The Bank of Nova Scotia (NYSE:BNS) met analyst expectations in its third fiscal quarter, generating net income of CA$1.85 billion, or CA$1.45 per share, in line with the average Reuters' analyst estimate of CA$1.45.

The Canadian bank's shares have been under pressure in 2015 as investors ponder its exposure to a slowing Canadian economy, a cooling real estate market, and a loan book that is more heavily dedicated to oil and gas companies.

Breaking the bank apart
Scotiabank has three main segments: Canadian banking, international banking, and global banking and markets.

Its Canadian banking segment held up well. Adjusted net income grew 15% year over year, with deposits up 3% and net interest margins jumping 8 basis points from 2.17% to 2.25% from last year. Helping its net interest margins is a focus on growing its credit card balances, which generate higher margins. Personal and credit card loans grew 9.3% over the year-ago period.

International banking continues to be Scotiabank's largest growth-driver. The company reported that net income grew 11% year over year on a 12% increase in revenue. Its loan book is also growing at a double-digit clip, swelling 13% year over year.

Global banking and markets was one of its laggards in the third quarter. Net income fell 20% compared to the third quarter of fiscal 2014. Total revenue in the segment dropped 14% compared to the prior year, due mostly to an 18% decline in the company's non-interest income. Non-interest income is primarily earned from trading commissions and underwriting fees, which tend to be volatile from quarter to quarter. Year-to-date revenue is down by only 5% from the same period last year.

Risks and rewards
Scotiabank is more heavily invested in international banking and oil lending than its Canadian peers. This quarter, executives helped quantify the potential risks internationally and in its oil loan book.

For the first time ever, the company broke out its exposure to Puerto Rico, noting that only 1.3% of its total loans come from the territory.

On the conference call, Scotiabank executives noted that they believed loan losses from oil-related loans would be minimal. Only about 2.5% of its oil loans were on its watch list, and most of those were to oil service companies, which have been hit particularly hard by declining oil prices. Management specifically noted that its loans to pipeline and refining companies were performing well and that it expected minimal or no losses on most of its oil-related loans. Loans to energy companies make up 3.4% of its total loans outstanding, according to its third-quarter filings.

Investors should continue to watch how its loan impairments develop over time. Gross impaired loans jumped 10% in Canada and 25% internationally despite lower loan growth of 3% and 13% in Canada and internationally, respectively.

Earnings through the first nine months of the year clocked in at CA$4.22 per share, down from CA$4.57 in the first nine months of 2014. Despite this, Scotiabank increased its quarterly dividend by roughly 3% to CA$0.70 per quarter, up from CA$0.68 per quarter.

 

Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends The Bank of Nova Scotia (USA). 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.