations related to securities sold under repurchase agreements and securities lent	****	140,491	****	****	140,491	****		137,763		137,763
Subordinated debentures	****	7,032	****	****	6,600	****		7,827		7,405
Other financial liabilities	****	43,717	****	****	42,309	****		43,776		42,660

All values are in US Dollars.

(d) Fair value hierarchy

The best evidence of fair value for a financial instrument is the quoted price in an active market. Unadjusted quoted market prices for identical instruments represent a Level 1 valuation. Where possible, valuations are based on quoted prices or observable inputs obtained from active markets.

Quoted prices are not always available for over-the-counter transactions, as well as transactions in inactive or illiquid markets. In these instances, internal models that maximize the use of observable inputs are used to estimate fair value. The chosen valuation technique incorporates all the factors that market participants would take into account in pricing a transaction. When all significant inputs to models are observable, the valuation is classified as Level 2. Financial instruments traded in a less active market are valued using indicative market prices or other valuation techniques. Fair value estimates do not consider forced or liquidation sales.

Where financial instruments trade in inactive markets, illiquid markets or when using models where observable parameters do not exist, greater management judgment is required for valuation purposes. Valuations that require the significant use of unobservable inputs are considered as Level 3.

Scotiabank First Quarter Report 202169

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The following table outlines the fair value hierarchy and instruments carried at fair value on a recurring basis.

		As at
		January 31, 2021												October 31, 2020
( millions)	Level 1			Level 2			Level 3			Total			Level 1		Level 2		Level 3		Total
Instruments carried at fair value on a recurring basis:
Assets:
Precious metals(1)	$	–	****	$	1,107	****	$	–	****	$	1,107	****	$	–	$	1,181	$	–	$	1,181
Trading assets
Loans	****	–	****	****	7,903	****	****	–	****	****	7,903	****		–		8,352		–		8,352
Canadian federal government and government guaranteed debt	****	8,482	****	****	4,069	****	****	–	****	****	12,551	****		9,154		3,882		–		13,036
Canadian provincial and municipal debt	****	–	****	****	10,265	****	****	–	****	****	10,265	****		–		9,320		–		9,320
US treasury and other US agencies’ debt	****	8,384	****	****	–	****	****	–	****	****	8,384	****		5,182		–		–		5,182
Other foreign governments’ debt	****	11,559	****	****	2,816	****	****	–	****	****	14,375	****		9,230		3,415		–		12,645
Corporate and other debt	****	–	****	****	11,274	****	****	20	****	****	11,294	****		–		10,570		18		10,588
Income funds	****	141	****	****	–	****	****	–	****	****	141	****		121		–		–		121
Equity securities	****	75,430	****	****	757	****	****	–	****	****	76,187	****		57,078		361		–		57,439
Other(2)	****	668	****	****	–	****	****	–	****	****	668	****		1,156		–		–		1,156
		$	104,664	****	$	38,191	****	$	20	****	$	142,875	****	$	81,921	$	37,081	$	18	$	119,020
Investment securities(3)
Canadian federal government and government guaranteed debt	$	1,600	****	$	13,034	****	$	–	****	$	14,634	****	$	1,728	$	15,100	$	–	$	16,828
Canadian provincial and municipal debt	****	94	****	****	13,595	****	****	–	****	****	13,689	****		93		17,454		–		17,547
US treasury and other US agencies’ debt	****	8,181	****	****	1,888	****	****	–	****	****	10,069	****		11,930		1,299		–		13,229
Other foreign governments’ debt	****	13,976	****	****	14,860	****	****	24	****	****	28,860	****		14,101		13,798		23		27,922
Corporate and other debt	****	209	****	****	796	****	****	27	****	****	1,032	****		265		850		23		1,138
Equity securities	****	2,081	****	****	204	****	****	954	****	****	3,239	****		1,954		263		864		3,081
		$	26,141	****	$	44,377	****	$	1,005	****	$	71,523	****	$	30,071	$	48,764	$	910	$	79,745
Derivative financial instruments
Interest rate contracts	$	–	****	$	19,411	****	$	1	****	$	19,412	****	$	–	$	21,013	$	4	$	21,017
Foreign exchange and gold contracts	****	–	****	****	19,277	****	****	–	****	****	19,277	****		–		17,943		–		17,943
Equity contracts	****	98	****	****	3,263	****	****	2	****	****	3,363	****		290		2,655		3		2,948
Credit contracts	****	–	****	****	239	****	****	–	****	****	239	****		–		480		–		480
Commodity contracts	****	–	****	****	3,978	****	****	–	****	****	3,978	****		–		2,677		–		2,677
		$	98	****	$	46,168	****	$	3	****	$	46,269	****	$	290	$	44,768	$	7	$	45,065
Liabilities:
Deposits(4)	$	–	****	$	118	****	$	–	****	$	118	****	$	–	$	73	$	–	$	73
Financial liabilities designated at fair value through profit or loss	****	–	****	****	20,260	****	****	–	****	****	20,260	****		–		18,899		–		18,899
Obligations related to securities sold short	****	32,896	****	****	7,223	****	****	–	****	****	40,119	****		25,584		6,318		–		31,902
Derivative financial instruments
Interest rate contracts	****	–	****	****	16,000	****	****	48	****	****	16,048	****		–		16,937		17		16,954
Foreign exchange and gold contracts	****	–	****	****	18,515	****	****	–	****	****	18,515	****		–		19,511		–		19,511
Equity contracts	****	340	****	****	2,628	****	****	6	****	****	2,974	****		599		2,133		2		2,734
Credit contracts	****	–	****	****	46	****	****	–	****	****	46	****		–		53		–		53
Commodity contracts	****	–	****	****	3,713	****	****	–	****	****	3,713	****		–		2,995		–		2,995
		$	340	****	$	40,902	****	$	54	****	$	41,296	****	$	599	$	41,629	$	19	$	42,247

