National Bank posts record results for the Second Quarter of 2013 and raises its quarterly dividend by 5% to 87 cents per share

The financial information in this press release is based on the unaudited interim consolidated financial statements for the second quarter ended April 30, 2013. Additional information about National Bank of Canada, including the Annual Information Form, can be obtained from the SEDAR website at sedar.com or on Bank's website at nbc.ca.

Highlights:

• $434 million in net income for the second quarter of 2013 versus $553 million in the same quarter of 2012, in particular due to a $198 million net gain realized on the Natcan transaction in 2012;
• Diluted earnings per share of $2.49 for the second quarter of 2013 compared to $3.22 in the same quarter of 2012;
• Return on equity of 24.3%;
• As at April 30, 2013, the Common Equity Tier 1 (CET1) capital ratio under Basel III was 8.3% versus a pro forma CET1 ratio under Basel III of 7.3% as at October 31, 2012.

Highlights Excluding Specified Items⁽¹⁾:

• Record net income of $369 million in the second quarter of 2013, up 6% from $347 million in the same quarter of 2012;
• Record diluted earnings per share of $2.08 in the second quarter of 2013, up 7% from $1.95 in the same quarter of 2012;
• Return on equity of 20.5%.

MONTREAL, May 24, 2013 /CNW Telbec/ - National Bank reported $434 million in net income for the second quarter of 2013 versus $553 million in the second quarter of 2012. Diluted earnings per share for the quarter ended April 30, 2013 stood at $2.49 compared to $3.22 in the same quarter of 2012, in particular due to a gain that had been realized on the Natcan transaction in the second quarter of 2012.

Excluding the specified items described on page 5, the second quarter's net income was a record amount of $369 million, up 6% from $347 million in the second quarter of 2012, and the quarter's diluted earnings per share was a record $2.08, up 7% from $1.95 in the same quarter of 2012.

For the first six months of fiscal 2013, the Bank's net income totalled $798 million versus $904 million in the same period of 2012. First-half diluted earnings per share stood at $4.52 compared to $5.21 in the same period of 2012. Excluding the specified items described on page 5, first-half net income totalled $730 million, up 4% from $700 million in the same period of 2012, and first-half diluted earnings per share stood at $4.10, up 4% from $3.95 in the same period of 2012.

"In the second quarter of 2013, the Bank delivered record results thanks to excellent performance in our three business segments. Both Wealth Management and Financial Markets increased net income by more than 20%, benefiting from the momentum in our coast-to-coast expansion, while Personal and Commercial posted a double-digit increase in loan volumes and achieved sound growth in a highly competitive landscape," said Louis Vachon, President and Chief Executive Officer of the Bank. "In addition to these strong results, our disciplined cost control, high quality loan portfolio and capital strength will help us to actively pursue our investments to better serve our customers and reach our growth objectives," added Mr. Vachon.

Financial Indicators

	Results Q2 2013		Results excluding specified items	^(1)	Results First half 2013		Results excluding specified items	^(1)
Growth in diluted earnings per share	(23)	%	7	%	(13)	%	4	%
Return on common shareholders' equity	24.3	%	20.5	%	22.2	%	20.2	%
Dividend payout ratio	37	%	40	%	37	%	40	%
CET1 capital ratio under Basel III	8.3	%			8.3	%
(1)    See the Financial Reporting Method section on page 5.

Results by Segment

The Bank's segment reporting is consistent with that adopted for the fiscal year beginning November 1, 2012, with the following changes having been made to better reflect how management monitors performance. The distribution of banking products through independent networks has been reclassified from the Personal and Commercial segment to the Wealth Management segment. Banking activities with energy sector companies have been transferred from the Financial Markets segment to the Personal and Commercial segment. These changes had no impact on the Bank's consolidated results.

Personal and Commercial 
In the Personal and Commercial segment, second-quarter net income totalled $166 million, up 2% from $163 million in the second quarter of 2012. Total revenues rose $10 million as net interest income increased by $7 million and non-interest income by $3 million. The higher net interest income came mainly from growth in personal loan volume, tempered by a narrower net interest margin, which was 2.30% in the second quarter of 2013 versus 2.43% in the same quarter of 2012, mainly due to a decline in loan spreads.

