RNS No 6698m
BANK OF NOVA SCOTIA
2nd December 1998
Scotiabank reports solid earnings for 1998
TORONTO, December 2,1998 -- Scotiabank today reported a net income of $1,394
million for the year ended October 31, 1998, or $2.64 per share. This compares
to $1,514 million, or $2.95 per share reported in 1997. The return on equity for
1998 was 15.3%, compared to 20.2% in 1997.
For a clearer picture of year-over-year performance, the unusual items reported
in fiscal 1997 -- including the acquisition of National Trust and the reversal
of a portion of the country risk provision -- should be excluded. Taking these
into account, Scotiabank's 1998 earnings were up a solid $171 million, an
increase of 14% or $0.28 per share, from the adjusted earnings in 1997 of $1,223
million. The return on equity for 1998 was 15.3% compared to 16.4% in 1997,
excluding the unusual items.
Net income in the fourth quarter of 1998 was $359 million as compared to $533
million for the last quarter of 1997 (or $319 million after excluding the
unusual items mentioned previously). Earnings per share during the quarter were
$0.67 compared to $1.05 for 1997 (or $0.62 excluding unusual items), and return
on equity was 14.8% compared to 26.3% (or 16.2% excluding unusual items).
Today, the Board of Directors approved an increase to the quarterly dividend to
21 cents from 20 cents per common share, payable on January 27, 1999, to
shareholders of record as of the close of business on January 5, 1999.
"The strength and diversification of our core business lines led to strong
results despite turbulent global capital markets in the latter half of 1998,"
observed Peter Godsoe, Scotiabank Chairman and Chief Executive Officer.
Business Lines
Domestically, Scotiabank's Canadian Retail and Commercial Banking produced an
income of $605 million, 43% of the Bank's net income. "During the year, we saw a
substantial gain of 9% in residential mortgages," said Godsoe. "Sales were
generated through the branch network as well as through alternative delivery
channels including the Internet, mortgage brokerage units and mobile sales
managers. Commercial lending, which includes the very important small and medium
size business sector, also rose substantially."
The Bank's electronic banking services enjoyed continued success, as more
customers used the convenience of ABM, telephone and Internet banking. Together,
telephone banking and Internet banking processed more than six million
transactions in the fourth quarter of 1998. Scotia OnLine, the Bank's Internet
service, with its innovative and user-friendly Entrust security system, has won
high praise from customers and an Award of Excellence from the Canadian
Information Productivity Awards (CIPA) for Internet Commerce.
"In October, Scotiabank reinforced its commitment to electronic banking by
expanding its strategic alliance with Entrust Technologies to include support
for a broad range of internal and external electronic commerce, e-mail and
communication applications," Godsoe stated.
International Banking contributed $255 million or 18% of the Bank's total net
income for 1998. The Bank's operations in the Caribbean and Central America
continued their tradition of solid performance, with average assets in the
Caribbean region increasing to $13 billion. The Bank expanded its electronic
banking channels throughout the region by adding ABMs, opening a call centre in
Trinidad and Tobago (which currently handles 7,000 calls a month) and
introducing a debit point of sale network in Jamaica.
"The Bank continued to expand into new markets with good long-term potential.
During the year we completed the acquisition of Banco Quilmes, in Argentina,"
said Godsoe. "Scotiabank became the first Canadian bank to open a branch in
Chongqing, China's largest municipality, and a branch in Bangkok, Thailand. We
also had another Canadian first, announcing plans to open a branch in Colombo,
Sri Lanka. These branches provide a wide range of financial services to local
clients and Canadian companies operating abroad."
Corporate Banking had another year of strong performance with earnings of $431
million, representing 31% of the Bank's total earnings. U.S. Corporate Banking
provided the largest portion of the business line's gain in earnings.
"The U.S. syndicated loans market was very active, and the Bank benefited from
its decade-long status as a leader in the origination and distribution of
syndicated loans in that market," Godsoe observed.
Investment Banking contributed $218 million, or 16% to the Bank's overall
results. Customer-based business generated excellent revenues in areas such as
foreign exchange, derivatives and precious metals, including ScotiaMocatta.
