01 June 2012

National Bank Q2 2012 Earnings

Scotia Capital, 1 June 2012

NA cash operating earnings increased 10% year over year (YOY) to $1.95 per share, a solid beat. NA increased its annual dividend by 5% to $3.16 per share and announced the intention to reactivate a 2% share buyback program.

• Operating ROE: 21.3%, RRWA: 2.42%, CET1: 8.0%.


• Operating earnings were strong, driven by a 14% YOY increase in Retail earnings, with strong loan growth at 12% YOY with deposit growth trailing at 4%. Retail NIM was down 7 bps sequentially to 2.19%. Wholesale earnings were relatively stable at $126 million, flat quarter over quarter (QOQ) and YOY. Wealth Management earnings were weak, declining 15% YOY, although up 8% sequentially.


• We are increasing our 2012E and 2013E EPS to $7.90 and $8.50 from $7.75 and $8.40, respectively, due to strong results this quarter and strong momentum in retail. Our share price target to remains unchanged at $88.

• We maintain our 3-SU rating due to high relative valuation versus its earnings mix, although the bank has done an excellent job of sustaining its earnings with low volatility.