All values are in US Dollars.

(1)	The fair value of precious metals is determined based on quoted market prices and forward spot prices, where<br>applicable.
(2)	Represents energy related assets.
---	---
(3)	Excludes debt investment securities measured at amortized cost of $27,713 (October 31, 2020 – $31,644).<br>
---	---
(4)	These amounts represent embedded derivatives bifurcated from structured notes.
---	---

70Scotiabank First Quarter Report 2021 ****

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Level 3 instrument fair value changes

Financial instruments categorized as Level 3 as at January 31, 2021, in the fair value hierarchy comprise certain foreign government bonds, structured corporate bonds, investments in private equity securities and complex derivatives.

The following table summarizes the changes in Level 3 instruments carried at fair value for the three months ended January 31, 2021.

All positive balances represent assets and negative balances represent liabilities. Consequently, positive amounts indicate purchases of assets or settlements of liabilities and negative amounts indicate sales of assets or issuances of liabilities.

	As at January 31, 2021
( millions)	Fair<br>value,<br>beginning<br>of the<br>quarter			Gains/<br>(losses)<br>recorded<br>in income		Gains/<br>(losses)<br>recorded<br>in OCI		Purchases/<br>Issuances			Sales/<br>Settlements			Transfers<br>into/out<br>of Level 3		****	Fairvalue, endof thequarter	****		Changes in<br>unrealized<br>gains/(losses)<br>recorded in<br>income for<br>instruments<br>still held^(1)^
Trading assets
Corporate and other debt	$	18		$	2	$	–	$	–		$	–		$	–		$	20	****	$	2
		18			2		–		–			–			–		****	20	****		2
Investment securities
Other foreign governments’ debt	23			–		1		–			–			–		****	24	****		n/a
Corporate and other debt	23			1		3		–			–			–		****	27	****		1
Equity securities	864			57		(3	)	43			(35	)		28		****	954	****		57
		910			58		1		43			(35	)		28		****	1,005	****		58
Derivative financial instruments – assets
Interest rate contracts	4			–		–		–			–			(3	)	****	1	****		–
Equity contracts	3			–		–		–			–			(1	)	****	2	****		–	^(2)^
Derivative financial instruments – liabilities
Interest rate contracts	(17	)		1		–		(32	)		–			–		****	(48	)		1	^(3)^
Equity contracts	(2	)		1		–		(6	)		–			1		****	(6	)		1	^(2)^
		(12	)		2		–		(38	)		–			(3	)	****	(51	)		2
Total	$	916		$	62	$	1	$	5		$	(35)		$	25		$	974	****	$	62

All values are in US Dollars.

