All amounts are in
Canadian dollars and are based on our unaudited Interim Condensed
Consolidated Financial Statements for the quarter ended April 30,
2020 and related notes prepared in accordance with International
Financial Reporting Standards (IFRS), unless otherwise noted. Our
complete Second Quarter 2020 Report to Shareholders, including our
unaudited interim financial statements for the period ended April
30, 2020, can also be found on the SEDAR website at www.sedar.com
and on the EDGAR section of the SEC's website at www.sec.gov. In
addition, Supplementary Financial Information is also available,
together with the Second Quarter 2020 Report on the Investor
Relations page of www.scotiabank.com
|
Second Quarter
Highlights on a Reported basis (versus Q2, 2019)
|
Second Quarter
Highlights on an Adjusted basis(1) (versus Q2,
2019)
|
•
|
Net income of $1,324
million, compared to $2,259 million
|
•
|
Net income of $1,371
million, compared to $2,263 million
|
•
|
Earnings per share
(diluted) of $1.00, compared to $1.73
|
•
|
Earnings per share
(diluted) of $1.04, compared to $1.70
|
•
|
Return on equity of
7.9%, compared to 13.8%
|
•
|
Return on equity of
8.2%, compared to 13.6%
|
"While the Bank's
second quarter results were significantly impacted by the COVID-19
pandemic, we have remained fully operational and prioritized the
health and safety of our employees. The Bank has a long history of
standing by our customers in challenging times, and our dedicated
teams have ensured we have provided financial relief to millions of
our customers across our footprint. The Bank remains well
positioned from a capital and liquidity perspective, and we are
appropriately reserved for potential credit losses. Our
repositioning efforts and significant investments in technology
over the last number of years have allowed us to support our
customers during this difficult time. We launched several new
digital banking solutions this quarter which enabled the Bank to
provide financial relief to approximately 300,000 Canadian
households and processed over 2 million customer assistance
applications for customers across the International Banking
footprint.
We were also proud to
support our communities across our footprint having committed over
$15 million to support people who are most at risk during the
pandemic, including our partner programs and our ongoing support of
hospitals and healthcare professionals. They deserve our gratitude
for their courage in the face of this unprecedented public health
crisis.
On behalf of
Scotiabank's leadership team, I would like to extend my sincere
thanks to all of our employees for providing customers with the
critical banking services they need. Thank you for your flexibility
and adaptability and quickly adjusting to new work environments and
work loads, continuing to put our customers first, and for
supporting one another and our communities. We are proud to see
everyone coming together across teams and businesses to make it
work – and I have no doubt this cooperation will continue for as
long as this challenging time continues," said Brian Porter,
President and CEO of Scotiabank.
|
TORONTO, May 26, 2020 /CNW/ - Scotiabank reported
second quarter net income of $1,324
million compared to $2,259
million in the same period last year. Diluted earnings per
share (EPS) was $1.00, down 42% from
$1.73 in the previous year. Return on
equity was 7.9% compared to 13.8% in the previous year.
Adjusted net income(1) was $1,371 million and EPS was $1.04, both down 39% from the previous year.
Return on equity was 8.2% compared to 13.6% a year ago. The results
were significantly impacted by higher loan loss provisions of
$1,846 million this quarter and
provisions for the metals business and
investigations(2).
Canadian Banking reported adjusted earnings of $481 million. The Canadian Banking segment
provided financial relief to over 300,000 Scotiabank customers
across $60 billion in lending
products, including support to our retail, small business and
commercial banking customers. Several new digital banking solutions
were introduced to support customers, including an online
application process for Canadian Emergency Business Account and
direct deposit for customers eligible for the Canadian Emergency
Response Benefit and Canadian Emergency Wage Subsidy to receive
government relief funds faster.
International Banking delivered adjusted earnings of
$197 million. The International
Banking segment has processed over 2 million Customer Assistance
Program applications to date. Our digital capabilities in the
Pacific Alliance resulted in approximately 80% of Customer
Assistance Program applications enrolled via digital omnichannel
tools, more than 140,000 customers adopted our digital banking
solutions and digital transactions increased by 50%.
____________________________________________
|
(1) Refer
to Non-GAAP Measures section on page 3.
|
(2) Refer
to page 51 of the Second Quarter 2020 Report to
Shareholders.
|
Global Wealth Management reported adjusted earnings of
$314 million, an increase of 4% over
the same period last year. Global Wealth Management's diversified
funds and portfolio solutions outperformed market benchmarks and
industry peers this quarter – demonstrating strong investment
performance despite challenging market conditions and substantial
volatility in equity markets. This quarter saw record results for
both new client account openings and trading volumes in Scotia
iTRADE. The business also benefitted from positive investment flows
and loan growth across Scotiabank's wealth management
businesses.
Global Banking and Markets reported earnings of $523 million, up 25% over the same period last
year. This quarter included strong performance by our fixed income
business in a volatile environment. To help clients weather the
crisis, Global Banking and Markets helped arrange close to
$300 billion in financings for
clients while acting as an important source of liquidity to support
their businesses.
