Is National Bank of Canada a Contender in the Competitive World of Banking?

National Bank of Canada’s (TSX:NA) latest earnings report suggests the bank might not always be on the outside looking in at the top five.

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National Bank of Canada (TSX:NA) said improving economic conditions, including a rise in the labour market, helped the bank as it reported stronger-than-expected profits in its latest quarter. National, the country’s sixth-largest lender, also increased its dividend to $0.52 a share from $0.50. All this adds up to an impressive quarter for National, which is expected to continue to push its larger competitors.

The bank said Wednesday that its second-quarter profits increased 12% to $404 million, boosted by growth in its financial markets business and from selling shares in Fiera Capital. Excluding items, quarterly profits were $1.15 per share, ahead of estimates of $1.12 per share. Revenue grew to $1.42 billion from $1.28 billion.

“Results once again underlined the strength of our franchise with strong volume growth in personal and commercial loans and deposits, higher wealth management revenues and good overall performance from our financial markets activities,” CEO Louis Vachon said.

“National reported a solid quarter to start off Q2 earnings season,” added Barclays analyst John Aiken. “While the results were above consensus, we note that this was largely a result of strong advisory fees.”

Aiken said the dividend increase of 4% is also a positive, although it was largely expected in the market. Still, the move implies a dividend yield of 4.21%, up from yesterday’s 4.05%, and on top of a $6 million share repurchase program announced earlier this month.

In a conference call with analysts, Vachon noted that a number of key economic indicators continue to show a positive trend, pointing to full-time employment, which he said is staging a comeback this year, particularly in Quebec, which saw the best start to a new year in a decade. “Better labour markets have helped improve demand for housing in Quebec,” he added, noting that the Quebec government has put measures in place to achieve a balanced budget in 2015-16.

Retail sales grew for the second month in a row, with Ontario and Quebec showing robust gains.
Vachon said the drop in gasoline prices is enabling consumers to increase discretionary spending, which hit a new high last month. “This sets the stage for a GDP rebound in the coming months, given the performance of Canada’s labour market. We believe the Quebec economy should improve in the latter part of 2015, stimulated by favourable conditions for exports and upcoming large infrastructure projects in the province.”

Although National’s results could soon be lost in the flood of bank earnings this week, this strong and steady performer, up 6% over the past year, may be worth a second look for investors looking outside the traditional leaders in the banking sector.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Doug Watt has no position in any stocks mentioned.

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