Mr. Brian Porter reports
SCOTIABANK REPORTS FOURTH QUARTER AND 2016 RESULTS
Bank of Nova Scotia has released its fourth quarter and 2016 financial results.
Scotiabank's 2016 audited annual consolidated financial statements and
accompanying management's discussion and analysis are available at
the bank's website along with the supplementary financial information and
regulatory capital disclosure reports, which include fourth quarter
financial information. All amounts are based on
the bank's audited annual consolidated financial statements and accompanying MD&A
for the year ended Oct. 31, 2016, and related note prepared in accordance
with international financial reporting standards, unless otherwise
noted.
Additional information related to the bank, including the bank's annual
information form, can be found on SEDAR and EDGAR.
Fiscal 2016 highlights on a reported basis (versus fiscal 2015)
- Net income of $7,368-million compared with $7,213-million;
- Diluted earnings per share of $5.77 compared with $5.67;
- Return on equity (ROE) of 13.8 per cent compared with 14.6 per cent;
- Annual dividends per share of $2.88 compared with $2.72, an increase of 6 per cent.
Fiscal 2016 highlights adjusted for the second quarter 2016 restructuring charge (versus fiscal 2015)
- Net income of $7,646-million compared with $7,213-million, up 6 per cent;
- Diluted earnings per share of $6.00 compared with $5.67, up 6 per cent;
- ROE of 14.3 per cent compared with 14.6 per cent.
Fourth quarter highlights on a reported basis (versus Q4 2015)
- Net income of $2,011-million compared with $1,843-million, up 9 per cent;
- Diluted earnings per share of $1.57 compared with $1.45, up 8 per cent;
- ROE of 14.7 per cent compared with 14.2 per cent.
Fiscal 2016 performance versus medium-term objectives
The bank's performance with respect to its medium-term financial and operational objectives was as follows (2016 performance adjusting for the impact of the Q2 2016 restructuring charge is reflected in parantheses):
- Earn an ROE of plus-14 per cent -- For the full year, Scotiabank earned an ROE of
13.8 per cent (14.3 per cent).
- Generate growth in earnings per share (diluted) of 5 per cent to 10 per cent -- The year-over-year EPS
growth was up 2 per cent (6 per cent).
- Maintain positive operating leverage -- Scotiabank's performance was
negative 1.9 per cent (positive 1.0 per cent).
- Maintain strong capital ratios -- Scotiabank's capital position remains
strong with a common equity Tier 1 ratio of 11.0 per cent.
Scotiabank reported net income of $7,368-million in 2016 compared with net income of $7,213-million in 2015. Diluted earnings per share (EPS) were $5.77, a 2-per-cent increase from last year. Adjusting for the second quarter restructuring charge of $278-million after tax ($378-million pretax), net income increased to $7,646-million and EPS rose to $6.00, a 6-per-cent increase compared with last year.
Scotiabank reported net income for the fourth quarter ended Oct. 31, 2016, of $2,011-million, compared with $1,843-million for the same period last year. EPS was $1.57, up 8 per cent compared with $1.45 last year. Return on equity was 14.7 per cent. A quarterly dividend of 74 cents per common share was announced.
"During 2016, continued strong performances in our personal, commercial and wealth businesses, both in Canada and in our key Pacific Alliance markets, drove solid earnings growth," said Brian Porter, president and chief executive officer. "Our good results were achieved alongside a focused effort to advance the bank's strategic agenda including investments in digital capabilities to drive an even greater customer experience and more efficient operations.
"Canadian banking had another strong year of operating performance and earnings growth. We continue to deliver valued advice, services and products to our base of more than 10 million retail and commercial customers. By deepening existing relationships and adding new customers, we further improved our asset and deposit mix, while generating improved returns for shareholders.
"International banking delivered strong results, with annual earnings exceeding $2-billion for the first time. Our strong results were driven by the key Pacific Alliance region, which again recorded double-digit deposit and asset growth complemented by our improved performance from the Caribbean and Central America. And while economic growth moderated somewhat in select markets, we continue to strengthen and drive deeper customer relationships to gain profitable market share and grow earnings.
"Global banking and markets had a much improved second half of the year, closing the year with $461-million of earnings in Q4, the result of better performance in fixed income and corporate banking.
"With two dividend increases in 2016, we increased our returns to shareholders by 6 per cent this year. Our capital position is very strong at 11.0 per cent and will support investments required to execute our strategic agenda including improving our customers' experience and increasing efficiency.
"In 2016, we made very good progress against our strategic agenda, which is delivering strong financial performance, while positioning the bank for success over the longer term. Looking forward, we will build on our momentum as we continue to build an even better bank for our shareholders, our customers and our employees."