The Bank reported a Common Equity Tier 1 capital ratio of 10.9%
and a liquidity coverage ratio of 132%. Our strong levels of
capital and liquidity continue to protect the Bank in times of
uncertainty.
Financial Results
Reported
Results
|
|
For the three months ended
|
|
For the
six months ended
|
|
|
April
30
|
|
January 31
|
|
April 30
|
|
April
30
|
|
April 30
|
(Unaudited)($
millions)
|
|
2020
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net interest
income
|
$
|
4,417
|
$
|
4,392
|
$
|
4,193
|
$
|
8,809
|
$
|
8,467
|
Non-interest
income
|
|
3,539
|
|
3,749
|
|
3,610
|
|
7,288
|
|
6,940
|
Total
revenue
|
|
7,956
|
|
8,141
|
|
7,803
|
|
16,097
|
|
15,407
|
Provision for credit
losses
|
|
1,846
|
|
926
|
|
873
|
|
2,772
|
|
1,561
|
Non-interest
expenses
|
|
4,363
|
|
4,418
|
|
4,046
|
|
8,781
|
|
8,217
|
Income tax
expense
|
|
423
|
|
471
|
|
625
|
|
894
|
|
1,123
|
Net
income
|
$
|
1,324
|
$
|
2,326
|
$
|
2,259
|
$
|
3,650
|
$
|
4,506
|
Net income
attributable to non-controlling interests in
|
|
|
|
|
|
|
|
|
|
|
subsidiaries
|
|
15
|
|
39
|
|
70
|
|
54
|
|
181
|
Net income
attributable to equity holders of the Bank
|
$
|
1,309
|
$
|
2,287
|
$
|
2,189
|
$
|
3,596
|
$
|
4,325
|
|
Preferred
shareholders and other equity instrument
|
|
|
|
|
|
|
|
|
|
|
|
holders
|
|
66
|
|
25
|
|
64
|
|
91
|
|
93
|
|
Common
shareholders
|
$
|
1,243
|
$
|
2,262
|
$
|
2,125
|
$
|
3,505
|
$
|
4,232
|
Earnings per
common share (in dollars)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.03
|
$
|
1.86
|
$
|
1.74
|
$
|
2.89
|
$
|
3.46
|
|
Diluted
|
$
|
1.00
|
$
|
1.84
|
$
|
1.73
|
$
|
2.84
|
$
|
3.44
|
Non-GAAP Measures
The Bank uses a number of financial measures to assess its
performance. Some of these measures are not calculated in
accordance with Generally Accepted Accounting Principles (GAAP),
which are based on International Financial Reporting Standards
(IFRS), are not defined by GAAP and do not have standardized
meanings that would ensure consistency and comparability among
companies using these or similar measures. The Bank believes that
certain non-GAAP measures are useful in assessing ongoing business
performance and provide readers with a better understanding of how
management assesses performance. These non-GAAP measures are used
throughout this press release and are defined in the "Non-GAAP
Measures" section in the Second Quarter 2020 Report to
Shareholders.
Adjusted results and diluted earnings per share
The following tables present reconciliations of GAAP Reported
financial results to non-GAAP Adjusted financial results. The
financial results have been adjusted for the following:
1) Acquisition and divestiture-related amounts –
Acquisition and divestiture-related amounts are defined as:
A) Acquisition-related costs
- Integration costs – Includes costs that are incurred and relate
to integrating the acquired operations and are recorded in the
Global Wealth Management and International Banking operating
segments. These costs will cease once integration is complete. The
costs relate to the following acquisitions:
- Banco Cencosud, Peru
(closed Q2, 2019)
- Banco Dominicano del Progreso, Dominican Republic (closed Q2,
2019)
- MD Financial Management, Canada (closed Q4, 2018)
- Jarislowsky, Fraser Limited, Canada (closed Q3, 2018)
- Citibank consumer and small and medium enterprise operations,
Colombia (closed Q3,
2018)
- BBVA, Chile (closed Q3,
2018)
- Amortization of Acquisition-related intangible assets,
excluding software. These costs relate to the six acquisitions
above, as well as prior acquisitions and are recorded in the
Canadian Banking, Global Wealth Management and International
Banking operating segments.
B) Net (gain)/loss on divestitures – The Bank
announced a number of divestitures in 2019 in accordance with its
strategy to reposition the Bank. The (gain)/loss on the
divestitures is recorded in the Other segment, and relates to the
following divestitures:
- Equity-accounted investment in Thanachart Bank, Thailand (closed Q1, 2020)
- Colfondos AFP, Colombia
(closed Q1, 2020)
- Operations in Puerto Rico and
USVI (closed Q1, 2020)
- Insurance and banking operations in El Salvador (closed Q1, 2020)
- Insurance and pension operations in Dominican Republic (closed Q2,
2019)
2) Allowance for credit losses (ACL) – Additional
Scenario – The Bank modified its ACL measurement
methodology in Q1, 2020 by adding an additional, more severe
pessimistic scenario, consistent with developing practice among
major international banks in applying IFRS 9, and the Bank's
prudent approach to expected credit loss provisioning. The
modification resulted in an increase in provision for credit losses
of $155 million which was recorded in
Canadian Banking, Global Wealth Management, International Banking
and Global Banking and Markets operating segments.
