Canada's banking system has had a sterling reputation for years, and Bank of Nova Scotia (NYSE: BNS) has sought to extend its reach across the globe. Yet the Canadian economy has relied on commodities for a large part of its recent growth, and coming into Tuesday's fiscal first-quarter financial report, Scotiabank investors were sensitive to the possibility that turbulent markets would weigh on its results. For its part, Scotiabank delivered a solid performance that pointed to the potential for ongoing gains throughout 2016 and beyond. Let's look more closely at the latest from Scotiabank and whether investors can expect even better things from the bank in the future.
Scotiabank keeps scoring bigger gains
Scotiabank's fiscal first-quarter results were consistently stronger than investors' expectations. Total revenue rose nearly 9% to C$6.37 billion, topping the 7% growth rate that investors were looking to see. Net income climbed just 5% to C$1.81 billion, but that produced earnings of C$1.43 per share, which topped the consensus forecast by a penny.
Looking more closely at Scotiabank's results, the bank's segment numbers showed the differences in economic conditions across its business. The Canadian banking segment posted net income gains of 7%, and Scotiabank said that rising net interest margins, higher fee-based income, and the acquisition of a credit card portfolio from JPMorgan Chase (NYSE: JPM) all boosted earnings. Higher non-interest expenses and loan-loss provisions offset a portion of those gains. The international banking segment performed even better, with gains of 21% due to the relative weakness in the Canadian dollar and growth in the bank's Latin American business.
By contrast, the global banking and markets segment saw net income fall 9%. Lower contributions from the equity, investment banking, and foreign exchange units hurt the segment, and higher provisions for credit losses also weighed on its results. Scotiabank's "other" segment also saw declines in its relatively small income levels.
From a financial health perspective, Scotiabank still looks good. A 16% rise in provisions for credit losses largely reflected weakness in the oil and gas sector. The bank's Common Equity Tier 1 ratio fell slightly but remained above the 10% mark.
CEO Brian Porter was happy at how Scotiabank's began the year. "We delivered strong earnings to start 2016," Porter said. "The Bank's diversified business model has delivered growth despite continued volatility in the markets and some moderation in some select areas of our operations."
Can Scotiabank keep climbing?
Looking ahead, Scotiabank thinks it's already on the right track to keep growing. The bank sees markets within the Pacific Alliance having some interesting opportunities, and Porter said that the bank sees a lot of potential in areas like Mexico, Peru, Chile, and Colombia going forward.
Yet the bigger challenge will remain closer to home. Canadian oil and gas producers have gotten hit at least as hard as, if not harder than, their U.S. counterparts, and only the big drop in the Canadian dollar has helped cushion the blow of plunging oil prices. Given the high costs at some of Canada's biggest production areas, such as the oil sands of Alberta, it's hard for the energy industry to stay profitable at current levels. Even a rebound that helps lower-cost producers will still leave much of the industry awash in red ink, and that could funnel through to loan quality at Scotiabank and other lenders.
Nevertheless, Scotiabank seems comfortable with its prospects. The bank boosted its dividend for the second time in a year, bringing the new payout to C$0.72 per quarter and the year-over-year rise to 6%.
Investors were happy with Scotiabank's latest results, sending the stock up 5%. If the bank can weather any potential credit storm in Canada and keep profiting from its overseas business, then Scotiabank should have plenty of chances to grow even further in the future.
Dan Caplinger 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.