Although trading revenues declined as a consequence of the turbulent market
conditions in the latter part of the year, risk control systems and effective
management played an important role in minimizing the impact of these tough
markets.
"The major strategic issue for Corporate Banking and Scotia Capital Markets over
the next year will be their integration into a single organizational unit that
offers clients seamless service and access to the full range of the Bank's
capabilities," said Godsoe.
Financial Results
Net interest income in 1998 was $4.4 billion, an increase of 18% over 1997. This
was achieved through strong growth in average earning assets, notwithstanding a
slight compression in the Bank's interest margin.
Other income totalled $2.9 billion in 1998, up 7% over 1997. The growing
popularity of the Bank's electronic banking services by both personal customers
and merchants contributed to this year's increase. The Bank's wealth management
revenues rose substantially. This was comprised of mutual fund fees which grew
by 42%, accompanied by strong growth in personal trust revenues; an area where
the Bank is a leader.
Credit fees grew by a strong 20%, mainly due to the Bank's top tier status in
the United States loan syndications market. Investment Banking revenues,
despite the turbulent market conditions contributed a solid $798 million to
other income.
Non-interest expenses increased by 10% in 1998. Remuneration and benefits were
$2.5 billion, a 14% increase over last year. This was chiefly due to the Bank's
merit program and the addition of 3,400 employees largely arising from recent
acquisitions. Scotiabank's technology related expenses increased 27% as the
Bank worked to develop new products, enhance services, improve efficiencies and
prepare for the Year 2000. In 1998, Scotiabank incurred $1.4 billion in taxes,
an increase of 10% from last year. Bank taxation remains the highest among
Canadian industries.
The Bank achieved a productivity ratio -- non-interest expenses as a percentage
of total revenues -- of 60.4%. This was accomplished despite the expenses
related to the Year 2000 initiative and several other projects designed to set
the stage for reduced expenses in future years.
Net impaired loans declined $172 million or 29% to $421 million. This
represented 0.3% of total loans and acceptances, a significant improvement
compared to 0.5% in 1997. The decline occurred despite the turmoil in some
South East Asian countries and the inclusion of impaired loans from Banco
Quilmes, our new Argentinian subsidiary.
Specific provisions for credit losses in 1998 increased $135 million to $495
million, and the Bank added $100 million to general provisions in the second
quarter, which now total $600 million.
Capital Funds reached $16.3 billion at October 31, 1998. Tier 1 capital
increased $1.4 billion or 15% to $10.8 billion in 1998. The largest part of
this growth was from the increase of $1,051 million in retained earnings
augmented by the issue of $300 million new non-cumulative preferred shares.
During the year, the bank redeemed several debentures as well as issued $1
billion in new subordinated debentures eligible for inclusion in Tier 2 capital.
As a result, Tier 2 capital rose by a net $0.4 billion to $5.2 billion at year
end. The Bank's Tier 1 capital ratio increased to 7.2% at year end for 1998
from 6.9% at the end of 1997. The total capital ratio increased to 10.6% at the
end of 1998, compared to 10.4% at the close of 1997.
As at October 31, 1998, total assets were $233.6 billion, an increase of $38.4
billion or 19.7%. The increase was attributable to strong growth across the
business lines. Residential mortgages and commercial lending increased in
Canada. In the U.S., corporate lending continued to be very strong.
Furthermore, assets in international banking rose from continued growth in the
Carribean and the acquisition of Banco Quilmes. The translation of foreign
currency-denominated assets into a weaker Canadian dollar also contributed to
the increase in assets.
Financial Sector Reform
Fiscal 1998 was a year of change for Canada's financial sector. The proposed
mergers and the publication of several reports including the MacKay report on
financial services reform combined to bring to the forefront the debate on the
future of Canada's financial sector.
"Greater competition -- not consolidation -- must be the foundation of any
changes to Canada's financial sector," said Godsoe. "Scotiabank is in favour of
enabling banks and other players to grow and bolster international
competitiveness." The Bank Chairman added, "In developing policies to set the
future direction of Canada's financial sector, the primary aim of government
must be to maintain and build upon the great strengths of our current system.
This is particularly important today with global unrest and uncertainty. While
I support the idea of moving forward expeditiously, it is far more important to
get the policy framework right than it is to get it done fast."
