RNS Number:4648G
Bank of Nova Scotia
1 March 2000
SCOTIABANK'S POSITIVE EARNINGS MOMENTUM CONTINUES IN FIRST QUARTER
Calgary, February 29 - Scotiabank's positive earnings momentum continued into
the new millennium with first quarter net income of $416 million, up $48
million or 13% over the same period a year ago. Earnings per share increased
to $0.79 in the first quarter from $0.69 a year ago, and return on equity
increased to 15.9% from 14.8% in the first quarter of last year.
"The new fiscal year began very well, with all of our business lines
contributing to our success," said Peter Godsoe, Scotiabank's Chairman and
Chief Executive Officer. "Our domestic banking operations, including wealth
management, led the increase in earnings, achieving strong loan and deposit
growth and large gains in brokerage revenues. International banking also
performed well, due to steady growth in the Caribbean and the broadening
economic recovery in Asia."
Domestic banking led earnings growth
"Domestically, we achieved solid growth in our core retail lending business,
particularly in mortgages and credit cards," Godsoe said. "Due to the efforts
of our branch teams and credit specialists, residential mortgages rose by $3.6
billion or 8% over the same period a year ago, while credit card volumes were
up by 11%.
"On the deposit side," he continued, "strong sales of products such as our
market-leading stock-indexed GICs led to a 6% increase in personal deposits
year over year. In wealth management, where we have focused on integrating our
operations, revenues were up 26% year over year."
Building on this momentum, Scotiabank expanded its investment offerings for
this year's RRSP season, by introducing a new U.S. stock-indexed GIC, adding
two new index mutual funds and launching the Scotia RRSP Catch-Up Line of
Credit to follow up on the innovative Scotia RRSP Catch-Up Loan. In a recent
survey, 70 per cent of Scotia Mutual Funds recorded above-average performances
within their categories in 1999 -- among the best ratings by any
mutual fund family in Canada.
Providing e-commerce solutions
"We are continuing to use leading-edge technologies to provide e-commerce
solutions for our customers," Godsoe said. "Scotiabank is now the premier
banking partner on Microsoft Canada's portal Web site, MSN.ca, and we are
working with Microsoft to develop personalised financial services portals --
the equivalent of 'front doors' to the Web."
During the quarter, the Bank also joined Identrus, an alliance of
international financial institutions that offers companies a secure,
world-wide framework for doing business on the Internet.
Scotia Capital achieves top-tier ranking in loan syndication
While the earnings of Scotia Capital, the Bank's corporate and investment
banking division, were up slightly from the fourth quarter, they declined by
$69 million year over year, primarily due to a large one-time gain and higher
recoveries recorded in the prior year.
"The Scotia Capital reorganisation is proceeding extremely well, and customers
are pleased with the new, integrated approach to their business," Godsoe said.
"And once again, Scotia Capital achieved top-tier ranking in the Canadian and
U.S. loan syndication markets. We remain the leading bank - and the only
Canadian bank -- in the top 10 in the important U.S. market."
Caribbean franchise fuels international earnings
The Bank's international operations performed well in the first quarter,
achieving a significant increase in net income year over year. Earnings were
particularly strong in the Caribbean, due to growth in lending volumes and
revenues and a stable margin. Profitability also continued to improve in Asia.
"Internationally, our Caribbean network maintained its track record of
consistent growth, and our Asian results also continued to improve," Godsoe
said. "In Latin America, we are laying the foundation for longer-term earnings
growth, by investing resources in high-potential markets where there is rising
demand for financial services. In December, we increased our stake in Banco
Sud Americano in Chile to a majority position of 61% and later this year, we
expect to exercise our option to increase our stake in Mexico's Grupo
Financiero Inverlat."
Providing community support
Building on its tradition of supporting educational institutions, Scotiabank
donated $2.5 million to the University of Waterloo in November to create a
software engineering degree program and expand its computer courses to prepare
more people for high-technology careers.
"We need strong growth in our high-tech capabilities to help keep Canada's
competitive edge," said Godsoe. "In an era of globalisation and enormous
scientific change, it is important to train, challenge and utilise the best
and brightest resources in software and computer science so Canada can be a
world leader."