FINANCIAL HIGHLIGHTS
(In millions, except per share and where noted)
Three months ended Year ended
Oct. 31, July 31, Oct. 31, Oct. 31, Oct. 31,
2016 2016 2015 2016 2015
Net interest income $3,653 $3,602 $3,371 $14,292 $13,092
Non-interest income 3,098 3,038 2,754 12,058 10,957
Total revenue 6,751 6,640 6,125 26,350 24,049
Provision for credit
losses 550 571 551 2,412 1,942
Non-interest expenses 3,650 3,505 3,286 14,540 13,041
Income tax expense 540 605 445 2,030 1,853
Net income 2,011 1,959 1,843 7,368 7,213
Net income
attributable to
common shareholders 1,908 1,860 1,754 6,987 6,897
------- ------- ------- ------- -------
Basic earnings per
share 1.58 1.55 1.46 5.80 5.70
Diluted earnings per
share 1.57 1.54 1.45 5.77 5.67
Adjusted diluted
earnings per share 1.58 1.55 1.46 6.05 5.72
Return on equity (%) 14.7 14.8 14.2 13.8 14.6
Productivity ratio
(%)(1) 54.1 52.8 53.6 55.2 54.2
Core banking margin
(%)(1) 2.40 2.38 2.35 2.38 2.39
------- ------- ------- ------- -------
Cash and deposits
with financial
institutions 46,344 69,774 73,927
Trading assets 108,561 103,861 99,140
Loans 480,164 472,800 458,628
Total assets 896,266 906,844 856,497
Deposits 611,877 631,344 600,919
Common equity 52,657 50,761 49,085
Preferred shares 3,594 3,094 2,934
Assets under
administration 472,817 464,930 453,926
Assets under
management 192,702 187,864 179,007
------- ------- -------
Common equity Tier 1
(CET1) capital ratio
(%) 11.0 10.5 10.3
Tier 1 capital ratio
(%) 12.4 11.8 11.5
Total capital ratio
(%) 14.6 14.1 13.4
Leverage ratio (%) 4.5 4.2 4.2
CET1 risk-weighted
assets(2) 364,048 357,657 357,995
Liquidity coverage
ratio (LCR) (%) 127 125 124
------- ------- -------
Credit quality
Net impaired loans(3) 2,446 2,491 2,085
Allowance for credit
losses 4,626 4,542 4,197
Net impaired loans as
a % of loans and
acceptances(3) 0.49 0.51 0.44
Provision for credit
losses as a % of
average net loans
and acceptances 0.45 0.47 0.47 0.50 0.43
------- ------- ------- ------- -------
Dividends per share 0.74 0.72 0.70 2.88 2.72
Dividend yield (%)(4) 4.3 4.5 4.8 4.7 4.4
Market capitalization 87,065 79,906 73,969
Book value per common
share 43.59 42.14 40.80
Market value to book
value multiple 1.7 1.6 1.5
Price to earnings
multiple (trailing
four quarters) 12.4 11.7 10.8
------- ------- -------
Employees 88,901 88,783 89,214
Branches and offices 3,113 3,126 3,177
(1) During the year, the taxable equivalent adjustment was no longer
included in the calculation. Prior-period amounts have been restated.
(2) As at Oct. 31, 2016, credit valuation adjustment (CVA) risk-weighted
assets were calculated using scalars of 0.64, 0.71 and 0.77 to compute CET1,
Tier 1 and total capital ratios, respectively.
(3) Excludes loans acquired under the Federal Deposit Insurance Corp. (FDIC)
guarantee related to the acquisition of R-G Premier Bank of Puerto Rico.
(4) Based on the average of the high and low common share price for the
period.
Group financial performance
Q4 2016 versus Q4 2015
Net income
Net income was $2,011-million, an increase of $168-million or 9 per cent. Strong asset growth and higher capital markets revenues were partly offset by higher non-interest expenses and income taxes.
Net interest income
Net interest income was $3,653-million, an increase of $282-million or 8 per cent. The increase was attributable primarily to growth in retail and commercial loans in international banking, credit cards, automotive loans and residential mortgages in Canadian banking, and corporate loans in global banking and markets.
The core banking margin was 2.40 per cent, up five basis points driven by higher margins across all business lines, partially offset by lower contribution from asset/liability management activities in the other segment.
Non-interest income
Non-interest income of $3,098-million was up $344-million or 12 per cent. This was driven by higher banking fees, wealth management and trading revenues, underwriting and other advisory fees, and net income from investments in associated corporations. Gains on sale of real estate were largely offset by lower net gains on investment securities.
