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Scotia Bank's (BNS) Q2 Earnings Impress on Higher Revenues

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The Bank of Nova Scotia (BNS - Free Report) reported second-quarter fiscal 2019 (ended Apr 30) adjusted net income for the quarter came in at C$2.3 billion ($1.7 billion), up 4.5% year over year. Results exclude acquisition-related costs.

Increase in revenues along with strong capital and profitability ratios were tailwinds. However, investors’ concerns were visible on escalating expenses and provisions which led its share price to fall 1.37% on the NYSE, following the results.

Revenues Rise, Partially Muted by Elevated Expenses & Provisions

Total revenues came in at C$7.6 billion ($5.7 billion) in the quarter, up 7% year over year. This upswing stemmed from rise in net interest as well as non-interest income.

Net interest income came in at C$4.2 billion ($3.2 billion), up 5% from the prior-year quarter. Non-interest income climbed 9.7% from the year-ago quarter to C$3.4 billion ($2.6 billion).

Adjusted non-interest expenses were C$4 billion ($3 billion), rising 8.1% year over year.

Adjusted provision for credit losses was C$722 million ($542 million), up 35.2% year over year. The rise mainly resulted from higher provisions in Canadian Banking and International Banking.

Improving Balance Sheet

As of Apr 30, 2019, Scotia Bank’s total assets were C$1.06 trillion ($0.79 trillion), up 14.2% from the prior-year quarter. Assets under administration were up 16.6% from the year-ago quarter to C$550 billion ($410.8 billion). Deposits came in at C$712.3 billion ($532 billion), increasing 11.2% year over year. Total loans were C$583.8 billion ($436 billion), up 12.7% year over year.

Healthy Capital and Profitability Ratios

As of Apr 30, 2019, Common Equity Tier 1 ratio came in at 11.1% compared with 12% as of Apr 30, 2018. Further, total capital ratio came in at 14.7% compared with the prior-year tally of 15.3%.

Return on equity for the reported quarter came in at 13.8% compared with the year-earlier quarter’s 14.9%.

Our Viewpoint

A diversified product mix and strong capital position will help Scotia Bank grow organically, as well as through acquisitions. Though mounting expenses remains a concern, the export-driven economy of Canada will likely benefit from gradual recovery of the U.S. economy, in turn, aiding the company’s sustainable growth over the long run.

Bank of Nova Scotia (The) Price, Consensus and EPS Surprise

Bank of Nova Scotia (The) Price, Consensus and EPS Surprise

Bank of Nova Scotia (The) price-consensus-eps-surprise-chart | Bank of Nova Scotia (The) Quote

Scotia Bank currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

Canadian Imperial Bank of Commerce (CM - Free Report) reported strong second-quarter fiscal 2019 (ended Apr 30) results. Adjusted earnings per share were C$2.97, up 1% from the prior-year quarter’s reported tally.

UBS Group AG (UBS - Free Report) delivered first-quarter net profit attributable to shareholders of $1.1 billion, down 27% from $1.6 billion witnessed in the prior-year quarter.

The Royal Bank of Scotland (RBS - Free Report) posted first-quarter 2019 net income attributable to its shareholders of £707 million ($919 million), down 12.5% from £808 million ($1.1 billion) witnessed in the year-earlier quarter.

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