National Bank Financial Group
TSX : NA

National Bank Financial Group

February 24, 2011 07:49 ET

National Bank: Record net Income for the First Quarter of 2011

MONTREAL, QUEBEC--(Marketwire - Feb. 24, 2011) - National Bank Financial Group (TSX:NA) -

The financial information in this press release is based on the unaudited interim consolidated financial statements for the first quarter ended January 31, 2011. Additional information about National Bank of Canada, including the Annual Information Form, can be obtained from the SEDAR website at www.sedar.com and the Bank's website at www.nbc.ca.

Highlights:

  • Record net income of $312 million in the first quarter of 2011, up 45% from $215 million in the first quarter of 2010;
  • Diluted earnings per share of $1.80 in the first quarter of 2011 compared to $1.22 in the same quarter of 2010;
  • Tier 1 capital ratio of 14.6% as at January 31, 2011 compared to 14.0% as at October 31, 2010.

Highlights excluding specified items(1):

  • Record net income of $312 million in the first quarter of 2011, up 16% from $268 million in the first quarter of 2010;
  • Diluted earnings per share of $1.80 in the first quarter of 2011 compared to $1.55 in the same quarter of 2010;
  • Return on equity of 19.0%.

(1) The financial reporting method is explained in detail on page 5.

National Bank reports record net income of $312 million in the first quarter of fiscal 2011, a 45% increase from $215 million in net income in the first quarter of 2010. Diluted earnings per share for the quarter ended January 31, 2011 stood at $1.80, up $0.58 or 48% from $1.22 in the same quarter of 2010.

Excluding the specified items of first quarter 2010 (described on page 5) the first quarter net income of $312 million was up 16% from $268 million in the first quarter of 2010. The first quarter diluted earnings per share of $1.80 was also up 16% from $1.55 in the same quarter of 2010.

"During the first quarter of 2011, the Bank continued to benefit from favourable economic conditions and its One client, one bank initiatives, which have contributed to robust volume growth in personal and commercial banking activities. Our solid first quarter results also benefited from a higher contribution from Wealth Management, steady performance from Financial Markets and a sustained credit quality," stated Louis Vachon, President and Chief Executive Officer.

Financial Indicators        
   
      Results  
      excluding  
  Results   specified  
  Q1 2011   items(1)  
   
Growth in diluted earnings per share 48 % 16 %
Return on common shareholders' equity 19.0 % 19.0 %
Tier 1 capital ratio under Basel II 14.6 % 14.6 %
Dividend payout ratio 38 % 38 %
(1) See "Financial Reporting Method" on page 5 for specified items of first quarter 2010.

Results by Segment

PERSONAL AND COMMERCIAL

In the Personal and Commercial segment, net income totalled $157 million in the first quarter of 2011, up 15%. Total revenues were $633 million, for a $37 million increase that was mainly due to the segment's growth in net interest income, which rose $27 million to total $399 million in the first quarter of 2011. This increase came mostly from growth in personal and commercial loan volumes, tempered by a narrowing of the net interest margin, which was 2.45% in first quarter 2011 compared to 2.50% in first quarter 2010.

For Personal Banking, total revenues amounted to $421 million, a $19 million increase that was mainly due to higher loan volumes, particularly consumer and mortgage loans, partly offset by a narrowing of net interest margins. Other income totalled $154 million compared to $148 million in the first quarter of 2010. This increase reflects higher insurance revenues and commissions on referrals for wealth management products.

For Commercial Banking, total revenues amounted to $212 million, an $18 million increase owing mainly to the growth in loan and deposit volumes and improved net interest margins on deposits that exceeded the lower net interest margins on credit products.

Operating expenses for the Personal and Commercial segment stood at $359 million in the first quarter of 2011, up $14 million from the same quarter of 2010, mainly due to improvements made to the bank network. Still, the efficiency ratio was 57% for the first quarter of 2011 compared to 58% for the same quarter of 2010. At $55 million, the segment's provision for credit losses remained relatively stable, with the lower provision for personal and credit card loan losses offsetting the higher provision for losses on commercial credit.

