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Category: Stock Market and Bank of Nova Scotia
Date: 27 August 2019 Stock Price: CAD 66.77 We take a look at the 3rd quarter of 2019 fiscal year earnings report from the Bank of Nova Scotia also known as Scotia Bank.
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About Bank of Nova Scotia
Scotiabank is Canada’s International Bank and a leading financial services provider in the Americas. We are dedicated to helping our more than 25 million customers become better off through a broad range of advice, products and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking, and capital markets
Financial overview of Bank of Nova Scotia latest results
Numbers highlighted in the financial results (comparing Q3:2019 to Q3:2018)
Numbers we are interested in: (for the quarter and in Canadian Dollars):
- Net income of $1.984 billion, compared to $1.939 billion
- Earnings per share (diluted) of $1.50, compared to $1.55
- Return on equity of 11.5%, compared to 13.1%
Numbers we are interested in: (for the quarter and in Canadian Dollars):
- Total revenues: $7.659 billion
- Net income: $1.984 billion
- Net income to common shareholders: $1.839 billion
- Diluted earnings per share: $1.50 (down from $1.55 for the same quarter of the previous year)
- Adjusted weighted average number of diluted common shares outstanding: 1.25 billion
- Book value per common share: $52.06
- Dividend declared for the quarter: $0.90
- Number of employees: 101 809
- Number of branches and offices: 3 129
- Loan impairments: 0.58% of customer accepted loans and advances
- Total Capital Ratio:14.8%
- Leverage Ratio: 4.2%
Bank of Nova Scotia's management commentary on the results and earnings guidance
Canadian Banking
Q3 2019 vs Q3 2018
Net income attributable to equity holders was $1,160 million, an increase of $30 million or 3%. The increase was due primarily to solid asset and deposit growth and the impact of acquisitions, partly offset by higher non-interest expenses and provision for credit losses. Lower gains on sale of real estate impacted earnings growth by 2%.
Q3 2019 vs Q2 2019
Net income attributable to equity holders increased $112 million or 11%. The increase was due primarily to higher net interest income driven by three additional days in the quarter and solid asset and deposit growth, and higher wealth management fees.
Year-to-date Q3 2019 vs Year-to-date Q3 2018
Net income attributable to equity holders increased $32 million or 1%. Adjusting for Acquisition-related costs, net income increased by 2% due primarily to higher revenue driven by solid asset and deposit growth, and the impact of acquisitions, partly offset by higher non-interest expenses and provision for credit losses. Lower gains on sale of real estate, the prior year gain on the reorganization of Interac, and the prior year benefit from the Alignment of the reporting period of the insurance operations with the Bank, impacted earnings growth by 3%.
International Banking
Financial Performance on a Reported Basis
Q3 2019 vs Q3 2018
Net income attributable to equity holders of $781 million was up $262 million. Adjusting for Acquisition-related costs, net income increased to $815 million, up 14%. This growth was largely driven by higher net interest income due to strong loan growth in the Pacific Alliance countries, the impact of acquisitions, higher non-interest income, and the positive impact of foreign currency translation. This was partly offset by increased provision for credit losses, non-interest expenses and higher income taxes.
Q3 2019 vs Q2 2019
Net income attributable to equity holders increased by $81 million or 12%. Adjusting for Acquisition-related costs, net income increased by $28 million or 4%. The impact of revenue growth and lower income taxes, were partly offset by higher non-interest expenses.
Year-to-date Q3 2019 vs Year-to-date Q3 2018
Net income attributable to equity holders of $2,263 million was up $402 million or 22%. Adjusting for Acquisition-related costs, net income increased to $2,407 million, up 16%. This growth was largely driven by higher net interest income due to strong loan growth in the Pacific Alliance countries, the impact of acquisitions, higher non-interest income, and the positive impact of foreign currency translation, partly offset by increased provision for credit losses and non-interest expenses.
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 financial measure (refer to Non-GAAP Measures). The Bank believes that reporting in constant dollar is useful for readers in assessing ongoing business performance.
Q3 2019 vs Q3 2018
Net income attributable to equity holders of $781 million was up $223 million. Adjusting for Acquisition-related costs, net income increased to $815 million, up 11%. 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. This was partly offset by increased provision for credit losses, and higher non-interest expenses and income taxes.
Q3 2019 vs Q2 2019
Net income attributable to equity holders increased by $87 million or 13%. Adjusting for Acquisition-related costs, net income increased by $36 million or 5%. Higher revenues and lower income taxes, were partly offset by higher non-interest expenses.
Year-to-date Q3 2019 vs Year-to-date Q3 2018
Net income attributable to equity holders of $2,263 million was up $356 million or 19%. Adjusting for Acquisition-related costs, net income increased to $2,407 million, up $311 million or 15%. 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, partly offset by increased provision for credit losses and non-interest expenses.
Global Banking and Markets
Q3 2019 vs Q3 2018
Net income attributable to equity holders was $374 million, a decrease of $67 million or 15%. Lower net interest income, higher non-interest expenses, and lower recovery of provision for credit losses were partially offset by the favourable impact of foreign currency translation, and lower income taxes.