Personal Banking's total revenues rose $7 million, mainly due to higher loan volume, especially consumer loans and home equity lines of credit, partly offset by narrower net interest margins. Commercial Banking's total revenues rose $3 million, owing mainly to higher credit fees, particularly on acceptances.

The segment's second-quarter non-interest expenses increased by $2 million or 1% year over year. At 56%, the efficiency ratio for the second quarter of 2013 improved by 1% when compared to the same quarter of 2012. Provisions for credit losses were increased by $4 million, mainly due to provisions for losses on personal credit.

For the first six months of 2013, the Personal and Commercial segment posted net income of $344 million, up $12 million or 4% from $332 million in the same period of 2012. Total revenues rose 2% to total $1,274 million. Personal Banking's total revenues were up $15 million or 2%, mainly due to higher consumer and mortgage loan volumes, and Commercial Banking's total revenues were up $11 million or 2%. The segment's first-half provisions for credit losses were $3 million higher than in the same period of 2012. At 56%, the efficiency ratio was stable in the first half of 2013 compared to the same six-month period of 2012.

Wealth Management
In the Wealth Management segment, net income totalled $52 million in the second quarter of 2013 compared to $239 million in the same quarter of 2012, and total revenues amounted to $287 million in the second quarter of 2013 compared to $522 million in the same quarter of 2012. The lower net income and revenues stem from the fact that, in the second quarter of 2012, a $246 million gain had been realized on the sale of Natcan's operations. Excluding specified items, Wealth Management's second-quarter net income totalled $58 million, up 23% from $47 million in the same quarter of 2012 and its second-quarter total revenues amounted to $289 million versus $277 million in the same quarter of 2012, a 4% increase that was mainly due to higher net interest income generated on higher deposit volumes and to higher fee-based service revenues given the growth in assets under administration and under management.

Excluding specified items, second-quarter non-interest expenses stood at $209 million versus $213 million in the same quarter of 2012, a decrease that was mainly due to lower non-interest expenses following the sale of Natcan's operations.

Excluding specified items, the segment's first-half net income totalled $114 million versus $93 million in the same period of 2012. Total revenues amounted to $565 million compared to $539 million for the first six months of 2012, and non-interest expenses were $408 million compared to $411 million in the first six months of 2012. These revenue and non-interest expense changes were driven by the same factors provided for the quarter.

Financial Markets
In the Financial Markets segment, net income totalled $143 million for the second quarter of 2013, up $38 million from $105 million in the same quarter of 2012. On a taxable equivalent basis, the segment's second-quarter total revenues amounted to $363 million compared to $322 million in the second quarter of 2012, an increase that came from higher amounts across all trading activity revenues. Banking service revenues rose 36%, particularly due to greater financing needs of clients. Other income was down $10 million, mainly because of a larger contribution from associate Maple Financial Group Inc. in the second quarter of 2012.

At $167 million for the second quarter of 2013, non-interest expenses were down $13 million year over year, as severance pay had been recorded in the second quarter of 2012. The second-quarter provisions for credit losses stood at $1 million, whereas the provisions were nil in the same quarter of 2012.

For the first six months of 2013, the segment's net income totalled $258 million, up $32 million from the same period in 2012. Excluding specified items, the segment's net income rose $21 million or 9% from the same period in 2012. On a taxable equivalent basis, first-half total revenues amounted to $666 million versus $659 million last year, a year-over-year increase of $7 million that was mainly due to higher trading activity revenues. Other income was down, mainly because of a lower contribution from associate Maple Financial Group Inc., partly offset by higher revenues from the Credigy Ltd. subsidiary. Non-interest expenses stood at $326 million, a $25 million decrease from the first six months of 2012, as severance pay had been recorded in the second quarter of 2012. For the first six months of 2013, the segment recorded $12 million in recoveries of credit losses whereas the credit loss provisions had been nil during the same period of 2012.

Other
For the Other heading of segment results, net income was $73 million for the second quarter of 2013 compared to $46 million in the same quarter of 2012. The higher net income was due to the specified items, net of income taxes, recorded during the second quarter of 2013, including $100 million in revenues related to holding restructured notes compared to $25 million in the second quarter of 2012. This increase was mitigated by a $29 million intangible asset impairment, net of income taxes, for technological developments. Excluding specified items, net income was down $19 million, in particular due to a lower contribution from Treasury in the second quarter of 2013.