WEALTH MANAGEMENT

In the Wealth Management segment, net income totalled $44 million in the first quarter of 2011, up $21 million or 91% from $23 million in the same quarter of 2010. Total revenues were $218 million compared to $193 million in the first quarter of 2010. Net interest income rose $7 million or 28%, and other income increased by $18 million or 11%. Assets under management and administration increased during the first quarter of 2011, generating growth in revenues from trust services and mutual funds. In addition, commission revenues were up due to greater brokerage activity. Operating expenses rose $1 million year-over-year to stand at $156 million. This slight increase, combined with the growth in total revenues, improved the efficiency ratio, which was 72% this quarter versus 80% in the same quarter of 2010 due to strict cost control.

FINANCIAL MARKETS

In the Financial Markets segment, net income totalled $137 million in the first quarter of 2011, a year-over-year decrease of $7 million that stems from lower trading activity revenues and lower gains on available-for-sale securities. On a taxable equivalent basis, total revenues for the segment amounted to $384 million compared to $355 million in the first quarter of 2010. Including revenues adjusted for non-controlling interests related to trading activities, first quarter revenues totalled $375 million compared to $360 million in the same quarter of 2010. Trading activity revenues on a taxable equivalent basis were $134 million for the quarter, down $16 million from the same year-earlier quarter, mainly due to lower revenues from fixed-income securities partly offset by higher revenues from equity securities. At $62 million, revenues from financial market fees increased by 5% after a rebound in corporate financing activity, which was also reflected in banking service revenues, which were also up by 5%. The growth in the segment's Other revenues came primarily from Credigy Ltd., a subsidiary active in the purchase and servicing of written-off consumer receivables.

The segment's first quarter operating expenses stood at $178 million, a $28 million year-over-year increase attributable to salaries and staff benefits and to growth in variable compensation. Transaction-related expenses also increased as market activity rebounded. The segment recorded no provision for credit losses for the first quarter of 2011 compared to provisions of $5 million in the same quarter of 2010.

Other

The Other heading of segment results showed a first quarter net loss of $26 million versus a net loss of $88 million in the first quarter of 2010. In the first quarter of 2010, operating expenses had included an administrative penalty of $75 million. Excluding specified items, the Other heading posted a first quarter net loss of $26 million versus a net loss of $35 million in the same quarter of 2010. The improvement can be attributed to higher securitization revenues and control over operating expenses. Excluding specified items, operating expenses stood at $13 million for the first quarter of 2011 versus $29 million in the same quarter of 2010.

Capital

The Bank has adopted the Advanced Internal Rating-Based Approach for credit risk. For operational risk, the Bank uses the Standardized Approach and, for market risk, it continues to use the models and the Standardized Approach in accordance with the Basel II Accord. Detailed information is provided in the "Capital Management" section on pages 58 to 60 of the 2010 Annual Report. The new Basel III capital standards will gradually come into force from January 1, 2013 to January 1, 2019. The Bank expects that it will be able to achieve compliance with these new standards without resorting to the regulatory event redemption clause included in the capital instruments in question.

According to the rules of the Bank for International Settlements (BIS) – Basel II, the Tier 1 capital ratio and the total capital ratio stood at 14.6% and 18.1%, respectively, as at January 31, 2011; as at October 31, 2010, these same ratios were 14.0% and 17.5%, respectively. This increase in the capital ratios was due to the growth in retained earnings.

The risk-weighted assets calculated under the rules of Basel II decreased and amounted to $49.3 billion as at January 31, 2011 compared to $49.8 billion as at October 31, 2010.

Subsequent Event

The Bank has announced its intention to make an offer to purchase all of the issued and outstanding non-cumulative 5-year rate reset Series 21, 24, and 26 First Preferred Shares. The offer would provide for the shares to be purchased at premium over the pre-announcement closing prices. This offer will be subject to the necessary approvals of the regulatory authorities.

HIGHLIGHTS 
 
(unaudited) (millions of dollars)             
 
Quarter ended  January 31, 2011   January 31, 2010   % Change
 
Operating results              
Total revenues $ 1,153   $ 1,077   7
Total revenues adjusted for non-controlling interests(1)   1,144     1,082   6
Net income   312     215   45
Return on common shareholders' equity   19.0 %   14.3 %  
Per common share (dollars)              
Earnings – Basic $ 1.82   $ 1.23   48
Earnings – Diluted   1.80     1.22   48
EXCLUDING SPECIFIED ITEMS(2)              
Operating results              
Total revenues $ 1,153   $ 1,082   7
Total revenues adjusted for non-controlling interests(1)   1,144     1,087   5
Net income   312     268   16
Return on common shareholders' equity   19.0 %   18.0 %  
Per common share (dollars)              
Earnings – Basic $ 1.82   $ 1.56   17
Earnings – Diluted   1.80     1.55   16
Per common share (dollars)              
Dividends declared $ 0.66   $ 0.62    
Book value   38.50     34.63    
Stock trading range              
  High   71.49     64.62    
  Low   64.86     56.51    
  Close   69.81     56.51    
 
