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Bank of Nova Scotia
Symbol C : BNS
Shares Issued 1,224,496,870
Close 2019-02-25 C$ 75.42
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Scotiabank earns $2,247M in fiscal Q1, boosts dividend

2019-02-26 06:06 ET - News Release

Mr. Brian Porter reports

SCOTIABANK REPORTS FIRST QUARTER RESULTS

Bank of Nova Scotia had first quarter net income of $2,247-million compared with $2,337-million in the same period last year. Diluted earnings per share were $1.71, compared with $1.86 in the same period a year ago. Return on equity was 13.5 per cent compared with 16.2 per cent last year.

Adjusting for acquisition-related costs, net income decreased 3 per cent to $2,291-million and diluted earnings per share declined 6 per cent to $1.75 compared with $1.87 last year. Return on equity was 13.7 per cent compared with 16.3 per cent a year ago.

In the same period a year ago, earnings included an accounting benefit of $150-million ($203-million pretax), or 12 cents of diluted earnings per share, driven by the remeasurement of a liability from an employee benefit plan.

"In the first quarter, we demonstrated continued progress in the execution of our strategy to further derisk the bank, simplify our operations, and position the bank for further growth. We had a solid start to the year with strong earnings growth in international banking and wealth management. This quarter also saw good progress related to the integration of recent acquisitions which is proceeding as expected," said Brian Porter, president and chief executive officer of Scotiabank.

"While significant market volatility impacted some of our business lines, we still experienced strong growth. In addition, credit quality remains strong and in line with recent quarters."

International banking reported strong results this quarter, with adjusted annual earnings growth of 18 per cent on a constant currency basis. The growth was driven largely by strong loan and deposit growth in the Pacific alliance and positive operating leverage.

The bank's common equity Tier 1 capital ratio remains above 11 per cent and will further benefit from the dispositions announced this quarter, which positions the bank well to continue to invest in line with its strategic objectives. This quarter we announced a two-cent increase in the quarterly dividend to 87 cents per common share, 6 per cent higher than a year ago.

"For the remainder of 2019, integration of recent acquisitions will remain a key focus for the bank. We have a focused strategic agenda and strong management team to execute on our plans for the year to achieve our medium-term objectives."

Financial results

                             2019 FIRST QUARTER RESULTS 
                                   (in millions)
                                                           For the three months ended
                                                  Jan. 31       Oct. 31       Jan. 31
                                                     2019          2018          2018

Net interest income                                $4,274        $4,220        $3,936
Non-interest income                                 3,330         3,228         3,152
Total revenue                                       7,604         7,448         7,088
Provision for credit losses                           688           590           544
Non-interest expenses                               4,171         4,064         3,498
Income tax expense                                    498           523           709
Net income                                          2,247         2,271         2,337
Net income attributable to
non-controlling interests in
subsidiaries                                          111            92            58
Net income attributable to
equity holders of the bank                          2,136         2,179         2,279
Preferred shareholders and
other equity instrument holders                        29            65            30
Common shareholders                                 2,107         2,114         2,249
Earnings per common share (in dollars)
Basic                                                1.72          1.72          1.88
Diluted                                              1.71          1.71          1.86

Business segment review

Canadian banking

First quarter 2019 versus first quarter 2018

Net income attributable to equity holders was $1,073-million, a decrease of $29-million or 3 per cent. Adjusting for acquisition-related costs, net income decreased by 2 per cent due primarily to higher non-interest expenses and provision for credit losses partly offset by higher net interest income driven by solid volume growth and the impact of acquisitions. Lower gains on sale of real estate and the prior-year gain on the reorganization of Interac impacted earnings growth by 4 per cent.

First quarter 2019 versus fourth quarter 2018

Net income attributable to equity holders decreased $42-million or 4 per cent. Adjusting for acquisition-related costs, net income declined by 5 per cent due primarily to higher provision for credit losses and lower non-interest income, partially offset by lower non-interest expenses.

International banking

Results on a reported basis

First quarter 2019 versus first quarter 2018

Net income attributable to equity holders of $782-million was up $115-million or 17 per cent. Adjusting for acquisition-related costs, net income increased $130-million or 19 per cent to $805-million. This growth was driven largely by higher net interest income due to strong loan and deposit growth in the Pacific alliance countries, the impact of acquisitions, and higher non-interest income, partly offset by increased non-interest expenses and provision for credit losses. The benefit of one additional month of earnings, from the alignment of the reporting period of Peru with the bank increased net income by 6 per cent.

First quarter 2019 versus fourth quarter 2018

Net income attributable to equity holders increased by $70-million or 10 per cent. Adjusting for acquisition-related costs, net income increased by $59-million or 8 per cent. Growth was largely driven by volume growth, a higher impact of the alignment of reporting period of Peru with the bank compared with Thailand last quarter, and higher trading revenues and investment security gains, partly offset by increased provisions for credit losses and non-interest expenses.

Results on a constant dollar basis

The discussion below for international banking is on a constant dollar basis that excludes the impact of foreign currency translation, which is a non-GAAP (generally accepted accounting principles) financial measure. The bank believes that reporting in constant dollar is useful for readers in assessing continuing business performance.

