Summary

  • National Bank of Canada offers financial services to individuals, businesses, institutional clients and governments across Canada.
  • National Bank of Canada is one of Canada’s six systemically important banks and among the most profitable banks on a global basis by return on equity.
  • The bank operate through three business segments in Canada—Personal and Commercial Banking, Wealth Management and Financial Markets.

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Company Overview

Founded in 1859, National Bank of Canada (TSX:NA, OTC:NTIOF) offers financial services to individuals, businesses, institutional clients and governments across Canada. National Bank of Canada is one of Canada’s six systemically important banks and among the most profitable banks on a global basis by return on equity.

The company operate through three business segments in Canada—Personal and Commercial Banking, Wealth Management and Financial Markets. A fourth segment— U.S. Specialty Finance and International—complements the growth of its domestic operations.

National Bank of Canada is a leading bank in its core Quebec market and also hold leadership positions across the country in selected activities.

The company strive to meet the highest standards of social responsibility while creating value for its shareholders. National Bank of Canada is proud to be recognized as an employer of choice and for promoting diversity and inclusion.

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Subsidiaries

National Bank is more than just a bank: it's an integrated financial group. Through its subsidiaries, the company offer a wide range of financial products and services.1

National Bank Trust

Established in 1927, this subsidiary specializes in trust services and wealth management.

National Bank Investments

In business since 1987, National Bank Investments is your best source for information on mutual funds.

Natbank

Have you ever wished you could pack up your National Bank branch and take it with you to Florida? Well now there's Natbank!

National Bank Financial

The result of the merger of Lévesque Beaubien Geoffrion with First Marathon, National Bank Financial offers full-service brokerage and investment counselling.

National Bank Direct Brokerage

For an experienced investor, National Bank Direct Brokerage offers efficient tools for obtaining market information, and savings on brokerage fees.

National Bank General Insurance

National Bank Insurance Firm

National Bank Life Insurance Company

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Industry Overview

Global Economy

After a strong rebound, the global economy appears to be losing steam. In Europe, a rise in the number of COVID-19 cases coupled with a spike in energy prices could certainly dampen consumer spending and business profitability. The news coming out of China has also been mixed. Given soaring electricity prices earlier this year, Beijing was forced to impose temporary power cuts, which obviously had repercussions on manufacturing operations. Now that the energy situation is improving, COVID-19 is limiting plant operations. The woes of the real estate sector, which is currently engaged in a painful debt reduction process, are also noteworthy. Despite these challenges, the global economy is still expected to grow by 4.0% in 2022, after posting 5.5% growth this year.2

U.S. economic growth slowed abruptly in the third quarter. While consumption of services continues to recover, residential investment and consumption of goods are pointing to more moderate trends after spectacular growth in the last few quarters. Weak consumer goods spending has been exacerbated by increasingly acute supply problems, especially in the automotive sector. While it is hard to predict when the supply chain bottlenecks will disappear, it appears likely that some production limitations will persist until some time in 2022. The company nonetheless remain confident that economic growth will accelerate in the final quarter of 2021 and that robust growth will continue in 2022. As National Bank of Canada has often mentioned in the past, U.S. households are doing very well, after accumulating huge amounts of excess savings since the onset of the pandemic. Their net worth has also risen significantly thanks to strong stock market performance and rising house prices. The company expect to see solid growth of 3.4% in 2022, following 5.5% growth in 2021.

Canadian Economy

Unlike the global economy, which appears to be slowing down, the Canadian economy is performing relatively well. Employment has returned to pre-pandemic levels in just under 19 months. That’s not only the fastest recovery seen in the past four recessions but also an outstanding performance compared to the U.S.—where employment levels remain at nearly 3% below the pre-recession peak. Canada’s private sector brought in 618,000 more workers between May and October—the largest increase ever seen excluding the post-lockdown reopening period in 2020. While an upsurge in raw material prices will continue to benefit the Canadian economy, supply chain disruptions and the resulting inflation are a risk in the current context. That said, the labour market recovery suggests that Canadian households are ready to stand on their own with no extraordinary government assistance. Substantial surplus savings have already been amassed (11.4% of GDP), helping to cushion the blow of the rising cost of living. The company therefore anticipate 4.9% and 3.8% growth in 2021 and 2022, respectively.

