National Bank proceeding with sector's first stock split since downturn

MONTREAL – National Bank of Canada will raise its cash dividend and follow that with the Canadian banking sector’s first stock split in more than seven years as the Montreal-based company announced fourth-quarter results Wednesday that largely met analyst expectations.

The next the quarterly cash dividend will rise by six per cent to 93 cents, payable Feb. 1. That will be followed by a one-for-one stock dividend, payable Feb. 13.

Revenue and net income at Canada’s sixth-largest bank were down from a year earlier amid more difficult conditions in the financial services sector.

Still, National Bank (TSX:NA) remained very profitable, earning record full-year profits on an adjusted basis.

Excluding certain items, the bank had $1.49 billion of adjusted net earnings, or $8.41 cents per share, for fiscal 2013 — up from $1.396 billion or $7.86 per share in the 2012 financial year.

“Our efforts to further enhance customer service while maintaining sound cost, risk and capital management continued to deliver positive results in the fourth quarter of 2013 and the year as a whole,” National president and CEO Louis Vachon said in a statement.

“We remain optimistic for 2014 with Canadian growth expected to accelerate from 1.6 per cent in 2013 to 2.2 per cent next year. Quebec is expected to be a main contributor to this improvement,” Vachon added.

“Real GDP growth for the province should pick up from around one per cent in 2013 to two per cent in 2014 with a much better performance from business investment and exports.”

National reported $337 million or $1.89 per cent in net income for the fourth quarter ended Oct. 31, resulting in a full-year profit of $1.554 billion or $8.80 per share — both lower than the comparable periods last year.

Revenue declined three per cent from a year ago to $1.254 billion in the fourth quarter, and was down seven per cent to $5.163 billion for the 2013 financial year.

Under standard accounting, the bank’s profit and revenue were below expectations but its fourth-quarter adjusted earnings met analyst estimates compiled by Thomson Reuters.

National Bank had $370 million of adjusted net income, or $2.09 per share, in the fourth quarter — up eight per cent from $1.93 per share a year earlier.

Analysts had estimated $2.09 per share of net income and adjusted net income for the quarter, and $1.329 billion of revenue.

In the comparable periods of 2012, National Bank had $351 million or $1.97 per share of net income in the fourth quarter and $1.634 billion or $9.32 per share for the full year.

National is the second major Canadian bank, albeit the smallest of the Big Six, to report financial results for the year and quarter ended Oct. 31. Bank of Montreal began the earnings season on Monday with a report that appeared to beat analyst estimates but disappointed many, spurring a decline the prices for bank stocks.

CIBC (TSX:CM), Royal Bank (TSX:RY) and Toronto Dominion (TSX:TD)report their results on Thursday and Scotiabank (TSX:BNS) wraps up the earnings season on Friday.

Analysts said National Bank’s results should help to offset the negative impact on its shares from Tuesday’s weak performance by the Bank of Montreal (TSX:BMO).

“While we would not expect too much of a reaction today, it may regain some of the relative ground lost yesterday. However, National Bank’ results are not likely to relieve the relative pressure on BMO, particularly when viewed through the relative lens of domestic margins and provisions,” wrote John Aiken of Barclays Capital.

He said National Bank’s results were “solid.” Retail and capital markets operations were down from the third quarter while wealth management generated strong growth.

“However, against BMO yesterday, we note that the domestic retail operations had a much better experience,” he said, pointing to flat margins and average loans while provisions rose modestly.

Michael Goldberg of Desjardins Capital Markets said the greater-than-expected dividend increase, adjusted fourth-quarter earnings, stock split and consensus target price of $93.44 for National shares are four reasons for investors to respond favourably.

National Bank’s net-interest margin was similar to the last quarter, compared to a decrease by the Bank of Montreal, while trading revenue at both banks was down, “sending a possible read-through for other banks that are still to report,” he wrote.

After falling $1.75 on Tuesday, National Bank’s shares gained 96 cents to trade at $91.86 as of late morning on the Toronto Stock Exchange.