Scotiabank Reports Strong Q3 2024 Performance

Scotiabank has reported a solid performance in the third quarter of 2024, with adjusted earnings of $2.2 billion and a diluted EPS of $1.63, marking a period of robust quarter-over-quarter growth. The bank’s strategic investment in KeyCorp (NYSE:KEY), acquiring a 14.9% interest, is expected to contribute positively to earnings per share and return on equity, aligning with its U.S. growth ambitions.

The bank’s capital position remains strong, with a CET1 ratio of 13.3%, and it continues to focus on primary client relationships, cost efficiencies, and maintaining a strong balance sheet.

Key Takeaways

• Scotiabank reports $2.2 billion in adjusted earnings and $1.63 EPS for Q3 2024.
• Acquisition of 14.9% interest in KeyCorp expected to enhance EPS and ROE.
• Solid revenue growth driven by a 6% increase in net interest income and a 4% rise in noninterest income.
• CET1 ratio improved to 13.3%, with organic growth plans in the U.S. unchanged.
• The bank’s investment in KeyCorp is financially and strategically advantageous over share buybacks.

Company Outlook

• Scotiabank remains committed to its strategy of focusing on primary client relationships and deploying capital to priority businesses.
• The investment in KeyCorp is part of a broader plan to grow the U.S. fee business and improve the deposit franchise in Canada.
• The bank aims to maintain a balanced business model and expects continued success in upcoming quarters.

Bearish Highlights

• The Other segment reported an adjusted net loss of $465 million, a slight increase from the previous quarter.
• Noninterest revenue declined due to lower noninterest revenue and higher expenses.

Bullish Highlights

• Net interest income is expected to improve due to rate cuts.
• The bank is encouraged by stable delinquency rates in Canada and flat net write-offs in International Banking.
• Scotiabank has increased total allowances by $800 million over the past four quarters, with the ACL coverage ratio at 89 basis points.

Misses

• The bank experienced an uptick in PCLs in Mexico due to one commercial account in the retail sector.

Q&A Highlights

• Credit card repayments are improving, with no major concerns in the Canadian unsecured credit card portfolio.
• The bank is focused on profitability and returns, aiming for an $800 million expense reduction by 2025.
• Mortgage growth has turned a corner, with the bank prioritizing value over volume.
• Executives provided clarification on the EPS accretion calculation related to the KeyCorp investment.

In summary, Scotiabank’s third-quarter results indicate strong performance and a strategic approach to growth, particularly in the U.S. market with the KeyCorp investment. The bank’s focus on client relationships and efficiency is expected to drive continued success in the future. The management team concluded the earnings call with a forward-looking statement, expressing anticipation for the fourth-quarter call in December.

InvestingPro Insights

Scotiabank (BNS) has demonstrated a solid financial footing in Q3 2024, supported by significant dividend payments. The bank has maintained its dividend for 52 consecutive years, with a yield of 6.37%. Despite a current P/E ratio of 11.02, indicating a potentially favorable valuation, caution is advised due to weaker gross profit margins.

Full transcript – Bank of Nova Scotia (BNS) Q3 2024:

Operator: Good morning, and welcome to Scotiabank’s Q3 Results Presentation. My name is John McCartney, Head of Investor Relations at Scotiabank. Presenting today are Scott Thomson, President and CEO; Raj Viswanathan, CFO; and Phil Thomas, Chief Risk Officer. Following their comments, we will take your questions. We also have executives from various departments available for questions.

Scott Thomson: Thank you, John, and good morning, everyone. We are pleased to share our Q3 results, reflecting progress against our strategy and quarter-over-quarter EPS growth. Our results demonstrate the strength of our balance sheet, with revenue acceleration led by our Canadian Banking business and global wealth.

Raj Viswanathan: We reported quarterly earnings of $2.2 billion or $1.63 per share, with revenues up 5% year-over-year. Our CET1 ratio was 13.3%, an increase of 10 basis points quarter-over-quarter.

Phil Thomas: All bank PCLs were 55 basis points, slightly above last quarter, and are expected to remain around this level for Q4. We maintain a prudent approach to the evolving macroeconomic landscape.

John McCartney: Thank you to the management team and all participants today. We look forward to our Q4 call in December.