National Bank reports its results for the Second Quarter of 2018 and raises its quarterly dividend by 2 cents to 62 cents per share

The financial information reported in this document is based on the unaudited interim condensed consolidated financial statements for the quarter and six-month period ended April 30, 2018 and is prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), unless otherwise indicated. IFRS represent Canadian generally accepted accounting principles (GAAP). All amounts are presented in Canadian dollars.

MONTREAL, May 30, 2018 /CNW Telbec/ - For the second quarter of 2018, National Bank is reporting net income of $547 million, up 13% from $484 million in the second quarter of 2017, as well as diluted earnings per share of $1.44 compared to $1.28 in the second quarter of 2017. Excluding the specified items described on page 4, second-quarter diluted earnings per share stood at $1.45, up 12% from $1.30 in the same quarter last year. The year-over-year increase in the Bank's second-quarter net income was attributable to the contributions made by each business segment.

For the first six months of 2018, the Bank's net income totalled $1,097 million, up 12% from $981 million in the same period of 2017, and its diluted earnings per share stood at $2.90 versus $2.62 in the same period of 2017. These increases were driven by net income growth across all the business segments. As for first-half diluted earnings per share excluding specified items, it stood at $2.93, up 11% from $2.65 in the same period of 2017.

"The Bank delivered excellent results in the second quarter of 2018," said Louis Vachon, President and Chief Executive Officer of National Bank. "Both business growth and improved efficiency were major contributors to this performance."

Highlights
(millions of Canadian dollars)	Quarter ended April 30								Six months ended April 30
		2018			2017		% Change			2018			2017		% Change
Net income		547			484		13			1,097			981		12
Diluted earnings per share (dollars)	$	1.44		$	1.28		13		$	2.90		$	2.62		11
Return on common shareholders' equity		18.6	%		17.9	%				18.6	%		18.1	%
Dividend payout ratio		41	%		47	%				41	%		47	%
Excluding specified items^(1)
Net income excluding specified items		551			492		12			1,107			994		11
Diluted earnings per share excluding specified items (dollars)	$	1.45		$	1.30		12		$	2.93		$	2.65		11
Return on common shareholders' equity excluding specified items		18.7	%		18.2	%				18.8	%		18.4	%
Dividend payout ratio excluding specified items		41	%		42	%				41	%		42	%
									As at April 30, 2018			As at October 31, 2017
CET1 capital ratio under Basel III										11.3	%		11.2	%
Leverage ratio under Basel III										4.0	%		4.0	%
(1) See the Financial Reporting Method section on page 4 for additional information on non-GAAP financial measures.

Personal and Commercial

• Net income totalled $213 million in the second quarter of 2018, down 6% from $226 million in the second quarter of 2017. This decrease stems mainly from the fact that, in the second quarter of 2017, the Bank had partially reversed a sectoral provision on non-impaired loans recorded for the oil and gas producer and service company loan portfolio.
• At $213 million, the 2018 second-quarter net income was up $16 million or 8% when compared to the $197 million in net income excluding the impact of the sectoral provision⁽¹⁾ in the second quarter of 2017.
• At $777 million, second-quarter total revenues rose $45 million or 6% year over year.
• Rising 3% from a year ago, personal lending experienced growth, particularly due to mortgage lending, while commercial lending grew 6% from a year ago.
• Net interest margin was 2.31% in the second quarter of 2018 versus 2.23% in the second quarter of 2017.
• Second-quarter non-interest expenses were up 3% year over year.
• At 55.2%, the efficiency ratio improved from 57.0% in the second quarter of 2017.

Wealth Management

• Net income totalled $119 million in the second quarter of 2018, a 23% increase from $97 million in the second quarter of 2017.
• Second-quarter total revenues amounted to $431 million compared to $393 million in second quarter 2017, a $38 million or 10% increase driven by growth in net interest income and in fee-based revenues.
• Second-quarter non-interest expenses stood at $269 million compared to $261 million in the second quarter of 2017.
• At 61.4%, the efficiency ratio excluding specified items⁽²⁾ improved from 64.8% in the second quarter of 2017.

Financial Markets

• Net income totalled $190 million in the second quarter of 2018, an 11% increase from $171 million in the same quarter of 2017.
• Total revenues on a taxable equivalent basis amounted to $437 million, a $37 million or 9% year-over-year increase driven by trading activity revenues and banking service revenues.
• Second-quarter non-interest expenses stood at $176 million, a $10 million year-over-year increase associated primarily with revenue growth.
• At 40.3%, the efficiency ratio on a taxable equivalent basis improved from 41.5% in the second quarter of 2017.

