National Bank of Canada Q2 Earnings Call Highlights

Key Points

• National Bank of Canada posted stronger Q2 adjusted results, with EPS up 13% year over year to CAD 3.23 and ROE at 16.8%, supported by revenue growth, active client demand and solid credit performance. The bank also raised its quarterly dividend 6% to CAD 1.32 per share.
• Management expects expense growth to slow in the second half of the year, which should help preserve positive operating leverage and keep EPS growth roughly in line with year-to-date performance. Q2 revenue rose 7% year over year, while the efficiency ratio was 50.4%.
• The bank continues to make progress integrating Canadian Western Bank, with CAD 215 million of cost and funding synergies realized and the target raised to CAD 300 million annually. It also remains comfortable with its capital position, keeping CET1 at 13.54% and continuing share buybacks.

National Bank of Canada TSE: NA reported stronger second-quarter adjusted earnings as revenue growth, active client demand and credit performance helped offset macroeconomic uncertainty, management said on the bank’s earnings call.

President and CEO Laurent Ferreira said the bank delivered adjusted earnings per share of CAD 3.23, up 13% from a year earlier, and generated a return on equity of 16.8%. The bank’s common equity tier 1 ratio stood at 13.54% at quarter-end.

“Despite macroeconomic uncertainty, clients remained active throughout the quarter, and market conditions were favorable,” Ferreira said. He said results reflected growth in both the balance sheet and fee-based businesses, credit performance, cost and funding synergies from Canadian Western Bank, revenue synergy momentum and share buybacks.

The bank also announced a CAD 0.08, or 6%, increase in its quarterly dividend, bringing it to CAD 1.32 per share. Ferreira said National Bank has repurchased 8.8 million shares under its normal course issuer bid, which was increased during the quarter to allow purchases of up to 14.5 million shares.

Revenue Growth and Expense Outlook

CFO Marie-Chantal Gingras said second-quarter revenue increased 7% year over year, while pre-tax pre-provision earnings rose 5%. The all-bank efficiency ratio was 50.4%.

Expenses increased 9.5% year over year, though Gingras noted the current quarter included CAD 15 million of litigation expenses and the year-earlier quarter included a CAD 22 million reversal of a property tax provision. Excluding those items, expense growth was 7.4%, in line with revenue growth.

Gingras said management expects expense growth to moderate toward the low-single-digit range in the second half of the year, supporting positive operating leverage. She said National Bank grew EPS by 12% year to date and expects second-half EPS growth to be in line with that performance.

Net interest income excluding trading rose 7% year over year but declined about 5% sequentially, with fewer days in the quarter accounting for more than two-thirds of the decline. The bank’s net interest margin was 2.16%, down eight basis points from the previous quarter. Gingras said the all-bank margin is expected to remain relatively stable next quarter, while P&C margin is expected to be slightly lower.

Segment Performance

Ferreira said Personal and Commercial Banking net income increased 18% year over year, driven by lending activity, mutual fund growth and credit performance. Personal banking mortgage volumes increased 18% from a year earlier, supported by a resilient housing market and share gains in Quebec.

Commercial Banking deposits rose 7% year over year, while commercial loans increased 5%. Ferreira said the National Bank-originated commercial loan portfolio grew 11% year over year, while the legacy Canadian Western Bank book declined by CAD 400 million sequentially, mainly due to commercial real estate.

Wealth Management net income rose 18% year over year to CAD 277 million, helped by fee-based and transaction revenue. Assets under administration increased 14% to nearly CAD 940 billion, supported by equity markets and net sales.

Capital Markets generated net income of CAD 490 million. Ferreira said the performance reflected strong execution, favorable trading conditions and client activity in equity structured products, originations, commodities and rates. He also cited record results in corporate and investment banking, including activity in M&A, corporate banking and equity capital markets.

Credigy reported net income of CAD 46 million, up 15% year over year, as average assets increased 10%. ABA Bank net income rose 10%, with loans up 12% and deposits up 15% year over year.

Credit Performance and Provisioning

Chief Risk Officer Jean-Sébastien Grisé said total provisions for credit losses were CAD 233 million, including an initial CAD 6 million provision on performing loans tied to the Laurentian Bank syndicated loan portfolio. Adjusted total provisions were CAD 227 million, or 30 basis points, down two basis points from the prior quarter.

Provisions on impaired loans were CAD 192 million, or 26 basis points, within the bank’s full-year guidance range of 25 to 35 basis points. Grisé said personal banking provisions rose CAD 2 million sequentially, mainly due to consumer credit, while commercial banking provisions increased CAD 12 million, primarily in real estate and construction.

Total allowances for credit losses were CAD 2.6 billion, representing 5.1 times coverage of net charge-offs. Grisé said the bank has been building allowances for 16 consecutive quarters and remains comfortable with its “prudent and defensive provisioning levels.”

The gross impaired loan ratio was 114 basis points, up three basis points from the previous quarter. In response to an analyst question, Grisé said more than half of commercial formations were tied to one insured commercial real estate file in Western Canada, which did not carry a related provision.

CWB Synergies, Capital and Transactions

Gingras said National Bank has realized CAD 215 million of cost and funding synergies from the acquisition of Canadian Western Bank and remains on track to reach CAD 270 million by the end of fiscal 2026. The bank increased its annualized cost and funding synergy target to CAD 300 million.

The bank has also realized CAD 33 million of revenue synergies since the beginning of fiscal 2026, mainly from fee income. Management continues to target about CAD 50 million by the end of the fiscal year and CAD 200 million to CAD 250 million by the end of fiscal 2028.

Ferreira said the bank completed the syndicated loan transaction with Laurentian Bank during the quarter. He added that the Competition Bureau cleared the retail and SME portfolio transaction earlier this month, and the deal remains on track to close by year-end, subject to remaining regulatory approvals.

Management said National Bank continues to target a CET1 ratio converging toward 13% by the end of 2027. In the Q&A session, Ferreira said the bank remains “a little bit dynamic” in managing buybacks and may adjust the pace based on market conditions, but said the overall strategy would change only if there were a significant macroeconomic shift.

Macroeconomic Outlook

Ferreira said uncertainty has increased and cited the war in Ukraine as a factor affecting the global and Canadian economies through inflation, rates and supply chain disruption. Grisé also pointed to conflict in the Middle East as adding pressure on energy prices, inflation and interest rates.

Ferreira said Canadian business investment has slowed due to tariff-related uncertainty and regulation, but added that Canada is positioned to benefit from reindustrialization, major projects, energy development, defense modernization and Arctic infrastructure.

“While the macroeconomic context remains uncertain, we are really well-positioned to support our clients and continue delivering strong earnings growth and ROE,” Ferreira said in closing remarks.

About National Bank of Canada TSE: NA

National Bank of Canada is the sixth-largest Canadian bank. The bank offers integrated financial services, primarily in the province of Quebec as well as the city of Toronto. Operational segments include personal and commercial banking, wealth management, and a financial markets group.

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