National Bank of Canada
TSX : NA

National Bank of Canada

May 31, 2012 07:30 ET

National Bank releases its results for the Second Quarter of 2012 and raises its quarterly dividend by 5% to 79 cents per share

MONTREAL, QUEBEC--(Marketwire - May 31, 2012) - National Bank (TSX:NA)

Highlights:

  • $553 million in net income for the second quarter of 2012, up 69% from $327 million in the same quarter of 2011;
  • Diluted earnings per share of $3.22 for the second quarter of 2012, up $1.65 from $1.57 in the same quarter of 2011;
  • As of April 2, 2012, completed the sale of Natcan Investment Management Inc.'s operations for a gain of $212 million, net of income taxes, and acquired a 35% interest in Fiera Capital Corporation;
  • Return on equity of 34.7%;
  • Pro forma Core Tier 1 capital ratio under Basel III of 8.0% as at April 30, 2012.

Highlights Excluding Specified Items(1):

  • $347 million in net income for the second quarter of 2012, up 6% from $327 million in the second quarter of 2011;
  • Diluted earnings per share of $1.95 for the second quarter of 2012, up 10% from $1.78 in the same quarter of 2011;
  • Return on equity of 21.3%.
(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 second quarter ended April 30, 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.

National Bank reports $553 million in net income for the second quarter of 2012, a 69% increase from $327 million in the same quarter of 2011. Diluted earnings per share for the quarter ended April 30, 2012 stood at $3.22, up $1.65 from $1.57 in the same quarter of 2011.

Excluding the specified items described on page 5, second-quarter net income totalled $347 million, up 6% from $327 million in the second quarter of 2011, and diluted earnings per share stood at $1.95, up 10% from $1.78 in the second quarter of 2011.

For the first six months of 2012, the Bank's net income totalled $904 million, up 35% from $668 million in the same period of 2011. First-half diluted earnings per share stood at $5.21, up $1.78 or 52% from $3.43 in the same period of 2011. Excluding the specified items described on page 5, first-half net income totalled $700 million, up 5% from $668 million in the same period of 2011, and first-half diluted earnings per share stood at $3.95, up 9% from $3.64 in the same period of 2011.

"In the second quarter of 2012, National Bank continued to experience excellent operating results while facing increased competition and less favourable market conditions. Given the current environment, the Bank continues to prudently manage risk and costs and will keep investing wisely in technology and staff training. Furthermore, the Bank's solid capital level will support growth initiatives and add value for shareholders, particularly through dividend growth," said President and Chief Executive Officer, Louis Vachon.

Financial Indicators Results Results
excluding Results excluding
Results specified First half specified
Q2 2012 items(1) 2012 items(1)
Growth in diluted earnings per share105%10%52%9%
Return on common shareholders' equity34.7%21.3%28.3%21.6%
Dividend payout ratio33%39%33%39%
Tier 1 capital ratio under Basel II13.0% 13.0%
Pro forma Core Tier 1 capital ratio under Basel III8.0% 8.0%
(1) See the Financial Reporting Method section 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 rose 14% to total $166 million in the second quarter. Total revenues amounted to $638 million, a $31 million increase that owes to higher net interest income, which, at $396 million, rose $17 million, and to a $14 million increase in other income, which totalled $242 million in the second quarter of 2012. The higher net interest income was mainly due to growth in personal loan volume, tempered by a narrowing of the net interest margin, which was 2.19% in the second quarter of 2012 compared to 2.36% in the same quarter of 2011, mainly due to a decline in the spreads on loans.

Personal Banking's total revenues amounted to $436 million, a $26 million increase that was mainly due to higher loan volumes, especially consumer and mortgage loans, partly offset by a narrowing of net interest margins, with gains on sales of available-for-sale securities also adding to the increase. Commercial Banking's total revenues amounted to $202 million, a $5 million increase owing mainly to higher revenues from acceptances.

The segment's second-quarter operating expenses stood at $363 million, a year-over-year increase of $16 million resulting mainly from a higher salaries and staff benefits expense, as new branches were opened, business hours were extended, and staff was hired to provide services at remote banking channels. The efficiency ratio for the second quarter of 2012 was 57%, stable when compared to the same quarter of last year. At $49 million, the segment's provisions for credit losses were $6 million lower, as lower provisions for losses on business loans and credit card receivables offset the higher provisions for personal credit losses.

