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Press release from Marketwire

National Bank Releases Its Results for the Third Quarter of 2012

Thursday, August 30, 2012

National Bank Releases Its Results for the Third Quarter of 201216:32 EDT Thursday, August 30, 2012MONTREAL, QUEBEC--(Marketwire - Aug. 30, 2012) - National Bank of Canada (TSX:NA)Highlights:$379 million in net income for the third quarter of 2012, up 13% from $336 million in the same quarter of 2011; Diluted earnings per share of $2.14 for the third quarter of 2012, up 14% from $1.87 in the same quarter of 2011; Return on equity of 21.3%; Pro forma Core Tier 1 capital ratio under Basel III of 7.8% as at July 31, 2012. Highlights Excluding Specified Items(1):$353 million in net income for the third quarter of 2012, up 6% from $334 million in the same quarter of 2011; Diluted earnings per share of $1.98 for the third quarter of 2012, up 6% from $1.86 in the same quarter of 2011; Return on equity of 19.9%. (1) The financial reporting method is explained in detail on page 5. The financial information in this press release is based on the unaudited interim condensed consolidated financial statements for the third quarter ended July 31, 2012. Additional information about National Bank of Canada, including the Annual Information Form, can be obtained from the SEDAR website at sedar.com or on Bank's website at nbc.ca. National Bank reports $379 million in net income for the third quarter of 2012, a 13% increase from $336 million in the same quarter of 2011. Diluted earnings per share for the quarter ended July 31, 2012 stood at $2.14, up 14% from $1.87 in the same quarter of 2011. Excluding the specified items described on page 5, third-quarter net income totalled $353 million, up 6% from $334 million in the third quarter of 2011, and diluted earnings per share stood at $1.98, up 6% from $1.86 in the same quarter of 2011.For the first nine months of 2012, the Bank's net income totalled $1,283 million, up 28% from $1,004 million in the same period of 2011. Nine-month diluted earnings per share stood at $7.35, up $2.05 or 39% from $5.30 in the same period of 2011. Excluding the specified items described on page 5, nine-month net income totalled $1,053 million, up 5% from $1,002 million in the same period of 2011, and nine-month diluted earnings per share stood at $5.93, up 8% from $5.50 in the same period of 2011."For the third quarter of 2012, our three business segments delivered good earnings growth. In the Personal and Commercial segment, personal lending growth remained strong, and the Wealth Management segment progressed well following the integration of our recent acquisitions. As for Financial Markets, our focus on Canadian capital markets and client-driven activities continued to yield results. In the coming quarters, we plan on maintaining tight cost control as we navigate a volatile economic environment while still enhancing our infrastructures to better serve clients," said Louis Vachon, President and Chief Executive Officer. Financial IndicatorsResultsQ3 2012Resultsexcludingspecifieditems(1)ResultsNinemonths2012Resultsexcludingspecifieditems(1)Growth in diluted earnings per common share14%6%39%8%Return on common shareholders' equity21.3%19.9%25.8%21.0%Dividend payout ratio33%39%33%39%Tier 1 capital ratio under Basel II12.7%12.7%Pro forma Core Tier 1 capital ratio under Basel III7.8%7.8%(1) See the Financial Reporting Method section on page 5.Results by SegmentThe presentation of segment disclosures is consistent with the presentation adopted by Bank for the year beginning November 1, 2011. It reflects the fact that treasury operations, including the Bank's asset and liability management activities, which had previously been presented in the Financial Markets segment, are now presented in the Other heading. The Bank made this change to align the monitoring of its activities with its management structure.Personal and CommercialIn the Personal and Commercial segment, third-quarter net income totalled $189 million compared to $168 million in the third quarter of 2011, a 13% year-over-year increase that came from greater business activity and a stringent control over operating expenses. Third-quarter total revenues increased by $25 million year over year owing to higher net interest income, which rose $13 million, and to a $12 million increase in other income. The higher net interest income came mainly from growth in personal loan volume, tempered by a narrowing of the net interest margin, which was 2.15% in the third quarter of 2012 compared to 2.32% in the same quarter of 2011, mainly due to a decline in the spreads on loans. The growth in other income was mainly due to revenues from acceptances, letters of credit and letters of guarantee as well as to insurance revenues.Personal Banking's total revenues rose $20 million, mainly due to higher