RNS Number:1045Q
Bank of Nova Scotia
29 August 2000
Third Quarter: Scotiabank reports record earnings - the best quarterly results
in its 168-year history
Net income of $548 million, up $151 million or 38% year-over-year
Earnings per share $1.05, up 40% from 1999
Return on equity climbed to 19.8%, up from 15.3% for same period last year
Dividend increased by four cents to 28 cents per common share
Toronto, Aug. 29 - Scotiabank has delivered its best quarter on record.
Continuing its consistent growth trend over the past decade, Scotiabank
reported third quarter net income of $548 million, up $151 million or 38% from
the same period last year. Earnings per share climbed a significant 40% to
$1.05, while return on equity (ROE) rose sharply to 19.8%,up from 15.3% a year
ago.
In addition, for the nine month period ended July 31, 2000, net income was
$1,429 million or 24% higher than the same period a year ago. Earnings per
share climbed to $2.72 from $2.17, while ROE improved to 17.8% from 15.3%.
Further, performance in the third quarter also substantially exceeded the
preceding quarter with income up $83 million or 18% from $465 million; earnings
per share up to $1.05 from $0.88 and ROE up to 19.8% from 17.7%. The
productivity ratio also showed a marked improvement to 54%, from 58%,
quarter-over-quarter.
Reflecting the Bank's strong performance, the Board of Directors today
announced an increase in the quarterly dividend of four (4) cents to 28 cents
per common share, payable on October 27, 2000 to shareholders of record as at
the close of business on October 3, 2000.
"Scotiabank has delivered a very good quarter, with all of the Bank's major
business lines making a substantial contribution to our results," said Peter
Godsoe, Scotiabank's Chairman and Chief Executive Officer. "We are well
positioned to continue to deliver sustained growth in our core earnings,
reflecting the strength of our diversified operations, our above-average
efficiency and our focus on anticipating and meeting the evolving needs of our
customers," he said.
"Domestic Banking, including Wealth Management, led the record quarter,
growing 15% quarter-over-quarter and 49% year-over-year, thanks to continued
growth in assets, higher retail and commercial fee income, a substantial rise of
33% in retail brokerage revenue and the sale of the Bank's stock transfer
business," said Mr. Godsoe.
"International Banking continued its solid record of growing earnings, with
net income rising 10% in the quarter and 25% year-over-year. Strong revenue
growth of 7% in the Caribbean along with the sale of Solidbank, in the
Philippines, were the largest contributors to the quarterly increase, while
higher earnings in all regions led to the substantial growth year-over-year.
"On the wholesale side, Scotia Capital generated very strong revenue growth of
17% over last quarter and 30% year-over-year. Growth in business volumes and
margins, as well as higher underwriting and credit fee income, were the major
contributors," Mr. Godsoe added.
Special items recorded this quarter included the sales of the Bank's stock
transfer business and the Bank's 40% investment in Solidbank. These items
contributed $0.11 in earnings per share to the third quarter results. Even
excluding special items, earnings were $495 million or $0.94 per share, a
robust 25% increase over the same quarter last year. The adjusted ROE rose to
17.8%.
"Within the Canadian marketplace, we are using a combination of traditional
branches, specialised sales forces and world-class technology to enhance
service delivery. By continuously developing innovative new financial solutions,
and putting customers first, we are providing increased value and choice for
personal and business clients," said Mr. Godsoe.
For example, all of Scotiabank's Canadian branches now operate with Forms-Free
Teller, a paperless banking system, which electronically processes and
automatically balances all routine, in-branch transactions. Customers benefit
from greater convenience and speed of service -- no forms to fill in and
quicker turn-around times for routine transactions. From the business
perspective, it allows the Bank to maximise efficiencies and improve customer
service, with staff spending more time with customers providing the value-added
advice and services they want.
Mr. Godsoe said other examples, introduced during the quarter, included:
Scotiabank's launch of a new sales-focused structure to further strengthen
customer relationships and increase sales. The initiative includes a
world-class contact management and sales tracking/reporting system, called Sales
Builder;
the introduction of the Scotia Simple Switch program, giving customers a quick
and easy way to transfer their pre-authorised transactions from another
financial institution;
Scotiabank VISA card for small business -- a no-fee VISA card combined with a
competitive line of credit;
a five-year variable mortgage, capped at 0.25% below the fixed five-year
mortgage rate, coupled with an accelerated prepayment schedule to help
customers secure significant long-term savings;
Scotia Partners Portfolio -- four new mutual fund portfolios, which include 16
leading third-party mutual funds;
a partnership between e-Scotia and Creditwave, a Canadian e-commerce company
to allow small and medium-sized businesses to receive and provide instant online
credit to their customers;
an agreement with Halifax-based TIM Dealer Services to provide auto
dealerships across Canada with an internet-based credit application and approval
system.