For the first six months of 2012, the Personal and Commercial segment posted net income of $336 million, up $34 million or 11% from $302 million in the same period of 2011. Total revenues for the segment rose 4% to total $1,280 million. Personal Banking's total revenues were up $44 million or 5%, mainly due to higher consumer and mortgage loan volumes, and Commercial Banking's total revenues were up $4 million or 1%. At $94 million, the segment's provisions for credit losses were lower than in the same period of 2011. At 57%, the efficiency ratio was stable in the first half of 2012 compared to the same six-month period of 2011.

Wealth Management

In the Wealth Management segment, net income totalled $233 million in the second quarter of 2012, up from $49 million in the same quarter last year. Total revenues amounted to $498 million in the second quarter of 2012 versus $227 million in the second quarter of 2011, for an increase that stems mainly from a $246 million gain on the sale of Natcan's operations and from the acquisitions of Wellington West Holdings Inc. and the full-service investment advisory business of HSBC Securities (Canada) Inc.

The segment's second-quarter operating expenses stood at $223 million, a $62 million year-over-year increase. The specified items included in operating expenses stood at $26 million and comprise $18 million in charges related to the Natcan transaction and $8 million in charges related to acquisitions. Excluding these specified items, operating expenses increased $36 million and came mainly from the acquired companies.

For the first six months of 2012, the Wealth Management segment posted net income of $267 million compared to $98 million in the same period of 2011. Total revenues amounted to $736 million compared to $448 million for the first six months of 2011, and operating expenses were $414 million compared to $317 million for the first six months of 2011. The first-half revenue and expense increases are explained by the same reasons provided for the quarter.

Financial Markets

In the Financial Markets segment, net income totalled $115 million for the second quarter of 2012, down $12 million from $127 million in the same quarter of 2011. Excluding specified items, net income stood at $126 million compared to $127 million in the same quarter of 2011. On a taxable equivalent basis, total revenues amounted to $338 million compared to $341 million in the second quarter of 2011. On a taxable equivalent basis, trading activity revenues were $118 million for the quarter, down $10 million from the same year-earlier quarter, mainly due to lower revenues from equities, commodities and foreign exchange transactions. At $8 million for the second quarter, net gains on available-for-sale securities were down $15 million year over year as higher gains had been recorded in the second quarter of 2011. Other income increased by $21 million owing to a higher contribution from associate Maple Financial Group Inc. and subsidiary Credigy Ltd.

The segment's second-quarter operating expenses stood at $181 million, a $15 million year-over-year increase resulting from severance pay incurred during certain streamlining measures. No provisions for credit losses were recorded for the second quarter of 2012, whereas $5 million had been recovered in the same quarter of 2011.

For the first six months of 2012, the segment's net income totalled $245 million, up $3 million from the same period in 2011. Excluding specified items, the segment's net income totalled $256 million, up $14 million or 6% from the same period in 2011. On a taxable equivalent basis, total revenues amounted to $690 million versus $672 million, a year-over-year increase of $18 million that was mainly due to higher revenues from fixed-income securities offset by lower revenues from equities, commodities and foreign exchange transactions. Other income increased mainly due to a higher contribution from associate Maple Financial Group Inc. Operating expenses stood at $354 million, a $22 million increase compared to the first six months of 2011, as severance pay was recorded for the current quarter. For the first six months of 2012, the segment recorded no provisions for credit losses, whereas for the same period of 2011, $5 million in recoveries had been recognized.

Other

For the Other heading of segment results, net income was $39 million for the second quarter of 2012 compared to $5 million in the same quarter of 2011. During the second quarter of 2012, $25 million in revenues, net of income taxes, was recorded as a specified item to reflect a change in the fair value of commercial paper not included in the Pan-Canadian restructuring plan. At $26 million, operating expenses were down $10 million from the same quarter of 2011, partly due to cost allocation.

For the first six months of 2012, net income stood at $56 million versus $26 million for the same period of 2011. The difference was mainly due to the recognition of a specified item in the second quarter of 2012.

