RNS Number:7399B
Bank of Nova Scotia
30 November 1999
Attention Business/Financial Editors:
Scotiabank completes fiscal year with strong net income
TORONTO, Nov. 30 /PR Newswire/ - Scotiabank today reported net income
of $1.551 billion for fiscal 1999, up 11% from last year. This marks the Bank's
tenth consecutive year of record operating income. Earnings per share were
$2.93, up 11% from $2.64 last year, while return on equity was 15.3%.
Net income in the fourth quarter of 1999 was $402 million, compared
to $359 million for the last quarter of 1998. Earnings per share during the
quarter were $0.76 compared to $0.67 in the fourth quarter of 1998, and return
on equity was 15.3% compared to 14.8%.
The Board of Directors today approved a quarterly dividend of 24
cents per common share, payable on January 27, 2000 to shareholders of record as
of the close of business on January 4, 2000.
"Strong results for fiscal 1999 reflect substantial contributions by
all of our core business lines," said Peter Godsoe, Scotiabank's Chairman and
Chief Executive Officer. "Our wholesale businesses -- corporate and investment
banking -- had a record year, reflecting a robust North American economy and
improved financial markets. International banking benefited from another year
of solid growth in the Caribbean and the economic recovery in Asia. And
although margins narrowed in the highly competitive Canadian retail and
commercial market, our focus on customer service and product innovation led to
very good growth in business volumes.
"As we greet the new millennium, Scotiabank can look back on its past
with great pride and toward its future knowing that we are well positioned for
ongoing success," Godsoe continued. "By putting people first, continuing to
build our diverse businesses and carefully managing our costs, we will
maintain our record of consistent success -- for our shareholders, our
customers and our employees."
During the fourth quarter of 1999, the Bank recorded a one-time
increase to the general provision of $550 million ($314 million after tax) as a
direct charge to retained earnings, as opposed to net income. This accounting
treatment, while not in accordance with Canadian generally accepted accounting
principles, is in accordance with the accounting requirements specified by the
Superintendent of Financial Institutions Canada (OSFI) under the Bank Act. The
impact on the full year and quarterly results are summarized in the attached
table of performance highlights.
Business line highlights
------------------------
The Bank's Canadian Retail and Commercial Banking division earned net
income of $610 million in 1999, up $5 million from last year.
"Our domestic retail and commercial operations performed well in 1999
in an intensely competitive environment," said Godsoe. "We generated
particularly strong growth in mortgages, up $4.1 billion, and personal deposits,
which increased by $1.7 billion, giving Scotiabank the second highest market
share in these two important product groups."
To set the stage for future growth, the Bank introduced a number of
new and innovative products, including the Scotia Total Equity Plan -- a
flexible, all-in-one lending package for homeowners -- and the Scotia One
Service -- a comprehensive package for customers with a large number of banking
transactions and extensive investing and borrowing needs. Scotiabank also
introduced low-cost, convenient packaged account plans and a new overdraft
line of credit for small businesses.
Fiscal 1999 also marked a successful year of helping Scotiabank
customers to bank when, where and how they want with electronic banking.
Scotiabank introduced wireless banking and discount brokerage services in
partnership with Rogers Cantel, and was the first to offer mobile merchant
terminals nationally to accept debit card payments from any location. The Bank
launched e-Scotia.com to provide secure e-commerce solutions and announced a
strategic partnership with Microsoft Canada, whereby the Bank will become the
premier banking partner on Microsoft's portal Website, MSN.ca.
During 1999, several groups within Scotiabank -- including
ScotiaMcLeod, Scotia Discount Brokerage, Scotia Securities, Scotia Cassels
Investment Counsel and Scotiatrust -- were realigned to better focus on
investment and advisory needs of customers. The new Wealth Management Group made
solid progress during the year, earning revenues of $662 million. Assets under
administration were 17% higher in 1999, totalling $82 billion at the end of the
year. Assets under management by Scotia Cassels Investment Counsel grew a
substantial 20% from last year, to $16 billion at the end of 1999.
"Our new Wealth Management Group is well positioned for solid growth
in the future as a key part of our domestic strategy," said Godsoe. "By
delivering these products and services in an integrated, convenient and
knowledgeable way, we will help customers meet their expanding investment
needs and improve their financial well-being throughout the various stages of
their lives."
