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Bank of Nova Scotia
Symbol C : BNS
Shares Issued 1,222,387,572
Close 2019-05-27 C$ 70.57
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Scotiabank earns $2,259-million in fiscal Q2

2019-05-28 06:11 ET - News Release

Mr. Brian Porter reports

SCOTIABANK REPORTS SECOND QUARTER RESULTS

Bank of Nova Scotia had second quarter net income of $2,259-million compared with $2,177-million in the same period last year. Diluted earnings per share were $1.73, compared with $1.70 in the same period a year ago. Return on equity was 13.8 per cent compared with 14.9 per cent a year ago.

Adjusting for acquisition- and divestiture-related amounts, net income increased 3 per cent to $2,263-million and diluted earnings per share were $1.70 compared with $1.71 last year. Return on equity was 13.6 per cent compared with 15.0 per cent a year ago.

"The bank continues to make steady progress in the execution of its strategy, completing previously announced acquisitions in Peru and the Dominican Republic and announcing the divestiture of El Salvador. Our sharper geographic focus, improved business mix and progress in digital banking position the bank well for the future," said Brian Porter, president and chief executive officer of Scotiabank.

"We had strong operating results across our businesses. Earnings from the personal and commercial banking businesses were up 8 per cent year over year while global banking and markets rebounded strongly.

"International banking delivered strong results this quarter, with double-digit annual earnings growth. These results were driven by strong loan growth, particularly in the Pacific alliance countries and the impact of acquisitions. Our competitive strength in these high-quality growth markets provides us with significant opportunities for customer-driven growth. Our merged Chilean operations are gaining market share while creating considerable synergies and value for our customers and shareholders.

"Canadian banking delivered solid results this quarter, driven by commercial lending and wealth management earnings growth, along with better expense management. The business continued its efforts to enhance the customer experience and advance digital adoption through the launch of two new platforms in the second quarter: Scotiabank Healthcare plus Physician Banking and Scotiabank eHome.

"We also announced our intention to establish global wealth management as a stand-alone business segment effective in fiscal 2020 to demonstrate its importance and our strategic commitment to expanding our global wealth management businesses.

"The bank reported a common equity Tier 1 capital ratio of 11.1 per cent through strong internal capital generation and prudent management of organic asset growth.

"Over all, we delivered solid results across the bank in the second quarter. We have made good progress toward strengthening our businesses and offering a superior customer experience. Looking ahead, we remain focused on delivering against our differentiated strategy and achieving consistent long-term growth."

                                                 FINANCIAL RESULTS 
                                                    (in millions)
  
                                                        For the three months ended    For the six months ended
                                                April 30      Jan. 31     April 30     April 30       April 30
                                                    2019         2019         2018         2019           2018

Net interest income                               $4,193       $4,274       $3,950       $8,467         $7,886
Non-interest income                                3,610        3,330        3,108        6,940          6,260
Total revenue                                      7,803        7,604        7,058       15,407         14,146
Provision for credit losses                          873          688          534        1,561          1,078
Non-interest expenses                              4,046        4,171        3,726        8,217          7,224
Income tax expense                                   625          498          621        1,123          1,330
Net income                                         2,259        2,247        2,177        4,506          4,514
Net income attributable to
non-controlling interests in subsidiaries             70          111           70          181            128
Net income attributable to
equity holders of the bank                         2,189        2,136        2,107        4,325          4,386
Preferred shareholders and
other equity instrument holders                       64           29           65           93             95
Common shareholders                                2,125        2,107        2,042        4,232          4,291
Earnings per common share (in dollars)
Basic                                               1.74         1.72         1.70         3.46           3.58
Diluted                                             1.73         1.71         1.70         3.44           3.56

Business segment review

Canadian banking

Second quarter 2019 versus second quarter 2018

Net income attributable to equity holders was $1,048-million, an increase of $31-million or 3 per cent. Adjusting for acquisition-related costs, net income was $1,062-million, an increase of 4 per cent, due primarily to higher revenue driven by solid loan growth, strong deposit growth and the impact of acquisitions. This was partly offset by higher non-interest expenses, higher provision for credit losses, the prior-year benefit from an additional month of income from the alignment of reporting period and lower gains on sale of real estate.