Financial results
Highlights for the first quarter compared with the preceding quarter include:
- net income of $416 million, an increase of 4%;
- earnings per share of $0.79, up from $0.76;
- return on equity of 15.9%, versus 15.3%.
Net interest income was $1.158 billion this quarter, a decline of 2% or $24
million from the first quarter last year. The reduction was primarily due to
securitisations which resulted in a transfer of net interest income to other
income. Canadian currency interest profits, excluding the effect of
securitisations, increased through good growth in consumer lending,
particularly in residential mortgages and credit cards. Steady loan growth in
the United States, United Kingdom and Caribbean operations, as well as a
slightly higher interest margin, led to a rise in underlying foreign currency
interest profits. However, the translation effect of a stronger Canadian
dollar resulted in a decrease in the Canadian equivalent of foreign currency
profits. The overall interest margin was 2.08% in the first quarter, up from
2.04% in the same quarter a year ago.
Other income for the first quarter was $822 million, up $15 million or 2% year
over year. However, excluding a one-time gain of $77 million on the sale of
securities recorded last year, a much higher rate of growth of 12% was
achieved. Wealth management revenues increased by 26%, driven primarily by
stronger retail and discount brokerage fees reflecting the buoyant stock
market. Credit-related fees, including acceptance and standby loan commitment
fees, grew by $34 million or 27%. Securitisation revenues almost doubled to
$55 million as a result of transactions effected last year.
Gains on investment securities were $71 million this quarter versus $115
million last year. Investment banking revenues were $135 million, a decline of
$35 million from the same period a year ago, due to lower underwriting fees
and trading income.
One of Scotiabank's competitive strengths is its superior expense management.
The Bank's productivity ratio -- non-interest expenses as a percentage of
total revenues -- was 58.6% in the first quarter, basically unchanged from a
year ago. This ratio, a key measure of cost effectiveness, continues to be one
of the best among Canadian banks.
Total expenses were $1.186 billion, an increase of 4% over the same period a
year ago. Salaries and other staff benefits were $667 million, up $33 million
or 5%, primarily from higher incentives and performance-related compensation.
However, base salary costs were lower due to efficiencies achieved during the
past year. The Bank continues to invest in different areas of business
development and technology, including expanding its e-commerce capabilities.
This year's forecast for the annual specific provision for credit losses is
$540 million. The first quarter's specific provision for credit losses was
$135 million, one-quarter of the estimated annual specific provision, up from
$1 million a year ago. There was no change to the general provision in the
first quarter, compared to a $150 million increase in the general provision in
the same quarter a year ago. As at January 31, 2000, the Bank's general
provision was $1.3 billion -- the highest among the Canadian banks.
Net impaired loans as a percentage of total loans and acceptances were -0.1%
at January 31, 2000, a ratio that remained unchanged from the preceding
quarter. The allowance for credit losses exceeded the gross amount of impaired
loans by $181 million as at January 31, 2000, $25 million better than last
quarter and a much larger improvement of $469 million compared to a year ago.
Total assets were $232 billion as at January 31, 2000, unchanged from a year
ago. However, adjusting for the first-time inclusion of the $3.5 billion in
assets of Scotiabank's newest foreign subsidiary -- Banco Sud Americano in
Chile -- the $8.7 billion in assets securitised by the Bank last year, and the
translation of foreign assets into a stronger Canadian dollar, assets grew by
almost 5%. Residential mortgages, (excluding the effect of securitisations),
rose by 8% and personal lending activity increased due in part to the
successful Scotia Total Equity Plan introduced last year.
The surplus of market value over book value in the Bank's investment
securities portfolio grew to $543 million, up substantially from $300 million
at the end of the immediately preceding quarter. The larger surplus arose
primarily in North American equity securities and, to a lesser extent, in the
Bank's emerging market portfolio.
