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Scotiabank reports fourth quarter and 2021 results

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Scotiabank's 2021 audited annual consolidated financial statements and accompanying Management's Discussion & Analysis (MD&A) are available at www.scotiabank.com along with the supplementary financial information and regulatory capital disclosure reports, which includes fourth quarter financial information. All amounts are in Canadian dollars and are based on our audited annual consolidated financial statements and accompanying MD&A for the year ended October 31, 2021 and related notes prepared in accordance with International Financial Reporting Standards (IFRS), unless otherwise noted.

Additional information related to the Bank, including the Bank's Annual Information Form, can be found on the SEDAR website at www.sedar.com and on the EDGAR section of the SEC's website at www.sec.gov.

Fiscal 2021 Highlights on a Reported Basis
(versus Fiscal 2020)

Fourth Quarter 2021 Highlights on a Reported Basis
(versus Q4, 2020)

Net income of $9,955 million, compared to $6,853 million

Net income of $2,559 million, compared to $1,899 million

Earnings per share (diluted) of $7.70, compared to $5.30

Earnings per share (diluted) of $1.97, compared to $1.42

Return on equity(1) of 14.7%, compared to 10.4%

Return on equity of 14.8%, compared to 11.0%

Annual common dividend per share of $3.60

Quarterly dividend increase of 10 cents per common share to $1.00





Fiscal 2021 Highlights on an Adjusted Basis(2)

(versus Fiscal 2020)

Fourth Quarter 2021 Highlights on an Adjusted Basis(2)
(versus Q4, 2020)

Net income of $10,169 million, compared to $6,961 million

Net income of $2,716 million, compared to $1,938 million

Earnings per share (diluted) of $7.87, compared to $5.36

Earnings per share (diluted) of $2.10, compared to $1.45

Return on equity of 15.0%, compared to 10.4%

Return on equity of 15.6%, compared to 11.3%

Fiscal 2021 Performance versus Medium-Term Objectives

The following table provides a summary of our 2021 performance against our medium-term financial performance objectives:

Medium-Term Objectives

Fiscal 2021 Results


Reported

Adjusted(2)

Diluted earnings per share growth of 7%+

45.3%

46.8%

Return on equity of 14%+

14.7%

15.0%

Achieve positive operating leverage

Positive 1.1%

Positive 1.5%

Maintain strong capital ratios

CET1 capital ratio(3) of 12.3%

CET1 capital ratio(3) of 12.3%

TORONTO, Nov. 30, 2021 /CNW/ - Scotiabank reported net income of $9,955 million for the fiscal year 2021, compared with net income of $6,853 million in 2020. Diluted earnings per share (EPS) were $7.70, compared to $5.30 in the previous year. Return on equity was 14.7%, compared to 10.4% in the previous year.

Scotiabank Logo (CNW Group/Scotiabank)
Scotiabank Logo (CNW Group/Scotiabank)

Adjusted net income(2) was $10,169 million, up from $6,961 million in the previous year, and EPS was $7.87 versus $5.36 in the previous year.

Reported net income for the fourth quarter ended October 31, 2021 was $2,559 million compared to $1,899 million in the same period last year. Diluted earnings per share were $1.97, compared to $1.42 in the same period a year ago.

Adjusted net income(2) for the fourth quarter ended October 31, 2021 was $2,716 million and EPS was $2.10, up from $1.45 last year. Adjusted return on equity was 15.6% compared to 11.3% a year ago.

"We ended the year with strong fourth quarter earnings and exceeded our medium-term financial targets in fiscal 2021. Our diversified business model demonstrated its resilience through the pandemic, and the Bank is well positioned to achieve its full earnings power in the upcoming year. I am extremely proud of how the Scotiabank team supported our clients, customers and communities as they continued to navigate through the challenges of the pandemic, while also continuing to stay focused on creating long-term sustainable value for our shareholders. As we close out 2021, it is clear that our sharpened footprint and our significant investments in our digital capabilities have positioned the Bank for a very bright future," said Brian Porter, President and CEO of Scotiabank. The Bank was also recently recognized for outstanding leadership in the Global Finance 2021 Sustainable Finance Awards for its efforts to support clients with industry-leading advice and expertise to help achieve strong business growth that is environmentally and socially responsible.

Canadian Banking generated adjusted earnings of $4,171 million in 2021, an increase of 60% compared to the prior year. The increase was due primarily to lower provision for credit losses and higher revenues driven by non-interest income and strong loan growth. During the year, Scotiabank received the #1 ranking in the J.D. Power 2021 Canada Online Banking Satisfaction Study for the second year in a row.

