National Bank declares record earnings of $145 million (+ 5%) for the second quarter of 2001

Montreal, 31 May 2001 - 

National Bank of Canada today announced its results for the second quarter ended April 30, 2001. Highlights of these results are presented below:

• Income before goodwill charges of $145 million or 72 cents per share, up 5.1% from the corresponding quarter of 2000
• Return on common shareholders' equity before goodwill charges of 16.6%
• Operating expenses down from 66.0% to 62.6%^* as a percentage of total revenues

The highlights for the first half of fiscal 2001 are:

• Income before goodwill charges of $288 million or $1.43 per share, up 10.8% from the corresponding period of 2000
• Return on common shareholders' equity before goodwill charges of 16.3%
• Operating expenses down from 65.8% to 62.4%^* as a percentage of total revenues
• Tier 1 capital ratio of 9.1% versus 7.3% a year earlier

^* excluding non-recurring charge.

André Bérard, Chairman of the Board and Chief Executive Officer, stated that the National Bank had just posted its best quarter ever despite fairly difficult conditions marked by plummeting stock markets and a generalized economic slowdown. "These results," Mr. Bérard added, "attest to the gigantic strides made by the Bank in recent years," particularly in terms of profitability.

Strategic objectives

At the start of the year, the National Bank set itself certain strategic financial objectives. The following figures recap the results for the first half of fiscal 2001:

Events in second quarter

Below is a brief description of agreements and partnerships concluded by various Bank sectors during the second quarter.

• National Bank MasterCard and PHH Arval launch first multi-purpose commercial card for Canadian companies. Combining the commercial card expertise of National Bank MasterCard with the expertise of PHH Arval in managing business fleets has resulted in a unique system for managing business expenses that lets Canadian businesses pay and manage their travel and business promotion expenses as well as their purchases and vehicle costs using a single card.
  
  
• The Ultramar Fleet card with the National Bank signature: a credit card with more to offer businesses. April marked the launch of the very first co-branded fleet card for businesses in Canada. With a single, innovative credit card, businesses can now manage all the costs related to their business vehicles as well as travel and business promotion expenses. For businesses, this translates into real savings of time, energy and money.
  
  
• National Bank Discount Brokerage Inc. enhances its website. The clients of National Bank Discount Brokerage Inc. who trade online are now better equipped than ever before when it comes to making their investment decisions thanks to new services added to the company's InvesNET website. Further to a partnership concluded between Morningstar© and National Bank Discount Brokerage, the latter's clients can now access one of the primary sources of information on mutual funds in Canada. National Bank Discount Brokerage also gives its clients direct access to Advice for Investors©, a major financial research tool, which provides a host of information on more than 4,500 Canadian companies.

In addition, a number of functions have been added to the InvesNET site to facilitate certain routine transactions such as multi-account access, the possibility of transferring mutual funds within a given family and an improved virtual portfolio giving clients an even better overview of their portfolio.

One of the factors behind the strong showing in the second quarter was the business strategy adopted by the National Bank in recent years. For instance, "the growing number of partnerships and service agreements enable the Bank to invest in all sectors of activity at the best possible cost," Mr. Bérard declared. This strategy is especially effective for a mid-size bank such as the National Bank which benefits from the expertise of well-known partners to offer specialized services to its clients. Together with our propensity for technological innovation, as illustrated by the recent upgrades made to the National Bank Discount Brokerage website, "this strategy has ensured that the National Bank is resolutely focused on the future and, above all, committed to customer satisfaction, the two keys to success in business," Mr. Bérard concluded.

Quarterly financial statements are available at all times on the website of National Bank of Canada at www.nbc.ca/investorrelations.

A conference call for financial analysts will be broadcast live via the Internet on May 31, 2001 at 2 p.m. and will also be available to the media and individual investors over the telephone at 1-800-273-9672 or (416) 695-5806. Supplementary financial information and a slide presentation are available on the investor relations page of the National Bank's website at the following address: www.nbc.ca/investorrelations. After the conference call, a recorded version of the event will be available on the Bank's website.

A recording of the conference call can also be heard by calling 1-800-408-3053 or (416) 695-5800. The access code is 772542.

FINANCIAL RESULTS

The National Bank recorded income before goodwill charges of $145 million or 72 cents per share for the quarter ended April 30, 2001 compared to $138 million or 69 cents per share for the same period in 2000. Return on common shareholders' equity before goodwill charges was 16.6% for the quarter as against 17.2% for the second quarter of fiscal 2000. For the first six months of fiscal 2001, income before goodwill charges totalled $288 million or $1.43 per share, up 10.8% from $260 million or $1.31 per share for the first half of 2000. Return on common shareholders' equity before goodwill charges was 16.3% for the six-month period ended April 30, 2001, unchanged from the same period a year earlier.

Results by segment
Income for Personal Banking and Wealth Management amounted to $73 million for the second quarter of 2001, compared to $69 million for the same period in 2000, for an increase of 6%. The strong growth in income from personal banking activities was partially offset by the decrease in income attributable to brokerage activities. Total revenues for the quarter, which totalled $488 million, were down $11 million from a year earlier due to the $31 million decrease in income from brokerage activities and the correspondent network. Income from the branch network and card services rose $11 million or almost 4%, helping to improve the spread, which went from 3.38% in the second quarter of 2000 to 3.62% this quarter. Income from trust activities, insurance and mutual funds was up about $9 million compared to the second quarter of 2000. Operating expenses were $349 million for a $11 million decrease as against the second quarter of 2000, owing to the decline in variable expenses attributable to lower brokerage volumes. The efficiency ratio improved from 72.1% in the second quarter of 2000 to 71.5% this quarter.