For the first six months of 2013, net income stood at $93 million versus $66 million for the same period of 2012, with the decrease being due to the same reasons provided for the quarter.

Capital Management

The Bank's capital management policy sets out the principles and practices that the Bank incorporates into its capital management strategy and the basic criteria it adopts to ensure that it has sufficient capital at all times and is prudently managing such capital to satisfy future capital requirements. The Bank has maintained adequate capital ratios through internal capital generation, balance sheet management and issuances and repurchases of shares and subordinated debt securities. For additional information on the capital management framework, see the Capital Management section on pages 54 to 56 of the Bank's 2012 Annual Report.

In December 2012, OSFI released the final version of the Capital Adequacy Requirements (CAR) Guideline, which came into effect in January 2013. The guideline reflects the changes to capital requirements adopted by the Basel Committee on Bank Supervision (BCBS), i.e., reforms commonly referred to as Basel III. These changes, along with global liquidity standards, seek to strengthen the resiliency of the banking sector and financial system.

The new Basel III regulatory framework sets out transitional arrangements for the period of 2013 to 2019. OSFI has introduced two methodologies for determining capital. The "all-in" methodology includes all of the regulatory adjustments that will be required by 2019 while retaining the phase-out rules for non-qualifying capital instruments. The "transitional" methodology, in addition to applying the phase-out rules for non-qualifying capital instruments, also applies a more flexible and steady phasing in of the required regulatory adjustments. OSFI has been requiring Canadian banks to meet the 2019 minimum "all-in" requirements since the first quarter of 2013 for Common Equity Tier 1 (CET1) and is requiring them to do the same by the first quarter of 2014 for Tier 1 capital and total capital. Furthermore, given delays in Basel III implementation in the United States and European Union countries, OSFI has decided to postpone, until January 1, 2014, application of the capital requirements for Credit Valuation Adjustment (CVA) risk.

As such, since the first quarter of 2013, the Bank must now maintain a CET1 capital ratio of at least 7.0%, 4.5% for common equity and 2.5% for a capital conservation reserve. In March 2013, OSFI decided that Canada's six largest banks, which includes the Bank, would be designated as Domestic-Systemically Important Banks (D-SIBs). For these banks, a 1% surcharge will apply to their capital ratios as of January 1, 2016. Consequently, as of that date, the Bank and all other major Canadian banks will have to maintain ratios determined using the "all-in" methodology, i.e., a CET1 capital ratio of at least 8.0%, a Tier 1 capital ratio of at least 9.5% and a total capital ratio of at least 11.5%. The Bank will disclose its capital ratios calculated according to both methodologies in each quarter until the start of 2019. For additional information, see Table 2 of this MD&A.

In addition to regulatory capital ratios, OSFI also requires Canadian banks to meet an assets-to-capital multiple test. The assets-to-capital multiple is calculated by dividing the Bank's total assets, including certain off-balance-sheet items, by its regulatory capital in accordance with the transitional provisions.

As at April 30, 2013, the CET1 capital ratio under Basel III, determined using the "all-in" methodology, was 8.3% versus a pro forma CET1 capital ratio under Basel III of 7.3% as at October 31, 2012. The higher CET1 capital ratio was essentially due to net income, net of dividends, to a delay in implementing the new CVA charge, which had been included as at October 31, 2012, and to the common share issuance related primarily to exercised stock options. The Tier 1 capital ratio and the total capital ratio, determined using the Basel III "all-in" methodology, were 11.2% and 14.9%, respectively, as at April 30, 2013 versus 10.1% and 14.1%, respectively, for the pro forma Tier 1 capital ratio and the pro forma total capital ratio as at October 31, 2012.

The risk-weighted assets, calculated under the Basel III rules, decreased and amounted to $60.0 billion as at April 30, 2013 compared to $62.2 billion as at October 31, 2012. This decrease was primarily attributable to the delay in implementing the CVA. The assets-to-capital multiple remained unchanged at 18.3 from October 31, 2012. For additional information, see Table 3 of the Second Quarter 2013 Report to Shareholders.