Q2 2019 versus first quarter 2019

Net income attributable to equity holders decreased $25-million or 2 per cent. Adjusting for acquisition-related costs, net income declined 2 per cent due primarily to lower net interest income driven by three fewer days in the quarter and higher provision for credit losses, partially offset by higher non-interest income and lower non-interest expenses.

Year-to-date Q2 2019 versus year-to-date Q2 2018

Net income attributable to equity holders was $2,121-million, in line with the prior year. Adjusting for acquisition-related costs, net income was $2,151-million, an increase of 1 per cent, due primarily to higher revenue driven by solid volume growth and the impact of acquisitions. This was partly offset by higher non-interest expenses, higher provision for credit losses, the prior-year gain on the reorganization of Interac and benefit from the alignment of reporting period, and lower gains on sale of real estate.

International banking

Financial performance on a reported basis

Q2 2019 versus Q2 2018

Net income attributable to equity holders of $700-million was up $25-million, or 4 per cent. Adjusting for acquisition and divestiture-related costs, net income increased to $787-million, up 15 per cent. This growth was largely driven by higher net interest income due to strong loan growth in the Pacific alliance countries, the impact of acquisitions and higher non-interest income, including a higher contribution from associated corporations. This was partly offset by increased non-interest expenses and provision for credit losses, the benefit of alignment of the reporting period of Chile with the bank last year, and higher income taxes.

Q2 2019 versus Q1 2019

Net income attributable to equity holders decreased by $82-million or 11 per cent. Adjusting for acquisition and divestiture-related costs, net income decreased by $18-million or 2 per cent largely driven by higher income taxes and last quarter's benefit of alignment of reporting period of Peru with the bank, partly offset by revenue growth and lower non-interest expenses.

Year-to-date Q2 2019 versus year-to-date Q2 2018

Net income attributable to equity holders of $1,482-million was up $140-million or 10 per cent. Adjusting for acquisition-related costs, net income increased to $1,592-million, up 17 per cent. This growth was largely driven by higher net interest income due to strong loan growth in the Pacific alliance countries, the impact of acquisitions and higher non-interest income, including a higher contribution from associated corporations, partly offset by increased non-interest expenses and provision for credit losses.

Financial performance 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.

Q2 2019 versus Q2 2018

Net income attributable to equity holders of $700-million was up $16-million or 2 per cent. Adjusting for acquisition and divestiture-related costs, net income increased to $787-million, up 14 per cent. This growth was largely driven by higher net interest income due to strong loan growth in the Pacific alliance countries, the impact of acquisitions and higher non-interest income, including a larger contribution from associated corporations. This was partly offset by increased non-interest expenses and provision for credit losses, the benefit of alignment of the reporting period of Chile with the bank last year, and higher income taxes.

Q2 2019 versus Q1 2019

Net income attributable to equity holders decreased by $106-million or 13 per cent. Adjusting for acquisition and divestiture-related costs, net income decreased by $42-million or 5 per cent due to last quarter's benefit of the alignment of reporting period of Peru with the bank. Revenue growth and lower expenses were offset by lower tax benefits.

Year-to-date Q2 2019 versus year-to-date Q2 2018

Net income attributable to equity holders of $1,482-million was up $121-million or 9 per cent. Adjusting for acquisition and divestiture-related costs, net income increased to $1,592-million, or 16 per cent. This growth was largely driven by higher net interest income due to strong loan growth in the Pacific alliance countries, the impact of acquisitions and higher non-interest income, including a higher contribution from associated corporations, partly offset by increased non-interest expenses and provision for credit losses.

Global banking and markets

Q2 2019 versus Q2 2018

Net income attributable to equity holders was $420-million, a decrease of $27-million or 6 per cent. Lower net interest income, higher non-interest expenses and lower recovery of provision for credit losses were partially offset by higher non-interest income, the favourable impact of foreign currency translation and lower income taxes.