Natcan - Fiera Transaction

On April 2, 2012, the Bank completed the sale of the operations of its subsidiary, Natcan Investment Management Inc. (Natcan), to Fiera Capital Corporation (Fiera). The total closing-date sale price was $275 million and consisted of an $86 million cash payment, $169 million in Class A subordinate voting shares representing 35% of all classes of Fiera's issued and outstanding shares, and an additional estimated amount of $20 million that is subject to an adjustment to the sale price. This amount will be receivable over seven years according to terms and conditions regarding performance and the level of assets under management of the Bank and its subsidiaries. A before-tax gain of $246 million ($212 million net of income taxes) on the sale, including a $25 million write-off of goodwill and intangible assets and $4 million in direct charges, was recognized in the Wealth Management segment under Other income - Other in the Consolidated Income Statement for the quarter ended April 30, 2012.

Capital

The Bank considers credit risk, operational risk and market risk in its approach to managing capital. In accordance with Basel II, the Bank uses the Advanced Internal Rating-Based Approach to manage credit risk and the Standardized Approach for operational risk. For market risk, the Bank mainly uses an approach based on internal models but also uses the Standardized Approach for certain exposures. Detailed information is provided in the Capital Management section of the 2011 Annual Report. The 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 April 30, 2012, the pro forma Core Tier 1 capital ratio under Basel III was 8.0%.

According to the rules of the Bank for International Settlements (BIS) - Basel II, the Tier 1 and total capital ratios stood at 13.0% and 17.0%, respectively, as at April 30, 2012, compared to 13.6% and 16.9% as at October 31, 2011. The lower Tier 1 capital ratio was attributable to the application of IFRS and the acquisition of a 35% interest in Fiera. These factors were partly mitigated by net income, net of dividends, the sale of Natcan's operations and the common share issuance related primarily to stock options exercised. The total capital ratio remained steady given the $1 billion issuance of subordinated debentures. The risk-weighted assets calculated under the rules of Basel II increased and amounted to $53.8 billion as at April 30, 2012 compared to $50.4 billion as at October 31, 2011.

HIGHLIGHTS
(unaudited) (millions of Canadian dollars)
Quarter ended Six months ended
April 30,
2012
April 30,
2011
% Change April 30,
2012
April 30,
2011
% Change
Operating results
Total revenues $ 1,499 $ 1,178 27 $ 2,742 $ 2,340 17
Net income 553 327 69 904 668 35
Net income attributable to the Bank's shareholders
536

310

73

868

632

37
Return on common shareholders' equity 34.7 % 19.1 % 28.3 % 20.8 %
Per common share (dollars)
Earnings - Basic $ 3.25 $ 1.59 104 $ 5.25 $ 3.47 51
Earnings - Diluted 3.22 1.57 105 5.21 3.43 52
EXCLUDING SPECIFIED ITEM(1)
Operating results
Total revenues $ 1,220 $ 1,178 4 $ 2,458 $ 2,340 5
Net income 347 327 6 700 668 5
Net income attributable to the Bank's shareholders
330

310

6

664

632

5
Return on common shareholders' equity 21.3 % 21.6 % 21.6 % 22.0 %
Per common share (dollars)
Earnings - Basic $ 1.98 $ 1.80 10 $ 3.99 $ 3.68 8
Earnings - Diluted 1.95 1.78 10 3.95 3.64 9
Per common share (dollars)
Dividends declared $ 0.75 $ 0.66 $ 1.50 $ 1.32
Book value 39.59 34.36
Stock trading range
High 81.27 80.56 81.27 80.56
Low 75.05 69.99 63.27 64.86
Close 77.10 78.34 77.10 78.34