Internationally, Scotiabank:
implemented new sales delivery platforms in Bahamas, Barbados and Trinidad and
Tobago;
joined forces with the Export Development Corporation to launch the Scotia
Americas Capital Equipment Program for small and medium-sized businesses in
Argentina, Chile, El Salvador, Jamaica and Trinidad and Tobago;
announced its intention to acquire up to 100% control of Banco Sud Americano
in Chile.
In addition, Scotiabank had a number of other achievements during the quarter,
including:
Scotia Capital was co-lead manager and book runner on the $1 billion initial
public debt offering for Hydro One Inc.;
Scotia Capital was named Canada's top underwriter of IPOs for 1999 by
Investment Executive and ranked number one for IPO sales by The Globe and Mail;
Scotia Capital was the only Canadian firm, out of three, to execute the
largest equity forward contract in Canadian history for BCE Inc.;
In the U.S., Scotia Capital's deal with Calpine Construction Finance Company,
was named Project Finance Deal of the Year by Investment Dealer digest;
Euromoney named Scotia Capital the number one Canadian Bank for currency
research and number one for trading strategies;
Scotiabank, as ranked by relative industry global performance, was judged the
world's best bank in the University of Oxford's Templeton College's "Templeton
Global Performance Index";
Scotiabank was named one of Canada's top 100 employers and one of the 10 best
employers for women by Canada's best-selling career author, Richard Yerema, in
his book, Canada's Top 100 Employers, released in June.
Review of operating performance
Revenues
The quarter's strong results were driven by excellent revenue growth. Total
revenues -- comprised of net interest income and other income -- rose to
$2,375 million in the third quarter, a significant increase of 22% over last
year.
Net interest income
Higher lending volumes and a stronger interest margin generated a substantial
year-over-year increase in net interest income, which climbed by 20% to $1,385
million.
Both foreign currency and Canadian currency interest profits were up
year-over- year. In Canada, growth in residential mortgage loans of 6%, along
with higher securities income, combined for an increase in Canadian currency
profits. Internationally, net interest income rose primarily through loan growth
in the United States, and continued strength in the Bank's Caribbean operations.
As well, income from Banco Sud Americano, Chile, was consolidated for the first
time in the preceding quarter, contributing to the year-over-year improvement.
Other income
Other income climbed by 26% in the third quarter to $990 million, a
significant gain over the same quarter last year. The growth was very broad
based, led by wealth management-related revenues, including a 33% rise in retail
brokerage fees. Double-digit revenue gains were also achieved in credit-related
fees, trading revenues and underwriting fees.
Gains on investment securities were $115 million versus $89 million last year,
as the Bank continued to take advantage of favourable equity markets.
Included in these gains was $21 million relating to the sale of the Bank's 40%
stake in Solidbank, in the Philippines.
As well, other income included $61 million from the sale of the Bank's stock
transfer business.
Expenses
Continued focus on expense management resulted in a substantial improvement in
the productivity ratio to 54% in the quarter (55.9% excluding special items),
versus 60.4% in the third quarter last year. Scotiabank has the leading
productivity ratio amongst its Canadian bank peers.
Total expenses were $1,310 million in the third quarter, an increase of 9%
over the same period last year. Excluding Banco Sud Americano's expenses, the
growth was 6%. The majority of this increase arose from higher
performance-driven compensation consistent with better performances in trading
and retail
brokerage.
Credit quality
The current forecast for the annual specific provision for credit losses is
$765 million, an increase of $100 million from the previous forecast. This was
primarily related to higher provisions required for several accounts in North
America and is a reflection of the Bank's traditional conservative approach to
provisioning. The third quarter's specific provision for credit losses was
$227 million, up from $108 million a year ago, and $177 million in the preceding
quarter.
Net impaired loans remained relatively unchanged. The allowance for credit
losses exceeded the gross amount of impaired loans by $163 million, or (0.1)%
of total loans and acceptances, an improvement of $32 million over the last
quarter.
The Bank continues to maintain a substantial general provision of $1,300
million.
Balance sheet
Total assets as at July 31, 2000, were $243 billion, up 7% or $16 billion from
a year ago. Increases in securities and assets purchased under resale agreements
accounted for $10 billion of the increase, and the consolidation of Banco Sud
Americano contributed almost $4 billion.
Solid gains were achieved in both personal and business loans. Residential
mortgages in Canada grew by over $2 billion as customer demand remained
strong.
Prior to securitisations, personal loans increased by 8% reflecting the strong
Canadian economy. The Bank's business loans portfolio had a year-over-year
increase of 7%, with higher volumes across many of the Bank's operations.
