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National Bank shares dip as it reports $776M Q4 profit, raises quarterly dividend 23%

MONTREAL — Shares in National Bank of Canada closed down Wednesday as it reported a rise in earnings and a boost to its dividend that came in below analyst expectations. The Montreal-based bank ended down $3.43, or 3.46 per cent, at $95.
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MONTREAL — Shares in National Bank of Canada closed down Wednesday as it reported a rise in earnings and a boost to its dividend that came in below analyst expectations.

The Montreal-based bank ended down $3.43, or 3.46 per cent, at $95.84 after it said it would boost its quarterly dividend by 23 per cent to 87 cents per share. The bank also said it would buy back up to seven million of its shares.

The announcement follows a decision last month by the federal banking regulator to lift restrictions put in place at the start of the pandemic that prevented federally regulated banks and insurers from raising dividends, buying back shares and raising executive compensation.

Laurent Ferreira, who stepped into the role of chief executive of National at the start of November, said on an analyst call that the bank is aiming for the lower end of its dividend range and maintaining a cautious approach on allowances for loan losses.

"We haven't been through a pandemic cycle before. And in this environment, uncertainty remains high. So we want to remain prudent."

Ferreira signalled a similarly cautious approach on its international operations, saying it's not looking for growth beyond its ABA Bank in Cambodia.  

"There's no intention on investing abroad at this point in time," he said. "Where we see a lot of potential is actually here in Canada and our domestic franchise. So we want to also put more emphasis in terms of growth in some of our businesses in Canada."

The bank, whose retail loan portfolio is weighted heavily to Quebec, reported an 11 per cent increase in mortgage loans in the quarter, while commercial loans were up 18 per cent. 

The increases helped boost revenue to $2.2 billion, up from $2 billion a year ago, but higher expenses tempered the profit gains, as did lower revenue on the capital markets side.

National 's fourth-quarter income of $776 million was up from $492 million a year earlier, boosted by the increased revenue and reversals in provisions for loan losses.

During the quarter, National Bank reversed $41 million in its provisions for credit losses, compared with the $110 million it set aside in the same quarter last year.

Profit for the quarter amounted to $2.19 per diluted share, up from $1.36 per diluted share in the same quarter last year. Excluding specified items, National Bank said it earned $2.21 per diluted share, up from $1.69 per diluted share in the same quarter last year.

Analysts on average had expected an adjusted profit of $2.24 per diluted share, according to financial markets data firm Refinitiv.

The drop in revenue on the capital markets side was a key reason for the miss, said Barclays analyst John Aiken in a note.

"On the back of a revenue decline, National Bank missed consensus expectations, despite a reversal of provisions in the quarter."

He said the dividend raise also fell short of expectations, despite being the highest yet among banks that have reported this week. 

"This is the first of the three banks reporting to date to have its announced dividend come in below expectations." 

Scotiabank analyst Meny Grauman said in a note that culprits of the earnings miss included outsized margin pressure and market-related revenue, but that the bank is coming off a strong run.

"The bottom line is that these results are not bad, but there is certainly a deceleration in performance from earlier in the year. As they say, it is tough at the top, and this sentiment holds for stocks as well."

For its full financial year, National Bank earned $3.2 billion or $8.96 per diluted share on $8.9 billion in revenue, compared with a profit of $2.1 billion or $5.70 per diluted share on $7.9 billion in revenue in the same period a year earlier.

This report by The Canadian Press was first published Dec. 1, 2021.

Companies in this story: (TSX:NA)

The Canadian Press