The $3.13-billion acquisition of ING Direct last year helped push Scotiabank's second-quarter net income to $1.6 billion — $141 million higher than a year ago — but provisions for credit losses also grew, and the bank's adjusted earnings fell short of analysts' estimates.
The bank's adjusted earnings came in at $1.24 per share, up from $1.16 a year in the second quarter of 2012 but two cents below a consensus estimate of $1.26 per share.
Scotiabank's overall provision for credit losses — which banks take in anticipation that some loans won't be repaid fully — increased by $79 million from a year earlier to $343 million.
The bank said it made higher provisions for credit losses across all business lines, but the largest increases were in international retail banking and Canadian commercial banking.
International banking's provision for credit losses was $194 million, up from $145 million a year earlier, while Canadian banking's provision was raised to $136 million from $120 million in the second quarter of 2012.
Nevertheless, Scotiabank's net income from Canadian banking was up $86 million, or 19 per cent, from the same time last year — primarily because of the acquisition of ING Direct.
"We continue to have very strong results this quarter driven by very good revenue growth. Each business line made a solid contribution to these good results," Scotiabank CEO Rick Waugh said in a statement.
"Our diversification and straightforward business model have allowed us to take advantage of opportunities to grow."
Canadian banking only 1/3 of profit
Scotiabank (TSX:BNS) says its profit attributable to common shareholders amounted to $1.23 per share of diluted earnings, up from $1.15 per share in the second quarter of 2012.
Canada's most international bank said its Canadian banking sector produced less than one-third of its overall profit, or $547 million.
That was nearly matched by its international banking operations, which had $471 million of net income during the quarter.
Wealth management produced about $335 million of Scotiabank's overall profit while global banking and markets added $361 million.
Scotiabank said recent acquisitions contributed $61 million to the year-over-year growth in net income.
It said the remaining increase was from higher net interest income, growth in transaction-based fees and wealth management revenues and increased net gains on investment securities. The growth was partly offset by lower trading revenues, increased operating expenses and higher provisions for credit losses.
Scotiabank's overall provision for credit losses was up from $264 million in the second quarter of 2012 and $434 million in the first quarter of 2013, ended Jan. 31.