André Bérard, Chairman of the Board and Chief Executive Officer of the National Bank, was extremely pleased with the record results posted by the Bank for yet another quarter, despite the difficult economic conditions.

"Growing apprehension on financial markets about the health of the global economy and stock market turmoil proved justified in the last quarter but the Bank's profitability was not affected," Mr. Bérard stated. "Since the start of the year, the record earnings we've achieved clearly show that the Bank's financial base is extremely solid, ranking it among Canada's most profitable financial companies."

Strategic objectives

After three quarters, the National Bank has attained the strategic financial objectives it set for itself at the beginning of the year, as the following results demonstrate:

Events in the third quarter

Below is a brief description of agreements and partnerships concluded by the National Bank during the third quarter.

• Assante chooses the National Bank in a series of banking partnerships. On June 5, 2001, the Assante Corporation announced the first in a series of agreements designed to provide banking products and services to its clients. National Bank of Canada, under a non-exclusive agreement, will develop financial and banking products that are adapted to the needs of Assante customers. The National Bank will therefore develop and market under the Assante name bank accounts with chequing privileges, debit cards, personal lines of credit, retirement savings plans and loans, new mortgage services and guaranteed investment certificates. Telephone and Internet banking as well as an extended network of National Bank banking machines will be included with the offering of Assante banking products and services.
  
  
• The National Bank joins forces with THE EXCHANGE banking machine network. . National Bank of Canada and Ficanex Services Limited Partnership, exclusive holder of the Canadian licence for THE EXCHANGE banking machine network, announced in Vancouver on June 11 that an agreement had been signed under which 529 EXCHANGE banking machines would be added to the 823 ABMs the National Bank already operates, bringing the Bank's network of banking machines in Canada to 1,352. The banking machines in THE EXCHANGE network are primarily located in Ontario and Western Canada. In addition, with this agreement, National Bank clients can now withdraw cash at any of the 10,000 EXCHANGE banking machines in the United States.
  
  
• The National Bank and Global Payments form a strategic alliance to market products and services to merchants. On June 27, 2001, National Bank of Canada and Global Payments Inc. announced the creation of a 10-year alliance to promote and sell credit card merchant products and services to merchant clients of the National Bank. Under this agreement, which has been submitted to regulatory authorities for approval, the National Bank's operations relating to credit card merchant payment solutions will be acquired by Global Payments Inc. for a purchase price of approximately $72 million. Moreover, the National Bank will refer its commercial clients to Global Payments for credit card merchant products and services.

The Bank also distinguished itself during the third quarter for the quality of its service and innovations. A few examples are presented below:

• According to a Dalbar study, National Bank Discount Brokerage Inc. ranks first for quality of service. Of the main discount brokerage firms offering services to French-speaking clients, National Bank Discount Brokerage Inc. is the firm that offers the best customer service over the telephone. This was the finding of a recent study by Dalbar, a leading research firm in the field of financial services, which evaluated discount brokerage companies based on certain criteria for telephone service.
  
  
• Special distinction for National Bank Financial's research team. In the most recent survey of Canadian institutional portfolio managers conducted by Brendan Wood, NBF ranked first for the quality of its research. It took top honours for each of the five aspects of quality research, namely, quality of investment ideas, knowledge of the sector, level of contact, quality of financial studies and the credibility of analysts' work. NBF analysts were among the top three in their category for 11 of the economic sectors on which research is done.
  
  
• The National Bank announced its new interactive Internet transaction platform which features several new functions. At the beginning of July, the National Bank introduced a new platform for its Direct.N@t transaction site which is accessible via the Internet at www.nbc.ca. This leading-edge and highly secure platform, developed by Cognicase and IBM, offers several new functions such as a consolidated statement, the webdoxs Internet document delivery service and mutual fund transactions.
  
