Scotiabank Shows No Signs of Slowing Down

By Markets Fool.com


Image source: Bank of Nova Scotia.

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Canadian banks have been well regarded ever since the housing bust and financial crisis, and Bank of Nova Scotia (NYSE: BNS), also known as Scotiabank, has taken full advantage of favorable conditions in Canada to find new growth opportunities. However, more recently, some investors have gotten concerned about whether the drop in oil prices will threaten Canada's economy. Coming into Tuesday's fiscal third-quarter financial report, Scotiabank shareholders wanted to see consistent growth in earnings, and the bank largely delivered on that front. Let's look more closely at how Scotiabank did and whether general concerns have any merit at this point.

Scotiabank stays strong

Scotiabank's fiscal third-quarter results looked solid. Total revenue came in at C$6.64 billion, which was up more than 8% from year-ago levels. Net income rose 5% to C$1.86 billion, and that produced earnings of C$1.55 per share. That was C$0.07 better than the consensus forecast among investors for the Canadian bank.

Looking more closely at Scotiabank, the financial institution got good performance from most of its segments. The key Canadian banking segment enjoyed an 8% rise in earnings, with the bank saying that its efforts to grow deposits and make smart lending decisions boosted its margin. At the same time, reductions in structural costs in the Canadian banking business also fed through to the bottom line. Meanwhile, the international banking segment saw earnings climb 9%, and Scotiabank said that economic activity in Mexico, Chile, Colombia, and Peru was a primary contributor to the better performance.

Even the global banking and markets segment showed improvement. Net income for the unit climbed 12%, with better conditions in fixed income, precious metals, and corporate and investment banking adding to positive tailwinds from the weak Canadian dollar.

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Scotiabank also started to see its credit loss situation improve. Provisions for losses were up by a fifth from year-ago levels, but they dropped by more than $180 million over the past three months. The bank said that improving conditions in the energy sector were largely responsible for the improvement. Common Equity Tier 1 capital ratios improved by nearly half a percentage point to 10.5%.

CEO Brian Porter was happy with the results. "All of our businesses continue to grow and deepen customer relationships," Porter said, "which has delivered solid asset, deposit, and revenue growth." The CEO was also happy about how well all of the bank's segments have performed, putting particular emphasis on the improvement in financial markets that helped with its global banking and markets division.

Can Scotiabank keep climbing?

Scotiabank expects that it should remain in a solid position going forward. In particular, Porter pointed to continuing optimism about clients in the oil and gas industry, noting that the bank has seen "lower losses in the energy sector, which is consistent with our previously stated expectations that energy losses had peaked during the last [fiscal second] quarter."

The bank rewarded its shareholders with a higher dividend payout. Scotiabank boosted its quarterly dividend by 3% to C$0.74 per share, continuing a tradition wherein the bank has raised its quarterly dividends twice each fiscal year dating back several years. The company boasts increases in its dividend payments during 43 of the past 45 years, having missed a year in 2010 but otherwise having maintained an impressive track record of consistency.

Scotiabank stock climbed higher after the announcement, rising by about 1% at midday to climb back toward a new all-time record high. As long as conditions both in Canada and in key areas like the U.S. and Latin America remain strong, Scotiabank will have the ability to keep advancing.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends The Bank of Nova Scotia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.