National Bank earnings up 25% to $133 million for the third quarter

Montreal, 31 August 2000 - 

National Bank of Canada declared income before goodwill charges of $133.1 million or 67¢ per share for the quarter ended July 31, 2000, compared to $106.1 million or 58¢ per share for the same period in 1999. Return on common shareholders' equity before goodwill charges was 15.8% for the quarter as against 15.4% for the third quarter of fiscal 1999.

During the quarter, the Bank finalized the sale of its information technology subsidiary, SIBN Inc., to Cognicase Inc. in exchange for approximately 8.5 million common shares. On a taxable equivalent basis, the Bank realized a gain of $135.9 million on this transaction. The Bank also purchased 800,000 Cognicase shares for a consideration of $20 million, bringing its stake in the company to about 35% of the common shares outstanding.

In addition, the Bank recorded charges amounting to $120 million with respect to programs designed to reduce operating expenses, a project to accelerate the development of its electronic infrastructure, and the write-off of integration expenses and of charges related to a service contract. An additional $15 million was also posted to the provision for credit losses, notably because of a loan in the Corporate Banking segment.

For the nine months ended July 31, 2000, the National Bank reported income before goodwill charges of $392 million or $1.98 per share, up from $313 million or $1.71 per share for the same period of fiscal 1999. Return on common shareholders' equity before goodwill charges was 16.1% for the first nine months of 2000, compared to 15.8% for the corresponding period of 1999.

Results by segment

Income before goodwill charges for Personal Banking and Wealth Management amounted to $69 million for the third quarter of 2000, for an increase of $21 million or 44%. Higher personal loan and deposit volumes, brokerage income from National Bank Financial, and the correspondent network acquired last year accounted for the increase.

Commercial Banking earnings reached $43 million for the quarter as against $34 million for the same period in 1999, for an increase of 26%. Growth in loan and acceptance volumes, combined with an improvement in the spread, was responsible for the rise in income.

For Financial Markets, Treasury and Investment Banking, income totalled $43 million for the quarter, up 65% over the corresponding quarter of 1999. Strong growth in income was primarily attributable to trading activities and the Corporate Banking segment.

Revenues

Excluding the gain on the sale of a subsidiary, total revenues on a taxable equivalent basis reached $788 million for the quarter, up $140 million, or 22%, from the $648 million posted in the third quarter of 1999. Net interest income reached $345 million, versus $337 million for the same period of 1999. Other income amounted to $443 million as against $311 million for the third quarter of 1999, for a rise of more than 42%. Each of the business units contributed to the robust growth in revenues, stemming from growth in retail and commercial operations as well as from brokerage and trading income.

Operating expenses

Operating expenses for the third quarter of 2000 totalled $514 million, net of one-time charges, compared to $420 million for the same quarter of 1999. More than two-thirds of the increase was attributable to salaries and staff benefits, particularly variable remuneration at National Bank Financial.

Loan losses and impaired loans

Apart from the one-time charge of $15 million, the provision for credit losses for the third quarter of 2000 included an amount of $47 million representing one-fourth of the estimated losses for the year. The provision for credit losses for the same period of 1999 was $46 million.

Impaired loans, as at July 31, 2000, stood at $45 million, compared to $49 million at the end of the same quarter a year earlier. Impaired loans were down for the personal loan and commercial loan sectors. However, the Bank classified a loan of $19 million in the Corporate Banking segment as impaired.

Assets

The Bank had total assets of $73.6 billion as at July 31, 2000, as against $70.3 billion a year earlier. Cash resources and securities as well as securities purchased under resale agreements rose by $2.5 billion. Consumer loans were up by some $1.5 billion and residential mortgages by about $1.2 billion while commercial loans increased by $500 million in Canada and by $400 million in the United States. Moreover, the Bank securitized mortgage loans and credit card receivables totalling more than $3 billion.

Savings

Total personal savings administered by the Bank stood at $64.8 billion as at July 31, 2000, up $9.8 billion in 12 months. National Bank Financial was responsible for 74% of the increase.

