NA National Bank of Canada

MONTREAL, Dec. 1, 2023 /CNW/ - For the fourth quarter of 2023, National Bank is reporting net income of $768 million, up 4% from $738 million in the fourth quarter of 2022. Fourth-quarter diluted earnings per share stood at $2.14 compared to $2.08 in the fourth quarter of 2022. These fourth-quarter increases were driven by year-over-year growth in total revenues in all the business segments, partly offset by higher non-interest expenses and higher provisions for credit losses. As for fourth-quarter adjusted net income⁽¹⁾, which excludes specified items, it totalled $867 million, rising 17% year over year from $738 million, while fourth-quarter adjusted diluted earnings per share⁽¹⁾ stood at $2.44 versus $2.08 in the fourth quarter of 2022. 

For the year ended October 31, 2023, the Bank's net income totalled $3,335 million, down 1% from $3,383 million in fiscal 2022, and its diluted earnings per share stood at $9.38 in fiscal 2023 versus $9.61 in fiscal 2022. Revenue growth in all of the business segments was more than offset by higher non-interest expenses (partly due to the specified items⁽¹⁾ recorded during fiscal 2023) and by notably higher provisions for credit losses. The fiscal 2023 income before provisions for credit losses and income taxes was down 1% compared to fiscal 2022. As for adjusted net income⁽¹⁾ in fiscal 2023, it totalled $3,409 million, up 1% from $3,383 million in fiscal 2022, while adjusted diluted earnings per share⁽¹⁾ stood at $9.60 versus $9.61 in fiscal 2022. The fiscal 2023 specified items⁽¹⁾ had a $74 million unfavourable impact on net income in fiscal 2023. As for adjusted income before provisions for credit losses and income taxes⁽¹⁾, it rose 7% year over year.

"Through strong execution, organic growth, and tight expense management, we delivered solid financial results, generated an excellent return on equity, and maintained robust capital levels in 2023," said Laurent Ferreira, President and Chief Executive Officer of National Bank of Canada. He added, "As we enter 2024, we remain committed to our prudent and disciplined approach to capital, credit and cost management. Our defensive posture, coupled with the earnings power of our diversified business mix, positions us well to create sustainable long-term value for our stakeholders in an environment where the outlook for economic growth remains challenging."

Highlights 

Financial Reporting Method

The Bank's consolidated financial statements are prepared in accordance with IFRS, as issued by the IASB. The financial statements also comply with section 308(4) of the Bank Act (Canada), which states that, except as otherwise specified by the Office of the Superintendent of Financial Institutions (Canada) (OSFI), the consolidated financial statements are to be prepared in accordance with IFRS, which represent Canadian GAAP. None of the OSFI accounting requirements are exceptions to IFRS.

The presentation of segment disclosures is consistent with the presentation adopted by the Bank for the fiscal year beginning November 1, 2022. This presentation reflects a revision to the method used for the sectoral allocation of technology investment expenses, which are now immediately allocated to the various business segments, whereas certain expenses, notably costs incurred during the research phase of projects, had previously been recorded in the Other heading of segment results. This revision is consistent with the accounting policy change related to cloud computing arrangements applied in fiscal 2022. For the quarter and fiscal 2022, certain amounts in the Results by Segment section were adjusted to reflect this revision.

Non-GAAP and Other Financial Measures

The Bank uses a number of financial measures when assessing its results and measuring overall performance. Some of these financial measures are not calculated in accordance with GAAP. Regulation 52-112 Respecting Non-GAAP and Other Financial Measures Disclosure (Regulation 52-112) prescribes disclosure requirements that apply to the following measures used by the Bank:

• non-GAAP financial measures;
• non-GAAP ratios;
• supplementary financial measures;
• capital management measures.

Non-GAAP Financial Measures

The Bank uses non-GAAP financial measures that do not have standardized meanings under GAAP and that therefore may not be comparable to similar measures used by other companies. Presenting non-GAAP financial measures helps readers to better understand how management analyzes results, shows the impacts of specified items on the results of the reported periods, and allows readers to better assess results without the specified items if they consider such items not to be reflective of the underlying performance of the Bank's operations. In addition, like many other financial institutions, the Bank uses the taxable equivalent basis to calculate net interest income, non-interest income, and income taxes. This calculation method consists of grossing up certain revenues taxed at lower rates (notably dividends) by the income tax to a level that would make it comparable to revenues from taxable sources in Canada. An equivalent amount is added to income taxes. This adjustment is necessary in order to perform a uniform comparison of the return on different assets irrespective of their tax treatment.