The Bank continued to build its capital base during the quarter. Total
shareholders' equity grew by $221 million to $11.6 billion, 2% higher than the
preceding quarter. The Bank's Tier 1 capital was $11.7 billion at quarter end,
up from $11.5 billion. The Tier 1 capital ratio was a strong 8.0%, relatively
unchanged from the preceding quarter, notwithstanding the consolidation of
Banco Sud Americano this quarter. The Bank's total capital ratio was 11.7%
compared to 11.9% in the prior quarter. These capital ratios remain well in
excess of the minimum targets of 7% and 10% set by the Bank's regulator.
The Board of Directors today announced a quarterly dividend of $0.24 per
common share, payable on April 26, 2000 to shareholders of record as of the
close of business on April 4, 2000.
Note to Editors:
In addition to providing live access to its annual meeting and telephone
conference call with analysts via the Internet, Scotiabank will also provide
access for investors to a telephone re-broadcast of the analysts' call. The
conference call is scheduled for 2:00 p.m. (Mountain time) and will include a
presentation from Bank executives to analysts and the subsequent question-and-
answer period.
The telephone re-broadcast of the analysts' call will be available at
approximately 5:00 p.m. (Mountain time) by calling +1 (416) 640-1917 and
entering the password 5443 (Number sign).
Performance Highlights Scotiabank
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----------------------------------------------------------------------
For the three months ended
----------------------------------------------------------------------
January 31 October 31 January 31
(Unaudited) 2000 1999 (1) 1999
----------------------------------------------------------------------
Net income (millions) $416 $402 $368
Earnings per share $0.79 $0.76 $0.69
Return on equity 15.9% 15.3% 14.8%
Return on assets 0.72% 0.70% 0.62%
Productivity ratio 58.6% 59.8% 56.1%
(2)
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(1) The above financial results have been prepared in accordance with
Canadian generally accepted accounting principles (GAAP), other than the
accounting for the one-time increase to the general provision for credit
losses of $550 million ($314 million after tax), recorded as a direct charge
to retained earnings in the quarter ending October 31, 1999, which is in
accordance with the accounting requirements specified by the Superintendent of
Financial Institutions Canada under the Bank Act. Had the one-time increase to
the general provision been recorded in accordance with Canadian (GAAP) as a
charge to the Statement of Income, the above financial results in the quarter
ending October 31, 1999, would have been as follows: provision for credit
losses $7 million, provision for income taxes ($30) million, net income $88
million, net income per common share $0.12, return on common shareholders'
equity 2.5%, return on assets 0.15%. Further details are available in Note 20
of the October 31, 1999, Consolidated Financial Statements presented in the
1999 Annual Report.
(2) Excluding a one-time gain on the sale of securities of $77 million, the
productivity ratio was 58.3%.
Interim Consolidated Statement of Income Scotiabank
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----------------------------------------------------------------------
For the three months ended
----------------------------------------------------------------------
(Unaudited) January 31 October 31 January 31
($ millions) 2000 1999 (1) 1999
----------------------------------------------------------------------
Interest income
Loans $2,753 $2,650 $2,808
Securities 550 496 441
Deposits with banks 206 213 287
--------------------------------------
3,5 3,359 3,536
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Interest expense
Deposits 1,932 1,783 1,994
Subordinated debentures 82 82 76
Other 337 322 284
--------------------------------------
2,351 2,187 2,354
--------------------------------------
Net interest income 1,158 1,172 1,182
Provision for credit losses 135 159 259
--------------------------------------
Net interest income after
provision for credit losses 1,023 1,013 923
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Other income
Deposit and payment services 155 150 154
Investment management and trust 180 153 147
Credit fees 159 154 125
Investment banking 135 186 170
Net gain on investment securities 71 102 115
Securitisation revenues 55 42 29
Other 67 53 67
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822 840 807
--------------------------------------
Net interest and other income 1,845 1,853 1,730
--------------------------------------
Non-interest expenses
Salaries 585 582 556
Pension contributions and
other staff benefits 82 73 78
Premises and equipment,
including depreciation 247 245 251
Other 272 356 251
Restructuring provision for
National Trustco Inc. - (20) -
--------------------------------------
1,186 1,236 1,136
--------------------------------------
Income before the undernoted: 659 617 594
Provision for income taxes 232 206 215
Non-controlling interest in
net income of subsidiaries 11 9 11
--------------------------------------
Net income $416 $402 $368
--------------------------------------
--------------------------------------
Preferred dividends paid $27 $27 $27
--------------------------------------
Net income available to
common shareholders $389 $375 $341
----------------------------------------------------------------------
Certain comparative amounts in these financial statements have been
reclassified
to conform with current period presentation.
