National Bank beat market expectations as it reported a first-quarter profit of $550 million, up 11% from $497 million a year ago.

The Montreal-based lender says the profit amounted to $1.46 per diluted share for the quarter ended Jan. 31, up from $1.34 per share in the same quarter a year earlier.

Total revenues for the bank in the latest quarter was $1.806 million, up 11% from $1.633 a year earlier.

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On an adjusted basis, National Bank earned $1.48 per diluted share for the quarter, up from $1.35 per diluted share in the same quarter in 2017. Analysts had expected adjusted diluted earnings per share of $1.42, according to Thomson Reuters.

National Bank chief executive Louis Vachon says in a statement the results stemmed from “excellent performance in each business segment, particularly sustained revenue growth and effective cost management.”

The bank was the latest Canadian lender to report first-quarter earnings boosted by growth at home and beyond the country’s borders.

Q1 breakdown

The lender saw double-digit growth in its domestic personal and commercial banking division, which earned $230 million for the quarter, up 11% from a year earlier.

Its U.S. specialty finance and international division reported a larger jump in growth with a 32% increase in net income to $50 million during the period.

Meanwhile, its wealth management arm posted a 21% increase in net income to $120 million. Its financial markets business also reported double-digit growth with net income of $204 million, up 14% from the first quarter of 2017.

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Darko Mihelic, an analyst with RBC Dominion Securities, says the lender’s better-than-expected results was driven by higher-than-expected trading revenues and core net interest income, which refers to the profit generated from loans.

“Overall, we have a mildly positive view on Q1 results as revenue and efficiency came in better than expected and the bank’s capital position is strong,” he says in a note to clients.

National Bank’s common equity tier 1 ratio, a key measure of financial health, was 11.2%, up from 10.6% year ago, but unchanged from Oct. 31.

Provisions for credit losses (PCL), or money set aside for bad loans, totalled $87 million, up from $60 million in the first quarter of 2017. The bank says this increase was mainly related to loans in its U.S. specialty finance and international segment including its U.S. subsidiary Credigy, which specializes in buying troubled loans at discounted prices.

Mihelic adds this stemmed from Credigy’s loan arrangement with San Francisco-based Lending Club, an online peer-to-peer lending company. In November 2016, National Bank announced a deal to deploy up to $1.3 billion on the Lending Club platform over the next year.

“As these loans season, PCLs are expected to rise,” Mihelic tells clients.

As well, this is the first quarter for the Canadian banks to report their results using a new accounting standard which puts a larger emphasis on the banks’ expected losses over the life of the loan. In turn, that has introduced more volatility for the provisions for credit losses.

Originally published on Advisor.ca
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