Record Fourth Quarter - National Bank of Canada reports income of $115 million, up 28%.

For the fourth quarter ended October 31, 1999, National Bank of Canada announced income before goodwill charges of $115 million or 59 cents per share compared to $90 million, or 49 cents per share, for the corresponding quarter last year.

The substantial growth in income in the fourth quarter was primarily attributable to the 8.5% rise in total income while operating expenses were limited to an increase of 5.5%.

Income before goodwill charges for fiscal 1999 was $428 million or $2.30 per share, up 9.2% from $392 million or $2.13 per share for fiscal 1998. Return on shareholders' equity, calculated on the same basis, reached 16.4% as against 15.5% in 1998.

More favourable financial markets and higher volumes with business clients largely explain the rise in income for fiscal 1999.

Total income

Total income, on a taxable equivalent basis, amounted to $652 million for the fourth quarter, as against $601 million for the same period a year earlier, for an increase of $51 million or 8.5%. Income from the Financial Markets, Treasury and Investment Bank increased by $44 million, including $26 million from the acquisition of First Marathon.

Total income for the entire fiscal year, on a taxable equivalent basis, totalled $2,582 million, up $130 million or 5.3%. Income from the Financial Markets sector rose $52 million, or almost 16%, half of which was attributable to the acquisition of First Marathon with the remainder owing to business with corporations. Commercial Banking income was up $27 million, or more than 7%, chiefly because of growth in loans and acceptances. Personal Banking and Wealth Management experienced more modest growth, namely $30 million, or 2%.

Operating expenses

Operating expenses for the fourth quarter of 1999 amounted to $419 million as against $397 million for the corresponding period in 1998. The $28 million increase attributable to First Marathon was partly offset by reductions in the deposit insurance premium and capital tax.

At $1,662 million, operating expenses for 1999 were 5.4% or $85 million higher than in 1998. The increase stemmed from First Marathon expenses, salary increases and technological development costs and were partly offset by a decrease in the deposit insurance premium and lower capital tax.

Loan losses and impaired loans

The provision for credit losses in 1999 was $185 million, compared with $193 million in 1998. Although essentially the same as last year, loan losses were $19 million higher for Personal and Commercial Banking and $29 million lower for Real Estate. The increase in Personal and Commercial Banking loan losses brought this sector's provision for credit losses to a pre-1998 level and exceeded the increase in impaired loans. As a result, impaired loans outstanding were reduced for this sector.

The balance of impaired loans as at October 31, 1999 was $43 million, as against $47 million at the end of the previous fiscal year. Impaired loans in Personal and Commercial Banking totalled $216 million, down $28 million or 11.5%. In the U.S. Commercial Banking sector, impaired loans were approximately $30 million or $6 million (16.7%) lower than the balance as at October 31, 1998. However, impaired loans in Commercial Banking - Canada were up $24 million to $240 million owing to the higher loan volumes in this sector as well as the new classification of loans under the Bank's initiative to structure pricing according to risk.

Sector results

In 1999, the contribution of Personal Banking and Wealth Management before loan losses and income taxes was $347 million, up $5 million from 1998, a modest increase owing chiefly to pressure on interest spreads, particularly on credit cards. Income before goodwill charges was $160 million (more than one third of total income) compared with $169 million in 1998. The reduction in income was attributable to the provision for credit losses.

The Commercial Banking sector's contribution before loan losses and income taxes was $257 million in fiscal 1999 compared to $242 million for the previous year, or an increase of 6.2%. At $407 million, income rose by more than 7% over 12 months because of the 11.9% growth in the volume of loans and acceptances. Income before goodwill charges was $101 million, up $6 million or 6.3%.

For the year, Financial Markets, Treasury and Investment Banking contributed $171 million before loan losses and income taxes as against $157 million in 1998, for an increase of 8.9%. This growth was attributable to the strong performance turned in by Corporate Banking. Income before goodwill charges reached $101 million in 1999, up $10 million or 11% over 1998.

Lower loan losses in the Real Estate sector were responsible for the higher income before goodwill charges of the "Other" sector.

Assets

As at October 31, 1999, the Bank's assets amounted to $69.8 billion, down $900 million from $70.7 billion as at October 31, 1998. Residential mortgage loans decreased $0.8 billion, following the securitization of a $1.8 billion portfolio. Personal loans advanced by $1.2 billion, or 19.8%. Commercial loans in Canada and the United States and bankers' acceptances each grew by $300 million. The decrease in real estate loans and overdrafts offset by deposits explain the net decline in loans to businesses.

Savings

Personal deposits experienced a resurgence of growth, reaching $20.6 billion as at October 31, 1999, up $400 million from October 31, 1998. Off-balance sheet savings advanced $5 billion to total $35.9 billion.

Capital

Shareholders' equity rose $600 million from the start of the fiscal year to $3.3 billion as at October 31, 1999. Half of the increase stemmed from the issue of shares as partial payment for the acquisition of First Marathon, with the remainder coming from internally-generated funds.

Taking into account the issue of US $250 million in debentures on November 2, 1999, Tier 1 and total capital ratios, in accordance with the rules of the Bank for International Settlements, were 7.7% and 11.0%, respectively as against 7.7% and 10.7% as at October 31, 1998.

Changeover to the Year 2000

As early as 1996, the National Bank had begun studying the issues associated with the changeover to the year 2000 by setting up a special task force. This group of experts was given the mandate to mobilize the necessary resources to analyze information technology systems, identify and correct problems, and ensure the continuity of operations and customer service.

The group was allocated an operating budget of $43 million, from 1997 to 2000 inclusively. As at October 31, 1999, $37 million of this budget had been spent, and the task force was still working on its mandate, which was extended to the middle of fiscal 2000.

At the end of March 1999, all the Bank's main information systems and applications had been tested, converted (or replaced, if necessary) and certified Y2K compliant. Aggregate trials were then carried out to monitor systems that interface with others, namely, in the area of interbank liaisons, credit cards and telecommunications. The Bank launched another series of preventive initiatives to check on the progress of measures taken by its clients, suppliers and partners to make their own systems Y2K compatible. As of June 1, 1999, the Bank imposed a nine-month moratorium on all new computer development so as not to compromise environments already certified Y2K compliant. A contingency plan that focusses on the continuity of the Bank's operations and consists of analyzing the risks of each component of the Bank and implementing replacement solutions has also been prepared.

In the opinion of Management, the National Bank has ensured that the necessary preparations have been carried out so that its systems will function normally during the changeover to the year 2000 and it can continue to operate. In this respect, the Bank has guaranteed its clients that their accounts are safe and that the financial data in their files are also well protected before, during and after January 1, 2000. The Bank's confidence rests on the results of the process described above.

The measures adopted by the Bank to inform its commercial clients and monitor their accounts lead the Bank to believe that neither the credit risk of its portfolio nor its results will be materially affected. However, the Bank's Management cannot be certain that no problem will arise, particularly in light of factors that are beyond its control and which depend on the diligence of clients, suppliers and other third parties.

Dividends

At its meeting on December 2, 1999, the Board of Directors declared regular dividends on the various classes and series of preferred shares, as well as a dividend of 18¢ per common share, payable on February 1, 2000 to shareholders of record on December 30, 1999.

For more information:

Elaine Carr
Director - Investor Relations
(514) 394-0296