National Bank boosts dividend

The latest increase came as the Montreal-based bank reported that profits rose two per cent to $294 million in the fourth quarter, or $1.74 per share on stronger results in its retail banking and wealth management divisions.

That was up from $287 million, or $1.66 per share, a year earlier. Revenue for the period ended Oct. 31 increased to $1.19 billion from $1.1 billion.

Adjusting for one-time items, the bank earned $303 million or $1.80 per share for the quarter, and a record $1.2 billion or $7 per share for the year. Analysts polled by Thomson Reuters had expected $1.65 per share in earnings for the fourth quarter and $6.86 per share for the year.

Chief executive Louis Vachon said the bank feels comfortable increasing its dividend because of its record results in 2011 and a payout that is at the low end of its 40 to 50% of EPS target.

“These solid financial results clearly demonstrate that the one client one bank program is progressing well,” he said Thursday during a conference call.

During the past year, the bank expanded its activities geographically and by business unit with the Wellington West and HSBC transactions as well as the acquisition of three retail credit portfolios.

Its financial markets business was strengthened with the added experience in energy and mining and the integration of Wellington West’s capital markets business, he told analysts.

“For 2012, we anticipate an environment of low economic growth, intense competition and persistent global macroeconomic uncertainty,” Vachon added.

These factors, along with low interest rates, bring challenges and create opportunities. Consequently, the bank will continue to expand in Canada by adding eight branches, including five outside of Quebec. Vachon said the bank made market share gains last year, particularly in personal and commercial, and financial markets, which he expects will continue.

National Bank’s exposure to Europe was $736 million net of collateral as of Oct. 31.

For the full year, National Bank (TSX:NA) posted a record $1.2 billion in net earnings or $6.85 per share, compared to $1 billion or $5.94 per share in 2010. Total annual revenues increased seven per cent $4.6 billion, up from $4.3 billion in the prior year.

The fourth-quarter results included $4 million in charges related to its July acquisition of Wellington West and $5 million in severance pay resulting from the streamlining of certain financial markets activities.

Robert Sedran of CIBC World Markets described National’s results as “a big beat.”

“Combined with the expected but still noteworthy dividend increase, we view the quarter quite favourably,” he wrote in a note.

National was the only one of the country’s six biggest banks to increase dividends this quarter. Laurentian announced a boost to its dividend on Wednesday.

Still, like its large peers, National’s earnings in the fourth quarter “were not of a terribly high quality,” added John Aiken of Barclays Capital.

“While the headline number and dividend boost should produce relative outperformance in its valuation, we note that adjusting out securitization revenues can easily get the numbers back to consensus,” he wrote in a note.

The quarterly results were aided by $118 million in securitization revenues, a $44 million increase from the third quarter, generating almost 20 cents per share in added earnings. The increase resulted from new securitizations of insured mortgage loans.

The bank’s provisions for credit losses decreased slightly to $36 million in the fourth quarter, and $119 million for the year. The lower provisions for credit losses were partly mitigated by the higher provisions for losses on commercial credit. Gross impaired loans increased by $38 million to $407 million, mainly due to commercial loans.

National Bank’s total assets were $156.3 billion, up from $145.3 billion a year ago. Its Tier 1 capital ration was steady at 7.6%.

On the Toronto Stock Exchange, its shares gained 64 cents at $67.06 in afternoon trading.