Quebec Economy

Due to high vaccination rates, the number of COVID-19 hospitalizations remains under control, making it possible to continue lifting some of the public health measures. While GDP has returned to above pre-pandemic levels, employment numbers still point to a slight shortfall that is expected to reverse in the coming months. In spite of all this, Quebec continues to post the lowest unemployment rate of the four largest provinces in a context of weak demographic growth. Home sales and housing starts recently became more tempered although levels remain high, on a historical basis, in a context where the number of houses for sale on the market remains limited. The company remain optimistic that Quebec will continue its economic recovery in 2022 given its highly diverse economy, the Quebec government’s fiscal leeway and the fact that Quebec households are in a stronger financial position than elsewhere in the country. More affordable housing prices are less vulnerable to a correction in the event of an interest rate hike. After an expected 6.4% growth in 2021, the Quebec economy should grow at a more moderate rate of 3.0% in 2022.

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Business Segments

The Personal and Commercial segment meets the financial needs of close to 2.6 million individuals and over 140,000 businesses across Canada. These clients entrust the Bank to manage, invest, and safeguard their assets and to finance their projects. Clients turn to the Bank’s experienced advisors who take the time to understand their specific needs and help them reach their financial goals. And thanks to the Bank’s convenient self-banking channels, 384 branches and 927 banking machines across Canada, clients can do their daily banking whenever and wherever they wish.

Personal Banking

Personal Banking provides a complete range of financing and investment products and services, mainly in Quebec, to help clients reach their financial goals throughout every stage in their lives. It offers everyday transaction solutions, mortgage loans and home equity lines of credit, consumer loans, payment solutions, savings and investment solutions as well as a range of insurance products.

Commercial Banking

Commercial Banking serves the financial needs of small- and medium-sized enterprises (SMEs) and large corporations, helping them to achieve growth. It offers a full line of financial products and services, including credit, deposit, and investment solutions as well as international trade, foreign exchange transaction, payroll, cash management, insurance, electronic transaction, and complementary services. With deep roots in the business community for over 160 years, Commercial Banking is Quebec’s leading provider of the core banking products for businesses and is also known across Canada for its expertise in targeted specialized industries such as health, agriculture and agri-food, technology, creative industries, real estate, and energy.

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Financial Results

For fiscal 2021, the Bank’s net income totalled $3,177 million compared to $2,083 million in fiscal 2020, a 53% year-over-year increase that was due to a significant decrease in provisions for credit losses on non-impaired loans, as macroeconomic and credit conditions improved from fiscal 2020, and to a significant reduction in provisions for credit losses on impaired loans. Also contributing to the net income growth was the excellent performance turned in by all the Bank’s business segments, notably achieved through revenue growth. For fiscal 2021, specified items, net of income taxes, had a $7 million unfavourable impact on net income compared to a $133 million unfavourable impact in fiscal 2020. The fiscal 2021 specified item, net of income taxes, was a $7 million impairment loss on intangible assets. The fiscal 2020 specified items, net of income taxes, had consisted of a $36 million foreign currency translation loss on a disposal of subsidiaries, $52 million in impairment losses on premises and equipment and on intangible assets, $35 million in severance pay, and a $10 million charge related to Maple. For fiscal 2021, the Bank’s net income excluding specified items totalled $3,184 million, up 44% from $2,216 million in fiscal 2020.

Total Revenues

For fiscal 2021, the Bank’s total revenues amounted to $8,927 million, up $1.0 billion or 13% from $7,927 million in fiscal 2020. This increase was driven by revenue growth across all of the Bank’s business segments. In fiscal 2020, total revenues had included a $24 million foreign currency translation loss on a disposal of subsidiaries. The fiscal 2021 total revenues on a taxable equivalent basis and excluding specified items grew $900 million or 11% year over year.

Net Interest Income

For fiscal 2021, the Bank’s net interest income totalled $4,783 million, rising $528 million or 12% from $4,255 million in fiscal 2020. The fiscal 2021 net interest income on a taxable equivalent basis totalled $4,964 million compared to $4,463 million in fiscal 2020.

In the Personal and Commercial segment, the fiscal 2021 net interest income totalled $2,583 million, a $138 million or 6% increase driven mainly by growth in loans and deposits, which rose 9% and 14%, respectively, year over year. The growth in loans came mainly from mortgage credit and loans to businesses. The increase in the Personal and Commercial segment's net interest income was tempered by a lower net interest margin, which was 2.12% in fiscal 2021 versus 2.19% in fiscal 2020, as lower interest rates notably affected deposit margins. In the Wealth Management segment, the fiscal 2021 net interest income totalled $448 million, a 1% year-over-year increase owing to growth in loan volumes, tempered by a lower deposit margin.