First quarter 2019 versus first quarter 2018

Net income attributable to equity holders of $782-million was up $107-million or 16 per cent. Adjusting for acquisition-related costs, net income increased by $122-million or 18 per cent to $805-million. This growth was largely driven by higher net interest income due to strong loan and deposit growth in the Pacific alliance countries, the impact of acquisitions, and higher non-interest income, partly offset by increased non-interest expenses and provision for credit losses. The benefit of one additional month of earnings, from the alignment of the reporting period of Peru with the bank increased net income by 6 per cent.

First quarter 2019 versus fourth quarter 2018

Net income attributable to equity holders increased by $69-million or 10 per cent. Adjusting for acquisition-related costs, net income increased by $58-million or 8 per cent. Growth in lending volume, a higher impact of the alignment of reporting period of Peru with the bank compared with Thailand last quarter, and higher trading revenues and investment security gains, partly offset by the increased provisions for credit losses and non-interest expenses.

Global banking and markets

First quarter 2019 versus first quarter 2018

Net income attributable to equity holders was $335-million, a decrease of $119-million or 26 per cent. Lower non-interest income due primarily to lower fixed income trading revenues, net interest income, and higher non-interest expenses were partially offset by the favourable impact of foreign currency translation, the benefit of higher reversals of provision for credit losses and lower taxes.

First quarter 2019 versus fourth quarter 2018

Net income attributable to equity holders decreased by $81-million or 20 per cent. This was mainly due to lower non-interest income, primarily lower fixed income trading revenues and higher non-interest expenses, partly offset by higher net interest income and lower taxes.

Other

First quarter 2019 versus first quarter 2018

Net loss attributable to equity holders was $54-million, compared with net income of $56-million in the same period last year. This was due mainly to lower gains on sale of investment securities and lower contributions from asset/liability management activities, partly offset by lower non-interest expenses and lower taxes. The prior year had lower expenses primarily related to the benefits remeasurement of $150-million ($203-million pretax).

First quarter 2019 versus fourth quarter 2018

Net loss attributable to equity holders was $54-million, compared with $64-million. This was due mainly to lower gains on sale of investment securities, lower contributions from asset/liability management activities and higher non-interest expenses, partly offset by lower taxes.

Credit risk

Allowance for credit losses

The total allowance for credit losses as at Jan. 31, 2019, was $5,199-million. The allowance for credit losses on loans was $5,111-million, up from $5,065-million as at Oct. 31, 2018, due primarily to the impact of foreign currency translation and new provisions during the quarter. The allowance on impaired loans increased to $1.68-billion from $1,677-million as at Oct. 31, 2018, due primarily to the impact of foreign currency translation. The allowance against performing loans was higher at $3,431-million compared with $3,388-million as at Oct. 31, 2018, due primarily to the impact of foreign currency translation and new provisions during the quarter.

Impaired loans

Total gross impaired loans as at Jan. 31, 2019, were $5,287-million up from $5.13-billion as at Oct. 31, 2018, due largely to new formations in retail and commercial portfolios.

Net impaired loans, after deducting the allowance for credit losses, were $3,607-million as at Jan. 31, 2019, an increase of $154-million from Oct. 31, 2018. Net impaired loans in Canadian banking were $691-million as at Jan. 31, 2019, an increase of $73-million from Oct. 31, 2018, across all portfolios. International banking's net impaired loans were $2,662-million as at Jan. 31, 2019, increased marginally from $2,627-million as at Oct. 31, 2018. In global banking and markets, net impaired loans were $254-million as at Jan. 31, 2019, increased from $208-million as at Oct. 31, 2018, due to new formations in Europe and the United States. Net impaired loans as a percentage of loans and acceptances were 0.61 per cent as at Jan. 31, 2019, an increase of one basis point from 0.60 per cent from last quarter.

Capital ratios

The bank's common equity Tier 1 capital ratio was 11.1 per cent at Jan. 31, 2019, flat with the prior quarter, primarily due to strong internal capital generation which was fully offset by organic growth in risk-weighted assets and the impacts from employee pension and postretirement benefits on accumulated other comprehensive income.

The bank's Tier 1 capital ratio also remained flat with the prior quarter at 12.5 per cent. The bank's total capital ratio was 14.6 per cent, an increase of approximately 30 basis points from the prior quarter, primarily due to the issuance of $1.75-billion of subordinated debentures, partly offset by the redemption of $300-million of preferred shares.

The bank's leverage ratio declined by approximately 10 basis points this quarter due to growth in the bank's consolidated assets and the redemption of the preferred shares noted above.

As at Jan. 31, 2019, the CET1, Tier 1, total capital and leverage ratios were well above the Office of the Superintendent of Financial Institutions's minimum capital ratios.

Shareholder information

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.

Conference call and Web broadcast

The quarterly results conference call will take place on Feb. 26, 2019, at 7:30 a.m. Eastern Standard Time and is expected to last approximately one hour. Interested parties are invited to access the call live, in listen-only mode, by telephone at 647-484-0474 or toll-free, at 1-888-378-4398 using ID 058659 followed by the number sign (please call shortly before 7:30 a.m. EST). 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 Feb. 26, 2019, to March 13, 2019, by calling 647-436-0148 or 1-888-203-1112 (North America toll-free) and entering the access code 6812697 followed by the number sign. The archived audio webcast will be available on the bank's website for three months.

We seek Safe Harbor.

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