3) Derivative Valuation Adjustment – The Bank
enhanced its fair value methodology primarily relating to
uncollateralized OTC derivatives which resulted in a pre-tax charge
of $116 million in Q1, 2020. This
charge was recorded in the Global Banking and Markets and Other
operating segments.
4) Impairment charge on software asset – The Bank
recorded an impairment loss in the Other operating segment of
$44 million pre-tax in Q1, 2020,
related to one software asset.
Reconciliation of reported and adjusted results and diluted
earnings per share
|
|
|
For the three months
ended
|
For the six months
ended
|
($
millions)
|
April 30
2020
|
January 31
2020
|
April
30 2019
|
April 30
2020
|
April 30
2019
|
Reported
Results
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
|
4,417
|
$
|
4,392
|
$
|
4,193
|
$
|
8,809
|
$
|
8,467
|
Non-interest
income
|
|
3,539
|
|
3,749
|
|
3,610
|
|
7,288
|
|
6,940
|
Total
Revenue
|
|
7,956
|
|
8,141
|
|
7,803
|
|
16,097
|
|
15,407
|
Provision for credit
losses
|
|
1,846
|
|
926
|
|
873
|
|
2,772
|
|
1,561
|
Non-interest
expenses
|
|
4,363
|
|
4,418
|
|
4,046
|
|
8,781
|
|
8,217
|
Income before
taxes
|
|
1,747
|
|
2,797
|
|
2,884
|
|
4,544
|
|
5,629
|
Income tax
expense
|
|
423
|
|
471
|
|
625
|
|
894
|
|
1,123
|
Net
income
|
$
|
1,324
|
$
|
2,326
|
$
|
2,259
|
$
|
3,650
|
$
|
4,506
|
Net income
attributable to non-controlling interests in subsidiaries
(NCI)
|
|
15
|
|
39
|
|
70
|
|
54
|
|
181
|
Net income
attributable to equity holders
|
$
|
1,309
|
$
|
2,287
|
$
|
2,189
|
$
|
3,596
|
$
|
4,325
|
Net income
attributable to common shareholders
|
$
|
1,243
|
$
|
2,262
|
$
|
2,125
|
$
|
3,505
|
$
|
4,232
|
Diluted earnings
per share (in dollars)
|
$
|
1.00
|
$
|
1.84
|
$
|
1.73
|
$
|
2.84
|
$
|
3.44
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related
amounts
|
|
|
|
|
|
|
|
|
|
|
Day 1 provision for
credit losses on acquired performing
|
|
|
|
|
|
|
|
|
|
|
financial
instruments(1)
|
$
|
-
|
$
|
-
|
$
|
151
|
$
|
-
|
$
|
151
|
Integration
costs(2)
|
|
41
|
|
76
|
|
25
|
|
117
|
|
56
|
Amortization of
Acquisition-related intangible assets, excluding
|
|
|
|
|
|
|
|
|
|
|
software(2)
|
|
27
|
|
27
|
|
28
|
|
54
|
|
58
|
Acquisition-related
costs
|
|
68
|
|
103
|
|
204
|
|
171
|
|
265
|
Allowance for credit
losses - Additional scenario(1)
|
|
-
|
|
155
|
|
-
|
|
155
|
|
-
|
Derivatives valuation
adjustment(3)
|
|
-
|
|
116
|
|
-
|
|
116
|
|
-
|
Net (gain)/loss on
divestitures(4)
|
|
-
|
|
(262)
|
|
(173)
|
|
(262)
|
|
(173)
|
Impairment charge on
software asset(2)
|
|
-
|
|
44
|
|
-
|
|
44
|
|
-
|
Adjustments
(Pre-tax)
|
|
68
|
|
156
|
|
31
|
|
224
|
|
92
|
Income tax
expense/(benefit)
|
|
(21)
|
|
(138)
|
|
(27)
|
|
(159)
|
|
(44)
|
Adjustments (After
tax)
|
|
47
|
|
18
|
|
4
|
|
65
|
|
48
|
Adjustment
attributable to NCI
|
|
(7)
|
|
(48)
|
|
(45)
|
|
(55)
|
|
(50)
|
Adjustments (After
tax and NCI)
|
$
|
40
|
$
|
(30)
|
$
|
(41)
|
$
|
10
|
$
|
(2)
|
Adjusted
Results
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
|
4,417
|
$
|
4,392
|
$
|
4,193
|
$
|
8,809
|
$
|
8,467
|
Non-interest
income
|
|
3,539
|
|
3,597
|
|
3,437
|
|
7,136
|
|
6,767
|
Total
revenue
|
|
7,956
|
|
7,989
|
|
7,630
|
|
15,945
|
|
15,234
|
Provision for credit
losses
|
|
1,846
|
|
771
|
|
722
|
|
2,617
|
|
1,410
|
Non-interest
expenses
|
|
4,295
|
|
4,265
|
|
3,993
|
|
8,560
|
|
8,103
|
Income before
taxes
|
|
1,815
|
|
2,953
|
|
2,915
|
|
4,768
|
|
5,721
|
Income tax
expense
|
|
444
|
|
609
|
|
652
|
|
1,053
|
|
1,167
|
Net
income
|
$
|
1,371
|
$
|
2,344
|
$
|
2,263
|
$
|
3,715
|
$
|
4,554
|
Net income
attributable to NCI
|
|
22
|
|
87
|
|
115
|
|
109
|
|
231
|
Net income
attributable to equity holders
|
$
|
1,349
|
$
|
2,257
|
$
|
2,148
|
$
|
3,606
|
$
|
4,323
|
Net income
attributable to common shareholders
|
$
|
1,283
|
$
|
2,232
|
$
|
2,084
|
$
|
3,515
|
$
|
4,230
|
Adjusted diluted
earnings per share (in dollars)
|
$
|
1.04
|
$
|
1.83
|
$
|
1.70
|
$
|
2.87
|
$
|
3.44
|
Impact of
adjustments on diluted earnings per share (in
dollars)
|
$
|
0.04
|
$
|
(0.01)
|
$
|
(0.03)
|
$
|
0.03
|
$
|
-
|
(1)
|
Recorded in
provision for credit losses.