Community
Scotiabank continued its strong commitment to the communities where its
employees live, work and do business in 1998. The Bank contributed more than
$16 million to community support during the year including $200,000 to the
Canadian Association of Food Banks for Ice Storm relief and $150,000 for
Hurricane Georges relief. Scotiabank was recognized for its sponsorship of the
"Illuminated Life of Maud Lewis," receiving an award from the Business Council
for the Arts. The Bank launched one its most successful partnerships -
Scotiabank Fraud Awareness Program: The ABCs of Fraud, a fraud education program
for seniors, taught by seniors. The Bank also announced its plans to be the
lead supporter of the second World Conference on Breast Cancer.
"A highlight of the year was the launch of the Scotia Employee Volunteer
Program. The Bank donates up to $1,000 to charities where Scotiabank employees
and pensioners have volunteered 50 hours of their time. To date, this program
has raised $260,000 for local charities across Canada," Godsoe observed.
Other 1998 Highlights
- Scotiabank completed the acquisition of Mocatta Bullion & Base Metals to
form ScotiaMocatta; establishing the Bank as one of the world's leading metal
trading and bullion banks.
- Opened a fourth call centre in Calgary to provide customer service for a
range of products including telephone banking, Internet banking, insurance,
ABMs, credit cards and debit cards.
- Integrated Scotia Investment Management Ltd. with Cassels Blaikie to form
Scotia Cassels Investment Counsel Limited, a premier investment management firm
with assets under management of $13 billion.
- Acquired American Securities Transfer and Trust Inc.; the ninth largest
securities transfer agent in the United States, adding to the Bank's leadership
position in stock transfer and related businesses.
- Received ISO 9002 certification -- internationally recognized quality
management standards - for the Corporate and Commercial Service Department,
responsible for customer support of the Bank's electronic cash and treasury
management products.
- Became one of the largest issuers of digital certificates via Scotia
OnLine Intemet banking, reinforcing the Bank's commitment to delivering a wide
range of e-commerce products and services.
For more information: Mr. Sabi Marwah
Executive Vice-President & Chief Financial Officer
(416) 866-6808
Scotiabank
Performance Highlights
For the three months ended
October 31 July 31 October 31
1998 1998 1997(1)
Net income ($ millions) $359 $358 $533
Earnings per share ($)(2) $0.67 $0.68 $1.05
Return on equity 14.8% 15.5% 26.3%
Return on assets 0.62% 0.66% 1.09%
Productivity ratio 60.9% 60.7% 78.8%
For the twelve months ended
October 31 October 31
1998 1997(1)
Net income ($ millions) $1,394 $1,514
Earnings per share ($)(2) $2.64 $2.95
Return on equity 15.3% 20.2%
Return on assets 0.65% 0.85%
Productivity ratio 60.4% 62.4%
(1) Excluding unusual items in the year, the 1997 full-year adjusted income was
$1,223 million, earnings per share of $2.36, return on equity of 16.4%, return
on assets of 0.68%, and a productivity ratio of 59.9%. Similarly, excluding the
unusual items, the Q4/97 adjusted income was $319 million, earnings per share
of $0.62, return on equity of 16.2%, return on assets of 0.65%, and a
productivity ratio of 59.7%.
(2) Retroactively adjusted to reflect the two-for-one stock split on February
12, 1998.