 
     As at
January 31, 2011
  As at
October 31, 2010
  % Change
               
Financial position              
Total assets $ 152,508   $ 145,301   5
Loans and acceptances(3)   64,546     63,134   2
Deposits   84,670     81,785   4
Subordinated debentures and shareholders' equity   9,373     9,241   1
Capital ratios – BIS under Basel II              
  Tier 1   14.6 %   14.0 %  
  Total   18.1 %   17.5 %  
Capital ratios – BIS under Basel I              
  Tier 1   12.3 %   12.1 %  
  Total   15.6 %   15.6 %  
Impaired loans, net of specific and general allowances   (215 )   (267 )  
  As a % of loans and acceptances   (0.3 )%   (0.4 )%  
Assets under administration/management   245,191     235,541    
Total personal savings   122,698     118,098    
Interest coverage   9.83     9.03    
Asset coverage   4.56     4.48    
Other information              
Number of employees   18,407     18,322  
Number of branches in Canada   441     442  
Number of banking machines   873     869  
(1) Adjusted for gains or losses mainly attributable to third parties.
(2) See "Financial Reporting Method" on page 5.
(3) Net of securitized assets.

FINANCIAL REPORTING METHOD

The Bank uses certain measurements that are not in accordance with generally accepted accounting principles (GAAP) to assess results. Securities regulators require companies to caution readers that net income and other measurements adjusted using non-GAAP criteria have no standard meaning under GAAP and cannot be easily compared with similar measurements used by other companies.

Financial Information              
(unaudited) (millions of dollars)             
  Notes     Quarter ended      
    January 31, 2011   January 31, 2010   % Change  
   
Excluding specified items              
  Personal and Commercial   157   136   15  
  Wealth Management   44   23   91  
  Financial Markets   137   144   (5 )
  Other   (26 ) (35 )    
Net income excluding specified items   312   268   16  
  Less: Holding charges for restructured notes of the MAV conduits 1   (3 )    
  Less: Administrative penalty 2   (75 )    
  Plus: Reversal of a provision for income tax contingencies 3   25      
Net income   312   215   45  
   
Diluted earnings per common share excluding specified items   $ 1.80   $ 1.55   16  
  Less: Holding charges for restructured notes of the MAV conduits 1   (0.02 )    
  Less: Administrative penalty 2   (0.46 )    
  Plus: Reversal of a provision for income tax contingencies 3   0.15      
Diluted earnings per common share   $ 1.80   $ 1.22   48  
   
Return on common shareholders' equity              
  Including specified items   19.0 % 14.3 %    
  Excluding specified items   19.0 % 18.0 %    
(1)
 
During the quarter ended January 31, 2011, the holding charges for restructured notes of the master asset vehicle (MAV) conduits were negligible ($3 million in 2010), net of income taxes.
(2)
 
During the quarter ended January 31, 2010, a $75 million administrative penalty had been recognized as part of a settlement of an agreement affecting the entire asset-backed commercial paper industry.
(3)
 
During the quarter ended January 31, 2010, an income tax provision of $25 million had been reversed as a result of a revaluation of income tax contingencies.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

From time to time, National Bank of Canada (the Bank) makes written and oral forward-looking statements, such as those contained in the "Major Economic Trends" section and under the "Medium-Term Objectives" heading in the "Outlook for National Bank" section of the 2010 Annual Report, in other filings with Canadian securities regulators and in other communications, for the purpose of describing the economic environment in which the Bank will operate during fiscal 2011 and the objectives it has set for itself for that period. These forward-looking statements are made pursuant to the "safe harbour" provisions of Canadian and U.S. securities legislation. They include, among others, statements with respect to the economy—particularly the Canadian and U.S. economies—market changes, observations regarding the Bank's objectives and its strategies for achieving them, Bank projected financial returns and certain risks faced by the Bank. These forward-looking statements are typically identified by future or conditional verbs or words such as "outlook," "believe," "anticipate," "estimate," "project," "expect," "intend," "plan," and terms and expressions of similar import.