In the Bank's investment securities portfolio, the surplus of market value
over book value grew again this quarter to $751 million, up $102 million over
April 30, 2000. The higher surplus arose primarily in the Bank's emerging market
portfolio.
On the deposit side, the Bank posted solid growth in its market-leading stock-
indexed GICs, accompanied by double-digit gains in current account balances,
enabling a reduction in more expensive wholesale deposits.
Capital
The Bank is very well capitalised. Total shareholders' equity was $12.5
billion as at July 31, 2000, compared to $12 billion at the end of the preceding
quarter, an increase of $464 million or 4%, due principally to earnings
retention of $402 million.
The Bank's Tier 1 capital ratio climbed to 8.5%, up from 8.4% in the prior
quarter, and the Bank's total capital ratio was 12.1% compared to 12%. These
capital ratios are among the best of the other Canadian banks, and remain well
in excess of the minimum targets of 7% and 10% set by the Bank's regulator.
Outlook
"2000 is shaping up as another good year for economic growth in Canada and the
United States. The upswing in the global economy continues, with broadening
recovery in Asia and increasing momentum in Latin America. These strengthening
conditions are expected to support continued earnings growth for our Bank,"
said Mr. Godsoe.
Performance Highlights Scotiabank
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For the three months ended
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July 31(1) April 30 July 31
(Unaudited) 2000 2000 1999
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Net income (millions) $548 $465 $397
Earnings per share $1.05 $0.88 $0.75
Return on equity 19.8% 17.7% 15.3%
Productivity ratio 54.0% 58.0% 60.4%
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For the nine months
ended
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July 31(2) July 31
(Unaudited) 2000 1999
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Net income (millions) $1,429 $1,149
Earnings per share $2.72 $2.17
Return on equity 17.8% 15.3%
Productivity ratio 56.7% 59.1%(2)
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1. Excluding special items recorded in the three month period ended July 31,
2000, net income was $495 million, earnings per share was $0.94, return on
equity was 17.8%, and the productivity ratio was 55.9%.
2. Excluding special items recorded in the third quarter, for the nine month
period ended July 31, 2000, net income was $1,376 million, earnings per share
was $2.61, return on equity was 17.1%, and the productivity ratio was 57.4%.
Excluding the special item recorded in the first quarter of 1999, for the nine
month period ended July 31, 1999, the productivity ratio was 59.9%.
Interim Consolidated Statement of Income Scotiabank
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For the three For the nine
months ended months ended
-------------------------------------------------------------------------
(Unaudited) July 31 April 30 July 31 July 31 July 31
($ millions) 2000 2000 1999 2000 1999
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Interest income
Loans $3,182 $2,898 $2,565 $8,833 $8,004
Securities 577 537 480 1,664 1,378
Deposits with banks 252 208 212 666 730
-----------------------------------------------------
4,011 3,643 3,257 11,163 10,112
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-----------------------------------------------------
Interest expense
Deposits 2,118 1,929 1,720 5,979 5,501
Subordinated
debentures 77 78 81 237 232
Other 431 373 300 1,141 879
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2,626 2,380 2,101 7,357 6,612
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Net interest income 1,385 1,263 1,156 3,806 3,500
Provision for
credit losses 227 177 108 539 476
--------------------------------------------------
Net interest income
after provision for
credit losses 1,158 1,086 1,048 3,267 3,024
--------------------------------------------------
--------------------------------------------------
Other income
Deposit and payment
services 158 154 152 467 452
Investment management
and trust 178 219 144 577 451
Credit fees 168 141 136 468 389
Investment banking 201 218 181 554 520
Net gain on investment
securities 115 147 89 333 241
Securitisation
revenues 52 49 45 156 113
Other 118 60 39 245 177
-----------------------------------------------------
990 988 786 2,800 2,343
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-----------------------------------------------------
Net interest
and other income 2,148 2,074 1,834 6,067 5,367
-----------------------------------------------------
-----------------------------------------------------
Non-interest expenses
Salaries 661 670 583 1,916 1,715
Pension contributions
and other staff
benefits 91 91 96 264 257
Premises and
equipment, including
depreciation 270 269 250 786 762
Other 288 302 267 862 786
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1,310 1,332 1,196 3,828 3,520
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-----------------------------------------------------
Income before
the undernoted: 838 742 638 2,239 1,847
Provision for
income taxes 272 263 228 767 661
Non-controlling
interest in
net income of
subsidiaries 18 14 13 43 37
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Net income $ 548 $ 465 $ 397 $ 1,429 $1,149
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-----------------------------------------------------
Preferred
dividends paid $ 27 $ 27 $ 27 $ 81 $ 81
-----------------------------------------------------
Net income available
to common
shareholders $ 521 $ 438 $ 370 $ 1,348 $1,068
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Certain comparative amounts in these financial statements have been
reclassified to conform with current period presentation.
