cibc equity research: target C$ 68FQ3 First Look: In-line Quarter
Our take: Neutral.BNS reported an in-line quarter with no significant deviations across any line items.
Overview of results: BNS reported adjusted EPS of $1.63, in line with consensus and our estimate, both at $1.62. Adjusted ROE was 11.3% and BVPS was $58.78, increasing 2.4% from last quarter.
Sources of variances: Relative to our estimates, positive sources of variance include higher capital markets related revenue (+$0.04/sh), lower expenses (+$0.03/sh) and a lower effective tax rate (+$0.05/sh). This was offset by lower NII (-$0.03/sh) and lower non-interest revenue (-$0.05/sh).
PCLs were in line with consensus: The total PCL ratio of 55bps increased 1bps from 54bps last quarter and in-line with consensus of 55bps. The impaired PCL ratio of 51bps compares to 52bps last quarter.Performing PCLs were 4bps up from 2bps last quarter.
Slight NIM compression and lower NII: Net interest income increased 3% Q/Q, but came in 1% below our forecast. We calculate NIM ex. trading was flat from last quarter. Also, ending loan balances were effectively flat Q/Q.
Flat operating leverage: Non-interest expenses totaled $4,756MM, an increase of 5% Y/Y, and 1% lower than our estimate of $4,798MM. Adjusted operating leverage was effectively zero as revenue growth of 5% was in line with expense growth of 5%.
International Banking has not inflected yet: Adjusted net income of $674MM was flat vs. last quarter. Adjusted PTPP increased 1% Q/Q.NIM contracted 5bps Q/Q this quarter and PCLs remain elevated at 139bps, up 1bps Q/Q.
Strong results in Canadian P&C Banking: PTPP increased 7% Q/Q and net income 10% Q/Q. Revenue increased 4% Q/Q while non-interest expenses increased only 1%. Total PCLs were little changed (-1bps) but impaired PLCs declined 7bps Q/Q.
Capital markets segment not participating in increased activity: Global Banking and Markets revenue was up only 1% Y/Y and PTPP was down 5% Q/Q. PTPP was 5% lower than consensus.
No surprises on capital: CET1 finished the quarter at 13.3%, up from 13.2% last quarter and in line with consensus forecast of 13.3%. Sources of growth include organic capital generation of 16bps, share issuances (mainly DRIP) of 11bps and net RWA growth of -11bps. CET1 is expected to decrease in coming quarters due to the KEY investment.