Global Wealth Management reported adjusted earnings of $1,592 million in 2021, up 23% compared to the prior year. The higher earnings were driven by strong results across both Canadian Advisory and Asset Management businesses.

Global Banking and Markets delivered another strong year with earnings of $2,075 million. This performance was driven by solid performance across the business, prudent expense management and lower provision for credit losses.

International Banking earnings improved through 2021 generating adjusted earnings of $1,855 million, an increase of 62% compared to the prior year. This was driven by strong commercial and secured lending loan growth, prudent expense management supported by accelerated customer adoption of digital channels and lower provision for loan losses, driven by improved credit outlook.

With a Common Equity Tier 1 capital ratio of 12.3% the Bank remains well capitalized to support its strategic growth plans and return capital back to shareholders. This quarter we announced a 10 cent increase in the quarterly dividend to $1.00 per common share, 11% higher than a year ago.

"As we look forward to 2022, we expect to deliver strong growth across all our business lines, with optionality and multiple avenues to grow," said Brian Porter, President and CEO, Scotiabank.

______________________________

(1)

Refer to page 141 of the Management's Discussion & Analysis in the Bank's 2021 Annual Report, available on www.sedar.com, for an explanation of the composition of the measure. Such explanation is incorporated by reference hereto.

(2)

Refer to Non-GAAP Measures section on page 3.

(3)

This measure has been disclosed in this document in accordance with OSFI Guideline - Capital Adequacy Requirements (November 2018).

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) as issued by the International Accounting Standards Board (IASB), are not defined by GAAP and do not have standardized meanings that would ensure consistency and comparability among companies using these measures. The Bank believes that 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 press release and defined below.

Adjusted results and diluted earnings per share

The following table presents a reconciliation of GAAP Reported financial results to Non-GAAP Adjusted financial results. The financial results have been adjusted for the following:

1.

Adjustments impacting current and prior periods:





A.

Amortization of Acquisition-related intangible assets:
These costs relate to the amortization of intangibles recognized upon the acquisition of businesses and are recorded in the Canadian Banking, International Banking and Global Wealth Management operating segments.





B.

Restructuring and other provisions, recorded in Q4, 2021:
The Bank recorded a restructuring charge of $126 million pre-tax, substantially related to International Banking for the cost of reducing branches and full time employees, driven by the accelerated customer adoption of digital channels and process automation. These efficiencies are a result of the Bank's commitment to simplify processes and optimize distribution channels to run businesses more effectively while meeting changing customer needs. This charge was recorded in the Other operating segment.



The Bank recorded settlement and litigation provisions in the amount of $62 million pre-tax in the Other operating segment in connection with the Bank's former metals business.



2.

Adjustments impacting prior periods only:





A.

Acquisition and divestiture-related amounts, which are defined as follows:







i.

Acquisition-related integration costs – Includes costs that were incurred and related to integrating previously acquired businessess. These costs were recorded in the Canadian Banking, International Banking and Global Wealth Management operating segments. The costs relate to the following acquisitions:



ii.

Net (gain)/loss on divestitures – The Bank announced a number of divestitures in accordance with its strategy to reposition the Bank. The net (gain)/loss on divestitures is recorded in the Other operating segment (refer to Note 37 of the Bank's 2021 Annual Report to Shareholders for further details):



iii.

Day 1 provision for credit losses on acquired performing financial instruments, as required by IFRS 9. The accounting standard does not differentiate between originated and purchased performing loans and as such, requires the same accounting treatment for both. These credit losses are considered Acquisition-related costs in periods where applicable and are recorded in the International Banking segment. The provision for 2019 relates to Banco Cencosud, Peru and Banco Dominicano del Progreso, Dominican Republic.





B.

Valuation-related adjustments, recorded in Q1, 2020:

The Bank modified its allowance for credit losses measurement methodology by adding an additional, more severe pessimistic scenario, consistent with developing practice among major international banks in applying IFRS 9, and the Bank's prudent approach to expected credit loss provisioning. The modification resulted in an increase in provision for credit losses of $155 million which was recorded in Canadian Banking, International Banking, Global Wealth Management and Global Banking and Markets operating segments. The Bank enhanced its fair value methodology primarily relating to uncollateralized OTC derivatives which resulted in a pre-tax charge of $116 million. This charge was recorded in the Global Banking and Markets and Other operating segments. The Bank also recorded an impairment loss in the Other operating segment of $44 million pre-tax, related to one software asset.


