National Bank of Canada
TSX : NA

National Bank of Canada

March 01, 2012 16:15 ET

National Bank releases its results for the first quarter of 2012

MONTREAL, QUEBEC--(Marketwire - March 1, 2012) - National Bank (TSX:NA)

Highlights:

  • A record $332 million in net income attributable to the Bank's shareholders for the first quarter of 2012, up 3% from $322 million in the same quarter of 2011;
  • Record diluted earnings per share of $1.99 for the first quarter of 2012, up 7% from $1.86 in the same quarter of 2011;
  • Acquisition of the full-service investment advisory business of HSBC Securities (Canada) Inc. completed on January 1, 2012;
  • Return on equity of 21.8%;
  • Pro forma Core Tier 1 capital ratio under Basel III of 7.9% as at January 31, 2012.

Highlights Excluding Specified Items(1):

  • A record $334 million in net income attributable to the Bank's shareholders for the first quarter of 2012, up 4% from $322 million in the first quarter of 2011;
  • Record diluted earnings per share of $2.00 for the first quarter of 2012, up 8% from $1.86 in the same quarter of 2011;
  • Return on equity of 21.9%.
(1) The financial reporting method is explained in detail on page 5.

The financial information in this press release is based on the unaudited interim condensed consolidated financial statements for the first quarter ended January 31, 2012. Additional information about National Bank of Canada, including the Annual Information Form, can be obtained from the SEDAR website at www.sedar.com or on Bank's website at www.nbc.ca.

The Bank begins its financial reporting in accordance with International Financial Reporting Standards (IFRS)

The information reported herein is presented in Canadian dollars and is based on the unaudited interim financial results for the first quarter ended January 31, 2012. The quantitative information in this document has been prepared in accordance with IFRS.

National Bank reports a record $332 million in net income attributable to the Bank's shareholders for the first quarter of 2012, a 3% increase from $322 million in the same quarter of 2011. Diluted earnings per share for the quarter ended January 31, 2012 stood at $1.99, up $0.13 or 7% from $1.86 in the same quarter of 2011.

Excluding the specified items described on page 5, the first quarter net income attributable to the Bank's shareholders was a record $334 million, up 4% from $322 million in the first quarter of 2011, and diluted earnings per share was a record $2.00, up 8% from $1.86 in the first quarter of 2011.

"National Bank posted excellent results for the first quarter of 2012 stemming from ongoing strong volume growth in P&C Banking and good performance in Financial Markets. In addition, the credit quality is excellent and the Bank continues to prudently manage its expenses and maintain a sound capital position," stated Louis Vachon, President and Chief Executive Officer.

Financial Indicators Results
excluding
Results specified
Q1 2012 items(1)
Growth in diluted earnings per share 7 % 8 %
Return on common shareholders' equity 21.8 % 21.9 %
Tier 1 capital ratio under Basel II 12.7 % 12.7 %
Pro forma Core Tier 1 capital ratio under Basel III 7.9 % 7.9 %
Dividend payout ratio 40 % 38 %
(1) See "Financial Reporting Method" on page 5.

Results by Segment

The presentation of segment disclosures is consistent with the presentation adopted by Bank for the year beginning November 1, 2011. It reflects the fact that treasury operations, including the Bank's asset and liability management activities, which had previously been presented in the Financial Markets segment, are now presented in the Other heading. The Bank made this change to align the monitoring of its activities with its management structure.

Personal and Commercial

In the Personal and Commercial segment, net income attributable to the Bank's shareholders rose 9% to total $170 million for the quarter. Total revenues amounted to $642 million, a $17 million increase that owes mainly to higher net interest income, which, at $411 million, rose $15 million mainly as a result of the growth in personal loan volume. This growth was tempered by a narrowing of the net interest margin, which was 2.26% in the first quarter of 2012 compared to 2.44% in the same quarter of 2011, mainly due to a decline in spreads on loans.

Personal Banking's total revenues amounted to $438 million, a $19 million increase that was mainly due to higher loan volumes, especially consumer and mortgage loans, partly offset by a narrowing of net interest margins. Commercial Banking's total revenues amounted to $204 million, a $2 million decrease that was mainly due to narrower net interest margins and lower foreign exchange revenues.

The segment's first quarter operating expenses stood at $364 million, a year-over-year increase of $11 million resulting mainly from a higher salaries and staff benefits expense, as new branches were opened and business hours extended. At 57%, the efficiency ratio for the first quarter of 2012 remained steady compared to the same quarter of last year. At $45 million, the segment's provisions for credit losses were $10 million lower, as lower provisions for business and credit card loan losses offset the higher provisions for losses on personal credit.