U.S. Specialty Finance and International

• Net income totalled $63 million in the second quarter of 2018, a 58% increase from $40 million in the same quarter of 2017.
• Second-quarter total revenues amounted to $174 million, a $52 million or 43% increase driven by net interest income growth at the Credigy and ABA Bank subsidiaries.
• Second-quarter non-interest expenses stood at $62 million, a $7 million year-over-year increase attributable mainly to business growth at the ABA Bank subsidiary.

Other

• The Other heading posted a net loss of $38 million in the second quarter of 2018 versus a $50 million net loss in the same quarter of 2017. This change stems mainly from the fact that, in the second quarter of 2017, the Bank increased its collective allowance for credit risk on non-impaired loans by $40 million to reflect growth in its overall credit portfolio.

Capital Management

• As at April 30, 2018, the Common Equity Tier 1 (CET1) capital ratio under Basel III was 11.3%, an increase from 11.2% as at October 31, 2017.
• As at April 30, 2018, the Basel III leverage ratio was 4.0%, unchanged from October 31, 2017.

(1)	For additional information on the impact of the sectoral provision, refer to the Personal and Commercial segment's results on page 9 of the Report to shareholders for the quarter ended April 30, 2018.
(2)	See the Financial Reporting Method section on page 4 for additional information on non-GAAP financial measures.

HIGHLIGHTS
(millions of Canadian dollars, except per share amounts)		Quarter ended April 30								Six months ended April 30
			2018			2017		% Change			2018			2017		% Change
Operating results
Total revenues			1,754			1,597		10			3,560			3,230		10
Net income			547			484		13			1,097			981		12
Net income attributable to the Bank's shareholders			522			462		13			1,049			940		12
Return on common shareholders' equity			18.6	%		17.9	%				18.6	%		18.1	%
Earnings per share
	Basic	$	1.46		$	1.30		12		$	2.94		$	2.65		11
	Diluted		1.44			1.28		13			2.90			2.62		11
Operating results on a taxable equivalent basis^(1)and excluding specified items^(2)
Total revenues on a taxable equivalent basis and excluding specified items			1,820			1,654		10			3,688			3,361		10
Net income excluding specified items			551			492		12			1,107			994		11
Return on common shareholders' equity excluding specified items			18.7	%		18.2	%				18.8	%		18.4	%
Efficiency ratio on a taxable equivalent basis and excluding specified items			54.3	%		56.6	%				54.5	%		56.6	%
Earnings per share excluding specified items^(2)
	Basic	$	1.47		$	1.32		11		$	2.97		$	2.69		10
	Diluted		1.45			1.30		12			2.93			2.65		11
Common share information
Dividends declared		$	0.60		$	0.56				$	1.20		$	1.12
Book value											32.64			29.97
Share price
	High		64.08			58.75					65.35			58.75
	Low		58.69			52.94					58.69			46.83
	Close		60.98			53.05					60.98			53.05
Number of common shares (thousands)			339,348			341,524					339,348			341,524
Market capitalization			20,693			18,118					20,693			18,118
(millions of Canadian dollars)											As at April 30, 2018			As at October 31,  2017		% Change
Balance sheet and off-balance-sheet
Total assets											256,259			245,827		4
Loans and acceptances, net of allowances											139,864			136,457		2
Gross impaired loans^(3) as a % of loans and acceptances, net of allowances											0.4	%		0.3	%
Deposits											164,774			156,671		5
Equity attributable to common shareholders											11,077			10,700		4
Assets under administration and under management											495,422			477,358		4
Earnings coverage											12.29			13.61
Regulatory ratios under Basel III
Capital ratios^(4)
	Common Equity Tier 1 (CET1)										11.3	%		11.2	%
	Tier 1^(5)										15.3	%		14.9	%
	Total^(5)										16.6	%		15.1	%
Leverage ratio^(4)											4.0	%		4.0	%
Liquidity coverage ratio (LCR)											137	%		132	%
Other information
Number of employees –  worldwide											22,359			21,635		3
Number of branches in Canada											428			429		−
Number of banking machines in Canada											933			931		−

(1)	See the Consolidated Results section on page 6 of the Report to Shareholders for the quarter ended April 30, 2018.
(2)	See the Financial Reporting Method section on page 4 for additional information on non-GAAP financial measures.
(3)	Excluding purchased or originated credit-impaired loans.
(4)	The ratios are calculated using the "all-in" methodology.
(5)	The ratios as at October 31, 2017 include the redemption of the Series 28 preferred shares on November 15, 2017.

