Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
National Bank of Canada NA reported strong results, with trading revenue up 23% from a year ago. Adjusted net income increased 21% from a year ago, excluding the results from the recently closed Canadian Western Bank acquisition (Feb. 3).
Why it matters: National Bank of Canada’s organic growth, excluding Canadian Western Bank, remained strong, with average loans increasing 7% year over year. While trading revenue was strong this quarter, we caution investors not to over-extrapolate as this capital-market line can be volatile.
· Adjusted provisioning increased by 24% from the previous quarter to C$ 315 million, excluding CWB-related provisioning of C$ 230 million. Performing loan provisioning increased 49% from the prior quarter to C$ 85 million, excluding CWB, driven by a deteriorated economic outlook from tariffs.
· The bank maintains its 2025 impaired provisioning guidance of 25 basis points-35 basis points of total loans, including the CWB results.
The bottom line: We maintain our C$ 110 fair value estimate for narrow-moat-rated National Bank of Canada after incorporating the latest results and updated guidance. We view shares as moderately overvalued.
· Valuation for the Canadian banking sector has largely recovered from April lows after some de-escalation in tariff rates. However, we still think the Canadian economy has elevated uncertainty and maintain our Medium Uncertainty Rating for National Bank of Canada.
· We also think the execution risk of integrating CWB exists, given that CWB’s footprint and client profile are different from National Bank of Canada’s Quebec franchise.
Key stats: The bank maintains its target of C$ 270 million in cost and funding synergy (by end of fiscal 2027) for CWB. National Bank of Canada has realized C$ 27 million synergies so far and expects to deliver C$ 135 million in cost synergies by the first quarter of 2026.
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