Wealth Management

In the Wealth Management segment, net income attributable to the Bank's shareholders totalled $33 million in the first quarter of 2012, down from $48 million in the same quarter of 2011. Total revenues amounted to $238 million in the first quarter of 2012 compared to $221 million in the first quarter of 2011. Net interest income rose $6 million or 17%, and other income increased by $11 million or 6%. The year-over-year increase in first quarter revenues stems from the acquisitions of Wellington West Holdings Inc. and the full-service investment advisory business of HSBC Securities (Canada) Inc. The segment's first quarter operating expenses stood at $191 million, a $35 million year-over-year increase associated primarily with the Bank's acquisitions, which increased expenses for the quarter by $31 million, $8 million of which constitutes a specified item.

Financial Markets

In the Financial Markets segment, net income attributable to the Bank's shareholders totalled $129 million for the first quarter of 2012, up $15 million from $114 million in the same quarter of 2011. Total revenues amounted to $352 million compared to $331 million in the first quarter of 2011. Trading activity revenues on a taxable equivalent basis were $134 million for the quarter, up $7 million from the same year-earlier quarter, mainly due to higher revenues from fixed-income securities offset by lower revenues from equity securities, commodity securities and foreign exchange transactions. Financial market fees and banking services were virtually unchanged from the same period in 2011. At $33 million, net gains on available-for-sale securities increased by $10 million from the same quarter of 2011, due to gains generated by investment activities. Other income increased by $4 million owing to a higher contribution from associate Maple Financial Group Inc.

The segment's first quarter operating expenses stood at $173 million, a $7 million year-over-year increase that was due in part to a higher salaries and staff benefits expense. The provisions for credit losses balance was nil for the first quarters of 2012 and 2011.

Other

For the Other heading of segment results, net income attributable to the Bank's shareholders was nil for the first quarter of 2012 compared to a $4 million net gain in the same quarter of 2011. Year-over-year, first quarter total revenues increased $26 million, essentially due to greater treasury activity and a decrease in the taxable equivalent basis adjustment on tax-exempt income. At $31 million, operating expenses were up $11 million, primarily due to higher technology expenses.

Capital

In accordance with Basel II, the Bank uses the Advanced Internal Rating-Based Approach to manage credit risk. For operational risk, the Bank uses the Standardized Approach and, for market risk, it primarily uses an approach based on internal models but uses the Standardized Approach for certain exposures. Detailed information is provided in the Capital Management section of the 2011 Annual Report. New Basel III capital standards will gradually come into force from January 1, 2013 to January 1, 2019. The Bank expects to achieve compliance with these new standards without resorting to the regulatory event redemption clause included in the capital instruments in question. As at January 31, 2012, the pro forma Core Tier 1 capital ratio under Basel III was 7.9%.

According to the rules of the Bank for International Settlements (BIS) - Basel II, the Tier 1 and total capital ratios stood at 12.7% and 15.2%, respectively, as at January 31, 2012, down from 13.6% and 16.9% as at October 31, 2011. The factors underlying the lower Tier 1 capital ratio include the goodwill that arose from the acquisition of the full-service investment advisory business of HSBC Securities (Canada) Inc., the application of IFRS, and the investments in insurance subsidiaries that must now be deducted at 50%. These factors were partly mitigated by net income, net of dividends, and the common share issuance related primarily to stock options exercised. The total capital ratio decreased for the same reasons as the Tier 1 capital ratio and also due to the repurchase of subordinated debentures in an amount of $500 million.

The risk-weighted assets calculated under the rules of Basel II increased and amounted to $53.3 billion as at January 31, 2012 compared to $50.4 billion as at October 31, 2011.

Subsequent Event

On February 27, 2012, the Bank and Fiera Sceptre Inc. (Fiera) entered into an agreement under which Fiera has acquired Natcan Investment Management Inc. (Natcan), a Bank subsidiary, for $309.5 million, subject to reduction. Natcan's operations will be fully integrated into Fiera's existing business. In exchange, the Bank will receive, through Natcan, Class A subordinate voting shares representing 35% of Fiera's issued and outstanding shares as well as an option to potentially raise its interest to 40%.

The closing of the transaction, expected by April 30, 2012, remains subject to the approval of the majority of the independent holders of Class A Shares, certain other conditions and regulatory approvals.