Provision for credit losses
The provision for credit losses was $550-million, down $1-million. Last year's increase in collective allowance against performing loans of $60-million was mostly offset by higher provisions in Canadian banking and international banking.
Non-interest expenses
Non-interest expenses increased by $364-million or 11 per cent to $3.65-billion. Last year benefited from lower pension benefit costs, partly offset by the reorganization costs relating to Canadian shared services. The increase was primarily due to higher performance and stock-based compensation, acquisitions, and continued investments in the business, including technology and professional expenses. This was partly offset by the favourable impact of foreign currency translation and savings from structural cost-reduction initiatives.
The productivity ratio was 54.1 per cent compared with 53.6 per cent.
Income taxes
The tax rate was 21.2 per cent compared with 19.4 per cent, due primarily to lower tax-exempt income.
Q4 2016 versus Q3 2016
Net income
Net income was $2,011-million, an increase of $52-million or 3 per cent. Higher revenues, lower provision for credit losses and lower income taxes were partly offset by higher non-interest expenses.
Net interest income
Net interest income was $3,653-million, an increase of $51-million or 1 per cent. The increase was attributable to asset growth primarily in residential mortgages and automotive loans in Canadian banking, and retail loans in international banking.
The core-banking margin was 2.40 per cent, up two basis points, mostly from higher margins in Canadian banking and global banking and markets.
Non-interest income
Non-interest income was $3,098-million, up $60-million or 2 per cent. Higher banking and wealth management revenues and contributions from associated corporations were partly offset by lower underwriting and advisory fees. Gains on sale of real estate were offset by lower net gains on investment securities.
Provision for credit losses
The provision for credit losses was $550-million, a decline from $571-million, due primarily to lower provisions in international banking.
Non-interest expenses
Non-interest expenses were up $145-million or 4 per cent. This was mainly due to continued investments in the business, including technology and professional fees, and higher seasonal marketing expenses.
The productivity ratio was 54.1 per cent compared with 52.8 per cent.
Income taxes
The effective tax rate was 21.2 per cent compared with 23.6 per cent due primarily to higher taxes in certain foreign jurisdictions in the previous quarter.
Common dividend
The board of directors at its meeting approved the quarterly dividend of 74 cents per common share. This quarterly dividend applies to shareholders of record as of Jan. 3, 2017, and is payable Jan. 27, 2017.
Capital ratios
The bank continues to maintain strong, high-quality capital levels which position it well for future business growth. The Basel III all-in common equity Tier 1 (CET1) ratio as at Oct. 31, 2016, was 11.0 per cent. Increases in the CET1 ratio from 2015 were primarily from strong internal capital generation and the prudent management of asset growth during the year.
The bank's Basel III all-in Tier 1 and total capital ratios were 12.4 per cent and 14.6 per cent, respectively, as at Oct. 31, 2016. Tier 1 and total capital also benefited from capital issuances during the year.
The bank's capital ratios continue to be well in excess of OSFI's minimum capital ratio requirements for 2016 (including the 1-per-cent D-SIB surcharge) of 8 per cent, 9.5 per cent and 11.5 per cent for CET1, Tier 1 and total capital, respectively.
Business segment review
CANADIAN BANKING
(In millions, except per share and where noted)
Three months ended Year ended
Oct. 31, July 31, Oct. 31, Oct. 31, Oct. 31,
2016 2016 2015 2016 2015
Net interest
income $1,798 $1,770 $1,657 $7,024 $6,415
Non-interest
income(1) 1,314 1,273 1,215 5,164 4,832
------ ------ ------ ------ ------
Total revenue 3,112 3,043 2,872 12,188 11,247
Provision for
credit losses 217 217 180 832 687
Non-interest
expenses 1,612 1,567 1,553 6,324 6,014
Income tax
expense 329 329 302 1,296 1,202
------ ------ ------ ------ ------
Net income 954 930 837 3,736 3,344
====== ====== ====== ====== ======
Net income
attributable to
non-controlling
interest in
subsidiaries - - - - -
Net income
attributable to
equityholders
of the bank 954 930 837 3,736 3,344
------ ------ ------ ------ ------
Other measures
Return on equity 22.4% 21.9% 20.2% 22.0% 21.0%
Assets under
administration
(billions) 318 316 310 318 310
Assets under
management
(billions) 145 145 135 145 135
Average assets
(billions) 313 310 304 309 300
Average
liabilities
(billions) 237 233 224 232 218
------ ------ ------ ------ ------
(1) Includes net income from investments in associated corporations for the
three months ended Oct. 31, 2016 -- $25 (July 31, 2016 -- $20; Oct. 31, 2015
-- $15) and for the year ended Oct. 31, 2016 -- $78 (Oct. 31, 2015 -- $66).Q4 2016 versus Q4 2015
Net income
Net income attributable to equityholders was $954-million, an increase of $117-million or 14 per cent. An increase in the net interest margin, solid growth from assets and deposits, impact of the credit card portfolio acquired from JPMorgan Chase Bank, and higher non-interest income contributed to this growth. These increases were partially offset by higher non-interest expenses and provision for credit losses.