|
(2)
|
Recorded in
non-interest expenses.
|
(3)
|
Recorded in
non-interest income.
|
(4)
|
(Gain)/loss on
divestitures is recorded in non-interest income; costs related to
divestitures are recorded in non-interest expenses.
|
Reconciliation of reported and adjusted results by business
line(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($
millions)
|
Canadian
Banking
|
International
Banking
|
Global Wealth
Management
|
Global Banking
and Markets
|
Other
|
Total
|
|
|
For the three
months ended April 30, 2020
|
Reported net
income
|
$
|
477
|
$
|
185
|
$
|
304
|
$
|
523
|
$
|
(165)
|
$
|
1,324
|
Total adjustments
(after tax)
|
|
4
|
|
31
|
|
12
|
|
-
|
|
-
|
|
47
|
Adjusted net
income
|
$
|
481
|
$
|
216
|
$
|
316
|
$
|
523
|
$
|
(165)
|
$
|
1,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended January 31, 2020
|
Reported net
income
|
$
|
852
|
$
|
582
|
$
|
309
|
$
|
372
|
$
|
211
|
$
|
2,326
|
Total adjustments
(after tax)
|
|
56
|
|
117
|
|
12
|
|
79
|
|
(246)
|
|
18
|
Adjusted net
income
|
$
|
908
|
$
|
699
|
$
|
321
|
$
|
451
|
$
|
(35)
|
$
|
2,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended April 30, 2019
|
Reported net
income
|
$
|
819
|
$
|
701
|
$
|
298
|
$
|
420
|
$
|
21
|
$
|
2,259
|
Total adjustments
(after tax)
|
|
4
|
|
130
|
|
11
|
|
-
|
|
(141)
|
|
4
|
Adjusted net
income
|
$
|
823
|
$
|
831
|
$
|
309
|
$
|
420
|
$
|
(120)
|
$
|
2,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months
ended April 30, 2020
|
Reported net
income
|
$
|
1,329
|
$
|
767
|
$
|
613
|
$
|
895
|
$
|
46
|
$
|
3,650
|
Total adjustments
(after tax)
|
|
60
|
|
148
|
|
24
|
|
79
|
|
(246)
|
|
65
|
Adjusted net
income
|
$
|
1,389
|
$
|
915
|
$
|
637
|
$
|
974
|
$
|
(200)
|
$
|
3,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months
ended April 30, 2019
|
Reported net
income
|
$
|
1,680
|
$
|
1,529
|
$
|
575
|
$
|
755
|
$
|
(33)
|
$
|
4,506
|
Total adjustments
(after tax)
|
|
8
|
|
157
|
|
24
|
|
-
|
|
(141)
|
|
48
|
Adjusted net
income
|
$
|
1,688
|
$
|
1,686
|
$
|
599
|
$
|
755
|
$
|
(174)
|
$
|
4,554
|
(1)
|
Refer to Business
Segment Review in the Second Quarter 2020 Report to
Shareholders.
|
Business Segment Review
Reorganization of Business Segments
Effective November 1, 2019, the
Bank established Global Wealth Management as a separate business
segment. Wealth Management results previously reported in the
Canadian Banking and International Banking business segments are
now being reported in the new business segment. Prior period
comparative information for Canadian Banking and International
Banking has been restated to reflect this change.
The Bank will now publish financial information across five
business segments including:
- Canadian Banking (excluding Canadian Wealth Management)
- International Banking (excluding International Wealth
Management)
- Global Wealth Management (including Canadian Wealth Management
and International Wealth Management)
- Global Banking and Markets; and
- Other
Canadian Banking
Q2 2020 vs Q2 2019
Net income attributable to equity holders was $477 million, compared to $819 million. Adjusted net income was
$481 million, a decline of
$342 million or 42%. The decline was
due primarily to higher provision for credit losses on performing
loans, lower non-interest income, and higher non-interest expenses,
partly offset by higher net interest income driven by strong asset
and deposit volume growth.