Scotiabank's International Banking division had strong earnings of
$305 million this year, up 20% over last year.
"In the Caribbean, where we have a dominant 216-branch franchise, we
extended our record of exceptional earnings growth," explained Godsoe. "A new
brand positioning program and the use of programs proven in the Canadian
market contributed to strong gains in lending and deposit volumes."
In Latin America, Scotiabank reached agreement in principle to
purchase an additional 33% in Banco Sud Americano in Chile, which will bring the
Bank's ownership stake to more than 60%. It made significant progress in
strengthening the credit and marketing processes and reducing costs at Grupo
Financiero Inverlat, the Bank's Mexican affiliate and at Scotiabank Quilmes,
its Argentinean subsidiary, positioning these operations for future growth and
profitability.
"In Asia, profitability increased substantially in 1999, driven by
the economic recovery and improving credit quality," Godsoe said. "Provisions
for credit losses in Asia dropped to virtually zero in 1999, and the prospects
for expanding our growing trade finance business look very bright."
Corporate Banking reported record earnings of $604 million, up 40%
over 1998. These strong results arose from higher assets, spreads, fee income
and securities gains, all of which contributed to a 30% increase in revenues.
"We maintained our status as a leading player in the Canadian
syndicated loan market, covering all industries but with a particular focus on
the mining, media and communications and transportation sectors," Godsoe said.
"And once again, we ranked among the top 10 lenders in the U.S. syndicated
bank loan market -- the only Canadian bank to do so. In fact, globally, we
acted as agent bank in 134 transactions with a total volume of $131 billion."
Investment Banking earned a record $368 million in 1999, up 69% over
1998. Over half of this income came from Group Treasury, which had earnings of
$212 million, an increase of 48% from the prior year. A substantial portion of
this increase came from gains of $281 million on the sale of investment
securities. Notwithstanding the gains realized during the year, the surplus of
market over book value in the Bank's investment portfolio (including emerging
market bonds) was $300 million as at October 31, 1999.
Taking advantage of favourable market conditions, Global Trading had
a very strong year, generating record earnings in five of seven groups. Fixed
income results improved dramatically, reflecting the very active new issue
market for bonds during 1999, and higher commercial paper volumes. The
corporate finance area continued to enhance its equity research capabilities,
achieving top-tier rankings in 13 industry sectors. Notable transactions in
corporate finance included acting as global co-ordinator for the $2.5 billion
initial public offering for Manulife Financial -- the largest IPO in Canadian
history.
"We devoted considerable effort in 1999 to the integration of
Corporate Banking and Scotia Capital Markets, which now operate under the banner
of Scotia Capital," explained Godsoe. "The move to a relationship-based
approach, from a product-based approach, will provide new opportunities to bring
customized, tailored solutions to clients."
Financial results
-----------------
Net interest income on a taxable-equivalent basis was $4.8 billion in
1999, up 7% over 1998. This arose from good asset growth across the Bank's
major business lines. The full extent of the growth in interest income was
understated in 1999 as a result of higher asset securitizations. In 1999, $9.4
billion of assets were securitized, compared with $1.0 billion in 1998. This
reduced interest profit by $175 million, with securitization revenues being
reported in other income.
The Bank's net interest margin, which expresses net interest income
as a percentage of average total assets, was 2.11% in 1999, unchanged from the
prior year.
Other income reached $3.2 billion in 1999, an 11% increase year over
year. Credit fees increased by a substantial 15% in 1999, benefiting from the
Bank's position as one of North America's pre-eminent corporate lenders.
Investment banking revenues rose by 23%, with solid results in the securities
trading, foreign exchange, derivative products and underwriting areas.
Revenues from the Bank's retail and commercial accounts increased by 7% due to
greater customer usage of a greater variety of products and services.
Management and trust revenues also rose by 7%.
Non-interest expenses were $4.8 billion in 1999, an increase of 7% or
$310 million from 1998. This includes $87 million due to the inclusion of
Scotiabank Quilmes for a full year. In addition, the Bank took a $60 million
provision for some restructuring in the domestic branch network and the
integration of Corporate Banking and Scotia Capital Markets, offset in part by
a reversal into income of $20 million in National Trust-related restructuring
charges. Excluding these items, operating expenses rose by 4%. Salary growth
accounted for approximately 40% of this increase. Other factors included
technology investments aimed at better serving our customers, in areas such as
ABMs, point-of-sale terminals, and telephone and PC banking. In 1999, the Bank
incurred $1.5 billion in taxes -- an amount almost equal to its net income for
the year. Bank taxation remains among the highest of all Canadian industries.