Average assets
Average assets grew $9-billion or 3 per cent to $313-billion. Adjusting for the impact of the Tangerine broker-originated and white label mortgage runoff portfolios, assets increased $13-billion or 4 per cent. The growth included $5-billion or 7 per cent in personal loans primarily in consumer auto lending and credit cards, $5-billion or 3 per cent in residential mortgages, and $3-billion or 7 per cent in business loans and acceptances.
Average liabilities
Average liabilities increased $13-billion or 6 per cent, including strong growth of $7-billion or 11 per cent in retail banking savings deposits and $1-billion or 8 per cent in chequing accounts. As well, there was growth of $2-billion or 4 per cent in small business and commercial banking business operating accounts and $3-billion or 20 per cent in wealth management deposits. This was partially offset by a decline in low-margin GICs of $1-billion or 2 per cent.
Assets under administration (AUA) and assets under management (AUM)
AUM increased $10-billion or 7 per cent driven by net sales and market appreciation. AUA increased $8-billion or 3 per cent driven by market appreciation.
Net interest income
Net interest income of $1,798-million was up $141-million or 9 per cent. This was driven by a 13-basis-point increase in the net interest margin to 2.39 per cent and solid growth in assets and deposits. The margin increase was primarily driven by growth in higher yielding credit cards, margin expansion in deposits, the runoff of lower-spread Tangerine mortgages and impact of the acquisition.
Non-interest income
Non-interest income of $1,314-million increased $99-million or 8 per cent due primarily to growth in card revenues, mutual fund fees and gains on sale of real estate. These increases were partly offset by lower transaction-based brokerage revenues.
Provision for credit losses
The provision for credit losses was $217-million, an increase of $37-million or 21 per cent. The increase was due to higher provisions in retail portfolios driven by growth in relatively higher spread products. The provision for credit losses ratio increased four basis points to 28 basis points.
Non-interest expenses
Non-interest expenses were $1,612-million, an increase of $59-million or 4 per cent. Half of the increase was from the impact of the acquisition, with the balance primarily reflecting higher spending on technology, projects and strategic investments, partially offset by benefits realized from cost-reduction initiatives.
Taxes
The effective tax rate was 25.6 per cent compared with 26.5 per cent primarily due to the tax effect on the gains on sale of real estate.
Q4 2016 versus Q3 2016
Net income
Net income attributable to equityholders increased $24-million or 3 per cent, mainly due to the growth in both assets and deposits, and higher non-interest income, partly offset by higher non-interest expenses.
Average assets
Average assets rose $3-billion or 1 per cent. Adjusting for the impact of the Tangerine broker-originated and white label mortgage runoff portfolios, assets increased $4-billion or 1 per cent due mainly to the growth of $3-billion or 2 per cent in residential mortgages and $1-billion or 1 per cent in personal loans primarily in consumer auto lending.
Average liabilities
Average liabilities increased $4-billion or 2 per cent, primarily driven by strong growth of $3-billion or 4 per cent in retail banking savings accounts and $2-billion or 4 per cent in small business and commercial banking business operating accounts. Partially offsetting was a decline of $1-billion or 2 per cent in low-margin GICs.
Assets under administration and assets under management
AUM increased $1-billion or 1 per cent driven by higher net sales. AUA remained unchanged.
Net interest income
Net interest income increased $28-million or 2 per cent due mainly to the growth in both assets and deposits and a slight increase in net interest margin.
Non-interest income
Non-interest income increased $41-million or 3 per cent due primarily to higher card revenues, commercial banking credit, mutual fund, and brokerage fees and gains on sale of real estate.
Provision for credit losses
The provision for credit losses was $217-million unchanged from the prior quarter. An increase in retail portfolios due to growth in relatively higher spread products was offset by a decrease in the commercial portfolio. The provision for credit losses ratio was down one basis point to 28 basis points.
Non-interest expenses
Non-interest expenses were up $45-million or 3 per cent, primarily related to technology and project spending and advertising to support business growth, partially offset by benefits realized from cost-reduction initiatives.
Taxes
The effective tax rate was marginally lower at 25.6 per cent compared with 26.1 per cent.