Reconciliation of reported and adjusted results and diluted earnings per share




For the three months ended

For the year ended


October 31

July 31

October 31

October 31

October 31

($ millions)

2021

2021

2020

2021

2020

Reported Results











Net interest income

$

4,217

$

4,217

$

4,258

$

16,961

$

17,320

Non-interest income


3,470


3,540


3,247


14,291


14,016

Total Revenue


7,687


7,757


7,505


31,252


31,336

Provision for credit losses


168


380


1,131


1,808


6,084

Non-interest expenses


4,271


4,097


4,057


16,618


16,856

Income before taxes


3,248


3,280


2,317


12,826


8,396

Income tax expense


689


738


418


2,871


1,543

Net income

$

2,559

$

2,542

$

1,899

$

9,955

$

6,853

Net income attributable to non-controlling interests in subsidiaries (NCI)


70


81


72


331


75

Net income attributable to equity holders

$

2,489

$

2,461

$

1,827

$

9,624

$

6,778

Preferred shareholders and other equity instrument holders


78


35


82


233


196

Net income attributable to common shareholders

$

2,411

$

2,426

$

1,745

$

9,391

$

6,582

Diluted earnings per share (in dollars)

$

1.97

$

1.99

$

1.42

$

7.70

$

5.30

Adjustments











Amortization of Acquisition-related intangible assets, excluding











software(1)

$

25

$

24

$

26

$

103

$

106

Restructuring and other provisions(1)


188


-


-


188


-

Acquisition-related integration costs(1)


-


-


20


-


177

Net (gain)/loss on divestitures(2)


-


-


8


-


(298)

Allowance for credit losses - Additional scenario(3)


-


-


-


-


155

Derivatives valuation adjustment(4)


-


-


-


-


116

Impairment charge on software asset(1)


-


-


-


-


44

Adjustments (Pre-tax)


213


24


54


291


300

Income tax expense/(benefit)


(56)


(6)


(15)


(77)


(192)

Adjustments (After tax)


157


18


39


214


108

Adjustment attributable to NCI


(10)


-


-


(10)


(60)

Adjustments (After tax and NCI)

$

147

$

18

$

39

$

204

$

48

Adjusted Results











Net interest income

$

4,217

$

4,217

$

4,258

$

16,961

$

17,320

Non-interest income


3,470


3,540


3,247


14,291


13,819

Total revenue


7,687


7,757


7,505


31,252


31,139

Provision for credit losses


168


380


1,131


1,808


5,929

Non-interest expenses


4,058


4,073


4,003


16,327


16,514

Income before taxes


3,461


3,304


2,371


13,117


8,696

Income tax expense


745


744


433


2,948


1,735

Net income

$

2,716

$

2,560

$

1,938

$

10,169

$

6,961

Net income attributable to NCI


80


81


72


341


135

Net income attributable to equity holders

$

2,636

$

2,479

$

1,866

$

9,828

$

6,826

Preferred shareholders and other equity instrument holders


78


35


82


233


196

Net income attributable to common shareholders

$

2,558

$

2,444

$

1,784

$

9,595

$

6,630

Adjusted diluted earnings per share











Adjusted net income attributable to common shareholders


2,558


2,444


1,784


9,595


6,630

Dilutive impact of share-based payment options and others


7


9


21


48


38

Adjusted net income attributable to common shareholders (diluted)

$

2,565

$

2,453

$

1,805

$

9,643

$

6,668

Weighted average number of basic common shares outstanding (millions)


1,215


1,215


1,211


1,214


1,212

Dilutive impact of share-based payment options and others (millions)


9


8


35


11


31

Adjusted weighted average number of diluted common shares outstanding (millions)


1,224


1,223


1,246


1,225


1,243

Adjusted diluted earnings per share (in dollars)(5)

$

2.10

$

2.01

$

1.45

$

7.87

$

5.36

Impact of adjustments on diluted earnings per share (in dollars)

$

0.13

$

0.02

$

0.03

$

0.17

$

0.06


(1)

Recorded in non-interest expenses.

(2)

(Gain)/Loss on divestitures is recorded in non-interest income; costs related to divestitures are recorded in non-interest expenses.

(3)

Recorded in provision for credit losses.

(4)

Recorded in non-interest income.

(5)

Earnings per share calculations are based on full dollar and share amounts.

Reconciliation of reported and adjusted results by business line























For the three months ended October 31, 2021(1)

($ millions)

Canadian Banking

International Banking

Global Wealth Management

Global

Banking and Markets

Other

Total

Reported Results













Net interest income

$

2,082

$

1,589

$

161

$

365

$

20

$

4,217

Non-interest income


749


728


1,186


812


(5)


3,470

Total Revenue


2,831


2,317


1,347


1,177


15


7,687

Provision for credit losses


(96)


314


1


(50)


(1)


168

Non-interest expenses


1,251


1,259


824


591


346


4,271

Income before taxes


1,676


...