  
• Faster trading for autonomous investors - Express mode brokerage by National Bank Discount Brokerage Inc. is now offered to investors outside Quebec. The securities commissions of Ontario and British Columbia gave National Bank Discount Brokerage the green light to extend its Express mode brokerage outside Quebec. Autonomous investors in both these provinces can now choose a brokerage mode that allows them to execute their trades directly with stock exchanges electronically (Internet, cell phone, etc.) without a broker being required to check the suitability of their trades versus their investment objectives and risk tolerance.

Mr. Bérard also stressed that the Bank owes its strong results to an increasingly diverse range of products and services and unceasing efforts to make the Bank more accessible to all its clients. "In the third quarter alone, we not only expanded our banking machine network by over 60% by teaming up with THE EXCHANGE network but we also substantially improved our Internet services, particularly those available through our Direct.N@t trading site. The quality of our service is also up sharply," he noted, "as evidenced by the top ranking given by Dalbar to National Bank Discount Brokerage for the quality of its customer service. In short, if the National Bank is now one of Canada's most profitable companies, it is first and foremost because its success is built on providing service of the highest calibre," Mr. Bérard concluded.

In addition, on July 5, the Board of Directors of the Bank announced that Réal Raymond would succeed André Bérard as President and Chief Executive Officer of the National Bank in March 2002. Mr. Raymond, previously President of the Personal and Commercial Bank, has been chosen to succeed André Bérard, Chairman of the Board and Chief Executive Officer of National Bank of Canada, as of March 2002. To ensure a smooth transition, Mr. Raymond was named President and Chief Operating Officer on July 5. Mr. Bérard will remain Chairman of the Board of the Bank after March 2002.

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

Conference call on third-quarter results

• A conference call for financial analysts will be held on August 30, 2001 at 2:00 p.m.
• Access by telephone: 1-800-273-9672 or (416) 695-5806.
• Investors and media representatives will be able to listen in on the conference call.
• The conference call will be broadcast live via the Internet at www.nbc.ca/investorrelations.
• Supplementary financial information and a slide presentation are available on the investor relations page of the National Bank's website shortly before the start of the conference call.

Recording of the conference call

• A recording of the conference call can be heard until September 6, 2001 by calling 1-800-408-3053 or (416) 695-5800. The access code is 863827.
• A recording of the conference call will also be available on the Internet after the call at www.nbc.ca/investorrelations.

FINANCIAL RESULTS

The National Bank earned income before goodwill charges of $148 million or 73 cents per share for the quarter ended July 31, 2001 compared to $133 million or 67 cents per share for the same period in 2000. Return on common shareholders' equity before goodwill charges was 15.9% for the quarter as against 15.8% for the third quarter of fiscal 2000.

For the nine months ended July 31, 2001, income before goodwill charges totalled $436 million or $2.16 per share, up 10.9% from $393 million or $1.98 per share for the corresponding period of 2000. Return on common shareholders' equity before goodwill charges was 16.2% for the nine-month period ended July 31, 2001, as against 16.1% from the same period a year earlier.

Results by segment
Income for Personal Banking and Wealth Management amounted to $74 million for the third quarter of 2001, compared to $67 million for the same period in 2000, for an increase of 10%. Total revenues for the quarter, which amounted to $488 million, were up $17 million or 3.6% from a year earlier despite an $18 million decline in income from brokerage activities and the correspondent network. In fact, income from the branch network and card services rose $29 million, or almost 10%, chiefly because of the improvement in the spread which went from 3.47% in the third quarter of 2000 to 3.61% this quarter for the segment as a whole. Operating expenses were $348 million, up 3.3% from $337 million in the third quarter of 2000. The efficiency ratio improved from 71.5% in the third quarter of 2000 to 71.3% this quarter.

For the nine-month period ended July 31, 2001, income for Personal Banking and Wealth Management totalled $213 million, up 6% from $201 million for the corresponding period of 2000.

With regard to Commercial Banking, earnings were $36 million for the quarter as against $40 million for the same period last year. Net interest income rose by 5.4% to reach $98 million for the quarter. This improvement was attributable to the increase in the spread which went from 2.60% in the third quarter of 2000 to 2.90% this quarter. However, due to the slowdown in economic activity, the volume of loans and bankers' acceptances declined by approximately $800 million versus the corresponding quarter of 2000, which explains the decrease of $6 million or 14% in other income. Third-quarter operating expenses amounted to $61 million as against $55 million for the same quarter last year.