INTERNATIONAL BANKING
(In millions, except per share and where noted)
Three months ended Year ended
Oct. 31, July 31, Oct. 31, Oct. 31, Oct. 31,
2016 2016 2015 2016 2015
Net interest
income $1,615 $1,596 $1,510 $6,359 $5,706
Non-interest
income(1) 883 828 847 3,482 3,137
------ ------ ------ ------ ------
Total revenue 2,498 2,424 2,357 9,841 8,843
Provision for
credit losses 294 316 284 1,281 1,128
Non-interest
expenses 1,413 1,345 1,373 5,523 5,095
Income tax
expense 172 174 136 707 568
------ ------ ------ ------ ------
Net income 619 589 564 2,330 2,052
====== ====== ====== ====== ======
Net income
attributable to
non-controlling
interest in
subsidiaries 72 62 60 251 199
Net income
attributable to
equityholders
of the bank 547 527 504 2,079 1,853
------ ------ ------ ------ ------
Other measures
Return on equity 13.5% 12.8% 13.1% 12.8% 13.0%
Average assets
(billions) 142 140 135 143 128
Average
liabilities
(billions) 109 108 99 109 94
------ ------ ------ ------ ------
(1) Includes net income from investments in associated corporations for the
three months ended Oct. 31, 2016 -- $130 (July 31, 2016 -- $110; Oct. 31,
2015 -- $112) and for the year ended Oct. 31, 2016 -- $473 (Oct. 31, 2015
-- $476).Q4 2016 versus Q4 2015
Net income
International banking reported net income attributable to equityholders of $547-million, up $43-million or 9 per cent, reflecting solid revenues from strong loan, deposit and fee growth in Latin America, a higher contribution from affiliates, acquisitions and good expense control, partly offset by the negative impact of foreign currency translation.
Average assets
Average assets of $142-billion increased $7-billion or 5 per cent driven by strong 8-per-cent retail loan growth and 2-per-cent commercial loan growth, particularly in Latin America.
Average liabilities
Average liabilities increased $10-billion or 10 per cent to $109-billion, largely due to 14-per-cent growth in deposits, with demand and savings deposits up 8 per cent, partly offset by lower securities purchased under resale agreements.
Net interest income
Net interest income was $105-million higher, driven by solid volume growth and a higher net interest margin. Retail and commercial loan growth was 8 per cent and 2 per cent, respectively, or 11 per cent and 4 per cent adjusting for foreign exchange translation. Growth in retail loans was driven by a 13-per-cent increase in Latin America and a 7-per-cent increase in the Caribbean and Central America, with acquisitions contributing 2 per cent of total retail loan growth. Commercial loan growth reflected an increase of 6 per cent in Latin America. The net interest margin increased seven basis points to 4.77 per cent driven by widening margins in Latin America.
Non-interest income
Non-interest income increased $36-million or 4 per cent to $883-million due to higher fees and commissions, and higher net income from investments in associated corporations. These were partly offset by lower trading revenues and the negative impact of foreign currency translation. Net fee and commission revenues increased $55-million or 9 per cent to $671-million driven primarily by higher transaction fees and card revenues in Latin America and the Caribbean, and acquisitions. Net income from investments in associated corporations increased by $18-million reflecting higher contributions from Thanachart Bank and Bank of Xi'an.
Provision for credit losses
The provision for credit losses was $294-million, up $10-million or 3 per cent. The provision for credit losses ratio improved two basis points to 1.15 per cent, primarily due to stable retail provisions. Higher provisions were entirely driven by an increase in the commercial portfolio.
Non-interest expenses
Non-interest expenses increased by $40-million or 3 per cent driven by acquisitions and inflationary increases partly offset by the positive impact of foreign currency translation and the benefits of expense management programs.
Taxes
The effective tax rate increased to 21.7 per cent compared with 19.4 per cent due to lower tax benefits in Mexico partially offset by higher tax benefits in Peru.
Q4 2016 versus Q3 2016
Net income
Net income attributable to equityholders increased by $20-million or 4 per cent to $547-million driven by strong retail loan growth, higher fees, higher contributions from associated corporations and lower provisions for credit losses, partly offset by seasonally higher expenses.
Average assets
Average assets of $142-billion increased $2-billion or 2 per cent driven primarily by strong retail loan growth, particularly in credit cards, residential mortgages and personal loans in Latin America. While commercial loan growth in Mexico and Peru was up a very strong 4 per cent adjusting for the impact of foreign currency translation, there were declines in the Caribbean and other Latin American countries, resulting in commercial loans being down 1 per cent.
Average liabilities
Average liabilities increased $1-billion to $109-billion, largely due to 4-per-cent growth in deposits, with demand and savings deposits up 2 per cent and term deposits up 7 per cent.