loan volumes, especially consumer and mortgage loans, partly offset by a narrowing of net interest margins. Card revenues, lending fees and insurance revenues were also up. Commercial Banking's total revenues rose $5 million, owing mainly to higher revenues from acceptances.The Personal and Commercial segment's third-quarter operating expenses increased $7 million year over year, resulting mainly from a higher salaries and staff benefits expense, as new branches were opened and staff was hired to provide services at remote banking channels. At 56%, the efficiency ratio for the third quarter of 2012 improved by 1% when compared to the same quarter last year. Provisions for credit losses were $8 million lower, as lower provisions for losses on business loans and credit card receivables offset higher provisions for personal credit losses.For the first nine months of 2012, the segment's net income rose $55 million or 12% from the same period in 2011. Total revenues increased 4%, essentially for the same reasons as those provided for the quarter. Personal Banking's total revenues were up $65 million or 5%, mainly due to higher consumer loan and mortgage volumes, and Commercial Banking's total revenues rose by $8 million or 1%. The segment's nine-month provisions for credit losses were lower than in the same period of 2011, with the decrease being related to the same type of receivables as during the quarter. The efficiency ratio for the first nine months of 2012 improved to 56% from 57% in the same period of 2011. Wealth ManagementIn the Wealth Management segment, net income totalled $34 million in the third quarter of 2012, up from $31 million in the same quarter last year. Total revenues amounted to $241 million in the third quarter of 2012 versus $220 million in the third quarter of 2011, an increase that stems mainly from the acquisitions of Wellington West Holdings Inc. and the full-service investment advisory business of HSBC Securities (Canada) Inc.For the third quarter of 2012, the segment's operating expenses stood at $193 million, a $15 million increase that stems from the operating expenses of acquired companies, including the charges classified as specified items.For the first nine months of 2012, the Wealth Management segment posted net income of $301 million compared to $129 million in the same period of 2011. Total revenues amounted to $977 million compared to $668 million for the first nine months of 2011, and operating expenses were $607 million compared to $495 million for the first nine months of 2011. These revenue and expense increases were driven by the same factors provided for the quarter as well as by the gain on the sale of Natcan's operations.Financial Markets In the Financial Markets segment, net income totalled $121 million for the third quarter of 2012, up $22 million from $99 million in the same quarter of 2011. On a taxable equivalent basis, third-quarter total revenues amounted to $338 million compared to $305 million in the third quarter of 2011. The increase came mainly from third-quarter trading activity revenues on a taxable equivalent basis, which rose $30 million year over year, whereas net gains on available-for-sale securities decreased $7 million. Revenues from financial market fees and banking services increased by 4% and 7%, respectively, after greater capital issuance and credit financing activity. Other income increased by $3 million due to a higher contribution from subsidiary Credigy Ltd. Operating expenses in the third quarter of 2012 were relatively stable when compared to the same quarter last year, while $4 million in provisions for credit losses was recorded this third quarter compared to no provision in the same quarter of 2011.For the first nine months of 2012, the segment's net income totalled $366 million, up $25 million from the same period in 2011. Excluding specified items, the segment's net income was up $36 million or 11% from the same period in 2011. On a taxable equivalent basis, total revenues amounted to $1,028 million versus $977 million, a year-over-year increase of $51 million that was mainly due to higher trading activity revenues from fixed-income securities partly offset by slightly lower revenues from equities, commodities and foreign exchange transactions. Other income was up, mainly because of a higher contribution from associate Maple Financial Group Inc. and business activity at Credigy Ltd. Nine-month operating expenses stood at $521 million, a $23 million year-over-year increase that stems from severance pay recorded during 2012. For the nine-month period ended July 31, 2012, the segment recorded $4 million in provisions for credit losses, $9 million more than the same period in 2011 when $5 million had been recovered.OtherFor the Other heading of segment results, third-quarter net income totalled $35 million compared to $38 million in the same