A quantitative reconciliation of non-GAAP financial measures is presented in the Reconciliation of Non-GAAP Financial Measures tables on pages 3 to 5. Note that, for the quarter ended October 31, 2023, the following items were excluded from results: $86 million in impairment losses ($62 million net of income taxes) on intangible assets and premises and equipment, $35 million in litigation expenses ($26 million net of income taxes), and $15 million in provisions for contracts ($11 million net of income taxes). Also, for the year ended October 31, 2023, the following items were excluded from results: a gain of $91 million on the fair value remeasurement of an equity interest ($67 million net of income taxes), an expense of $25 million ($18 million net of income taxes) related to the retroactive impact of changes to the Excise Tax Act, and a $24 million income tax expense related to the Canadian government's 2022 tax measures. No specified items had been excluded from results for the quarter and year ended October 31, 2022.

For additional information on non-GAAP financial measures, non-GAAP ratios, supplementary financial measures, and capital management measures, see the Financial Reporting Method section and the Glossary section, on pages 14 to 19 and 124 to 127, respectively, of the Bank's 2023 Annual Report, which is available on the Bank's website at nbc.ca or the SEDAR+ website at sedarplus.ca.

Reconciliation of Non-GAAP Financial Measures

Presentation of Results – Adjusted

Presentation of Basic and Diluted Earnings Per Share – Adjusted

Highlights

Financial Analysis

_{This press release should be read in conjunction with the 2023 Annual Report (which includes the audited annual consolidated financial statements and MD&A) available on the Bank's website at nbc.ca. Additional information about the Bank, including the Annual Information Form, can be obtained from the Bank's website at nbc.ca or SEDAR+'s website at sedarplus.ca.}

Total Revenues
For the fourth quarter of 2023, the Bank's total revenues amounted to $2,594 million, up $260 million or 11% from the fourth quarter of 2022. In the Personal and Commercial segment, fourth-quarter total revenues rose 8% year over year owing to growth in loans and deposits, to a higher net interest margin resulting from interest rate hikes, and to an increase in insurance revenues, partly offset by a decrease in revenues from foreign exchange activities. In the Wealth Management segment, fourth-quarter total revenues grew 4% year over year, essentially due to higher fee-based revenues, notably from investment management and trust service fees as well as revenues from mutual funds. In the Financial Markets segment, fourth-quarter total revenues on a taxable equivalent basis increased by 31% year over year due to increases in global markets revenues and in corporate and investment banking revenues. In the USSF&I segment, fourth-quarter total revenues were up 17% year over year owing to higher revenues generated by the Credigy subsidiary as well to sustained revenue growth at the ABA Bank subsidiary as a result of business growth. For the Other heading, fourth-quarter total revenues were down year over year due to lower gains on investments, partly offset by a higher contribution from Treasury activities.

For the year ended October 31, 2023, total revenues amounted to $10,170 million, up $518 million or 5% from $9,652 million in fiscal 2022. In the Personal and Commercial segment, the fiscal 2023 total revenues rose $482 million or 12% year over year as net interest income increased owing to loan and deposit growth, a higher net interest margin arising from interest rate hikes, and increases in credit card revenues, insurance revenues, and revenues from bankers' acceptances, partly offset by a decrease in revenues from foreign exchange activities. In the Wealth Management segment, the fiscal 2023 total revenues grew 6%, mainly due to an increase in net interest income, partly offset by a decrease in transaction-based and other revenues. In the Financial Markets segment, the fiscal 2023 total revenues on a taxable equivalent basis were up $188 million or 8% year over year given growth in corporate and investment banking revenues, partly offset by a decrease in global markets revenues. In the USSF&I segment, the fiscal 2023 total revenues were up 9% year over year owing to revenue growth at ABA Bank as a result of business growth as well as to an increase in Credigy's revenues. For the Other heading, the fiscal 2023 total revenues were down year over year due to lower gains on investments in fiscal 2023, partly offset by a higher contribution from Treasury activities and a $91 million gain recorded upon the fair value remeasurement of an equity interest during fiscal 2023. As for adjusted total revenues, they amounted to $10,658 million in fiscal 2023, up 7% year over year.

Non-Interest Expenses
For the fourth quarter of 2023, non-interest expenses stood at $1,607 million, a 19% year-over-year increase that resulted from higher compensation and employee benefits, notably due to wage growth and a greater number of employees, as well as from the variable compensation associated with revenue growth. Occupancy, including amortization expense, was also up, partly due to the expanding banking network at ABA Bank as well as to $11 million in impairment losses on premises and equipment recorded in the fourth quarter of 2023. An increase in technology expenses, including amortization, came from the significant investments made to support the Bank's technological evolution and business development plan as well as from $75 million in intangible asset impairment losses. Lastly, other expenses were up due to year-over-year increases in advertising expenses, travel expenses (as activities with clients resumed) as well as to $35 million in litigation expenses and $15 million in provisions for contracts. The specified items recorded in non-interest expenses during the fourth quarter of 2023 had an unfavourable impact of $136 million. As for adjusted non-interest expenses, they stood at $1,471 million in the fourth quarter of 2023, up 9% from $1,346 million in fourth-quarter 2022.