Net interest income
Net interest income increased $19-million or 1 per cent to $1,615-million driven by solid asset growth, partly offset by a slightly lower margin. Retail loan growth was 4 per cent driven by strong growth in Latin America. The net interest margin declined two basis points to 4.77 per cent with margin declines in the Caribbean and Central America mostly offset by wider margins in Latin America.
Non-interest income
Non-interest income increased $55-million or 7 per cent to $883-million with higher fee and commission revenues, and a higher contribution from investments in associated corporations. Net fee and commission revenues increased $41-million or 6 per cent to $671-million primarily driven by seasonally higher fees in Latin America, particularly Chile and Mexico. Net income from investments in associated corporations was 19 per cent higher, primarily due to a higher contribution from Thanachart Bank. Other non-interest income decreased by $6-million or 8 per cent to $82-million, due partly to lower foreign currency trading revenues in Latin America.
Provision for credit losses
The provision for credit losses was $294-million, a decrease of $22-million or 7 per cent, driven mainly by lower commercial provisions in the Caribbean and Central America from the elevated levels last quarter. The provision for credit losses ratio improved from 11 basis points to 1.15 per cent.
Non-interest expenses
Non-interest expenses of $1,413-million were $68-million or 5 per cent higher, driven largely by higher technology spending, business volume growth and seasonal marketing campaigns in Latin America.
Taxes
The effective tax rate decreased to 21.7 per cent compared with 22.7 per cent due to higher tax benefits in Peru and Colombia.
GLOBAL BANKING AND MARKETS
(In millions, except per share and where noted)
Three months ended Year ended
Oct. 31, July 31, Oct. 31, Oct. 31, Oct. 31,
2016 2016 2015 2016 2015
Net interest
income $345 $337 $273 $1,293 $1,071
Non-interest
income 830 814 656 3,139 2,953
------ ------ ------ ------ ------
Total revenue 1,175 1,151 929 4,432 4,024
Provision for
credit losses 39 38 27 249 67
Non-interest
expenses 533 507 450 2,040 1,846
Income tax
expense 142 185 127 572 558
------ ------ ------ ------ ------
Net income 461 421 325 1,571 1,553
====== ====== ====== ====== ======
Net income
attributable to
non-controlling
interest in
subsidiaries - - - - -
Net income
attributable to
equityholders
of the bank 461 421 325 1,571 1,553
------ ------ ------ ------ ------
Other measures
Return on equity 15.5% 13.7% 10.5% 12.6% 13.0%
Average assets
(billions) 351 341 341 351 342
Average
liabilities
(billions) 273 264 242 270 240
------ ------ ------ ------ ------Q4 2016 versus Q4 2015
Net income
Net income attributable to equityholders was $461-million, an increase of $136-million or 42 per cent, driven mainly by higher contributions from fixed income, corporate banking and precious metals, as well as the positive impact of foreign currency translation. This was partly offset by higher provision for credit losses.
Average assets
Average assets were $351-billion, an increase of $10-billion or 3 per cent. Adjusting for the impact of foreign currency translation, assets increased $16-billion or 5 per cent, mainly due to growth in corporate loans and acceptances of $8-billion and increases in trading assets of $8-billion.
Average liabilities
Average liabilities of $273-billion increased by $31-billion or 13 per cent. Adjusting for the impact of foreign currency translation, average liabilities increased $34-billion or 14 per cent. This was mainly due to growth of $18-billion in deposits and $16-billion in securities sold under repurchase agreements.
Net interest income
Net interest income of $345-million was up $72-million or 26 per cent. This was due mainly to higher loan origination fees, and higher lending volumes and deposits in Canada, the United States and Europe, which were partly offset by lower volumes in Asia. The net interest margin was up 18 basis points to 1.78 per cent.
Non-interest income
Non-interest income was $830-million, an increase of $174-million or 27 per cent. This was mainly due to stronger revenues in fixed income trading, higher underwriting and advisory fees, and higher credit fees.
Provision for credit losses
The provision for credit losses was up $12-million to $39-million due to higher provisions in Asia and the U.S., partially offset by lower provisions in Canada. The provision for credit losses ratio was up five basis points to 19 basis points.
Non-interest expenses
Non-interest expenses of $533-million were up $83-million or 18 per cent. This was due to higher performance-related and stock-based compensation, technology, compliance, and regulatory costs, partly offset by lower salaries.
Taxes
The effective tax rate for the quarter was 23.4 per cent compared with 28.1 per cent. The lower tax rate was mainly due to higher taxes in foreign jurisdictions in the prior year.
Q4 2016 versus Q3 2016
Net income
Net income attributable to equityholders increased by $40-million or 10 per cent. This was mainly due to stronger results in fixed income and corporate banking, partly offset by lower contributions from commodities and investment banking.