Capital

Tier 1 and total capital ratios, in accordance with the rules of the Bank for International Settlements, were 8.3% and 11.8%, respectively, compared to 7.5% and 10.6% as at July 31, 1999. A number of operations to improve the Bank's capital ratios were completed, including the issuance of US $250 million of debentures in November 1999, $350 million of debentures in June 2000 and $175 million of preferred shares in July 2000, as well as the insuring of conventional mortgages for an approximate amount of $4 billion and the securitization of approximately $1 billion of mortgages on properties with five or more units.

Dividends

At its meeting on August 31, 2000, the Board of Directors declared regular dividends on the various classes and series of preferred shares, as well as a dividend of 19¢ per common share, payable on November 1, 2000 to shareholders of record on September 28, 2000.

Business Development

The agreement signed with Cognicase Inc. is an eloquent example of the Bank's determination to take a leading role, as investor, in the development of information technology products and services. This agreement will give the Bank many advantages but more importantly it will guarantee the Bank access to great expertise and in-depth knowledge of the markets for which such products and services are destined. Moreover, through this partnership, the Bank will be able to continue pursuing its own development in the area of integrated on-line services. In fact, it is now possible to foresee the day when businesses will be able to perform most of their administrative tasks electronically in conjunction with normal banking and financial services, also available electronically. The Bank announced the implementation of ClickOn-Markets, a multi-client, multi-supplier wireless Internet portal for Canadian companies. SAP and HP e-commerce technologies will be used with those of Cognicase to offer a complete solution as quickly as possible. The services will include: an electronic catalogue, electronic purchases, automated approval processes, group discount negotiation, financial settlement, party authentication (security), bid management, auctions and reverse auctions, expense account processing, market profiles and information, as well as discussion and interest forums with links to transportation logistics.

National Bank Securities Inc., a wholly-owned subsidiary of the National Bank, announced at the end of May that it had formed an alliance with the mutual fund firm Fidelity Investments Canada Limited. This partnership will lead to the creation of new National Bank/Fidelity Funds which will complement the family of National Bank Mutual Funds.

In early June, a new Careers section was added to the National Bank's Web site to provide information on openings at the Bank. Not only does this new tool facilitate external recruiting for the Bank, but Web surfers visiting the site can now submit their application on line at accp.nbc.ca/careers (in English) or accp.bnc.ca/carrieres (in French). National Bank Discount Brokerage unveiled at the end of June the new version of its Web site InvesNet.com, giving investors access to more information and expanded account management options. The first phase of development, which is already on-line, involved a number of enhancements to the existing site. For instance, the home page has become a real financial portal on which can be found:

• the commentary of Dominique Vachon, Chief Economist of the National Bank
• the value of the major stock market indexes
• currency exchange rates
• the top five financial stories of the day, selected by the Research Department
• the daily market review
• The Financier, a quarterly financial newsletter
• a technical graph tracking daily changes in the TSE 300.

In addition, clients of National Bank Discount Brokerage now have access to real-time quotes and a number of real-time charts. When an investor checks the price of a security, a variety of relevant information appears on screen:

• a table of information (bid, ask, high, low, etc.)
• fundamental data (earnings per share, price/earnings ratio, volatility, dividend, etc.)
• items about the security selected
• a choice of three types of charts (moving averages, comparative and historical data).

Finally in keeping with its unfailing commitment to its many SME clients, the National Bank launched the seventh edition of its special SME recognition program at the end of June. This program highlights the success and achievements of Quebec SMEs that are clients of the Bank.

"Given the extraordinary quarterly results we have achieved," declared André Bérard, Chairman of the Board and Chief Executive Officer, "and the many initiatives we have introduced with the goal of not only satisfying our shareholders but also meeting the needs of our individual and business clients, it is clear that the National Bank is a business in excellent shape, a business with a clear vision: the National Bank has a passion for people with whom it builds solid relationships. This is the principle which guides us and which, in large part, explains our success."

For more information ( the telephone numbers are for the exclusive use of journalists and other media representatives ) :

Refer to Note 26 on page 79 of the 1999 Annual Report for information on the impact of the adjustment to the general allowance for credit risk as at October 31, 1998.