Q3 2019 vs Q2 2019
Net income attributable to equity holders decreased by $46 million or 11%. Lower non-interest income, net interest income and recovery of provision for credit losses was partially offset by lower income taxes.
Year-to-date Q3 2019 vs Year-to-date Q3 2018
Net income attributable to equity holders decreased by $213 million or 16%. Lower net interest income, non-interest income and higher non-interest expenses was partly offset by lower income taxes.
Other
Q3 2019 vs Q3 2018
Net loss attributable to equity holders was $451 million. Adjusting for the Net loss on divestitures of $418 million, net loss attributable to equity holders was $33 million, compared to $107 million. The lower net loss was due mainly to higher investment gains and lower taxes, partly offset by lower contributions from asset/liability management activities and higher non-interest expenses.
Q3 2019 vs Q2 2019
Net loss attributable to equity holders was $451 million. Adjusting for the Net loss on divestitures in the current period and the Net gain on divestitures in the prior period, the net loss attributable to equity holders was $33 million, compared to $121 million. The lower net loss was due primarily to higher investment gains, higher contributions from asset/liability management activities and lower income taxes, partly offset by higher non-interest expenses.
Year-to-date Q3 2019 vs Year-to-date Q3 2018
Net loss attributable to equity holders was $484 million. Adjusting for the Net loss on divestitures, the net loss attributable to equity holders was $208 million, compared to $83 million. The prior year had lower expenses primarily related to the benefits remeasurement of $150 million ($203 million pre-tax). The current period also reflects lower contributions from asset/liability management activities and higher income taxes.
Credit risk
Allowance for credit losses
The total allowance for credit losses as at July 31, 2019 was $5,273 million. The allowance for credit losses on loans was $5,194 million, down $101 million, due primarily to new provisions being offset by write-offs and the impact of foreign currency translation.
The allowance on impaired loans increased $1 million to $1,670 million from last quarter as new provisions were offset by write-offs. The allowance against performing loans was lower at $3,524 million compared to $3,626 million as at April 30, 2019, driven by decreases in retail allowances primarily due to the impact of foreign currency translation.
Impaired loans
Total gross impaired loans as at July 31, 2019 were $5,229 million, down from $5,364 million as at April 30, 2019, due primarily to the impact of foreign currency translation. Net impaired loans in Canadian Banking were $706 million as at July 31, 2019, a decrease of $1 million from April 30, 2019. International Banking's net impaired loans were $2,688 million as at July 31, 2019, a decrease of $55 million from April 30, 2019. In Global Banking and Markets, net impaired loans were $165 million as at July 31, 2019, a decrease of $80 million from April 30, 2019 due largely to reversals during the quarter. Net impaired loans as a percentage of loans and acceptances were 0.58% as at July 31, 2019, a decrease of three basis points from last quarter.
Q3 2019 vs Q3 2018
Net income attributable to equity holders was $1,160 million, an increase of $30 million or 3%. The increase was due primarily to solid asset and deposit growth and the impact of acquisitions, partly offset by higher non-interest expenses and provision for credit losses. Lower gains on sale of real estate impacted earnings growth by 2%.
Q3 2019 vs Q2 2019
Net income attributable to equity holders increased $112 million or 11%. The increase was due primarily to higher net interest income driven by three additional days in the quarter and solid asset and deposit growth, and higher wealth management fees.
Year-to-date Q3 2019 vs Year-to-date Q3 2018
Net income attributable to equity holders increased $32 million or 1%. Adjusting for Acquisition-related costs, net income increased by 2% due primarily to higher revenue driven by solid asset and deposit growth, and the impact of acquisitions, partly offset by higher non-interest expenses and provision for credit losses. Lower gains on sale of real estate, the prior year gain on the reorganization of Interac, and the prior year benefit from the Alignment of the reporting period of the insurance operations with the Bank, impacted earnings growth by 3%.
International Banking
Financial Performance on a Reported Basis
Q3 2019 vs Q3 2018
Net income attributable to equity holders of $781 million was up $262 million. Adjusting for Acquisition-related costs, net income increased to $815 million, up 14%. This growth was largely driven by higher net interest income due to strong loan growth in the Pacific Alliance countries, the impact of acquisitions, higher non-interest income, and the positive impact of foreign currency translation. This was partly offset by increased provision for credit losses, non-interest expenses and higher income taxes.
Q3 2019 vs Q2 2019
Net income attributable to equity holders increased by $81 million or 12%. Adjusting for Acquisition-related costs, net income increased by $28 million or 4%. The impact of revenue growth and lower income taxes, were partly offset by higher non-interest expenses.
Year-to-date Q3 2019 vs Year-to-date Q3 2018
Net income attributable to equity holders of $2,263 million was up $402 million or 22%. Adjusting for Acquisition-related costs, net income increased to $2,407 million, up 16%. This growth was largely driven by higher net interest income due to strong loan growth in the Pacific Alliance countries, the impact of acquisitions, higher non-interest income, and the positive impact of foreign currency translation, partly offset by increased provision for credit losses and non-interest expenses.