(1)	These amounts represent the gains and losses from fair value changes of Level 3 instruments still held at<br>the end of the period that are recorded in the Consolidated Statement of Income.
(2)	Certain unrealized gains and losses on derivative assets and liabilities are largely offset by mark-to-market changes on other instruments included in trading revenues in the Consolidated Statement of Income, since these instruments act as an economic hedge to certain<br>derivative assets and liabilities.
---	---
(3)	Certain unrealized losses on interest rate derivative contracts are largely offset by mark-to-market changes on embedded derivatives on certain deposit liabilities in the Consolidated Statement of Income.
---	---

The following table summarizes the changes in Level 3 instruments carried at fair value for the three months ended October 31, 2020:

	As at October 31, 2020
( millions)	Fair value,<br>beginning of<br>the quarter		Gains/<br>(losses)<br>recorded<br>in income^(1)^		Gains/<br>(losses)<br>recorded<br>in OCI		Purchases/<br>Issuances		Sales/<br>Settlements		Transfers<br>into/<br>out of<br>Level 3		Fair value,<br>end of the<br>quarter
Trading assets	$	15	$	3	$	–	$	–	$	–	$	–	$	18
Investment securities	898		14		7		43		(24	)	(28	)	910
Derivative financial instruments	(36	)	5		–		(7	)	25		1		(12	)

All values are in US Dollars.

(1)	Gains or losses for items in Level 3 may be offset with losses or gains on related hedges in Level 1 or<br>Level 2.

Significant transfers

Significant transfers can occur between the fair value hierarchy levels when additional or new information regarding valuation inputs and their refinement and observability become available. The Bank recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. Transfers into and out of Level 3 occur mainly due to changes in the observability, valuation technique and/or significance of unobservable valuation inputs.

There were no significant transfers into and out of Level 3 during the three months ended January 31, 2021, and October 31, 2020.

Level 3 sensitivity

The Bank applies judgment in determining unobservable inputs used to calculate the fair value of Level 3 instruments.

Refer to Note 7 of the Bank’s audited consolidated financial statements for the year ended October 31, 2020 for a description of the significant unobservable inputs for Level 3 instruments and the potential effect that a change in each unobservable input may have on the fair value measurement. There have been no significant changes to the Level 3 sensitivities during the quarter.

Scotiabank First Quarter Report 202171

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

19.	Corporate income taxes

Since 2016, the Bank has received reassessments totaling $808 million of tax and interest as a result of the Canada Revenue Agency denying the tax deductibility of certain Canadian dividends received during the 2011 – 2014 taxation years. In June 2020, the Bank received a reassessment for $217 million of tax and interest in respect of certain Canadian dividends received during the 2015 taxation year. The circumstances of the dividends subject to these reassessments are similar to those prospectively addressed by rules introduced in 2015 and 2018. The Bank is confident that its tax filing position was appropriate and in accordance with the relevant provisions of the Income Tax Act (Canada) and intends to vigorously defend its position.

72Scotiabank First Quarter Report 2021 ****

SHAREHOLDER INFORMATION

Direct deposit service

Shareholders may have dividends deposited directly into accounts held at financial institutions which are members of the Canadian Payments Association. To arrange direct deposit service, please write to the transfer agent.

Dividend and Share Purchase Plan

Scotiabank’s dividend reinvestment and share purchase plan allows common and preferred shareholders to purchase additional common shares by reinvesting their cash dividend without incurring brokerage or administrative fees.

