What you need to know about NAB's profit results

The National Australia Bank Ltd. (ASX: NAB) share price is under the spotlight after the bank released its quarterly earnings update this morning.

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The National Australia Bank Ltd. (ASX: NAB) share price is under the spotlight after the bank released its quarterly earnings update this morning.

The banking sector may be past the "peak pain" point on the margin front as NAB was the second bank to report a higher net interest margin (NIM).

Commonwealth Bank of Australia (ASX: CBA) unveiled a better NIM when it released its very pleasing half year profit numbers yesterday.

We have yet to hear from Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ), but they will be caned by investors if they don't show a similar trend.

Flat earnings is good news

Coming back to NAB's result, I think there was more good than bad news in the announcement although it isn't quite in the same league as CBA's consensus-beating performance.

NAB reported a 1% increase in cash earnings for the December quarter compared to the same period in 2018 while revenue inched by less than 1% due to a "slightly higher" NIM.

The bank didn't say what the increase was but flat is the new up for banks, as far as I am concerned. They are battling multiple headwinds and I think investors would be pleased enough if banks can show they are standing still.

Is NAB's dividend safe?

If things aren't getting worse, the market might get more comfortable about their ability to sustain they generous dividend payouts. Dividends are really the only reason why you would want to be buying a big bank stock.

Further, the rate of increase in delinquent loans past 90 days is tapering off. The level of these bad debts increased from 0.93% to 0.94% in the quarter – the slowest rate of increase in a year.

Delay in MLC divestment

But it isn't all good news. The bank said that the divestment of its MLC wealth management business may be delayed till after the current financial year.

"We are targeting a public market exit but will also explore alternative transaction structures and options," said the bank in an ASX statement.

"To assist our exit, our focus includes client remediation, operational separation and enhancing long term business sustainability."

Investors were looking forward to the spin-off of MLC. History has shown that such transactions usually adds to shareholder value.

Another negative is the 3% increase in expenses. NAB explained that this is due to the timing and nature of technology and investment spending, combined with higher performance-based compensation.

You'd have to wonder who is getting the higher performance bonus at the bank given its sad track record through the Banking Royal Commission.

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, and Westpac Banking. Connect with him on Twitter @brenlau.

The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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