Q2 2020 vs Q1 2020
Net income attributable to equity holders declined $375 million or 44%. Adjusted net income
declined by $427 million or 47%. The
decline was due primarily to higher provision for credit losses on
performing loans, lower non-interest income, and lower net interest
income, partly offset by lower non-interest expenses.
Year-to-date Q2 2020 vs Year-to-date Q2 2019
Net income attributable to equity holders was $1,329 million, a decline of $351 million or 21%. Adjusted net income
declined by $299 million or 18%. The
decline was due primarily to higher provision for credit losses on
performing loans, higher non-interest expenses and lower
non-interest income, partly offset by higher net interest income
driven by strong asset and deposit volume growth.
International Banking
Financial Performance on a Reported Basis
Q2 2020 vs Q2 2019
Net income attributable to equity holders was $173 million, a decrease of $465 million, or 73%. Adjusted net income
attributable to equity holders was $197
million, a decrease of $527
million or 73%. The decline was due largely to higher
provision for credit losses and the impact of divested
operations.
Q2 2020 vs Q1 2020
Net income attributable to equity holders decreased by
$345 million or 67%. Adjusted net
income attributable to equity holders decreased $418 million or 68%. The decline was due
largely to higher provision for credit losses, the impact of
divested operations and the benefit of one additional month of
earnings from the Alignment of the reporting period of Mexico with the Bank ("Alignment of reporting
period") last quarter.
Year-to-date Q2 2020 vs Year-to-date Q2 2019
Net income attributable to equity holders decreased by
$668 million or 49%. Adjusted net
income attributable to equity holders decreased $655 million or 45%. The decline was due largely
to higher provision for credit losses and the impact of divested
operations.
Financial Performance on a Constant Dollar
Basis
The discussion below on the results of
operations 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 section in the Second Quarter
2020 Report to Shareholders).The Bank believes that reporting in
constant dollar is useful for readers in assessing ongoing business
performance.
Q2 2020 vs Q2 2019
Net income attributable to equity holders was $173 million, a decrease of $440 million, or 72%. Adjusted net income
attributable to equity holders was $197
million, a decrease of $496
million or 72%, due largely to higher provision for credit
losses and the impact of divested operations.
Q2 2020 vs Q1 2020
Net income attributable to equity holders decreased by
$341 million or 66%. Adjusted net
income attributable to equity holders decreased $412 million or 68%. This was due largely to
higher provision for credit losses and the impact of divested
operations. The remaining decline was due to the benefit of
one additional month of earnings from the Alignment of the
reporting period of Mexico with
the Bank ("Alignment of reporting period") last quarter.
Year-to-date Q2 2020 vs Year-to-date Q2 2019
Net income attributable to equity holders decreased by
$657 million or 49%. Adjusted net
income attributable to equity holders decreased $636 million or 44%, due largely to higher
provision for credit losses and the impact of divested
operations.
Global Wealth Management
Q2 2020 vs Q2 2019
Net income attributable to equity holders was $302 million, an increase of $10 million or 3%. Adjusted net income increased
to $314 million, up 3%. This
growth is due primarily to higher brokerage fees and net interest
income partially offset by the impact of divestitures. The impact
of divested operations reduced earnings growth by 4%.
Q2 2020 vs Q1 2020
Net income attributable to equity holders declined $4 million or 1%. Adjusted net income
declined by $4 million or 1% due to
lower fee-based revenue from market depreciation, partly offset by
lower volume related expenses. The prior quarter benefit of one
additional month of earnings from the Alignment of the reporting
period of Mexico with the Bank
("Alignment of reporting period") impacted earnings growth by
2%.
Year-to-date Q2 2020 vs Year-to-date Q2 2019
Net income attributable to equity holders was $608 million, an increase of $43 million or 8%. Adjusted net income increased
to $632 million, up 7%. This
growth is due primarily to higher fee income partially offset by
higher non-interest expenses. The impact of divested operations and
the Alignment of reporting period reduced earnings growth by
2%.
Global Banking and Markets
Q2 2020 vs Q2 2019
Net income attributable to equity holders was $523 million, an increase of $103 million or 25%. Higher net-interest income,
non-interest income and the favourable impact of foreign currency
translation was partly offset by higher provision for credit losses
and higher non-interest expenses.
Q2 2020 vs Q1 2020
Net income attributable to equity holders increased by
$151 million or 41%. Adjusted net
income attributable to equity holders increased by $72 million or 16%. This was due mainly to higher
net-interest income and non-interest income, and lower non-interest
expenses, partly offset by higher provision for credit losses.
Year-to-date Q2 2020 vs Year-to-date Q2 2019
Net income attributable to equity holders was $895 million, an increase of $140 million or 19%. Adjusted net income
attributable to equity holders was $974
million, an increase of $219
million or 29%. This was due to higher non-interest income,
partly offset by higher provision for credit losses and higher
non-interest expenses.
Other
Q2 2020 vs Q2 2019
Net loss attributable to equity holders was $166 million, compared to a net gain of
$20 million in the same period last
year. Adjusted net loss attributable to equity holders declined by
$44 million. This was driven mainly
by the metals business charges of $212
million and incremental costs from COVID-19. This was partly
offset by higher net interest income from asset/liability
management activities, as well as gains on sale of investment
securities.