As well, eligible shareholders may invest up to $20,000 each fiscal year to purchase additional common shares of the Bank. All administrative costs of the plan are paid by the Bank.

For more information on participation in the plan, please contact the transfer agent.

Dividend dates for 2021

Record and payment dates for common and preferred shares, subject to approval by the Board of Directors.

Record Date		Payment Date
January 5, 2021		January 27, 2021
April 6, 2021		April 28, 2021
July 6, 2021		July 28, 2021
October 5, 2021		October 27, 2021

Annual Meeting

The Annual Meeting for fiscal year 2020 will be held via live webcast on April 13, 2021 beginning at 9:00 a.m. (Eastern). Please visit our website at https://www.scotiabank.com/annualmeeting for updates concerning the meeting.

Website

For information relating to Scotiabank and its services, visit us at our website: www.scotiabank.com.

Conference call and Web broadcast

The quarterly results conference call will take place on February 23, 2021, at 8:15 am EST and is expected to last approximately one hour. Interested parties are invited to access the call live, in listen-only mode, by telephone at 416-641-6104 or toll-free, at 1-800-952-5114 using ID 9730782# (please call shortly before 8:15 am EST). In addition, an audio webcast, with accompanying slide presentation, may be accessed via the Investor Relations page of www.scotiabank.com.

Following discussion of the results by Scotiabank executives, there will be a question and answer session. A telephone replay of the conference call will be available from February 23, 2021, to March 25, 2021, by calling 905-694-9451 or 1-800-408-3053 (North America toll-free) and entering the access code 9946049#. The archived audio webcast will be available on the Bank’s website for three months.

Contact information

Investors:

Financial Analysts, Portfolio Managers and other Institutional Investors requiring financial information, please contact Investor Relations, Finance Department:

Scotiabank

Scotia Plaza, 44 King Street West

Toronto, Ontario, Canada M5H 1H1

Telephone: (416) 775-0798

E-mail: investor.relations@scotiabank.com

Global Communications:

Scotiabank

44 King Street West, Toronto, Ontario

Canada M5H 1H1

E-mail: corporate.communications@scotiabank.com

Shareholders:

For enquiries related to changes in share registration or address, dividend information, lost share certificates, estate transfers, or to advise of duplicate mailings, please contact the Bank’s transfer agent:

Computershare Trust Company of Canada

100 University Avenue, 8th Floor

Toronto, Ontario, Canada M5J 2Y1

Telephone: 1-877-982-8767

Fax: 1-888-453-0330

E-mail: service@computershare.com

Scotiabank First Quarter Report 202173

SHAREHOLDER INFORMATION

Co-Transfer Agent (U.S.A.)

Computershare Trust Company, N.A.

Att: Stock Transfer Department

Overnight Mail Delivery: 462 South 4th Street, Louisville, KY 40202

Regular Mail Delivery: P.O. Box 505005, Louisville, KY 40233-5005

Tel: (303) 262-0600 or 1-800-962-4284

For other shareholder enquiries, please contact the Corporate Secretary’s Department:

Scotiabank

Scotia Plaza, 44 King Street West

Toronto, Ontario, Canada M5H 1H1

Telephone: (416) 866-3672

E-mail: corporate.secretary@scotiabank.com

Rapport trimestriel disponible en français

Le Rapport annuel et les états financiers de la Banque sont publiés en français et en anglais et distribués aux actionnaires dans la version de leur choix. Si vous préférez que la documentation vous concernant vous soit adressée en français, veuillez en informer Relations publiques, Affaires de la société et Affaires gouvernementales, La Banque de Nouvelle-Écosse, Scotia Plaza, 44, rue King Ouest, Toronto (Ontario), Canada M5H 1H1, en joignant, si possible, l’étiquette d’adresse, afin que nous puissions prendre note du changement.

74Scotiabank First Quarter Report 2021 ****

The Bank of Nova Scotia is incorporated in Canada with limited liability.

Bank Of Nova Scotia 6-K, filed Feb 23, 2021

About this 6-K

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