Scotiabank
Consolidated Statement of Income
For the three months ended For the twelve months ended
October 31 July 31 October 31 October 31 October 31
($ millions) 1998 1998 1997 1998 1997
Interest income
Loans $2,804 $2,652 $2,218 $10,269 $8,082
Securities 494 455 361 1,815 1,636
Deposits
with banks 258 252 209 1,007 770
3,556 3,359 2,788 13,091 10,488
Interest expense
Deposits 2,017 1,862 1,532 7,303 5,714
Subordinated
debentures 93 95 79 354 260
Other 295 283 221 1,057 797
2,405 2,240 1,832 8,714 6,771
Net interest
income 1,151 1,119 956 4,377 3,717
Provision for
credit losses
(reversal) 124 123 (406) 595 35
Net interest income after
provision for credit losses
1,027 996 1,362 3,782 3,682
Other income
Deposit and payment services
160 162 141 619 531
Investment management
and trust 79 83 70 310 250
Credit fees 138 117 106 472 395
Investment
banking 127 202 239 798 847
Net gains on investment
securities 74 65 64 322 403
Other 112 84 45 337 257
690 713 665 2,858 2,683
Net interest and
other income 1,717 1,709 2,027 6,640 6,365
Non-interest expenses
Salaries 561 551 543 2,193 1,973
Pension contributions and
other staff benefits
74 86 54 308 229
Premises and equipment,
including depreciation
250 254 194 958 778
Other 258 242 257 987 829
Restructuring
costs - - 250 - 250
1,143 1,133 1,298 4,446 4,059
Income before the undernoted:
574 576 729 2,194 2,306
Provision for income taxes
204 207 188 762 758
Non-controlling interest in
net income of subsidiaries
11 11 8 38 34
Net income $359 $358 $533 $1,394 $1,514
Preferred dividends
paid $27 $24 $25 $97 $99
Net income available to
common shareholders
$332 $334 $508 $1,297 $1,415
Certain comparative amounts in these financial statements have been
reclassified to conform with current period presentation.
Scotiabank
Consolidated Balance Sheet Highlights
As at
October 31 July 31 October 31
($ millions) 1998 1998 1997
Cash resources $22,900 $19,109 $18,174
Securities 29,500 29,424 27,999
Assets purchased under resale
agreements 11,189 12,778 8,520
Loans 139,293 133,775 117,219
Other assets 30,706 27,570 23,241
Total assets $233,588 $222,656 $195,153
Deposits - Personal $62,656 $61,869 $59,239
- Business and
governments 70,779 64,712 56,928
- Banks 32,925 29,767 22,808
Total deposits 166,360 156,348 138,975
Other liabilities 50,932 49,612 41,613
Subordinated debentures 5,482 6,164 5,167
Equity - Preferred 1,775 1,775 1,468
- Common 9,039 8,757 7,930
Total liabilities and equity $233,588 $222,656 $195,153
Components of Net Income and Average Assets
For the three For the twelve
three months ended twelve months ended
October 31 July 31 October 31 October 31 October 31
($ millions) 1998 1998 1997 1998 1997
Net Income
By business line:
Canadian retail
and commercial
banking $144 $156 $157 $605 $520
Corporate banking 117 122 140 431 357
Investment banking 21 43 95 218 401
International banking 87 64 276 255 434
Other (10) (27) (135) (115) (198)
$359 $358 $533 $1,394 $1,514
By geography:
Canada $190 $208 $278 $838 $876
United States 71 90 96 311 336
International 108 87 294 360 500
Other (10) (27) (135) (115) (198)
$359 $358 $533 $1,394 $1,514
Average Assets
By business line:
Canadian retail
and commercial
banking $80,148 $79,296 $63,813 $78,313 $62,364
Corporate banking 44,173 39,305 33,792 38,924 32,422
Investment banking 68,459 62,817 56,797 64,145 55,815
International banking 26,124 24,237 19,024 23,415 18,249
Other 9,897 9,019 20,377 9,176 10,326
$228,801 $214,674 $193,803 $213,973 $179,176
By geography:
Canada $131,551 $126,743 $108,203 $126,410 $106,070
United States 33,958 30,001 24,366 30,007 23,471
International 53,395 48,911 40,857 48,380 39,309
Other 9,897 9,019 20,377 9,176 10,326
$228,801 $214,674 $193,803 $213,973 $179,176
Capital and Common Share Information
As at
October 31 July 31 October 31
1998 1998 1997
Capital ratios
Tier 1 7.2% 6.9% 6.9%
Total 10.6% 10.4% 10.4%
Common shares outstanding
(millions) (1) 492.1 491.8 489.8
Book value per share ($)(1) $18.37 $17.81 $16.19
Market value per share ($)(1) $32.20 $33.95 $31.08
For the three months ended
October 31 July 31 October 31
1998 1998 1997
Common dividends paid
Total ($ millions) $99 $98 $91
Per share ($)(1) $0.200 $0.200 $0.185
(1) Retroactively adjusted to reflect the two-for-one stock split on February
12, 1998.
END
QRRGCBBDGDGCCIR
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