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Shares of The Bank of Nova Scotia BNS gained nearly 1% on the NYSE following the release of its second-quarter fiscal 2017 (ended Apr 30) results before the opening bell. Net income for the quarter came in at C$2.06 billion ($1.55 billion), jumping 30% year over year.

A rise in net interest income and a decline in expenses largely drove the improved results. These were partially offset by lower non-interest income and an increase in provisions. Improvement in capital and profitability ratios was impressive.

Revenues Fall Slightly, Lower Expenses Support Results

Total revenue was C$6.58 billion ($4.94 billion), marginally down year over year. A rise in net interest income was more than offset by lower non-interest income.

Net interest income came in at C$3.73 billion ($2.80 billion), up 6% from the prior-year quarter. Non-interest income declined 7% from the year-ago quarter to C$2.85 billion ($2.15 billion).

Non-interest expenses were C$3.6 billion ($2.7 billion), declining 6% year over year. The prior-year quarter figure included restructuring charges. Excluding these, expenses increased 5% from the prior-year quarter, mainly due to investment in digital and technology initiatives.

Total provision for credit losses was C$587 million ($441 million), up 6% year over year. The rise was mainly owing to higher provisions in the International Banking segment.

Improving Balance Sheet

As of Apr 30, 2017, Scotia Bank’s total assets were C$921.65 billion ($674.7 billion), up 4% sequentially. Loans were up 4% from the prior quarter to C$496.26 billion ($363.3 billion). Deposits came in at C$628.21 billion ($459.9 billion), increasing 4% year over year.

Healthy Capital and Profitability Ratios

As of Apr 30, 2017, Common Equity Tier 1 ratio came in at 11.3% compared with 10.1% as of Apr 30, 2016. Further, Total capital ratio came in at 14.7% compared with 13.6% in the prior-year quarter.

Return on equity for the reported quarter came in at 14.9% compared with 12.1% in second-quarter fiscal 2016.

Steady Capital Deployment

Concurrent with the earnings release, Scotia Bank announced a quarterly dividend of 76 cents per share. The dividend will be paid on Jul 27, to shareholders on record as of Jul 4.

Additionally, Scotia Bank authorized repurchase of up to 24 million shares through Jun 1, 2018. This was announced following the regulatory approval.

Our Viewpoint

A diversified product mix and strong capital position will help Scotia Bank to grow organically as well as through acquisitions. Further, the export-driven economy of Canada is expected to benefit from gradual recovery of the U.S. economy. However, a persistent low interest rate environment along with stringent regulatory reforms, keep us skeptical about the company’s sustainable growth in the long term.