HIGHLIGHTS
(unaudited) (millions of Canadian dollars)
Quarter ended
January 31, 2012 January 31,
2011
% Change
Operating results
Total revenues $ 1,243 $ 1,162 7
Net income attributable to the Bank's shareholders 332 322 3
Return on common shareholders' equity 21.8 % 22.3 %
Per common share (dollars)
Earnings - Basic $ 2.00 $ 1.88 6
Earnings - Diluted 1.99 1.86 7
EXCLUDING SPECIFIED ITEMS(1)
Operating results
Total revenues $ 1,238 $ 1,162 7
Net income attributable to the Bank's shareholders 334 322 4
Return on common shareholders' equity 21.9 % 22.3 %
Per common share (dollars)
Earnings - Basic $ 2.02 $ 1.88 7
Earnings - Diluted 2.00 1.86 8
Per common share (dollars)
Dividends declared $ 0.75 $ 0.66
Book value 37.28 33.93
Stock trading range
High 77.94 71.49
Low 63.27 64.86
Close 75.22 69.81
As at January 31, 2012 As at October 31,
2011
% Change
Financial position
Total assets $ 175,247 $ 166,858 5
Loans and acceptances 83,056 80,758 3
Deposits 92,402 85,562 8
Subordinated debentures and shareholders' equity 9,265 9,570 (3 )
Pro forma Core Tier 1 capital ratio under Basel III(2) 7.9 % 7.6 %
Capital ratios - BIS under Basel II(2)
Tier 1 12.7 % 13.6 %
Total 15.2 % 16.9 %
Capital ratios - BIS under Basel I(2)
Tier 1 11.4 % 11.1 %
Total 14.0 % 14.1 %
Impaired loans, net of individually and collectively
assessed allowances (210 ) (201 )
as a % of loans and acceptances (0.3 ) % (0.2 ) %
Assets under administration/management 247,027 242,995
Total personal savings 144,576 133,798
Interest coverage 11.49 9.97
Asset coverage 4.87 3.87
Other information
Number of employees 19,785 19,431 2
Number of branches in Canada 447 448
Number of banking machines 900 893 1
(1) See Financial Reporting Method on page 5.
(2) Ratios as at October 31, 2011 are presented in accordance with Canadian GAAP.
FINANCIAL REPORTING METHOD
(unaudited) (millions of Canadian dollars)

The Bank uses certain measures that do not comply with International Financial Reporting Standards (IFRS) to assess results. Securities regulators require companies to caution readers that net income attributable to the Bank's shareholders and other measures adjusted using non-IFRS criteria are not standard under IFRS and cannot be easily compared with similar measures used by other companies.

Financial Information
Quarter ended
January 31, 2012 January 31, 2011 % Change
Excluding specified items
Personal and Commercial 170 156 9
Wealth Management 38 48 (21 )
Financial Markets 129 114 13
Other (3 ) 4
Net income attributable to the Bank's shareholders, excluding specified items 334 322 4
Less: Acquisition-related items(1) (5 )
Plus: Items related to holding restructured notes of the MAV conduits(2) 3
Net income attributable to the Bank's shareholders 332 322 3
Diluted earnings per share excluding specified items $ 2.00 $ 1.86 8
Less: Acquisition-related items(1) (0.03 )
Plus: Items related to holding restructured notes of the MAV conduits(2) 0.02
Diluted earnings per share $ 1.99 $ 1.86 7
Return on common shareholders' equity
Including specified items 21.8 % 22.3 %
Excluding specified items 21.9 % 22.3 %
(1) During the quarter ended January 31, 2012, $8 million ($5 million net of income taxes) in charges were recorded relative to the acquisitions of Wellington West Holdings Inc. and the full-service investment advisory business of HSBC Securities (Canada) Inc. The charges consisted of $5 million in retention bonuses, $0.7 million for the amortization of an intangible asset and $2.3 million in integration costs.
(2) During the quarter ended January 31, 2012, $5 million ($3 million net of income taxes) in revenues related to holding restructured notes of the master asset vehicle (MAV) conduits was recorded.

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" and "Outlook for National Bank" sections of the 2011 Annual Report, and 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 2012 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 2012 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 these forward-looking 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; general economic conditions of the financial market in Canada, the United States and other countries in which the Bank conducts business, including the impact of the debt crisis affecting certain European countries; the downward adjustment of the long-term sovereign debt rating of the United States attributed by Standard & Poor's and the downward adjustment of the sovereign debt rating of other European countries; 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 (including banking, insurance and securities) and enforcement thereof;
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 vehicle (MAV) conduits, 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, judgments 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 the "Risk Management" and "Factors That Could Affect Future Results" sections of the 2011 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 2012 RESULTS

Conference Call

  • A conference call for analysts and institutional investors will be held on March 2, 2012 at 9:30 a.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 11, 2012 by dialing 1-800-408-3053 or 905-694-9451. The access code is 7648660#.

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

  • Ghislain Parent
    Chief Financial Officer and Executive Vice-President
    Finance and Treasury
    514-394-6807

    Jean Dagenais
    Senior Vice-President
    Finance, Taxation and Investor Relations
    514-394-6233

    Claude Breton
    Senior Director
    Public Affairs
    514-394-8644

    Helene Baril
    Senior Director
    Investor Relations
    514-394-0296