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National Bank of Canada (NTIOF) Q3 Earnings Flat, Costs Rise

Shares of National Bank of Canada’s NTIOF gained 5.4% on the NYSE after the company reported third-quarter fiscal 2020 (ended Jul 31) results on Aug 26. Adjusted earnings per share of C$1.66 remained flat when compared with the year-ago reported figure.

Increases in net interest income was a positive factor. Also, a rise in loans and deposits, and a strong capital position were tailwinds. However, elevated compensation along with occupancy and technology costs acted as headwinds. Also, a rise in provisions, owing to the coronavirus outbreak-related concerns, was another undermining factor.

The company reported net income of C$602 million ($275.6 million), reflecting a fall of 1% year over year.

Furthermore, on a year-over-year basis, all segments witnessed improvement in net income. Wealth Management, Financial Markets, and US Specialty Finance & International reported rise of 2%, 5% and 26%, respectively, in quarterly net income. However, Personal & Commercial Banking unit witnessed a significant decline in net income.

Revenues Increase, Expenses & Provisions Surge

Adjusted total revenues were up 4% year over year to C$2.02 billion ($1.53 billion). On a reported basis, total revenues were C$1.97 billion ($1.48 billion), reflecting an increase of 1% year over year.

Net interest income (on a taxable equivalent basis) was C$1.15 billion ($0.84 billion), up 25.4% from the year-ago quarter. The increase reflected a fall in interest expenses, partially offset by lower interest income.

Non-interest income decreased 15.2% to C$876 million ($691.5 million). The fall was mainly driven by lower revenues from trading, insurance and card fees.

Adjusted non-interest expenses totaled C$1.07 billion ($0.81 billion), increasing 3.1% from the year-ago quarter. Higher compensation and employee benefits along with occupancy and technology costs led to the jump.

Total provision for credit losses was C$143 million ($366.5 million) compared with C$86 million in the year-ago quarter.

Strong Balance Sheet & Capital Ratios

Total assets were C$322.5 billion ($227.2 billion) as of Jul 31, 2020, up 1.7% from the prior quarter. Average loans and acceptances grew slightly sequentially to C$160.5 billion ($114.7 billion) and average deposits rose nearly 1% to C$207.5 billion ($147 billion).

As of Jul 31, 2020, Common Equity Tier 1 ratio was 11.4%, down from 11.7% in the prior-year quarter. Furthermore, Tier 1 capital ratio was 14% compared with 15.2% as of Jul 31, 2019. Total capital ratio was 15.1%, down from 16.3%.

Adjusted return on common shareholders’ equity was 17%, down from 18.6% a year ago.

Our Viewpoint

We believe that continued improvement in loan balances and diversified product mix will drive National Bank of Canada’s organic growth. Also, despite concerns over the coronavirus outbreak and economic slowdown prevailing in the market, the bank remains focused on its strategy to manage costs, credit and capital.

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Performance of Other Canadian Banks

Bank of Montreal’s BMO third-quarter fiscal 2020 (ended Jul 31) adjusted net income was C$1.26 billion ($0.92 billion), down 20% year over year.

The Bank of Nova Scotia BNS reported third-quarter fiscal 2020 (ended Jul 31) adjusted net income of C$1.3 billion ($950 million), down 47% year over year. Results excluded certain one-time items.

The Toronto-Dominion Bank’s TD reported third-quarter fiscal 2019 (ended Jul 31) adjusted earnings per share of C$1.79, up 5.5% year over year. Also, adjusted net income rose 6.7% to C$3.34 billion ($2.51 billion).

Royal Bank of Canada RY reported third-quarter fiscal 2020 (ended Jul 31) net income of C$3.2 billion ($2.3 billion), down 2% from the prior-year quarter’s reported figure.

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