Q2 2020 vs Q1 2020
Net loss attributable to equity holders was $166 million, a decrease of $405 million. Adjusted net loss attributable to
equity holders decreased by $131
million, driven mainly by metals business charges of
$212 million and incremental costs
from COVID-19. Net interest income benefitted from higher
contributions from asset/liability management activities, while
non-interest income was higher due to gains on sale of investment
securities.
Year-to-date Q2 2020 vs Year-to-date Q2 2019
Net income attributable to equity holders was $73 million, compared to a net loss of
$34 million. Adjusted net loss
attributable to equity holders was $201
million, a decrease of $25
million, driven mainly by metals business charges of
$232 million and incremental costs
from COVID-19. The segment results benefitted from higher net
interest income from asset/liability management activities, as well
as gains on sale of investment securities.
Credit risk
Provision for credit losses
Q2 2020 vs Q2 2019
The provision for credit losses was $1,846 million, compared to $873 million, an increase of $973 million or 111%. Adjusted provision for
credit losses increased $1,124
million, or 156%. The provision for credit losses ratio
increased 58 basis points to 119 basis points, and adjusted
provision for credit losses ratio increased by 68 basis points.
Provision on impaired loans was $870
million, compared to $700
million, an increase of $170
million or 24%, due primarily to higher retail provisions in
line with organic growth and unfavourable macroeconomic environment
as well as higher provisions in Canadian commercial banking
portfolios and Global Banking and Markets. The provision for credit
losses ratio on impaired loans increased seven basis points to 56
basis points.
Provision on performing financial instruments was $976 million, compared to $173 million, an increase of $803 million. Adjusted provision on
performing loans increased $954
million, of which $679 million
related to retail, driven by unfavourable macroeconomic outlook,
mainly from higher unemployment and lower GDP forecasts. Commercial
and Corporate performing loan provisions increased $275 million driven by the unfavourable
macroeconomic outlook and the decline in oil prices that impacted
the Energy sector globally.
Q2 2020 vs Q1 2020
The provision for credit losses was $1,846 million, compared to $926 million, an increase of $920 million. Adjusted provision for credit
losses increased $1,075 million, or
139%. The provision for credit losses ratio increased 58 basis
points to 119 basis points, and adjusted provision for credit
losses ratio increased by 68 basis points.
Provision on impaired loans was $870
million, an increase of $35
million or 4%. Adjusted provision on impaired loans
increased $68 million or 8%, due
primarily to higher provisions in Canadian Banking and
International commercial portfolios. The provision for credit
losses ratio on impaired loans was 56 basis points, an increase of
one basis point, while adjusted provision for credit losses ratio
increased by three basis points.
Provision on performing financial instruments was $976 million, compared to $91 million, an increase of $885 million. Adjusted provision on performing
loans increased $1,007 million, of
which $714 million related to retail,
due primarily to the unfavourable macroeconomic outlook, mainly
from higher unemployment and lower GDP forecasts. Commercial and
Corporate performing loan provisions also increased $293 million driven by the unfavourable
macroeconomic outlook and lower oil prices that impacted the Energy
sector globally.
Year-to-date Q2 2020 vs Year-to-date Q2 2019
The provision for credit losses was $2,772 million, compared to $1,561 million, an increase of $1,211 million. Adjusted provision for credit
losses was $2,617 million, compared
to $1,410 million, an increase of
$1,207 million or 86%. The provision
for credit losses ratio increased 36 basis points to 90 basis
points and increased 36 basis points to 85 basis points on an
adjusted basis.
The provision for credit losses on impaired loans was
$1,705 million, an increase of
$326 million. Adjusted provision for
credit losses on impaired loans was $1,672
million, an increase of $293
million or 21% due primarily to higher retail provisions in
line with organic growth and higher provisions in Canadian
commercial banking portfolios and Global Banking and Markets. The
provision for credit losses ratio on impaired loans was 55 basis
points, an increase of seven basis points. Adjusted provision for
credit losses ratio on impaired loans increased by six basis points
to 54 basis points.
Provision on performing loans was $1,067
million, compared to $182
million. Adjusted provision for performing loans was
$945 million, compared to
$31 million, an increase of
$914 million, of which $660 million related to retail, due primarily to
the unfavourable macroeconomic outlook, mainly from higher
unemployment and lower GDP forecasts. Commercial and Corporate
performing loan provisions increased by $254
million due to the unfavourable macroeconomic outlook and
lower oil prices that impacted the Energy sector globally.
Allowance for credit losses
The total allowance for credit losses as at April 30, 2020 was $6,079
million. The allowance for credit losses for loans was
$6,005 million, up $984 million from the prior quarter and
$928 million from October 31, 2019. The increase was due
primarily to higher retail and commercial loan provisions which
were driven by an unfavourable macroeconomic outlook related mainly
to higher unemployment, lower GDP and unfavourable market
conditions in the Oil & Gas sector globally. This was
partly offset by the impact of foreign currency translation.