quarter of 2011. Specified items recorded in the third quarter include $4 million, net of income taxes, in revenue related to holding restructured notes as well as a $29 million reversal of provisions for income tax contingencies. During the third quarter of 2011, specified items net of income taxes had included an $11 million reversal of allowances for credit losses related to restructured notes, $8 million in litigation provisions, $14 million in severance pay related to an acquisition, and a $21 million reversal of provisions for income tax contingencies. Excluding specified items, net income was down $26 million due to a higher contribution from Treasury in the third quarter of 2011 and an increase in the cost of employee benefits and expenses related to technology investments.Net income was up $27 million for the first nine months of 2012, mainly reflecting the specified items recorded in 2012 and 2011.CapitalThe Bank considers credit risk, operational risk and market risk in its approach to managing capital. In accordance with Basel II, the Bank uses the Advanced Internal Rating-Based (AIRB) Approach to manage credit risk and the Standardized Approach for operational risk. For market risk, the Bank mainly uses an approach based on internal models but also uses the Standardized Approach for certain exposures. Detailed information is provided in the Capital Management section of the 2011 Annual Report. The new Basel III capital standards will gradually come into force from January 1, 2013 to January 1, 2019. The Bank expects to achieve compliance with these new standards without resorting to the regulatory event redemption clause included in the capital instruments in question. As at July 31, 2012, the pro forma Core Tier 1 capital ratio under Basel III was 7.8%.According to the rules of the Bank for International Settlements (BIS)-Basel II, the Tier 1 and total capital ratios stood at 12.7% and 16.7%, respectively, as at July 31, 2012, compared to 13.6% and 16.9% as at October 31, 2011. The lower Tier 1 capital ratio was attributable to the application of IFRS, to the acquisition of a 35% interest in Fiera, and to an increase in credit-risk weighted assets due mainly to organic growth. These factors were partly mitigated by net income, net of dividends, the sale of Natcan's operations and the common share issuance related primarily to stock options exercised. The total capital ratio remained steady given the $1 billion issuance of subordinated debentures.The risk-weighted assets calculated under the rules of Basel II increased and amounted to $55.6 billion as at July 31, 2012 compared to $50.4 billion as at October 31, 2011.Event After the Consolidated Balance Sheet DateOn July 31, 2012, Maple Group Acquisition Corporation (Maple), now TMX Group Limited, a corporation whose investors comprise the Bank and 11 other leading Canadian financial institutions and pension funds, announced that all of the conditions to Maple's offer to acquire up to 80% of TMX Group Inc. (TMX) shares for $50 per share were satisfied. As of that date, approximately 91% of the outstanding TMX shares had been deposited under the offer. Maple agreed to take up the TMX shares deposited under the offer and extended its offer, for a further 10-day period, to allow TMX shareholders that had not yet deposited their TMX shares under the offer an opportunity to receive cash in respect of a portion of their TMX shares. As of August 10, 2012, approximately 95% of the outstanding TMX shares had been deposited under the Maple offer.On August 1, 2012, Maple completed the acquisitions of Alpha Trading Systems Inc., Alpha Trading Systems Limited Partnership and The Canadian Depository for Securities Limited. The Bank was an investor in these three companies.As part of its commitments as an equity participant in Maple, on August 1, 2012, the Bank, through a subsidiary, subscribed for securities of Maple for $190 million. In addition, the Bank is part of a lending syndicate which agreed to provide debt financing to Maple. In its capacity as a lender to Maple, the Bank provided $210 million as part of Maple's senior secured debt. Maple intends to acquire all of the outstanding shares of TMX that it does not already own. To that end, on August 13, 2012, TMX filed the information circular for the special meeting of TMX shareholders to be held on September 12, 2012, where shareholders will be asked to approve the plan of arrangement involving TMX (subsequent arrangement).The subsequent arrangement is a share exchange transaction pursuant to a court-approved plan of arrangement under which TMX shares not acquired by Maple and still held by TMX shareholders will be exchanged for common shares of Maple on a one-for-one basis. The subsequent arrangement will be subject to court approval following a hearing by the court on its fairness to TMX shareholders. As more