In the Financial Markets segment, the fiscal 2021 net interest income on a taxable equivalent basis was up $280 million or 30% year over year, mainly due to trading activities, and should be examined together with the other items of trading activity revenues. In the USSF&I segment, the fiscal 2021 net interest income was up $100 million or 12% year over year, owing to growth in loan and deposit volumes at the Advanced Bank of Asia Limited (ABA Bank) subsidiary and to higher net interest income at the Credigy subsidiary given growth in loan portfolios and good performance in certain portfolios.

Non-Interest Income

For fiscal 2021, the Bank’s non-interest income totalled $4,144 million versus $3,672 million in fiscal 2020. The fiscal 2020 non-interest income had included a $24 million foreign currency translation loss on a disposal of subsidiaries. The Bank’s non-interest income on a taxable equivalent basis and excluding specified items amounted to $4,152 million in fiscal 2021 compared to $3,753 million in fiscal 2020

For fiscal 2021, revenues from underwriting and advisory fees rose 32% year over year, notably due to capital markets activities and merger and acquisition activities in the Financial Markets segment. Revenues from securities brokerage commissions rose 17% year over year given growth in transaction volume during fiscal 2021. Combined, mutual fund revenues and revenues from investment management and trust service fees totalled $1,463 million in fiscal 2021, a $251 million year-over-year increase owing to growth in assets under administration and under management as a result of net inflows into various solutions and of stronger stock market performance in fiscal 2021.

Revenues from credit fees and revenues from acceptances and letters of credit and guarantee grew $39 million compared to fiscal 2020 due to greater credit activity in Commercial Banking and the Financial Markets segment. Also during fiscal 2021, card revenues and revenues from deposits and payment service charges rose 7% and 5%, respectively, as economic activity gradually rebounded and produced greater transaction volume in fiscal 2021, i.e., volume that had fallen in 2020 given the impacts of the COVID-19 pandemic on certain sectors of the economy and on consumer spending habits.

Trading revenues recorded in non-interest income amounted to $268 million in fiscal 2021 compared to $544 million in fiscal 2020. Trading revenues on a taxable equivalent basis(1) recorded in non-interest income amounted to $276 million in fiscal 2021, down from $601 million in fiscal 2020. Including the portion recorded in net interest income, trading activity revenues on a taxable equivalent basis(1) amounted to $1,238 million in fiscal 2021, a $168 million year-over-year decrease (Table 5, page 117) attributable to decreases in revenues from equity securities and fixed-income securities as well as in revenues from commodities and foreign exchange activities of the Financial Markets segment. The trading activity revenues on a taxable equivalent basis of the other segments also decreased year over year.

In fiscal 2021, gains on non-trading securities rose $58 million year over year, mainly due to Treasury activities. The fiscal 2021 foreign exchange revenues and insurance revenues rose $38 million and $3 million, respectively, year over year. The share in the net income of associates and joint ventures was down $5 million. Other non-interest income amounted to $325 million in fiscal 2021, a $207 million increase that was mainly due to a gain realized on the disposal of certain loan portfolios in fiscal 2021 as well as to favourable impacts of a fair value remeasurement of certain Credigy loan portfolios, of gains on investments, and of a $33 million gain on a remeasurement of the previously held equity interest in Flinks. These favourable factors were tempered by a $30 million loss related to a fair value measurement of the Bank’s equity interest in AfrAsia Bank Limited (AfrAsia). In fiscal 2020, other revenues had also included a $24 million foreign currency translation loss on a disposal of subsidiaries.

Non-Interest Expenses

For fiscal 2021, non-interest expenses stood at $4,853 million, up $308 million from fiscal 2020 (Table 6, page 118). These 2021 non-interest expenses included $9 million in impairment losses on intangible assets. In fiscal 2020, non-interest expenses had included $71 million in impairment losses on premises and equipment and on intangible assets, $48 million in severance pay, and a $13 million charge related to Maple. The fiscal 2021 non-interest expenses excluding specified items stood at $4,844 million, up $431 million or 10% year over year.