HIGHLIGHTS
(millions of Canadian dollars)
			Quarter ended							Six months ended
			April 30, 2013			April 30, 2012		% Change			April 30, 2013			April 30, 2012		% Change
Operating results
Total revenues		$	1,386		$	1,499		(8)		$	2,621		$	2,742		(4)
Net income			434			553		(22)			798			904		(12)
Net income attributable to the Bank's shareholders			416			536		(22)			760			868		(12)
Return on common shareholders' equity			24.3	%		35.0	%				22.2	%		28.5	%
Earnings per share (dollars)
	Basic	$	2.50		$	3.25		(23)		$	4.55		$	5.25		(13)
	Diluted		2.49			3.22		(23)			4.52			5.21		(13)
EXCLUDING SPECIFIED ITEMS^(1)
Operating results
Total revenues		$	1,251		$	1,220		3		$	2,476		$	2,458		1
Net income			369			347		6			730			700		4
Net income attributable to the Bank's shareholders			351			330		6			692			664		4
Return on common shareholders' equity			20.5	%		21.5	%				20.2	%		21.8	%
Earnings per share (dollars)
	Basic	$	2.10		$	1.98		6		$	4.14		$	3.99		4
	Diluted		2.08			1.95		7			4.10			3.95		4
Per common share (dollars)
Dividends declared		$	0.83		$	0.75				$	1.66		$	1.50
Book value											43.00			39.14
Stock trading range
	High		79.52			81.27					80.04			81.27
	Low		72.35			75.05					72.35			63.27
	Close		76.15			77.10					76.15			77.10
											As at April 30, 2013		As at October 31, 2012			% Change
Financial position
Total assets										$	184,783		$	177,903		4
Loans and acceptances											94,210			90,922		4
Deposits											97,950			93,249		5
Subordinated debt and equity											11,231			10,710		5
Capital ratios under Basel III^(2)
	Common Equity Tier 1 (CET1)										8.3	%		7.3	%
	Tier 1										11.2	%		10.1	%
	Total										14.9	%		14.1	%
Capital ratios under Basel I
	Tier 1										11.4	%		11.0	%
	Total										15.0	%		14.6	%
Impaired loans, net of individual and collective allowances											(220)			(190)
	As a % of loans and acceptances										(0.2)	%		(0.2)	%
Assets under administration and under management											246,130			232,027
Total personal savings											155,848			149,774
Interest coverage											11.56			12.23
Asset coverage											3.67			3.45
Other information
Number of employees											19,779			19,920		(1)
Number of branches in Canada											452			451		−
Number of banking machines											925			923		−

(1)	See the Financial Reporting Method section on page 5.
(2)	The ratios are calculated using the "all-in" methodology and the October 31, 2012 ratios are presented on a pro forma basis.

FINANCIAL REPORTING METHOD

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When assessing its results, the Bank uses certain measures that do not comply with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB) and set out in the Canadian Institute of Chartered Accountants Handbook. 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, 2013			April 30, 2012		% Change			April 30, 2013			April 30, 2012		% Change
Excluding specified items
	Personal and Commercial	166			163		2			344			332		4
	Wealth Management	58			47		23			114			93		23
	Financial Markets	143			116		23			258			237		9
	Other	2			21					14			38
Net income excluding specified items		369			347		6			730			700		4
	Plus: Items related to holding restructured notes^(1)	100			25					109			28
	Less: Impairment of intangible assets^(2)	(29)			−					(29)			−
	Less: Acquisition-related items^(3)	(5)			(6)					(10)			(11)
	Less: Items related to the Natcan transaction^(4)	(1)			198					(2)			198
	Less: Severance pay^(5)	−			(11)					−			(11)
Net income		434			553		(22)			798			904		(12)
Diluted earnings per share excluding specified items		2.08		$	1.95		7		$	4.10		$	3.95		4
	Plus: Items related to holding restructured notes^(1)	0.63			0.16					0.68			0.18
	Less: Impairment of intangible assets^(2)	(0.18)			−					(0.18)			−
	Less: Acquisition-related items^(3)	(0.03)			(0.04)					(0.06)			(0.07)
	Less: Items related to the Natcan transaction^(4)	(0.01)			1.22					(0.02)			1.22
	Less: Severance pay^(5)	−			(0.07)					−			(0.07)
Diluted earnings per share		2.49		$	3.22		(23)		$	4.52		$	5.21		(13)
Return on common shareholders' equity
	Including specified items	24.3	%		35.0	%				22.2	%		28.5	%
	Excluding specified items	20.5	%		21.5	%				20.2	%		21.8	%

