National Bank of Canada Stabilises EPS in Q3

Top-line growth and lower provisioning help

Eric Compton 27 August, 2020 | 8:30AM

Narrow-moat National Bank of Canada (NA) reported good fiscal third-quarter results, all things considered. The strain from provisioning was much lower in the third quarter compared with the second quarter, and diluted earnings per share came in flat year over year at $1.66. Flat EPS is a remarkable feat considering the economic backdrop. Preprovision net revenue growth was 5%, showing the resiliency of core revenue, while provisioning was $143 billion, up roughly 66% year over year but down significantly from the $504 billion provisioning charge in the second quarter. Return on equity was a strong 17% as NBC turned in a performance that will once again likely be at the top of the Canadian banks.

The trend in provisioning was better than what we saw for BMO and Scotiabank and more in line with Royal Bank of Canada, which reported its third quarter on the same day as NBC and saw provisioning decline materially. We were largely expecting the high-water mark for provisioning to be in the third quarter for most banks, so this has been a pleasant surprise. Of course, the ultimate question is whether NBC is adequately reserved. With roughly 4% of total loans estimated to be more sensitive to the impacts of COVID-19, the bank has one of the lowest estimated exposures here, and its ratio of loan-loss reserves to gross loans isn’t far behind peers, so we don’t see an obvious imbalance.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
National Bank of Canada69.57 CAD-1.65

About Author

Eric Compton

Eric Compton  Eric Compton is an equity analyst for Morningstar,

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