Scotiabank Q1 earnings beat analyst estimates; net income is $1.625 billion

TORONTO – Bank of Nova Scotia reported Tuesday a profit of $1.63 billion in its first quarter and raised its dividend, capping a stronger-than-expected three-month period for the big Canadian banks.

“The bank’s diversity across businesses and geographies continues to contribute to solid top-line revenue growth,” said Scotiabank chief executive Rick Waugh in a statement.

“Once again, we saw organic growth in all four business lines along with good contributions from acquisitions, particularly ING Direct in Canada and Banco Colpatria in Colombia.”

Scotiabank, the last of the large Canadian banks to report its quarterly earnings, said its profit amounted to $1.25 per diluted share for the three months ended Jan. 31, up from $1.44 billion or $1.20 per diluted share a year ago.

Total revenue for the quarter amounted to $5.18 billion, up from $4.62 billion in the same period last year.

On an adjusted basis, Scotiabank said it earned $1.27 per share, up from $1.22 per share a year ago. Analysts had been looking for Scotiabank to report $1.25 per share of adjusted diluted earnings and about $5 billion of revenue in the quarter ended Jan. 31.

Scotiabank also announced a higher dividend, joining most of the other big Canadian banks in hiking the payout to shareholders.

The bank’s quarterly dividend will rise by three cents to 60 cents per share, giving it an annual yield of about 3.9 per cent based on its stock price on Tuesday.

The results at Scotiabank followed stronger than expected earnings by all of the other large Canadian banks, which rode improved lending operations to beat analyst expectations.

Royal Bank (TSX:RY), TD Bank (TSX:TD) and Bank of Montreal (TSX:BMO) also raised their quarterly dividend payments, leaving CIBC (TSX:CM) as the lone big Canadian bank to to keep its payouts at their current level.

The strong results come as concerns about the strength of the Canadian economy gather steam.

The Bank of Canada is expected to keep its key interest rate target at one per cent on Wednesday, while some are calling for the central bank to drop its tightening bias on future rate hikes.

Waugh noted that Scotiabank’s Canadian banking operations earned $574 million, up 21 per cent from a year ago.

Scotiabank beefed up its domestic retail banking last year with a deal to buy ING Bank of Canada from its Dutch parent company for $3.13 billion.

“We were pleased with the solid contribution from ING Direct and the launch of our Scotiabank American Express credit cards, and the double digit increases in net income in our existing Canadian banking business,” he said.

“This was mainly from strong asset growth in most businesses, and low provisions for credit losses.”

In addition to the ING acquisition, the bank said it has been helped by a shift by borrowers to switch to higher-margin fixed-term mortgages when variable-rate mortgages come up for renewal.

International banking contributed $466 million, global wealth management added $310 million and global banking and markets generated $399 million of net income for the bank.

Overall, provision for credit losses was $310 million, up from $265 million in the first quarter of 2012.

The bank’s common equity Tier 1 capital ratio was 8.2 per cent.

RBC Capital Markets analyst Andre-Philippe Hardy, who rated Scotiabank an “outperform” with “average” risk, called the results positive.

“First quarter 2013 results were supportive of our view that Scotiabank is likely to grow earnings per share faster than peers in 2013/2014, driven by a superior revenue growth outlook — both organic and from already-announced acquisitions,” Hardy wrote in a note to clients.

“Year-over-year revenue growth was 12 per cent, with all operating divisions recording double-digit growth. Capital ratios remain at the low end of the Big 5 bank peer-group, but were slightly better than we had forecast.”

In October, Scotiabank promoted Brian Porter, head of its international operations, to the job of president of the bank in a move widely seen as part of the bank’s planning for Waugh’s eventual retirement.

Scotiabank’s shares were up 69 cents at $61.56 in trading on the Toronto Stock Exchange.