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National Bank beats expectations; posts big Q1 profit increase to $405M

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MONTREAL - National Bank (TSX:NA) says "strong momentum" help propel it to improved earnings in the first quarter that beat analyst expectations.

Canada's sixth-largest bank reported after markets closed that net income in the three months ended Jan. 31 totalled $405 million or $1.15 per diluted share, up from $373 million or $1.05 per share in the same 2013 period.

Ex-items, earnings were $384 million or $1.09 per share, up 12 per cent from $344 million or 97 cents in the same year-earlier period and well above the average of $1.05 per share of adjusted earnings forecasts by analysts as compiled by Thomson Reuters.

"First quarter results are showing strong momentum for National Bank," president and CEO Louis Vachon said in releasing the results.

"In personal and commercial banking, loan and deposit growth remained strong and net interest margins improved on a sequential basis (and) . . .credit quality remained excellent," Vachon said.

"Wealth management benefited from good organic growth and the contribution from newly acquired TD Waterhouse Institutional Services. Financial markets also did well with solid client-driven activities and good cost control," he added.

National Bank says total revenue in the period rose 11 per cent to $1.364 billion from $1.232 billion while return on common shareholders equity diminished slightly to 19.8 per cent from 20.7 per cent.

Personal and commercial net income totalled $168 million, up three per cent from $163 million in the first quarter of 2013, while total revenues rose $19 million to $658 million.

Net income from wealth management totalled $68 million, a 42 per cent increase from $48 million in the same quarter of 2013. The segment's total revenues amounted to $324 million versus $277 million, a 17 per cent increase bolstered by the acquisition of TD Waterhouse Institutional Services in November.

Financial market net income totalled $144 million, up 27 per cent from $113 million in the same quarter of 2013. Revenues increased $62 million or 20 per cent to $365 million, owing mainly to growth in trading activity revenues, gains on available-for-sale securities and other revenues.

Barclays analyst John Aiken said that while "we view the results quite positively, investors may lose some of their enthusiasm after taking into account the stronger trading revenues and gains on investments within its financial markets segment."

"Although we would be surprised to see National's shares underperform based on what are, in our opinion, impressive earnings, the market has not typically rewarded outperformance on the back of its capital market operations," said Aiken, who set a price target of $45 on the stock.

National Bank shares closed up 11 cents at $43.61 Monday on the Toronto Stock Exchange.

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