(1)	During the quarter ended April 30, 2013, an amount of $137 million ($100 million net of income taxes) was recorded mainly to reflect a rise in the fair value of restructured notes (2012: $34 million, $25 million net of income taxes due to a change in the fair value of the commercial paper not included in the Pan-Canadian restructuring plan). During the six months ended April 30, 2013, $149 million in revenues related to holding restructured notes ($109 million net of income taxes) was recorded (2012: $39 million, $28 million net of income taxes).
(2)	During the quarter ended April 30, 2013, a $39 million impairment loss on technological developments ($29 million net of income taxes) was recognized.
(3)	During the quarter ended April 30, 2013, $7 million in charges ($5 million net of income taxes) incurred for the Wealth Management acquisitions (2012: $8 million, $6 million net of income taxes) was recognized and consisted mainly of retention bonuses. For the first six months ended April 30, 2013, the acquisition-related items consisted of $14 million in charges ($10 million net of income taxes) incurred for the Wealth Management acquisitions (2012: $16 million, $11 million net of income taxes), made up essentially of retention bonuses and the Bank's $1 million share ($1 million net of income taxes) in integration charges and intangible asset amortization related to its interest in TMX.
(4)	During the quarter ended April 30, 2013, the Bank recorded $2 million ($1 million net of income taxes) for its share of the integration costs incurred by Fiera. During the quarter ended April 30, 2012, a $246 million gain ($212 million net of income taxes) had been recorded following the sale of Natcan's operations. This gain had consisted of a $275 million sale price, from which $29 million in goodwill, intangible assets and direct charges was deducted. A total of $18 million ($13 million net of income taxes) in other charges related to this transaction had been recorded. The Bank had also recorded $1 million ($1 million net of income taxes) for its share of the integration costs incurred by Fiera. During the six months ended April 30, 2013, the Bank recorded $3 million ($2 million net of income taxes) for its share of the integration costs incurred by Fiera (2012: same items as for the quarter).
(5)	During the quarter ended April 30, 2012, the Bank had recognized $15 million ($11 million net of income taxes) in severance pay related to streamlining measures undertaken in certain financial markets activities.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

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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 the Outlook for National Bank sections of the 2012 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 2013 and the objectives it has set for itself for that period. These forward-looking statements are made in accordance with current 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 similar terms and expressions.

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 2013 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.

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 significantly from the targets, expectations, estimates or intentions expressed in the forward-looking statements. These factors include credit risk, market risk, liquidity risk, operational risk, regulatory risk, reputation risk, and environmental risk (all of which are described in greater detail in the Risk Management section that begins on page 57 of the 2012 Annual Report); the general economic environment and financial market conditions in Canada, the United States and certain other countries in which the Bank conducts business, including the effects of the debt crisis in certain European countries; the lowering of the U.S. long-term sovereign debt rating by Standard & Poor's; the lowering of the sovereign debt rating of certain European countries and the impact of changes that affect the Bank's credit ratings; the situation with respect to the restructured notes of the master asset vehicle (MAV) conduits, in particular the realizable value of underlying assets; changes in the accounting policies the Bank uses to report its financial condition, including uncertainties associated with assumptions and critical accounting estimates; tax laws in the countries in which the Bank operates, primarily Canada and the United States; and changes to capital and liquidity guidelines and to the manner in which they are to be presented and interpreted.

The foregoing list of risk factors is not exhaustive. Additional information about these factors can be found in the Risk Management and Other Risk Factors sections of the 2012 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.

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 2013 RESULTS

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Conference Call

• A conference call for analysts and institutional investors will be held on Friday, May 24, 2013 at 11:00 a.m. EDT.
• Access by telephone in listen-only mode: 1-866-696-5910 or 416-340-2217. The access code is 3390539#.
• A recording of the conference call can be heard until June 2, 2013 by dialing 1-800-408-3053 or 905-694-9451.
  The access code is 5955220#.

Webcast

• The conference call will be webcast live at 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.

 

SOURCE: National Bank of Canada

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
Assistant Vice-President
Public Affairs
514-394-8644

Hélène Baril
Senior Director
Investor Relations
514-394-0296