than two-thirds of the outstanding TMX shares have already been acquired by Maple, shareholder approval of the subsequent arrangement is assured. However, the court must independently determine fairness. Assuming the required shareholder and court approvals are obtained on September 12, 2012 and September 13, 2012, respectively, the proposed closing date of the subsequent arrangement is expected to be September 14, 2012. At the closing date, the Bank will receive Maple shares in exchange for its TMX shares held on a one-for-one basis.The Bank is currently assessing the impact of these transactions, which will be recognized in the consolidated financial statements of the fourth quarter of 2012.HIGHLIGHTS (unaudited) (millions of Canadian dollars) Quarter endedNine months endedJuly 31, 2012July 31, 2011% ChangeJuly 31, 2012July 31, 2011% ChangeOperating resultsTotal revenues$1,221$1,1576$3,963$3,49713Net income379336131,2831,00428Net income attributable to the Bank's shareholders360318131,22895029Return on common shareholders' equity21.3%21.6%25.8%21.1%Per common share (dollars)Earnings - Basic$2.16$1.9014$7.41$5.3738Earnings - Diluted2.141.87147.355.3039EXCLUDING SPECIFIED ITEMS(1)Operating resultsTotal revenues$1,217$1,1496$3,675$3,4895Net income35333461,0531,0025Net income attributable to the Bank's shareholders33431669989485Return on common shareholders' equity19.9%21.4%21.0%21.8%Per common share (dollars)Earnings - Basic$2.00$1.886$5.99$5.568Earnings - Diluted1.981.8665.935.508Per common share (dollars)Dividends declared$0.79$0.71$2.29$2.03Book value41.0235.49Stock trading rangeHigh77.3981.4481.2781.44Low71.0574.0563.2764.86Close74.6874.0574.6874.05As at July 31, 2012As at October 31, 2011% ChangeFinancial positionTotal assets$179,978$166,8588Loans and acceptances88,91080,75810Deposits91,95385,5627Subordinated debentures and equity10,8899,57014Pro forma Core Tier 1 capital ratio under Basel III(2)7.8 %7.6 %Capital ratios - BIS under Basel II(2)Tier 112.7 %13.6 %Total16.7 %16.9 %Capital ratios - BIS under Basel I(2)Tier 111.9 %11.1 %Total15.8 %14.1 %Impaired loans, net of individual and collective allowances(211)(201)as a % of loans and acceptances(0.2)%(0.2)%Assets under administration/management225,286242,995Total personal savings141,941133,798Interest coverage11.7410.60Asset coverage3.563.87Other informationNumber of employees20,18319,4314Number of branches in Canada449448−Number of banking machines9198933(1)See the Financial Reporting Method section on page 5. (2)Ratios as at October 31, 2011 are presented in accordance with Canadian generally accepted accounting principles (previous Canadian GAAP). FINANCIAL REPORTING METHOD (unaudited) (millions of Canadian dollars)The Bank uses certain measures that do not comply with International Financial Reporting Standards (IFRS) to assess results. Securities regulators require companies to caution readers that net income and other measures adjusted using non-IFRS criteria are not standard under IFRS and cannot be easily compared with similar measures used by other companies.Financial InformationQuarter endedNine months endedJuly 31, 2012July 31, 2011% ChangeJuly 31, 2012July 31, 2011% ChangeExcluding specified itemsPersonal and Commercial1891681352547012Wealth Management41395121137(12)Financial Markets121992237734111Other2283054Net income excluding specified items35333461,0531,0025Plus: Items related to the Natcan transaction(1)(1)−197−Plus: Reversal of provisions for income tax contingencies(2)29212921Plus: Items related to holding restructured notes(3)4−32−Plus: Reversal of allowances for credit losses(4)−11−11Less: Acquisition-related items(5)(6)(22)(17)(22)Less: Severance pay(6)−−(11)−Less: Litigation provisions(7)−(8)−(8)Net income379336131,2831,00428Diluted earnings per share excluding specified items$1.98$1.866$5.93$5.508Plus: Items related to the Natcan transaction(1)(0.01)−1.21−Plus: Reversal of provisions for income tax contingencies(2)0.180.130.180.13Plus: Items related to holding restructured notes(3)0.02−0.20−Plus: Reversal of allowances for credit losses(4)−0.06−0.06Less: Acquisition-related items(5)(0.03)(0.13)(0.10)(0.13)Less: Severance pay(6)−−(0.07)−Less: Litigation provisions(7)−(0.05)−(0.05)Less: Premium paid on preferred shares repurchased for cancellation(8)− −− (0.21 )Diluted earnings per share$2.14$1.8714$7.35$5.3039Return on common shareholders' equityIncluding specified items21.3 %21.6 %25.8 %21.1 %Excluding specified items19.9 %21.4 %21.0 %21.8 %(1)On April 2, 2012, the Bank sold the operations of Natcan Investment Management Inc. (Natcan) and acquired a 35% interest in Fiera Capital Corporation (Fiera). During the quarter ended July 31, 2012, the Bank recorded $1 million ($1 million net of income taxes) for its share of the integration costs incurred by Fiera. During the nine months ended July 31, 2012, the Bank recorded the following: a gain of $246 million ($212 million net of income taxes), which consisted of a $275 million sale price less $29 million in goodwill, intangible assets and direct charges; $18 million ($13 million net of income taxes) in other charges related to this transaction; and $3 million ($2 million net of income taxes) for its share of the integration costs incurred by Fiera. (2)During the quarter ended July 31, 2012, $29 million in income tax provisions was reversed ($21 million reversed for the quarter ended July 31, 2011) following a revaluation of contingent income tax liabilities. (3)During the quarter ended July 31, 2012, a $5 million gain ($4 million net of income taxes) was recorded following capital repayments of restructured notes classified as Available-for-sale securities. During the nine months ended July 31, 2012, $44 million in revenues ($32 million net of income taxes) was recorded, including $34 million arising from the change in the fair value of commercial paper not included in the PanCanadian restructuring plan and $10 million in gains following capital repayments of restructured notes classified as Available-for-sale securities. (4)During the quarter ended July 31, 2011, there had been a reversal of $15 million ($11 million net of income taxes) in allowances for credit losses taken for loans and credit facilities secured by restructured notes of the MAV conduits. (5)During the quarter ended July 31, 2012, $8 million ($6 million net of income taxes) in charges was recorded relative to the acquisitions of Wellington West Holdings Inc. (Wellington West) and the full-service investment advisory business of HSBC Securities (Canada) Inc. The charges consisted mainly of retention bonuses. During the quarter ended July 31, 2011, $32 million ($22 million net of income taxes) in charges had been recorded following the acquisition of Wellington West, including $21 million in integration costs, $19 million in severance pay, and an $8 million revaluation gain on the initial investment in Wellington West. During the nine months ended July 31, 2012, $24 million ($17 million net of income taxes) in charges was recorded and consisted mainly of retention bonuses. (6)During the nine months ended July 31, 2012, the Bank recognized $15 million ($11 million net of income taxes) in severance pay related to streamlining measures undertaken in certain financial markets activities. (7)During the third quarter ended July 31, 2011, $11 million ($8 million net of income taxes) in litigation provisions had been recorded. (8)During the nine months ended July 31, 2011, a $34 million premium had been paid on the Series 21, 24 and 26 First Preferred Shares repurchased for cancellation. CAUTION REGARDING FORWARD-LOOKING STATEMENTSFrom time to time, National Bank of Canada (the Bank) makes written and oral forward-looking statements, such as those contained in the Major Economic Trends and Outlook for National Bank sections of the 2011 Annual Report, and in other filings with Canadian securities regulators and in other communications, for the purpose of describing the economic environment in which the Bank will operate during 2012 and the objectives it has set for itself for that period. These forward-looking statements are made pursuant to the "safe harbour" provisions of Canadian and U.S. securities legislation. They include, among others, statements with respect to the economy-particularly the Canadian and U.S. economies-market changes, observations regarding the Bank's objectives and its strategies for achieving them, Bank projected financial returns and certain risks faced by the Bank. These forward-looking statements are typically identified by future or conditional verbs or words such as "outlook," "believe," "anticipate," "estimate," "project," "expect," "intend," "plan," and terms and expressions of similar import.By their very nature, such forward-looking statements require assumptions to be made and involve inherent risks and uncertainties, both general and specific. Assumptions about the performance of the Canadian and U.S. economies in 2012 and how that will affect the Bank's business are among the main factors considered in setting the Bank's strategic priorities and objectives and in determining its financial targets, including provisions for credit losses. In determining its expectations for economic growth, both broadly and in the financial services sector in particular, the Bank primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies. Tax laws in the countries in which the Bank operates, primarily Canada and the United States, are major factors it considers when establishing its effective tax rate.There is a strong possibility that express or implied projections contained in these forward-looking statements will not materialize or will not be accurate. The Bank recommends that readers not place undue reliance on these statements, as