The increase from Q4, 2019 was also due to impact of the alternate
scenario partially offset by divestitures.
The allowance on impaired loans increased to $1,643 million from $1,533
million last quarter and $1,595
million as at October 31, 2019
due primarily to higher provisions in International Retail and
higher provisions in Canadian and International commercial banking
portfolios. The allowance against performing loans was higher at
$4,362 million compared to
$3,488 million as at January 31, 2020 and $3,482 million as at October 31, 2019 due primarily to higher retail
and commercial provisions for loans driven by unfavourable
macroeconomic outlook, mainly for unemployment and GDP, and
unfavourable market conditions in the Oil & Gas sector
globally.
Impaired loans
Gross impaired loans increased to $5,120
million as at April 30, 2020,
from $4,770 million last quarter, due
primarily to new formations in commercial and corporate portfolios.
The gross impaired loan ratio was 78 basis points as at
April 30, 2020, an increase of one
basis point from last quarter.
Net impaired loans in Canadian Banking were $814 million as at April
30, 2020, an increase of $74
million from January 31, 2020
due primarily to new formations in Commercial banking.
International Banking's net impaired loans were $2,406 million as at April
30, 2020, an increase of $107
million from January 31, 2020,
mainly due to new formations in Commercial Banking partially offset
by higher retail allowance. In Global Banking and Markets, net
impaired loans were $230 million as
at April 30, 2020, an increase of
$56 million from January 31, 2020 due mainly to new formation in
one account in the Energy sector. In Global Wealth Management, net
impaired loans were $23 million as at
April 30, 2020, an increase of
$3 million from January 31, 2020. Net impaired loans as a
percentage of loans and acceptances were 0.53% as at April 30, 2020, an increase of one basis point
from 0.52% from last quarter.
Capital Ratios
The Bank's Common Equity Tier 1 (CET1) capital ratio was 10.9%
at April 30, 2020, a decrease of
approximately 50 basis points from the prior quarter, due primarily
to internal generation which was more than offset by higher drawn
balances in corporate and commercial lending, counterparty credit
risk and credit valuation adjustment risk-weighted assets. The CET1
ratio also benefited 10 basis points from OSFI's transitional
adjustment for the partial add back of increases in Stage 1 and
Stage 2 expected credit losses (ECL) relative to their baseline
levels as at January 31, 2020.
The Bank's Tier 1 and Total capital ratios were 11.9% and 14.0%,
respectively, a decrease of approximately 60 basis points from the
prior quarter, due primarily to the above noted impacts to the CET1
ratio.
The Bank's Leverage ratio was 4.4% at April 30, 2020, an increase of approximately 40
basis points from the prior quarter, due primarily to OSFI's
temporary Leverage ratio exclusions for central bank reserves and
sovereign-issued securities, which were partly offset by growth in
the Bank's consolidated assets.
As at April 30, 2020, the CET1,
Tier 1, Total capital and Leverage ratios were well above OSFI's
minimum capital ratios.
Forward-looking statements
From time to time, our public communications often include oral
or written forward-looking statements. Statements of this type are
included in this document, and may be included in other filings
with Canadian securities regulators or the U.S. Securities and
Exchange Commission, or in other communications. In addition,
representatives of the Bank may include forward-looking statements
orally to analysts, investors, the media and others. All such
statements are made pursuant to the "safe harbor" provisions of the
U.S. Private Securities Litigation Reform Act of 1995 and any
applicable Canadian securities legislation. Forward-looking
statements may include, but are not limited to, statements made in
this document, the Management's Discussion and Analysis in the
Bank's 2019 Annual Report under the headings "Outlook" and in other
statements regarding the Bank's objectives, strategies to achieve
those objectives, the regulatory environment in which the Bank
operates, anticipated financial results, and the outlook for the
Bank's businesses and for the Canadian, U.S. and global economies.
Such statements are typically identified by words or phrases such
as "believe," "expect," "foresee," "forecast," "anticipate,"
"intend," "estimate," "plan," "goal," "project," and similar
expressions of future or conditional verbs, such as "will," "may,"
"should," "would" and "could."
By their very nature, forward-looking statements require us to
make assumptions and are subject to inherent risks and
uncertainties, which give rise to the possibility that our
predictions, forecasts, projections, expectations or conclusions
will not prove to be accurate, that our assumptions may not be
correct and that our financial performance objectives, vision and
strategic goals will not be achieved.
We caution readers not to place undue reliance on these
statements as a number of risk factors, many of which are beyond
our control and effects of which can be difficult to predict, could
cause our actual results to differ materially from the
expectations, targets, estimates or intentions expressed in such
forward-looking statements.
