National Bank of Canada (NA) receives Old York Operational Quality (A) Rating for fiscal year 2025

Feb 28

(A) | Financials | Banking
By: Old York Financial
A Private Principal Research Report

the verdict

Old York Financial has assigned National Bank of Canada (NA) an Operational Quality (A) Rating. National Bank continues to be the most efficient capital-recycling machine in the Canadian landscape. It earns an (A) because it has successfully integrated Canadian Western Bank (CWB) without compromising its elite return profile, posting an adjusted Return on Equity (ROE) of 16.6% in Q1 2026. While the "Big Five" struggle with legacy international drag, National Bank’s "Specialized Finance" unit (Credigy and ABA Bank) provides a high-margin "Alpha" that its peers cannot replicate. For a principal, National Bank is the "Scarcity Play." It combines the safety of a Canadian D-SIB with the growth trajectory of a mid-cap challenger.

the old york analysis

owner earnings: the acquisition yield In the NA model, we analyze a machine that just swallowed a competitor and is already extracting the synergy dividend.

2025 Net Income (Reported): $4.0 Billion
(-) CWB Integration & Specified Items (Est.): ($0.4 Billion)
(+) Provision for Credit Losses (Non-Cash): $1.1 Billion
OLD YORK OWNER EARNINGS: $4.7 Billion
Analyst Note: NA’s "Owner Earnings" are exceptionally resilient. Despite the share issuance for the CWB deal, the bank maintained a 13.7% CET1 ratio and immediately moved to increase its share buyback program (NCIB) to 14.5 million shares in February 2026. This is a "Signal of Strength" they have so much excess cash after their largest acquisition in history that they are already giving it back to us.

growth & market dominance

The Western Expansion: Commercial lending grew 54% y/y following the CWB merger, giving NA a direct "Oil & Gas" and "Western SME" pipeline they previously lacked.
Specialty Finance Alpha: The USSF&I segment (Credigy) posted a 27.6% efficiency ratio. This is world-class; it's a "frictional-less" lending business.
Pricing Power: THE QUEBEC STRONGHOLD. They control nearly 40% of the commercial market in Quebec. This is a "Sovereign Moat" that provides a low-cost deposit base to fund their higher-risk, higher-reward international ventures.
Moats: THE CWB SYNERGY. By applying NA's "Knowledge-Intensive" operating model to CWB's Western loan book, they are repricing risk more accurately than the legacy CWB management ever could.

operational efficiency

Efficiency Ratio: 52.4% (Q1 2026). This remains the gold standard for full-service banks in North America.
Operating Leverage: +5.9% (Adjusted FY2025). They are growing revenue nearly 6% faster than expenses.
Digital Velocity: Over 35,000 employees are now in "Knowledge-Intensive" roles, shifting the bank away from "Teller-based" friction to "Advisor-led" scale.
Analyst Note: The (A) rating is supported by their "Positive Jaws." National Bank is a master of "Variable Geometry", they scale their tech spend in direct proportion to their revenue spikes, ensuring margins stay protected even in "Complex Macro" environments.

the fortress check

CET1 Ratio: 13.7% (Very strong; providing a massive buffer for the CWB integration).
Dividend Growth: Declared a 5.1% increase in February 2026 ($1.24/share).
Credit Quality: Impaired PCLs at 28 bps, comfortably within their target range of 25-35 bps.
Capital Allocation: The "Perfect Balance." They funded a major acquisition, grew the dividend, and expanded the buyback all within the same six-month window.
Solvency: SOVEREIGN STATUS.

final determination

Rating: Old York Quality (A)

Classification: The Regional Monopoly turned National Challenger.

National Bank is the "Smart Money" choice in Canadian banking. It receives an (A) because it consistently delivers higher returns (ROE) with lower overhead (Efficiency Ratio) than the Big Five. It only misses the (AA) because the CWB integration is still in the "Early Harvest" phase. If they maintain a 16%+ ROE through the end of 2026, the Registry will have no choice but to move them to the top tier.

Disclaimer: Old York Financial operates privately as a principal and sells corporate advisory. Old York Financial is not an accountant, a financial advisor, a broker, an agent, a lawyer, or a portfolio manager. This report is for informational purposes only.

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