(1) Refer to footnote (1) on Performance Highlights page.
Condensed Consolidated Balance Sheet Scotiabank
----------------------------------------------------------------------
----------------------------------------------------------------------
As at
----------------------------------------------------------------------
(Unaudited) January 31 October 31 January 31
($ millions) 2000 1999 1999
----------------------------------------------------------------------
Cash resources $17,911 $17,115 $20,745
Securities 36,946 33,969 30,899
Assets purchased under resale
agreements 14,329 13,921 11,140
Loans 136,733 131,938 140,246
Other assets 26,502 25,748 29,467
--------------------------------------
Total assets $232,421 $222,691 $232,497
--------------------------------------
Deposits - Personal $67,251 $65,715 $63,6
- Business and governments 68,815 64,070 67,275
- Banks 26,507 26,833 34,314
--------------------------------------
Total deposits 162,573 156,618 165,198
Other liabilities 52,880 49,293 51,067
Subordinated debentures 5,341 5,374 5,236
Equity - Preferred 1,775 1,775 1,775
- Common 9,852 9,631 9,221
--------------------------------------
Total liabilities and equity $232,421 $222,691 $232,497
--------------------------------------
Components of Net Income and Average Assets Scotiabank
----------------------------------------------------------------------
----------------------------------------------------------------------
For the three months ended
----------------------------------------------------------------------
January 31 October 31 January 31
(Unaudited) 2000 1999 (1) 1999
----------------------------------------------------------------------
Net Income
($ millions)
By business line:
Domestic Banking $189 $167 $168
International Banking 76 83 50
Scotia Capital 163 158 232
Other(2) (12) (6) (82)
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$416 $402 $368
--------------------------------------
By geography:
Canada $245 $320 $272
United States 116 13 128
Other International 99 124 100
Corporate adjustments (44) (55) (132)
--------------------------------------
$416 $402 $368
--------------------------------------
--------------------------------------
Average Assets
($ billions)
By business line:
Domestic Banking $88 $88 $84
International Banking 27 27 26
Scotia Capital 95 92 104
Other(2) 20 19 22
--------------------------------------
$230 $226 $236
--------------------------------------
--------------------------------------
By geography:
Canada $140 $136 $132
United States 36 35 39
Other International 51 52 57
Corporate adjustments 3 3 8
--------------------------------------
$230 $226 $236
--------------------------------------
--------------------------------------
(1) Refer to footnote (1) on Performance Highlights page.
(2) Represents corporate adjustments and smaller operating segments,
including Group Treasury.
Capital and Common Share Information Scotiabank
----------------------------------------------------------------------
----------------------------------------------------------------------
As at
----------------------------------------------------------------------
January 31 October 31 January 31
(Unaudited) 2000 1999 1999
----------------------------------------------------------------------
Capital ratios
Tier 1 8.0% 8.1% 7.2%
Total 11.7% 11.9% 10.6%
Common shares
outstanding (millions) 494.7 494.3 492.8
Book value per share $19.92 $19.49 $18.71
Market value per share $29.55 $33.60 $32.50
----------------------------------------------------------------------
For the three months ended
----------------------------------------------------------------------
January 31 October 31 January 31
(Unaudited) 2000 1999 1999
----------------------------------------------------------------------
Common dividends paid
Total (millions) $118.6 $118.5 $103.4
Per share $0.24 $0.24 $0.21
----------------------------------------------------------------------
For further information: please contact Shelley Jourard, Senior Manager,
Public Affairs, in Calgary at +1 (403) 5-5443; or Jane Shannon, Senior
Consultant, Public Affairs in Toronto at +1 (416) 933-1795 (BNS.)
END
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