The future outcomes that relate to forward-looking statements
may be influenced by many factors, including but not limited to:
general economic and market conditions in the countries in which we
operate; changes in currency and interest rates; increased funding
costs and market volatility due to market illiquidity and
competition for funding; the failure of third parties to comply
with their obligations to the Bank and its affiliates; changes in
monetary, fiscal, or economic policy and tax legislation and
interpretation; changes in laws and regulations or in supervisory
expectations or requirements, including capital, interest rate and
liquidity requirements and guidance, and the effect of such changes
on funding costs; changes to our credit ratings; operational and
infrastructure risks; reputational risks; the accuracy and
completeness of information the Bank receives on customers and
counterparties; the timely development and introduction of new
products and services; our ability to execute our strategic plans,
including the successful completion of acquisitions and
dispositions, including obtaining regulatory approvals; critical
accounting estimates and the effect of changes to accounting
standards, rules and interpretations on these estimates; global
capital markets activity; the Bank's ability to attract, develop
and retain key executives; the evolution of various types of fraud
or other criminal behaviour to which the Bank is exposed;
disruptions in or attacks (including cyber-attacks) on the Bank's
information technology, internet, network access, or other voice or
data communications systems or services; increased competition in
the geographic and in business areas in which we operate, including
through internet and mobile banking and non-traditional
competitors; exposure related to significant litigation and
regulatory matters; the occurrence of natural and unnatural
catastrophic events and claims resulting from such events; the
emergence of widespread health emergencies or pandemics, including
the magnitude and duration of the COVID-19 pandemic and its impact
on the global economy and financial market conditions and the
Bank's business, results of operations, financial condition and
prospects; and the Bank's anticipation of and success in managing
the risks implied by the foregoing. A substantial amount of the
Bank's business involves making loans or otherwise committing
resources to specific companies, industries or countries.
Unforeseen events affecting such borrowers, industries or countries
could have a material adverse effect on the Bank's financial
results, businesses, financial condition or liquidity. These and
other factors may cause the Bank's actual performance to differ
materially from that contemplated by forward-looking statements.
The Bank cautions that the preceding list is not exhaustive of all
possible risk factors and other factors could also adversely affect
the Bank's results, for more information, please see the "Risk
Management" section of the Bank's 2019 Annual Report, as may be
updated by quarterly reports.
Material economic assumptions underlying the forward-looking
statements contained in this document are set out in the 2019
Annual Report under the headings "Outlook", as updated by quarterly
reports. The "Outlook" sections are based on the Bank's views and
the actual outcome is uncertain. Readers should consider the
above-noted factors when reviewing these sections. When relying on
forward-looking statements to make decisions with respect to the
Bank and its securities, investors and others should carefully
consider the preceding factors, other uncertainties and potential
events. Any forward-looking statements contained in this document
represent the views of management only as of the date hereof and
are presented for the purpose of assisting the Bank's shareholders
and analysts in understanding the Bank's financial position,
objectives and priorities, and anticipated financial performance as
at and for the periods ended on the dates presented, and may not be
appropriate for other purposes. Except as required by law, the Bank
does not undertake to update any forward-looking statements,
whether written or oral, that may be made from time to time by or
on its behalf.
Additional information relating to the Bank, including the
Bank's Annual Information Form, can be located on the SEDAR website
at www.sedar.com and on the EDGAR section of the SEC's website at
www.sec.gov.
Shareholders 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.
Website
For information relating to Scotiabank and
its services, visit us at our website: www.scotiabank.com.
Conference call and Web broadcast
The quarterly
results conference call will take place on May 26, 2020, at 8:00 am
EDT and is expected to last approximately one hour.
Interested parties are invited to access the call live, in
listen-only mode, by telephone at 416-641-6104 or toll-free, at
1-800-952-5114 using ID 7923431# (please call shortly before
8:00 am EDT). In addition, an audio
webcast, with accompanying slide presentation, may be accessed via
the Investor Relations page of www.scotiabank.com.
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 26, 2020, to June 25,
2020, by calling 905-694-9451 or 1-800-408-3053
(North America toll-free) and
entering the access code 1876632#. The archived audio webcast will
be available on the Bank's website for three months.
Contact information
Investors:
Financial Analysts,
Portfolio Managers and other Institutional Investors requiring
financial information, please contact Investor Relations, Finance
Department:
Scotiabank
Scotia Plaza, 44 King Street West
Toronto, Ontario, Canada M5H
1H1
Telephone: (416) 775-0798
E-mail: investor.relations@scotiabank.com
Global Communications:
Scotiabank
44 King Street West, Toronto, Ontario
Canada M5H 1H1
E-mail: corporate.communications@scotiabank.com
Shareholders:
For enquiries related to changes in
share registration or address, dividend information, lost share
certificates, estate transfers, or to advise of duplicate mailings,
please contact the Bank's transfer agent:
Computershare Trust Company of Canada
100 University Avenue, 8th Floor
Toronto, Ontario, Canada M5J
2Y1
Telephone: 1-877-982-8767
Fax: 1-888-453-0330
E-mail: service@computershare.com
Co-Transfer Agent (U.S.A.)
Computershare Trust Company N.A.
250 Royall Street
Canton, MA 02021, U.S.A.
Telephone: 1-800-962-4284
For other shareholder enquiries, please contact the Corporate
Secretary's Department:
Scotiabank
Scotia Plaza, 44 King Street West
Toronto, Ontario, Canada M5H
1H1
Telephone: (416) 866-3672
E-mail: corporate.secretary@scotiabank.com
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SOURCE Scotiabank