The Bank's productivity ratio -- non-interest expenses as a
percentage of total revenues -- improved to 59.3%, better than the Bank's target
of 60%.
Net impaired loans declined by $577 million in 1999 to -$156 million,
with the decrease resulting primarily from an addition to the general
provision totalling $700 million in 1999. Net impaired loans as a percentage
of loans and acceptances were -0.1% at October 31, 1999. This ratio has
steadily improved from the peak of the early 1990s and is now at its lowest
level in many years.
Specific provisions for credit losses in 1999 were $485 million,
compared to $495 million in 1998. The Bank also increased the general provision
by $700 million to $1.3 billion. This $700 million addition was comprised of
$150 million charged to the income statement in the first quarter, and a
one-time adjustment of $550 million in the fourth quarter charged directly to
retained earnings as specified by OSFI.
Capital funds increased by $902 million to $17 billion at October 31,
1999. Seventy per cent or $630 million of this increase was growth in Tier 1
capital arising from a substantial increase in retained earnings generated by
the Bank's solid net income performance. Tier 2 capital grew by about $442
million or 8% mainly because of the increase in the general provision.
The Bank's Tier 1 capital ratio grew to 8.1% at October 31, 1999 from
7.2% last year, despite the 21 basis point reduction to Tier 1 capital from
the addition to the general provision in the fourth quarter of 1999. As well,
the Total capital ratio increased to 11.9% from 10.6%. Both ratios are well in
excess of levels defined by OSFI as "well capitalized", (7% for Tier 1 capital
and 10% for Total capital).
Total assets were $222.7 billion at October 31, 1999. The full extent
of loan growth over the last year was muted by the asset securitizations that
the Bank completed in 1999, the impact of which was a reduction of $9.0 billion
in total assets. Adjusting for securitizations, assets decreased by $1.9
billion, primarily due to the foreign currency translation arising from a
stronger Canadian dollar.
Year 2000
---------
The Year 2000 issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems, if not
modified or replaced, may incorrectly recognize a date using "00" as other
than the year 2000. This could result in system failure or miscalculations,
causing disruption to operations, including a temporary inability to process
transactions or to engage in normal business activities.
All mission-critical Bank systems and devices have been modified and
tested in integrated test environments and verified as Y2K compliant. In
addition, all critical business partners have confirmed they are compliant.
Contingency plans to deal with any failure of mission-critical systems have
been updated and rigorously tested. Disaster, back-up and recovery processes
have also been successfully tested.
The Bank's success in minimizing the impact of the Year 2000 issue
and ensuring a reliable transition also depends on the readiness of external
parties. These parties include payment systems, financial exchanges, other
financial institutions, securities depositories, telecommunication companies,
government agencies, data processing companies and networks in Canada and
worldwide. Fully integrated testing with key external parties was successfully
completed in 1999.
By modifying and replacing internal Bank systems, monitoring the
readiness of key external parties, and developing both specific system and
overall business contingency plans, the Bank believes it has mitigated the
risk of the Year 2000 issue. However, it is not possible to be certain that
all aspects of the Year 2000 issue affecting the Bank, including those related
to the efforts of customers, suppliers or other third parties, will not
materially and adversely affect the Bank.
The ability and readiness of the Bank's customers and counterparties
may affect credit risk. Any failure of customers to fully address the Year 2000
issue may result in increases in impaired loans and provisions for credit
losses in future years. At this time, it is not possible to estimate the
amount of such increases, if any, for specific customers.
Community involvement
---------------------
"Vibrant, healthy communities are key to growing vibrant, healthy
businesses," Godsoe concluded. "Scotiabank is committed to helping build the
communities in which we do business -- in Canada and around the world -- by
dedicating both financial and human resources to help meet today's social
needs."
In 1999, Scotiabank contributed $17 million in donations and
sponsorships to worthwhile causes, including a $1.5 million donation to The
University of Western Ontario's Centre for Research on Violence Against Women
and Children and $200,000 to fund the second World Conference on Breast Cancer
in Ottawa in July. In addition, through the Scotia Employee Volunteer Program,
now in its second year, Scotiabank has donated more than $400,000 to registered
charities where Scotiabank employees and pensioners have volunteered their time.