Q2 2019 versus Q1 2019

Net income attributable to equity holders increased by $85-million or 25 per cent. This was due mainly to higher non-interest income and lower non-interest expenses, partly offset by lower net interest income, lower recovery of provision for credit losses and higher income taxes.

Year-to-date Q2 2019 versus year-to-date Q2 2018

Net income attributable to equity holders decreased by $146-million or 16 per cent. This was due mainly to lower non-interest income, higher non-interest expenses and lower net interest income, partly offset by lower income taxes.

Other

Q2 2019 versus Q2 2018

Net income attributable to equity holders was $21-million. Adjusting for the net gain on divestitures of $142-million ($173-million pretax), there was a net loss of $121-million, compared with $32-million in the same period last year. This was due mainly to lower contributions from asset/liability management activities, partly offset by higher gains on sale of investment securities, lower non-interest expenses and lower taxes.

Q2 2019 versus Q1 2019

Net income attributable to equity holders was $21-million. Adjusting for the net gain on divestitures, there was a net loss of $121-million, compared with $54-million. This was primarily due to lower contributions from asset/liability management activities and higher income taxes, partly offset by higher gains on sale of investment securities and lower non-interest expenses.

Year-to-date Q2 2019 versus year-to-date Q2 2018

Net loss attributable to equity holders was $33-million. Adjusting for the net gain on divestitures, the net loss was $175-million, compared with net income of $24-million. The prior year had lower expenses primarily related to the benefits remeasurement of $150-million ($203-million pretax). The current period also reflects lower contributions from asset/liability management activities.

Credit risk

Allowance for credit losses

The total allowance for credit losses as at April 30, 2019, was $5,376-million. The allowance for credit losses on loans was $5,295-million, up $184-million from the prior quarter, due primarily to the impact of day 1 provision for credit losses on acquired performing loans. The allowance on impaired loans decreased to $1,669-million from $1,680-million as at Jan. 31, 2019, due primarily to write-offs net of recoveries during the quarter. The allowance against performing loans was higher at $3,626-million compared with $3,431-million as at Jan. 31, 2019, due primarily to the impact of day 1 provision for credit losses on acquired performing loans.

Impaired loans

Total gross impaired loans as at April 30, 2019, were $5,364-million, up from $5,287-million as at Jan. 31, 2019, due largely to new formations in the retail portfolio in international banking.

Net impaired loans in Canadian banking were $707-million as at April 30, 2019, an increase of $16-million from Jan. 31, 2019, mainly due to new formations in the commercial portfolio. International banking's net impaired loans were $2,743-million as at April 30, 2019, an increase of $81-million from Jan. 31, 2019, mainly due to new formations in the retail portfolios. In global banking and markets, net impaired loans were $245-million as at April 30, 2019, a decrease of $8-million from Jan. 31, 2019, due largely to resolutions during the quarter. Net impaired loans as a percentage of loans and acceptances were 0.61 per cent as at April 30, 2019, unchanged from last quarter.

Capital ratios

The bank's common equity Tier 1 capital ratio was 11.1 per cent at April 30, 2019, in line with the prior quarter, primarily due to strong internal capital generation which was offset by organic growth in risk-weighted assets, the net impact from the bank's acquisitions and divestitures which closed during the quarter, share buybacks under the bank's normal course issuer bid and the impact from employee pension and postretirement benefits on accumulated other comprehensive income.

In addition, the bank's Tier 1 capital ratio remained in line at 12.5 per cent and the total capital ratio increased by approximately 10 basis points to 14.7 per cent, primarily due to the above impacts to the common equity Tier 1 (CET1) ratio.

The bank's leverage ratio declined by approximately 10 basis points this quarter due to growth in the bank's consolidated assets, which included the impact from acquisitions.

As at April 30, 2019, the CET1, Tier 1, total capital and leverage ratios were well above OSFI's minimum capital ratios.

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 May 28, 2019, at 8 a.m. Eastern Daylight 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 478364 followed by the number sign (please call shortly before 8 a.m. EDT). 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 May 28, 2019, to June 12, 2019, by calling 647-436-0148 or 1-888-203-1112 (North America toll-free) and entering the access code 2950667 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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