National Bank of Canada NA-T reported higher profit for the fiscal second quarter and raised its quarterly dividend as lower loan loss reserves and strong performance from capital markets as well as retail banking boosted the lender’s earnings.
Montreal-based National Bank was the third major Canadian bank to report profits that beat analysts’ estimates, following Bank of Nova Scotia and Bank of Montreal which each reported earnings for the fiscal second quarter earlier on Wednesday.
National Bank earned $1.23-billion, or $3.06 a share, for the quarter that ended April 30. In the same quarter last year, the bank earned $896-million, or $2.17 a share.
After adjusting to exclude certain items, National Bank said it earned $3.23 a share. That beat analysts’ consensus expectation for profit of $3.14 a share, according to Bloomberg data.
Earnings in the second fiscal quarter last year were affected by National Bank’s acquisition of Canadian Western Bank (CWB), which added to its loan loss reserves.
The Montreal-based bank is expecting to reap about $300-million in annual savings on costs and funding once it has merged CWB’s operations with its own. As of April 30, the bank said it has achieved $215-million so far, and is on track to reach $270-million by the end of the fiscal year.
National Bank raised its quarterly dividend by 8 cents to $1.32 per share. That was a larger increase than the 5 cents some analysts had expected.
Provisions for credit losses, the money the bank sets aside to cover loans that may default, was $233-million, down from $545-million a year earlier.
A lower provision of $38-million on performing loans, which are still being paid back, largely accounted for the decrease. In the fiscal second quarter last year, the bank took an initial provision of $315-million, mostly because of the CWB acquisition.
National Bank’s fiscal second-quarter provision included $6-million of loan loss provisions for a portfolio of syndicated loans that National Bank acquired from Laurentian Bank of Canada.
National Bank’s capital markets division had a good quarter, as analysts anticipated, with profit of $488-million falling just shy of the unit’s record $501-million of profit in the same quarter last year. Trading revenues dipped from last year’s highs, but the bank had its best ever revenue from corporate and investment banking.
Personal and commercial banking profit was $355-million, up from $132-million a year earlier. Lower loan loss provisions accounted for most of the difference. But the bank’s commercial loans increased by 5 per cent year over year, and personal mortgages were up 12 per cent.
Higher fee-based revenue helped the bank’s wealth management arm increase profit by 18 per cent to $274-million, from $232-million in the second quarter last year.
And the bank’s international and specialty finance division reported $186-million of profit, up 10 per cent as its Cambodian subsidiary ABA Bank added loans and deposits as it increased its client base by 35 per cent year over year.
National Bank’s return on equity was 15.9 per cent. And its key measure of capital reserves - the common equity Tier 1 ratio – was 13.5 per cent, down from 13.7 per cent in the prior quarter as the bank bought back 8.8 million shares so far this fiscal year.