For fiscal 2021, compensation and employee benefits stood at $3,027 million, a 12% year-over-year increase that was essentially attributable to higher variable compensation associated with revenue growth. An increase in technology expenses, including amortization, came from significant technology investments made by the Bank for its transformation plan and for business development purposes. These increases were tempered, however, by decreases in certain variable expenses, in particular the compensatory tax on salaries, as well as in the expenses incurred by the Bank to take measures in response to COVID-19.

Income Taxes

Detailed information about the Bank’s income taxes is provided in Note 24 to the consolidated financial statements. For fiscal 2021, income taxes stood at $895 million, representing an effective tax rate of 22% compared to $453 million and an effective tax rate of 18% in fiscal 2020. This change in the effective tax rate stems from a higher level and proportion of tax-exempt dividend income in fiscal 2020 as well as from a decrease in the income tax rate applicable to the ABA Bank subsidiary in 2020 due to tax incentive measures granted by the Cambodian government.

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First Quarter 2022

February 25, 2022; For the first quarter of 2022, National Bank is reporting net income of $932 million compared to $761 million in the first quarter of 2021. First-quarter diluted earnings per share stood at $2.65 compared to $2.15 in the first quarter of 2021. This growth was driven by year-overyear increases in the first-quarter total revenues of all the business segments, by reversals of allowances for credit losses on non-impaired loans given improvements in the macroeconomic outlook and in credit conditions, and by a reduction in provisions for credit losses on impaired loans. Income before provisions for credit losses and income taxes totalled $1,189 million in the first quarter of 2022 compared to $1,044 million in the first quarter of 2021, a 14% increase arising from good performance across all of the business segments.3

“The Bank is entering fiscal 2022 on a positive note thanks to excellent performance by its business segments, strong regulatory capital, and adequate allowances for credit losses,” said Laurent Ferreira, President and Chief Executive Officer of National Bank of Canada. “Solid revenue growth helped the Bank achieve a high return on equity in the first quarter,” added Mr. Ferreira.

For the first quarter of 2022, the Bank is reporting net income of $932 million compared to $761 million in the first quarter of 2021. First-quarter diluted earnings per share stood at $2.65 compared to $2.15 in the first quarter of 2021. This growth was driven by year-over-year increases in the first-quarter total revenues of all the business segments, by reversals of allowances for credit losses on non-impaired loans given improvements in the macroeconomic outlook and in credit conditions, and by a reduction in provisions for credit losses on impaired loans. Income before provisions for credit losses and income taxes totalled $1,189 million in the first quarter of 2022 compared to $1,044 million in the first quarter of 2021, a 14% increase arising from good performance across all of the business segments.

For the first quarter of 2022, the Bank’s total revenues amounted to $2,466 million, up $242 million or 11% from the same quarter of 2021. In the Personal and Commercial segment, first-quarter total revenues rose 9% year-over-year owing to loan and deposit growth (tempered by a lower net interest margin) as well as to increases in credit card revenues, insurance revenues, revenues from bankers’ acceptances, and internal commission revenues related to the distribution of Wealth Management products. In the Wealth Management segment, first-quarter total revenues grew 14% year over year, resulting mainly from an increase in fee-based revenues related to growth in average assets under administration and under management. In the Financial Markets segment, firstquarter total revenues on a taxable equivalent basis increased by 11% year over year due to an increase in global markets revenues, tempered by a decrease in corporate and investment banking revenues. In the USSF&I segment, first-quarter total revenues were up 4% year over year owing to a sustained increase in ABA Bank’s revenues as a result of business growth, partly offset by a decrease in Credigy’s revenues, notably due to downward remeasurements of certain loan portfolios that had been remeasured upward during the first quarter in 2021. In addition, during the first quarter of 2021, a gain had been realized upon a disposal of Credigy loan portfolios. For the Other heading of segment results, total revenues in the first quarter of 2022 included higher gains on investments than those recorded in first-quarter 2021.

References

  1. ^ https://www.nbc.ca/en/about-us/our-organization/network-and-subsidiaries/subsidiaries.html
  2. ^ https://www.nbc.ca/content/dam/bnc/a-propos-de-nous/relations-investisseurs/assemblee-annuelle/2022/na-2021-annual-report.pdf
  3. ^ https://www.nbc.ca/content/dam/bnc/a-propos-de-nous/relations-investisseurs/resultats-trimestriels/2022/report-shareholder-q1-2022.pdf
Tags: US:NTIOF CA:NA
Created by Asif Farooqui on 2022/03/18 09:44
     

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