For the six-month period ended April 30, 2001, income for Personal Banking and Wealth Management totalled $139 million, up 6% from $131 million for the corresponding period of 2000.

With regard to Commercial Banking, earnings were $27 million for the quarter as against $37 million for the same period in 2000. The decline was primarily due to the provision for credit losses which increased by $9 million ($6 million after tax) as well as a $6 million non-recurring charge ($4 million after tax). Net interest income rose by 3.4% to reach $91 million, chiefly owing to the increase in the spread which went from 2.52% in the second quarter of 2000 to 2.61% this quarter.

For the first half of fiscal 2001, income for Commercial Banking totalled $67 million as against $75 million for the same period of 2000. If the $6 million non-recurring charge is excluded, operating expenses represented 39.8% of total revenues, relatively unchanged from the 39.3% for the corresponding period a year earlier.

For Financial Markets, Treasury and Investment Banking, income before goodwill charges totalled $53 million for the quarter ended April 30, 2001, up 23% over the $43 million recorded for the corresponding period last year. Revenues amounted to $189 million, for an increase of 4% mainly due to treasury operations and corporate lending. Moreover, the different mix of revenue sources, rationalization efforts and completion of the First Marathon integration all had a favourable impact on operating expenses. As a result, the efficiency ratio for Financial Markets, Treasury and Investment Banking was 50.3% for the second quarter of 2001 compared to 58.2% for the same period a year earlier.

For the first six months of fiscal 2001, income for Financial Markets, Treasury and Investment Banking totalled $100 million versus $72 million for the same period of 2000.

Revenues
Total revenues, on a taxable equivalent basis, reached $831 million for the quarter versus $835 million for the second quarter of 2000, when revenues from capital markets were particularly high.

Net interest income totalled $378 million versus $347 million for the corresponding quarter in 2000, for an increase of 9%. The substantial rise in the spread was chiefly due to the improvement in the spread for the Personal Banking, Commercial Banking and Corporate Banking sectors as well as revenues from asset and liability management operations.

Other income amounted to $453 million as against $488 million for the second quarter of 2000, down $35 million, mainly due to revenues from capital markets.

For the six-month period ended April 30, 2001, total revenues on a taxable equivalent basis reached $1,626 million compared to $1,584 million for the same period a year earlier.

Operating expenses
Operating expenses for the second quarter of 2001 were $526 million compared to $551 million for the corresponding period of 2000, down 4.5%. At $276 million, salaries and staff benefits were down $41 million owing primarily to the variable remuneration paid by subsidiary National Bank Financial. Operating expenses as a percentage of total revenues went from 66% in the second quarter of 2000 to 62.6% this quarter, excluding a $6 million non-recurring charge.

For the first half of fiscal 2001, operating expenses reached $1,020 million, down 2.2% compared to the corresponding period of 2000.

Loan losses and impaired loans
The provision for credit losses for the quarter was $59 million compared with $46 million for the second quarter of 2000. The provision represented one quarter of the estimated credit losses of $236 million for fiscal 2001.

Impaired loans as at April 30, 2001 stood at $78 million as against $54 million as at January 31, 2001 and $44 million a year earlier. In comparison to the previous quarter, impaired loans increased by $68 million for Commercial Banking in the United States, while they fell by $26 million for Commercial Banking in Canada and by $16 million for consumer and small commercial loans.

Assets
As at April 30, 2001, the Bank had total assets of $76.6 billion versus $75.2 billion as at January 31, 2001 and $74.9 billion at the end of the second quarter of 2000. The $1.4 billion increase over the first quarter stemmed primarily from cash resources and securities, which rose by $2.8 billion, while securities purchased under reverse repurchase agreements were down $1 billion. When compared to fiscal 2000, assets were up $1.7 billion. Cash resources, securities and securities purchased under reverse repurchase agreements rose $2.9 billion. Moreover, personal loans and credit card receivables declined by $1.7 billion owing to the securitization of consumer loans and credit card receivables and the Bank's decision to withdraw from indirect financing.

Savings
Total personal savings administered by the Bank stood at $62.5 billion as at April 30, 2001, up $1.7 billion in 12 months, $1.4 billion of which was attributable to National Bank Financial.

Capital
Tier 1 and total capital ratios, in accordance with the rules of the Bank for International Settlements, stood at 9.1% and 12.5% respectively, compared to 8.8% and 12.1% as at January 31, 2001 and 7.3% and 10.3% as at April 30, 2000. The improvement in capital ratios over the past year was chiefly attributable to the issuance of $300 million in subordinated debentures, to the securitization of some $720 million in consumer loans and credit card receivables, and to internally generated funds.

Dividends
At its meeting on May 31, 2001, the Board of Directors declared regular dividends on the various classes and series of preferred shares as well as a dividend of 21¢ per common share, payable on August 1, 2001 to shareholders of record on June 28, 2001.

For more information:

Caution regarding forward-looking statements

As part of its analyses and reports, National Bank of Canada from time to time makes forward-looking statements concerning the economy, market changes, the achievement of strategic objectives, certain risks and other related matters.

By their very nature, such forward-looking statements involve inherent risks and uncertainties. It is therefore possible that express or implied projections contained in such statements will not materialize and will differ materially from actual future results. Such differences may be caused by factors which include, but are not limited to, changes in Canadian and/or global economic conditions, particularly fluctuations in interest rates, currencies and other financial instruments, market conditions, technological changes or regulatory developments.

Investors and others who base themselves on the Bank's forward-looking statements to make decisions should carefully consider the above factors as well as the uncertainties they represent and the risks they entail. The Bank therefore cautions readers not to place undue reliance on these forward-looking statements.

Second Quarter 2001 (52K)

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