Average assets
Average assets increased by $10-billion or 3 per cent, mainly due to growth in trading assets.
Average liabilities
Average liabilities increased by $9-billion or 3 per cent due to growth in securities sold under repurchase agreements as well as higher deposits.
Net interest income
Net interest income was up $8-million or 2 per cent. This was due mainly to higher loan origination fees, increased lending volumes in Canada and Europe, and higher deposit interest.
Non-interest income
Non-interest income was up $16-million or 2 per cent. This was mainly due to higher fixed income trading revenues, partly offset by lower advisory and underwriting fees.
Provision for credit losses
The provision for credit losses was $39-million this quarter, up $1-million due to higher provisions in Asia and Canada, offset by a decrease in provisions for the U.S. and Europe. The provision for credit losses ratio was unchanged at 19 basis points.
Non-interest expenses
Non-interest expenses increased $26-million or 5 per cent. This was mainly driven by higher performance-related and stock-based compensation, compliance, and technology costs, partly offset by lower salaries.
Taxes
The effective tax rate for the quarter was 23.4 per cent compared with 30.5 per cent. The lower tax rate was mainly due to higher taxes in foreign jurisdictions in the prior quarter.
OTHER(1)
(In millions, except per share and where noted)
Three months ended Year ended
Oct. 31, July 31, Oct. 31, Oct. 31, Oct. 31,
2016 2016 2015 2016 2015
Net interest
income(2) $(105) $(101) $(69) $(384) $(100)
Non-interest
income(3) 71 123 36 273 35
------ ------ ------ ------ ------
Total revenue (34) 22 (33) (111) (65)
Provision for
credit losses - - 60 50 60
Non-interest
expenses(4) 92 86 (90) 653 86
Income tax
expense(3) (103) (83) (120) (545) (475)
------ ------ ------ ------ ------
Net income (23) 19 117 (269) 264
====== ====== ====== ====== ======
Net income
attributable to
non-controlling
interest - - - - -
Net income
attributable to
equityholders
of the bank (23) 19 117 (269) 264
------ ------ ------ ------ ------
Other measures
Average assets
(billions) 113 117 101 111 91
Average
liabilities
(billions) 244 249 263 247 257
------ ------ ------ ------ ------
(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, non-interest income, and provision for income taxes and
differences in the actual amount of costs incurred and charged to the
operating segments.
(2) Includes the elimination of the tax-exempt income gross-up reported in
net interest income, non-interest income and provision for income taxes for
the three months ended Oct. 31, 2016, of $47, July 31, 2016, of $50, Oct.
31, 2015 of $73, and the years ended Oct. 31, 2016, of $299 and Oct. 31,
2015, of $390 to arrive at the amounts reported in the consolidated
statement of income.
(3) Includes net income from investments in associated corporations for the
three months ended Oct. 31, 2016, of negative $38 (July 31, 2016 --
negative $33; Oct. 31, 2015 -- negative $31) and for the year ended Oct.
31, 2016, of negative $137 (Oct. 31, 2015 -- negative $137).
(4) Includes restructuring charge of $378 recorded in second quarter 2016.The other segment includes group treasury, smaller operating segments, business line elimination items and other corporate items which are not allocated to a business line.
Net interest income, non-interest income and 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. The elimination was $47-million in the fourth quarter, compared with $73-million in the same period last year and $50-million last quarter.
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.
Q4 2016 versus Q4 2015
Net loss attributable to equityholders was $23-million in the quarter, compared with a net income of $117-million the same quarter last year.
Last year included a number of largely offsetting items, comprising a reduction in pension benefit accrual related to modifications made to the bank's main pension plan of $204-million pretax ($151-million after tax), an increase to the collective allowance for credit losses against performing loans of $60-million pretax ($44-million after tax) and reorganization costs related to Canadian banking's shared services operations of $61-million pretax ($45-million after tax).
Adjusting for these items, income declined by $78-million. Lower contributions from asset/liability management activities, higher expenses and higher taxes, and lower net gains on investment securities were partly offset by gains on sale of real estate and the positive impact of foreign currency translation.