FINANCIAL REPORTING METHOD                                   

As stated in Note 2 to its audited annual consolidated financial statements for the year ended October 31, 2017, the Bank early adopted IFRS 9 on November 1, 2017. As permitted by IFRS 9, the Bank did not restate comparative consolidated financial statements. Note 4 to these consolidated financial statements presents the impacts of IFRS 9 adoption on the Bank's Consolidated Balance Sheet as at November 1, 2017. Since interim consolidated financial statements do not include all of the annual financial statement disclosures required under IFRS, they should be read in conjunction with the audited annual consolidated financial statements and accompanying notes for the year ended October 31, 2017.

Non-GAAP Financial Measures

The Bank uses a number of financial measures when assessing its results and overall performance. Some of these financial measures are not calculated in accordance with GAAP, which are based on IFRS. Presenting non-GAAP financial measures helps readers to better understand how management analyzes results, shows the impacts of specified items on the results of the reported periods, and allows readers to assess results without the specified items if they consider such items not to be reflective of the underlying performance of the Bank's operations. Securities regulators require companies to caution readers that non-GAAP financial measures do not have a standardized meaning under GAAP and therefore may not be comparable to similar measures used by other companies.

Financial Information
(millions of Canadian dollars, except per share amounts)		Quarter ended April 30								Six months ended April 30
			2018			2017	% Change				2018			2017		% Change
Net income excluding specified items^(1)
	Personal and Commercial		213			226		(6)			443			434		2
	Wealth Management		123			103		19			249			207		20
	Financial Markets		190			171		11			394			350		13
	U.S. Specialty Finance and International		63			40		58			113			78		45
	Other		(38)			(48)					(92)			(75)
Net income excluding specified items			551			492		12			1,107			994		11
	Acquisition-related items^(2)		(4)			(8)					(10)			(13)
Net income			547			484		13			1,097			981		12
Diluted earnings per share excluding specified items		$	1.45		$	1.30		12		$	2.93		$	2.65		11
	Acquisition-related items^(2)		(0.01)			(0.02)					(0.03)			(0.03)
Diluted earnings per share		$	1.44		$	1.28		13		$	2.90		$	2.62		11
Return on common shareholders' equity
	Including specified items		18.6	%		17.9	%				18.6	%		18.1	%
	Excluding specified items		18.7	%		18.2	%				18.8	%		18.4	%

(1)	For the quarter and six-month period ended April 30, 2017, certain amounts have been reclassified.
(2)	During the quarter ended April 30, 2018, the Bank recorded $5 million ($4 million net of income taxes) in charges related to the acquisitions (2017: $9 million, $8 million net of income taxes). For the six-month period ended April 30, 2018, these charges were $12 million ($10 million net of income taxes) compared to $15 million ($13 million net of income taxes) for the same six-month period of 2017.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

From time to time, the Bank makes written and oral forward-looking statements, such as those contained in the Outlook for National Bank and the Major Economic Trends sections of the 2017 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 2018 and the objectives it hopes to achieve for that period. These forward-looking statements are made in accordance with current securities legislation in Canada and the United States. 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 2018 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 and funding risk, operational risk, regulatory compliance risk, reputation risk, strategic risk and environmental risk, all of which are described in more detail in the Risk Management section beginning on page 51 of the 2017 Annual Report, general economic environment and financial market conditions in Canada, the United States and certain other countries in which the Bank conducts business, including regulatory changes affecting the Bank's business, capital and liquidity; 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 (including the U.S. Foreign Account Tax Compliance Act (FATCA)); changes to capital and liquidity guidelines and to the manner in which they are to be presented and interpreted; changes to the credit ratings assigned to the Bank; and potential disruptions to the Bank's information technology systems, including evolving cyber attack risk.

The foregoing list of risk factors is not exhaustive. Additional information about these factors can be found in the Risk Management section of the 2017 Annual Report. Investors and others who rely 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. 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 THE SECOND QUARTER 2018 RESULTS

Conference Call

• A conference call for analysts and institutional investors will be held on Wednesday, May 30, 2018 at 1:00 p.m. EDT.
• Access by telephone in listen-only mode: 1-800-898-3989 or 416-406-0743. The access code is 8726648#.
• A recording of the conference call can be heard until June 28, 2018 by dialing 1-800-408-3053 or 905-694-9451. The access code is 4648574#.

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 Report to Shareholders (which includes the quarterly consolidated financial statements) is available at all times on National Bank's website at nbc.ca/investorrelations.
• The Report to Shareholders, the Supplementary Financial Information, the Supplementary Regulatory Capital Disclosure, 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, 514-394-6233; Linda Boulanger, Vice-President, Investor Relations, 514-394-0296; Claude Breton, Vice-President, Public Affairs, 514-394-8644

Related Links

https://www.nbc.ca