a number of factors, many of which are beyond the Bank's control, could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. These factors include the management of credit, market and liquidity risks; general economic conditions of the financial market in Canada, the United States and other countries in which the Bank conducts business, including the impact of the debt crisis affecting certain European countries; the downward adjustment of the long-term sovereign debt rating of the United States attributed by Standard & Poor's and the downward adjustment of the sovereign debt rating of other European countries; the impact of the movement of the Canadian dollar relative to other currencies, particularly the U.S. dollar; the effects of changes in monetary policy, including changes in interest rate policies of the Bank of Canada and the U.S. Federal Reserve; the effects of competition in the markets in which the Bank operates; the impact of changes in the laws and regulations regulating financial services (including banking, insurance and securities) and enforcement thereof; judicial proceedings, regulatory proceedings or claims, class actions or other recourses of various nature; the situation with respect to the restructured notes of the master asset vehicle (MAV) conduits, in particular the realizable value of the underlying assets; the Bank's ability to obtain accurate and complete information from or on behalf of its clients or counterparties; the Bank's ability to successfully realign its organization, resources and processes; its ability to complete strategic acquisitions and integrate them successfully; changes in the accounting policies and methods the Bank uses to report its financial condition, including uncertainties associated with critical accounting assumptions, judgments and estimates; the Bank's ability to recruit and retain key officers; operational risks, including risks related to the Bank's reliance on third parties to ensure access to the infrastructure essential to the Bank's business as well as other factors that may affect future results, including changes in trade policies; timely development of new products and services; changes in estimates relating to reserves; changes in tax laws; technological changes; unexpected changes in consumer spending and saving habits; natural disasters; the possible impact on the business from public health emergencies, conflicts, other international events and developments, including those relating to the war on terrorism; and the Bank's success in anticipating and managing the foregoing risks. A substantial amount of the Bank's business involves making loans or otherwise committing resources to specific companies, industries or countries. Unforeseen events affecting such borrowers, industries or countries could have a material adverse effect on the Bank's financial results, businesses, financial condition, or liquidity.The foregoing list of risk factors is not exhaustive. Additional information about these factors can be found under the Risk Management and Factors That Could Affect Future Results sections of the 2011 Annual Report. Investors and others who base themselves on the Bank's forward-looking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. The Bank also cautions readers not to place undue reliance on these forward-looking statements. Except as required by law, the Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time, by it or on its behalf. The forward-looking information contained in this document is presented for the purpose of interpreting the information contained herein and may not be appropriate for other purposes.DISCLOSURE OF THIRD QUARTER 2012 RESULTSConference CallA conference call for analysts and institutional investors will be held on August 31, 2012 at 9:30 a.m. EDT. Access by telephone in listen-only mode: 1-866-226-1792 or 416-340-2216. A recording of the conference call can be heard until September 9, 2012 by dialing 1-800-408-3053 or 905-694-9451. The access code is 7648660#. WebcastThe conference call will be webcast live at nbc.ca/investorrelations. A recording of the webcast will also be available on National Bank's website after the call. Financial DocumentsThe quarterly financial statements are available at all times on National Bank's website at nbc.ca/investorrelations. The Report to Shareholders, Supplementary Financial Information and a slide presentation will be available on the Investor Relations page of National Bank's website shortly before the start of the conference call. FOR FURTHER INFORMATION PLEASE CONTACT: Chief Financial Officer andGhislain ParentExecutive Vice-PresidentFinance and Treasury514-394-6807ORSenior Vice-PresidentJean DagenaisFinance, Taxation andInvestor Relations514-394-6233ORSenior DirectorClaude BretonPublic Affairs514-394-8644ORSenior DirectorHelene BarilInvestor Relations514-394-0296