For the first nine months of fiscal 2001, income for Commercial Banking totalled $103 million versus $112 million for the same period of 2000.

For Financial Markets, Treasury and Investment Banking, income before goodwill charges reached $60 million for the third quarter, up 28% over the $47 million recorded for the corresponding period last year. Revenues amounted to $209 million, for an increase of 19%, mainly due to treasury operations and corporate lending. Moreover, the different mix of revenue sources combined with rationalization efforts had a favourable impact on operating expenses. As a result, the efficiency ratio for Financial Markets, Treasury and Investment Banking was 47.8% for the third quarter of 2001 compared to 52.6% for the same period a year earlier.

For the nine-month period ended July 31, 2001, income for Financial Markets, Treasury and Investment Banking totalled $160 million versus $119 million for the same period last year.

Revenues
Total revenues, on a taxable equivalent basis, were $844 million for the quarter versus $925 million for the third quarter of 2000 when the Bank recorded a gain on the sale of its subsidiary SIBN Inc. Excluding this one-time gain of $135 million, revenue increased by nearly 7% for the quarter, attributable mainly to corporate loans in the Financial Markets, Treasury and Investment Banking segment and to Personal Banking and Wealth Management operations.

Net interest income, on a taxable equivalent basis, totalled $385 million versus $345 million for the corresponding quarter in 2000, for an increase of 11.6%. The substantial rise in the spread was chiefly due to the improvement in the spread for the Personal, Commercial and Corporate Banking segments as well as revenues from treasury operations.

Other income, on a taxable equivalent basis, amounted to $459 million as against $580 million for the third quarter of 2000. However, if the one-time gain is excluded, other income actually rose by $14 million or 3%. This modest increase was due primarily to the weakness in capital markets.

For the nine-month period ended July 31, 2001, total revenues, on a taxable equivalent basis, reached $2,470 million compared to $2,374 million, excluding the one-time gain, for the same period of 2000.

Operating expenses
Operating expenses for the third quarter of 2001 were $524 million compared to $634 million for the corresponding quarter of 2000. Excluding expenses of $120 million recorded in the third quarter of 2000 described on page 10, operating expenses rose only 2% this quarter. The efficiency ratio, or operating expenses as a percentage of total revenues, went from 65.1% (adjusted for non-recurring items) in the third quarter of 2000 to 62.1% this quarter. For the first nine months of fiscal 2001, operating expenses reached $1,544 million compared to $1,557 million for the corresponding period of 2000 (adjusted for non-recurring items).

Loan losses and impaired loans
The provision for credit losses was $71 million as against $62 million for the third quarter of 2000.

Net impaired loans as at July 31, 2001 stood at $82 million versus $78 million as at April 30, 2001 and $45 million as at July 31, 2000. In comparison to the previous quarter, impaired loans increased by $24 million for Real Estate and decreased by $29 million for Commercial Banking in the United States.

Assets
As at July 31, 2001, the Bank had total assets of $73.1 billion compared to $76.6 billion as at April 30, 2001 and $73.6 billion as at July 31, 2000. The $3.5 billion decline in assets over the second quarter of 2001 was attributable mainly to cash resources and securities. When compared to fiscal 2000, assets were down $500 million.

Savings
Total personal savings administered by the Bank stood at $61.7 billion as at July 31, 2001 compared to $62 billion as at July 31, 2000.

Capital
Tier 1 and total capital ratios, in accordance with the rules of the Bank for International Settlements, stood at 9.5% and 12.9% respectively, compared to 9.1% and 12.5% as at April 30, 2001 and 8.3% and 11.8% as at July 31, 2000. The improvement in capital ratios over the past year was chiefly due to the decrease in risk-weighted assets and to internally generated funds.

Dividends
At its meeting on August 30, 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 November 1, 2001 to shareholders of record on September 27, 2001.

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