Q4 2016 versus Q3 2016
Net loss attributable to equityholders was $23-million compared with a net income of $19-million. The decrease was due to the impact of foreign currency translation and higher taxes, while lower net gains on investment securities were partly offset by gains on sale of real estate.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share)
Three months ended Year ended
Oct. 31, July 31, Oct. 31, Oct. 31, Oct. 31,
2016 2016 2015 2016 2015
Revenue
Interest income
Loans $5,220 $5,146 $4,849 $20,419 $18,912
Securities 334 333 225 1,237 922
Securities
purchased under
resale
agreements and
securities
borrowed 46 35 41 158 161
Deposits with
financial
institutions 99 106 72 394 292
------- ------- ------- ------- -------
5,699 5,620 5,187 22,208 20,287
------- ------- ------- ------- -------
Interest expense
Deposits 1,786 1,750 1,508 6,793 6,070
Subordinated
debentures 57 57 49 232 187
Other 203 211 259 891 938
------- ------- ------- ------- -------
2,046 2,018 1,816 7,916 7,195
------- ------- ------- ------- -------
Net interest
income 3,653 3,602 3,371 14,292 13,092
------- ------- ------- ------- -------
Non-interest
income
Banking 957 918 873 3,669 3,360
Wealth
management 837 818 809 3,282 3,269
Underwriting and
other advisory 170 202 109 594 525
Non-trading
foreign
exchange 136 131 122 540 492
Trading revenues 377 381 277 1,403 1,185
Net gain on sale
of investment
securities 96 143 182 534 639
Net income from
investments in
associated
corporations 117 97 96 414 405
Insurance
underwriting
income, net of
claims 150 153 147 603 556
Other 258 195 139 1,019 526
------- ------- ------- ------- -------
3,098 3,038 2,754 12,058 10,957
------- ------- ------- ------- -------
Total revenue 6,751 6,640 6,125 26,350 24,049
Provision for
credit losses 550 571 551 2,412 1,942
------- ------- ------- ------- -------
6,201 6,069 5,574 23,938 22,107
======= ======= ======= ======= =======
Non-interest
expenses
Salaries and
employee
benefits 1,747 1,754 1,544 7,025 6,681
Premises and
technology 600 548 564 2,238 2,086
Depreciation and
amortization 183 173 157 684 584
Communications 111 106 110 442 434
Advertising and
business
development 184 152 184 617 592
Professional 214 169 161 693 548
Business and
capital taxes 97 96 88 403 361
Other 514 507 478 2,438 1,755
------- ------- ------- ------- -------
3,650 3,505 3,286 14,540 13,041
------- ------- ------- ------- -------
Income before
taxes 2,551 2,564 2,288 9,398 9,066
Income tax
expense 540 605 445 2,030 1,853
------- ------- ------- ------- -------
Net income 2,011 1,959 1,843 7,368 7,213
======= ======= ======= ======= =======
Net income
attributable to
non-controlling
interests in
subsidiaries 72 62 60 251 199
Net income
attributable to
equityholders
of the bank 1,939 1,897 1,783 7,117 7,014
Preferred
shareholders 31 37 29 130 117
Common
shareholders 1,908 1,860 1,754 6,987 6,897
------- ------- ------- ------- -------
Earnings per
common share
Basic 1.58 1.55 1.46 5.80 5.70
Diluted 1.57 1.54 1.45 5.77 5.67
Dividends per
common share
(in dollars) 0.74 0.72 0.70 2.88 2.72
------- ------- ------- ------- -------
Shareholder and investor 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 2017
Record and payment dates for common and preferred shares, subject to approval by the board of directors, are shown in the table.
Record date Payment date
Jan. 3 Jan. 27
April 4 April 26
July 4 July 27
Oct. 3 Oct. 27
Annual meeting date for fiscal 2016
Shareholders are invited to attend the 185th annual meeting of holders of common shares, to be held on April 4, 2017, at the Scotiabank Centre, Scotia Plaza, 40 King St. West, second floor, Toronto, Ont., beginning at 9 a.m. local time. The record date for determining shareholders entitled to receive notice of and to vote at the meeting will be the close of business on Feb. 7, 2017.
Duplicated communication
If your shareholdings are registered under more than one name or address, multiple mailings will result. To eliminate this duplication, please write to the transfer agent to combine the accounts.
Normal course issuer bid
A copy of the notice of intention to commence the normal course issuer bid is available without charge by contacting the secretary's department at 416-866-3672.
Website
For information relating to Scotiabank and its services, visit the bank's website.
Conference call and webcast
The quarterly results conference call will take place on Nov. 29, 2016, at 8 a.m. ET and is expected to last approximately one hour. Interested parties are invited to access the call live, in listen-only mode, by telephone, toll-free, at 416-847-6330 or 1-866-530-1553 (please call five to 15 minutes in advance). In addition, an audio webcast, with accompanying slide presentation, may be accessed via the investor relations page of the bank's website. 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 Nov. 29, 2016, to Dec. 14, 2016, by calling 647-436-0148 or 1-888-203-1112 (North America toll-free) and entering the identification code 3242919 followed by the pound key. The archived audio webcast will be available on the bank's website for three months.
We seek Safe Harbor.
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