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 financial measure (refer to Non-GAAP Measures). The Bank believes that reporting in constant dollar is useful for readers in assessing ongoing business performance.
Q3 2019 vs Q3 2018
Net income attributable to equity holders of $781 million was up $223 million. Adjusting for Acquisition-related costs, net income increased to $815 million, up 11%. 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. This was partly offset by increased provision for credit losses, and higher non-interest expenses and income taxes.
Q3 2019 vs Q2 2019
Net income attributable to equity holders increased by $87 million or 13%. Adjusting for Acquisition-related costs, net income increased by $36 million or 5%. Higher revenues and lower income taxes, were partly offset by higher non-interest expenses.
Year-to-date Q3 2019 vs Year-to-date Q3 2018
Net income attributable to equity holders of $2,263 million was up $356 million or 19%. Adjusting for Acquisition-related costs, net income increased to $2,407 million, up $311 million or 15%. 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, partly offset by increased provision for credit losses and non-interest expenses.
Global Banking and Markets
Q3 2019 vs Q3 2018
Net income attributable to equity holders was $374 million, a decrease of $67 million or 15%. Lower net interest income, higher non-interest expenses, and lower recovery of provision for credit losses were partially offset by the favourable impact of foreign currency translation, and lower income taxes.
Q3 2019 vs Q2 2019
Net income attributable to equity holders decreased by $46 million or 11%. Lower non-interest income, net interest income and recovery of provision for credit losses was partially offset by lower income taxes.
Year-to-date Q3 2019 vs Year-to-date Q3 2018
Net income attributable to equity holders decreased by $213 million or 16%. Lower net interest income, non-interest income and higher non-interest expenses was partly offset by lower income taxes.
Other
Q3 2019 vs Q3 2018
Net loss attributable to equity holders was $451 million. Adjusting for the Net loss on divestitures of $418 million, net loss attributable to equity holders was $33 million, compared to $107 million. The lower net loss was due mainly to higher investment gains and lower taxes, partly offset by lower contributions from asset/liability management activities and higher non-interest expenses.
Q3 2019 vs Q2 2019
Net loss attributable to equity holders was $451 million. Adjusting for the Net loss on divestitures in the current period and the Net gain on divestitures in the prior period, the net loss attributable to equity holders was $33 million, compared to $121 million. The lower net loss was due primarily to higher investment gains, higher contributions from asset/liability management activities and lower income taxes, partly offset by higher non-interest expenses.
Year-to-date Q3 2019 vs Year-to-date Q3 2018
Net loss attributable to equity holders was $484 million. Adjusting for the Net loss on divestitures, the net loss attributable to equity holders was $208 million, compared to $83 million. The prior year had lower expenses primarily related to the benefits remeasurement of $150 million ($203 million pre-tax). The current period also reflects lower contributions from asset/liability management activities and higher income taxes.
Credit risk
Allowance for credit losses
The total allowance for credit losses as at July 31, 2019 was $5,273 million. The allowance for credit losses on loans was $5,194 million, down $101 million, due primarily to new provisions being offset by write-offs and the impact of foreign currency translation.
The allowance on impaired loans increased $1 million to $1,670 million from last quarter as new provisions were offset by write-offs. The allowance against performing loans was lower at $3,524 million compared to $3,626 million as at April 30, 2019, driven by decreases in retail allowances primarily due to the impact of foreign currency translation.
Impaired loans
Total gross impaired loans as at July 31, 2019 were $5,229 million, down from $5,364 million as at April 30, 2019, due primarily to the impact of foreign currency translation. Net impaired loans in Canadian Banking were $706 million as at July 31, 2019, a decrease of $1 million from April 30, 2019. International Banking's net impaired loans were $2,688 million as at July 31, 2019, a decrease of $55 million from April 30, 2019. In Global Banking and Markets, net impaired loans were $165 million as at July 31, 2019, a decrease of $80 million from April 30, 2019 due largely to reversals during the quarter. Net impaired loans as a percentage of loans and acceptances were 0.58% as at July 31, 2019, a decrease of three basis points from last quarter.
Bank of Nova Scotia (TSE: BNS) stock price history
The image below obtained from Google shows the stock price history of Bank of Nova Scotia for the last 5 years. Its been a pretty wild and volatile ride for Bank o Nova Scotia shareholders with stock going from CAD 70 in 2015 to as low as CAD 50 in 2016 then back up to CAD 80 by 2018 and trading at CAD 66 right now..
Bank of Nova Scotia (TSE: BNS) stock valuation
Based on the group's latest results, their struggling earnings per share and their low impairment to total loans and advances ratio we value the group's stock at $81.70 a share. So at its current price we do believe there is some value in the stock price. They traded out our valuation levels in 2018 and we see no reason why the group cannot return to those levels over the long run