As at April 30,
2012
As at October 31, 2011 % Change
Financial position
Total assets $ 176,466 $ 166,858 6
Loans and acceptances 84,970 80,758 5
Deposits 93,894 85,562 10
Subordinated debentures and equity 10,652 9,570 11
Pro forma Core Tier 1 capital ratio under Basel III(2) 8.0 % 7.6 %
Capital ratios - BIS under Basel II(2)
Tier 1 13.0 % 13.6 %
Total 17.0 % 16.9 %
Capital ratios - BIS under Basel I(2)
Tier 1 11.6 % 11.1 %
Total 15.4 % 14.1 %
Impaired loans, net of individual and collective allowances (239 ) (201 )
as a % of loans and acceptances (0.3 ) % (0.2 ) %
Assets under administration/management 225,736 242,995
Total personal savings 143,983 133,798
Interest coverage 11.47 10.60
Asset coverage 3.51 3.87
Other information
Number of employees 19,990 19,431 3
Number of branches in Canada 449 448
Number of banking machines 901 893 1
(1) See the Financial Reporting Method section on page 5.
(2) Ratios as at October 31, 2011 are presented in accordance with previous Canadian generally accepted accounting principles (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 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 Six months ended
April 30,
2012
April 30,
2011
% Change April 30,
2012
April 30,
2011
% Change
Excluding specified items
Personal and Commercial 166 146 14 336 302 11
Wealth Management 41 49 (16 ) 80 98 (18 )
Financial Markets 126 127 (1 ) 256 242 6
Other 14 5 28 26
Net income excluding specified items 347 327 6 700 668 5
Plus: Items related to the Natcan transaction(1) 198 198
Plus: Items related to holding restructured notes(2) 25 28
Less: Severance pay(3) (11 ) (11 )
Less: Acquisition-related items(4) (6 ) (11 )
Net income 553 327 69 904 668 35
Diluted earnings per share excluding specified items $ 1.95 $ 1.78 10 $ 3.95 $ 3.64 9
Plus: Items related to the Natcan transaction(1) 1.22 1.22
Plus: Items related to holding restructured note(2) 0.16 0.18
Less: Severance pay(3) (0.07 ) (0.07 )
Less: Acquisition-related items(4) (0.04 ) (0.07 )
Less: Premium paid on preferred shares
repurchased for cancellation(5) (0.21 ) (0.21 )
Diluted earnings per share $ 3.22 $ 1.57 105 $ 5.21 $ 3.43 52
Return on common shareholders' equity
Including specified items 34.7 % 19.1 % 28.3 % 20.8 %
Excluding specified items 21.3 % 21.6 % 21.6 % 22.0 %
(1) During the quarter ended April 30, 2012, the Bank sold the operations of Natcan Investment Management Inc. (Natcan) and acquired a 35% interest in Fiera Capital Corporation (Fiera). The Bank recorded a gain of $246 million ($212 million net of income taxes), which consisted of a $275 million sale price less $29 million in goodwill, intangible assets and direct charges. A total of $18 million ($13 million net of income taxes) in other charges related to this transaction was recorded. The Bank also recorded $1 million ($1 million net of income taxes) for its share of the integration costs incurred by Fiera.
(2) During the quarter ended April 30, 2012, $34 million ($25 million net of income taxes) in revenue was recorded as a result of a change in the fair value of commercial paper not included in the Pan-Canadian restructuring plan. During the six months ended April 30, 2012, $39 million ($28 million net of income taxes) in revenues related to holding restructured notes was recorded.
(3) During the quarter ended April 30, 2012, the Bank recognized $15 million in severance pay ($11 million net of income taxes) related to streamlining measures undertaken in certain financial markets activities.
(4) During the quarter ended April 30, 2012, $8 million ($6 million net of income taxes) in charges was 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 $6 million in retention bonuses, $0.7 million for the amortization of intangible assets and $1.6 million in integration costs. During the six months ended April 30, 2012, $16 million in charges ($11 million net of income taxes) were recorded and consisted of $11 million in retention bonuses, $1.4 million for the amortization of intangible assets and $3.9 million in integration costs.
(5) During the quarter ended April 30, 2011, a $34 million premium had been paid on the Series 21, 24 and 26 First Preferred Shares repurchased for cancellation.

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 SECOND QUARTER 2012 RESULTS

Conference Call

  • A conference call for analysts and institutional investors will be held on May 31, 2012 at 1:30 p.m. EDT.
  • 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 June 9, 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 National Bank's website after the call.

Financial Documents

  • The quarterly financial statements are available at all times on National Bank's website at 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