National Bank Q3 profit edges higher, provision for credit losses also up

National Bank of Canada reported a notable drop in performance in its financial markets division in the last quarter as it also boosted provisions for bad loans in preparation of a potential economic slowdown ahead.

“We continue to operate in a challenging environment,” said chief executive Laurent Ferreira on an analyst call Wednesday.

“The Canadian economy has yet to absorb the full impacts of rate hikes since the start of monetary policy tightening, resulting in lingering uncertainty.”

He said the bank had solid earnings, but saw a “less constructive backdrop” in its financial markets segment.

The division had earnings of $205 million in its latest quarter, down from $279 million in the third quarter of 2022, which the bank blamed on lower trading activity and exceptionally low market volatility.

Overall, the Montreal-based bank reported a net income of $839 million or $2.36 per diluted share for the quarter ended July 31, up from $826 million or $2.35 in the third quarter of 2022.

Revenue for the quarter totalled $2.52 billion, up from $2.41 billion in the same quarter last year.

On an adjusted basis, National Bank says it earned $2.21 per diluted share, down from $2.35 per diluted share in the same quarter last year.

Analysts on average had expected an adjusted profit of $2.38 per share, according to estimates compiled by financial markets data firm Refinitiv.

The miss was largely because of the “precipitous drop” in its financial markets revenues, said Barclays analyst John Aiken in a note.

The bank also saw expenses grow 8.6%, or 6.7% adjusted, driven by technology costs.

The bank is focused on keeping costs under control, especially given the economic uncertainty, said chief financial officer Marie Chantal Gingras on the call.

“With the environment expected to remain challenging in the near term, we continue to be strategic in prioritizing and managing expenses.”

The bank has been working to reduce its head count, largely through attrition. Full-time equivalent employees were down by 227 in the third quarter to 18,821 from the first-quarter peak of 19,048. The total head count is still higher than the 18,502 level in the third quarter last year.

While the bank continues to look closely at employee numbers, it isn’t planning any widespread job cuts, said Gingras.

“At this point in time, we remain very focused on protecting our current talent base and are not contemplating any large layoffs.”

National Bank said its personal and commercial banking business earned $328 million in its third quarter, up from $319 million a year earlier as revenue growth was offset in part by higher non-interest expenses and higher provisions for credit losses.

The bank’s wealth management business earned $183 million in its latest quarter, up 5% from $175 million in the same quarter last year.

Revenues in wealth management of $629 million were up 6% year over year, mainly due to higher net interest income, the report to shareholders said. The segment was also boosted by fee-based revenues, “notably revenues from mutual funds and from investment management and trust service fees,” it said.

National Bank’s U.S. specialty finance and international business earned $128 million in its third quarter, up from $125 million a year earlier.

The bank’s “other” category reported a loss of $5 million in the quarter compared with a loss of $72 million in the same quarter last year.

Earlier this month, National Bank said it would acquire the Canadian branch of Silicon Valley Bank’s commercial loan portfolio, which comprises about $1 billion in loan commitments.