Condensed Consolidated Balance Sheet Scotiabank
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As at
-------------------------------------------------------------------------
(Unaudited) July 31 April 30 July 31
($ millions) 2000 2000 1999
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Cash resources $19,043 $21,082 $19,626
Securities 36,891 37,968 33,350
Loans 161,364 158,873 147,820
Other assets 25,826 26,854 26,603
------------------------------------------
Total assets $243,124 $244,777 $227,399
------------------------------------------
------------------------------------------
Deposits - Personal $68,588 $68,875 $64,962
- Business and
governments 74,742 75,271 65,437
- Banks 24,395 24,965 26,099
------------------------------------------
Total deposits 167,725 169,111 156,498
Other liabilities 57,578 58,274 53,909
Subordinated debentures 5,327 5,362 5,451
Equity - Preferred 1,775 1,775 1,775
- Common 10,719 10,255 9,766
------------------------------------------
Total liabilities and equity $243,124 $244,777 $227,399
------------------------------------------
------------------------------------------
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Components of Net Income and Average Assets Scotiabank
-------------------------------------------------------------------------
For the three For the nine
months ended months ended
-------------------------------------------------------------------------
July 31 April 30 July 31 July 31 July 31
(Unaudited) 2000 2000 1999 2000 1999
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net Income
($ millions)
By business line:
Domestic Banking $234 $203 $157 $626 $482
International Banking 104 95 83 275 213
Scotia Capital 211 162 176 536 587
Other(1) (1) 5 (19) (8) (133)
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$548 $465 $397 $1,429 $1,149
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-----------------------------------------------------
By geography:
Canada $377 $340 $255 $962 $769
United States 66 87 100 269 330
Other International 142 119 121 360 339
Corporate adjustments (37) (81) (79) (162) (289)
-----------------------------------------------------
$548 $465 $397 $1,429 $1,149
-----------------------------------------------------
-----------------------------------------------------
Average Assets
($ billions)
By business line:
Domestic Banking $89 $89 $86 $89 $85
International Banking 32 31 26 30 26
Scotia Capital 103 98 92 98 99
Other(1) 17 18 19 19 20
-----------------------------------------------------
$241 $236 $223 $236 $230
-----------------------------------------------------
-----------------------------------------------------
By geography:
Canada $142 $141 $133 $141 $133
United States 42 38 34 39 38
Other International 55 54 52 53 54
Corporate adjustments 2 3 4 3 5
-----------------------------------------------------
$241 $236 $223 $236 $230
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----------------------------------------------------
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(1) Represents corporate adjustments and smaller operating segments,
including Group Treasury.
Capital and Common Share Information Scotiabank
-------------------------------------------------------------------------
As at
-------------------------------------------------------------------------
July 31 April 30 July 31
(Unaudited) 2000 2000 1999
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-------------------------------------------------------------------------
Capital ratios
Tier 1 8.5% 8.4% 8.0%
Total 12.1% 12.0% 11.5%
Common shares outstanding
(millions) 496.4 495.2 493.8
Book value per share $21.60 $20.71 $19.78
Market value per share $37.55 $33.75 $31.35
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For the three months ended
-------------------------------------------------------------------------
July 31 April 30 July 31
(Unaudited) 2000 2000 1999
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Common dividends paid
Total (millions) $119.1 $118.8 $103.7
Per share $0.24 $0.24 $0.21
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This report includes forward-looking statements about objectives, strategies
and expected financial results. Such forward-looking statements are inherently
subject to risks and uncertainties beyond the Bank's control, including, but
not limited to, economic and financial conditions globally, regulatory
developments in Canada and elsewhere, technological developments and
competition. These and other factors may cause the Bank's actual performance to
differ materially from that contemplated by forward-looking statements, and the
reader is therefore cautioned not to place undue reliance on such statements.
A live Internet broadcast of the Bank's analysts' conference call will begin
at 3:00 p.m. today. The web broadcast will include both audio and slide
presentations by Bank executives, and the subsequent question and answer
period.
The full presentation will be available on the web at about 5:00 p.m. today.
Please visit www.scotiabank.ca for more information about the
broadcast.
Scotiabank is one of North America's premier financial institutions, with more
than $243 billion in assets and approximately 41,000 employees worldwide. It
is also Canada's most international bank with more than 1,700 branches and
offices in over 50 countries on six continents. Scotiabank is on the world wide
web at http://www.scotiabank.ca
For further information: Sabi Marwah, Executive Vice-President and Chief
Financial Officer, +1 (416) 866-6808; Kevin Harraher, Vice-President, Investor
Relations, +1 (416) 866-5982; Pam Agnew, Director, Public Affairs, +1 (416)
866-7238
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