Performance Highlights
Scotiabank
For the three months ended
----------------------------------------------------------------------
October 31 July 31 October 31
1999 (1) 1999 1998
----------------------------------------------------------------------
Net income (millions) $402 $397 $359
Earnings per share $0.76 $0.75 $0.67
Return on equity 15.3% 15.3% 14.8%
Return on assets 0.70% 0.71% 0.62%
Productivity ratio 59.8% 60.4% 60.9%
----------------------------------------------------------------------
For the twelve months ended
----------------------------------------------------------------------
October 31 October 31
1999 (1) 1998
----------------------------------------------------------------------
Net income (millions) $1,551 $1,394
Earnings per share $2.93 $2.64
Return on equity 15.3% 15.3%
Return on assets 0.68% 0.65%
Productivity ratio 59.3% (2) 60.4%
----------------------------------------------------------------------
(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 fourth quarter of 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 as a
charge to the Statement of Income, the above financial results
would have been as follows: a) for the three months ended
October 31, 1999 -- net income $88 million, earnings per share
$0.12, return on equity 2.5%, return on assets 0.15%; b) for the
twelve months ended October 31, 1999 -- net income $1,237
million, earnings per share $2.29, return on equity 12.0% and
return on assets 0.54%.
(2) The productivity ratio was 59.9% when a one-time gain of $77
million realized on the sale of shares acquired several years
ago through a loan restructuring is excluded.
Consolidated Statement of Income
Scotiabank
For the three For the twelve
months ended months ended
-----------------------------------------------------------------------
October 31 July 31 October 31 October 31 October 31
($ millions) 1999(1) 1999 1998 1999(1) 1998
-----------------------------------------------------------------------
Interest income
Loans $2,650 $2,565 $2,804 $10,654 $10,269
Securities 496 480 494 1,874 1,815
Deposits with
banks 213 212 258 943 1,007
------------------------------------------------------
3,359 3,257 3,556 13,471 13,091
------------------------------------------------------
Interest expense
Deposits 1,783 1,720 2,017 7,284 7,303
Subordinated
debentures 82 81 93 314 354
Other 322 300 295 1,201 1,057
------------------------------------------------------
2,187 2,101 2,405 8,799 8,714
------------------------------------------------------
------------------------------------------------------
Net interest
income 1,172 1,156 1,151 4,672 4,377
Provision for
credit losses 159 108 124 635 595
------------------------------------------------------
Net interest
income after
provision for
credit losses 1,013 1,048 1,027 4,037 3,782
------------------------------------------------------
------------------------------------------------------
Other income
Deposit and
payment services 150 152 160 602 619
Investment
management
and trust 89 79 79 331 310
Credit fees 154 136 138 543 472
Investment
banking 250 246 127 979 798
Net gain on
investment
securities 102 89 74 343 322
Securitization
revenues 42 45 10 155 38
Other 53 39 102 230 299
-----------------------------------------------------
840 786 690 3,183 2,858
-----------------------------------------------------
-----------------------------------------------------
Net interest and
other income 1,853 1,834 1,717 7,220 6,640
-----------------------------------------------------
-----------------------------------------------------
Non-interest expenses
Salaries 582 583 561 2,297 2,193
Pension
contributions
and other staff
benefits 73 96 74 330 308
Premises and
equipment,
including
depreciation 245 250 250 1,007 958
Other 356 267 258 1,142 987
Restructuring
provision for
National
Trustco Inc. (20) - - (20) -
-----------------------------------------------------
1,236 1,196 1,143 4,756 4,446
-----------------------------------------------------
-----------------------------------------------------
Income before
the undernoted: 617 638 574 2,464 2,194
Provision for
income taxes 206 228 204 867 762
Non-controlling
interest in
net income of
subsidiaries 9 13 11 46 38
-----------------------------------------------------
Net income $402 $397 $359 $1,551 $1,394
-----------------------------------------------------
-----------------------------------------------------
Preferred
dividends paid $27 $27 $27 $108 $97
-----------------------------------------------------
Net income
available
to common
shareholders $375 $370 $332 $1,443 $1,297
-----------------------------------------------------------------------
Certain comparative amounts in these financial statements have been
reclassified to conform with current period presentation.