For the year ended October 31, 2023, the Bank's non-interest expenses stood at $5,801 million, up 11% year over year. Compensation and employee benefits stood at $3,452 million in fiscal 2023, a 5% year-over-year increase that was mainly due to wage growth and a greater number of employees. Occupancy expense, including amortization expense, was also up, partly due to the expanding banking network at ABA Bank, to expenses related to the Bank's new head office building, and to $11 million in impairment losses on premises and equipment. An increase in technology expenses, including amortization, came from the significant investments made to support the Bank's technological evolution and business development plan as well as from the intangible asset impairment losses recorded in fiscal 2023. The fiscal 2023 communication expenses remained relatively stable year over year, whereas professional fees were up slightly. Other expenses were also up due to the same reasons as those provided for the quarter as well as to the $20 million reversal of the provision for the compensatory tax on salaries paid in Quebec during fiscal 2022 and a $25 million expense related to changes to the Excise Tax Act recorded in 2023. The specified items recorded in non-interest expenses during fiscal 2023 had an unfavourable impact of $161 million. As for adjusted non-interest expenses, they stood at $5,640 million in fiscal 2023, up $410 million or 8% from non-interest expenses of $5,230 million in fiscal 2022.

Provisions for Credit Losses
For the fourth quarter of 2023, the Bank recorded $115 million in provisions for credit losses compared to $87 million in the fourth quarter of 2022. An increase in provisions for credit losses on non-impaired loans of $23 million was due to the growth in the loan portfolios, the migration of credit risk, the recalibration of certain risk parameters, and the updates and revisions to the probability weightings of scenarios, reflecting the uncertainties in the macroeconomic outlook, uncertainties such as rising inflationary pressure, high interest rates, and geopolitical instability. As for fourth-quarter provisions for credit losses on impaired loans excluding purchased or originated credit-impaired (POCI) ⁽¹⁾ loans, they rose $19 million year over year. This increase came from Personal Banking (including credit card receivables) and Commercial Banking, reflecting a normalization of credit performance, and from Credigy (excluding POCI loans). These increases were partly offset by a decrease in provisions for credit losses on impaired loans in the Financial Markets segment. Provisions for credit losses on POCI loans were down $14 million year over year due to favourable remeasurements of certain Credigy portfolios during the fourth quarter of 2023 as well as to recoveries of credit losses following repayments of POCI loans at Commercial Banking.

For fiscal 2023, the Bank recorded $397 million in provisions for credit losses compared to $145 million in fiscal 2022. This increase was mainly due to higher provisions for credit losses on non-impaired loans, recorded for the same reasons as those provided for the quarter. As for provisions for credit losses on impaired loans excluding POCI⁽¹⁾ loans, they were also up and came from Personal Banking (including credit card receivables) and Commercial Banking, reflecting a normalization of credit risk, and from the Credigy subsidiary. These increases were tempered by a decrease in provisions for credit losses on impaired loans at ABA Bank. Provisions for credit losses on POCI loans were down year over year due to favourable remeasurements of certain Credigy portfolios during fiscal 2023 as well as to recoveries of credit losses following repayments of POCI loans at Commercial Banking.

Income Taxes
For the fourth quarter of 2023, income taxes stood at $104 million compared to $163 million in the same quarter of 2022. The 2023 fourth-quarter effective income tax rate was 12% compared to 18% in the same quarter of 2022. The year-over-year change in effective income tax rate stems mainly from a higher level and proportion of tax-exempt dividend income and from higher income in lower tax-rate jurisdictions, factors that were partly offset by the additional 1.5% tax on banks and life insurers.

For the year ended October 31, 2023, the effective income tax rate was 16% compared to 21% in fiscal 2022. The year-over-year change in effective income tax rate stems from the same reasons as those mentioned for the quarter, partly offset by the impact of the Canadian government's 2022 tax measures recorded in the first quarter of 2023, namely, the Canada Recovery Dividend and the additional 1.5% tax on banks and life insurers.

Results by Segment

The Bank carries out its activities in four business segments: Personal and Commercial, Wealth Management, Financial Markets, and U.S. Specialty Finance and International, which comprises the activities of the Credigy Ltd. (Credigy) and Advanced Bank of Asia Limited (ABA Bank) subsidiaries. Other operating activities, certain specified items, Treasury activities, and the operations of the Flinks Technology Inc. (Flinks) subsidiary are grouped in the Other heading of segment results. Each reportable segment is distinguished by services offered, type of clientele, and marketing strategy.

Personal and Commercial