By their very nature, such forward-looking statements require assumptions to be made and involve inherent risks and uncertainties, both general and specific. Assumptions about the performance of the Canadian and U.S. economies in 2011 and how that will affect the Bank's business are among the main factors considered in setting the Bank's strategic priorities and objectives and in determining its financial targets, including provisions for credit losses. In determining its expectations for economic growth, both broadly and in the financial services sector in particular, the Bank primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies. Tax laws in the countries in which the Bank operates, primarily Canada and the United States, are major factors it considers when establishing its effective tax rate. There is a strong possibility that express or implied projections contained in such statements will not materialize or will not be accurate.

The Bank recommends that readers not place undue reliance on these statements, as a number of factors, many of which are beyond the Bank's control, could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. These factors include the management of credit, market and liquidity risks; the strength of the Canadian and U.S. economies and the economies of other countries in which the Bank conducts business; the impact of the movement of the Canadian dollar relative to other currencies, particularly the U.S. dollar; the effects of changes in monetary policy, including changes in interest rate policies of the Bank of Canada and the U.S. Federal Reserve; the effects of competition in the markets in which the Bank operates; the impact of changes in the laws and regulations regulating financial services and enforcement thereof (including banking, insurance and securities); judicial proceedings, regulatory proceedings or claims, class actions or other recourses of various nature; the situation with respect to the restructured notes of the master asset vehicles, in particular the realizable value of the underlying assets; the Bank's ability to obtain accurate and complete information from or on behalf of its clients or counterparties; the Bank's ability to successfully realign its organization, resources and processes; its ability to complete strategic acquisitions and integrate them successfully; changes in the accounting policies and methods the Bank uses to report its financial condition, including uncertainties associated with critical accounting assumptions and estimates; the Bank's ability to recruit and retain key officers; operational risks, including risks related to the Bank's reliance on third parties to ensure access to the infrastructure essential to the Bank's business as well as other factors that may affect future results, including changes in trade policies; timely development of new products and services; changes in estimates relating to reserves; changes in tax laws; technological changes; unexpected changes in consumer spending and saving habits; natural disasters; the possible impact on the business from public health emergencies, conflicts, other international events and developments, including those relating to the war on terrorism; and the Bank's success in anticipating and managing the foregoing risks. A substantial amount of the Bank's business involves making loans or otherwise committing resources to specific companies, industries or countries. Unforeseen events affecting such borrowers, industries or countries could have a material adverse effect on the Bank's financial results, businesses, financial condition, or liquidity.

The foregoing list of risk factors is not exhaustive. Additional information about these factors can be found under "Risk Management" and "Factors That Could Affect Future Results" in the 2010 Annual Report. Investors and others who base themselves on the Bank's forward-looking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. The Bank also cautions readers not to place undue reliance on these forward-looking statements. Except as required by law, the Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time, by it or on its behalf.

The forward-looking information contained in this document is presented for the purpose of interpreting the information contained herein and may not be appropriate for other purposes.

DISCLOSURE OF FIRST QUARTER 2011 RESULTS

Conference Call

  • A conference call for analysts and institutional investors will be held on February 24, 2011 at 1:30 p.m. ET.
  • Access by telephone in listen-only mode: 1-866-226-1792 or 416-340-2216.
  • A recording of the conference call can be heard until March 5, 2011 by dialing 1-800-408-3053 or 905-694-9451. The access code is 4068080#.

Webcast

  • The conference call will be webcast live at www.nbc.ca/investorrelations.
  • A recording of the webcast will also be available on the Internet after the call.

Financial Documents

  • The quarterly financial statements are available at all times on National Bank's website at www.nbc.ca/investorrelations.
  • The Report to Shareholders, Supplementary Financial Information and a slide presentation will be available on the Investor Relations page of National Bank's website shortly before the start of the conference call.

Contact Information

  • National Bank Financial Group
    Patricia Curadeau-Grou
    Chief Financial Officer and Executive Vice-President
    Finance, Risk and Treasury
    514-394-6619
    or
    National Bank Financial Group
    Jean Dagenais
    Senior Vice-President
    Finance Taxation and Investor Relations
    514-394-6233
    or
    National Bank Financial Group
    Claude Breton
    Senior Director
    Public Relations
    514-394-8644
    or
    National Bank Financial Group
    Helene Baril
    Senior Director
    Investor Relations
    514-394-0296