(1) Refer to footnote (1) on Performance Highlights page.
Consolidated Balance Sheet Highlights
Scotiabank
As at
-----------------------------------------------------------------------
October 31 July 31 October 31
($ millions) 1999 1999 1998
-----------------------------------------------------------------------
Cash resources $17,115 $19,626 $22,900
Securities 33,969 33,350 29,500
Assets purchased under
resale agreements 13,921 13,706 11,189
Loans 131,938 134,114 139,293
Other assets 25,748 26,603 30,706
-------------------------------------------
Total assets $222,691 $227,399 $233,588
-----------------------------------------
Deposits - Personal $65,715 $64,962 $62,656
- Business and
governments 64,070 65,437 70,779
- Banks 26,833 26,099 32,925
-----------------------------------------
Total deposits 156,618 156,498 166,360
Other liabilities 49,293 53,909 50,932
Subordinated debentures 5,374 5,451 5,482
Equity - Preferred 1,775 1,775 1,775
- Common 9,631 9,766 9,039
----------------------------------------
Total liabilities and equity $222,691 $227,399 $233,588
----------------------------------------
-----------------------------------------------------------------------
Components of Net Income and Average Assets
Scotiabank
----------------------------------------------------------------------
For the three For the twelve
months ended months ended
-----------------------------------------------------------------------
October 31 July 31 October 31 October 31 October 31
($ millions) 1999 1999 1998 1999 1998
-----------------------------------------------------------------------
Net Income
By business line:
Domestic Banking $155 $147 $144 $610 $605
International
Banking 85 85 87 305 255
Corporate Banking 121 144 117 604 431
Scotia Capital
Markets 42 35 3 156 74
Group Treasury 51 62 18 212 144
Corporate
adjustments (1) (52) (76) (10) (336) (15)
-------------------------------------------------------
$402 $397 $359 $1,551 $1,394
-------------------------------------------------------
By geography:
Canada $317 $252 $190 $1,081 $838
United States 13 100 71 343 311
International 124 121 108 463 360
Corporate
adjustments (1) (52) (76) (10) (336) (115)
-------------------------------------------------------
$402 $397 $359 $1,551 $1,394
-------------------------------------------------------
-------------------------------------------------------
Average Assets
By business line:
Domestic Banking $80,943 $79,725 $80,148 $79,966 $78,313
International Banking 28,132 27,494 26,124 27,573 23,415
Corporate Banking 41,358 40,993 44,173 43,725 38,924
Scotia Capital Markets 51,377 51,694 54,858 53,999 50,567
Group Treasury 15,570 14,673 13,601 14,917 13,578
Corporate adjustments 8,792 8,686 9,897 8,857 9,176
--------------------------------------------------------
$226,172 $223,265 $228,801 $229,037 $213,973
--------------------------------------------------------
--------------------------------------------------------
By geography:
Canada $130,870 $128,284 $131,551 $129,569 $126,410
United States 34,903 34,485 33,958 36,992 30,007
International 51,607 51,810 53,395 53,619 48,380
corporate adjustments 8,792 8,686 9,897 8,857 9,176
--------------------------------------------------------
$226,172 $223,265 $228,801 $229,037 $213,973
--------------------------------------------------------
(1) Refer to footnote (1) on Performance Highlights page.
Capital and Common Share Information
Scotiabank
-----------------------------------------------------------------------
-----------------------------------------------------------------------
As at
-----------------------------------------------------------------------
October 31 July 31 October 31
1999 1999 1998
-----------------------------------------------------------------------
Capital ratios
Tier 1 8.1% 8.0% 7.2%
Total 11.9% 11.5% 10.6%
Common shares
outstanding (millions) 494.3 493.8 492.1
Book value per share $19.49 $19.78 $18.37
Market value per share $33.60 $31.35 $32.20
-----------------------------------------------------------------------
For the three months ended
-----------------------------------------------------------------------
October 31 July 31 October 31
1999 1999 1998
----------------------------------------------------------------------
Common dividends paid
Total (millions) $118.5 $103.7 $98.4
Per share $0.24 $0.21 $0.20
-----------------------------------------------------------------------
- /For further information: please contact: Sabi Marwah, Executive
Vice-President and Chief Financial Officer, (416) 866-6808 or Shelley Jourard,
Senior Manager, Public Affairs, (416) 866-6204/
(BNS.)
END
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