National Bank declares record earnings of $627 million for fiscal 2001, for an increase of 26%

Montreal, 6 December 2001 - 

National Bank of Canada today announced its results for the fourth quarter and for the year ended October 31, 2001. Highlights of these results are presented below.

For the quarter:

• Income before discontinued operations and goodwill charges of $163 million or 81 cents per share
• Return on common shareholders' equity before discontinued operations and goodwill charges of 17.2% as against 14.9% for the corresponding quarter of 2000
• Income before goodwill charges of $147 million or 73 cents per share, up 7% over the same period last year
• Return on common shareholders' equity before goodwill charges of 15.4% versus 15.8% for the fourth quarter of 2000
• Improvement in efficiency ratio, excluding discontinued operations and non-recurring items, which went from 64.5% to 63.3%
• Gain of $76 million, on a taxable equivalent basis, resulting from the sale of the Bank's merchant credit card operations as part of a strategic alliance with Global Payments Inc.
• Withdrawal from asset-based lending operations in the United States

For fiscal 2001:

• Income before discontinued operations and goodwill charges of $627 million or $3.11 per share, up 26% from a year ago. Excluding the gain from the sale of merchant credit card operations, income before discontinued operations and goodwill charges for 2001 was up 18% from 2000.
• Return on common shareholders' equity before discontinued operations and goodwill charges of 17.2% for 2001 compared to 15.0% for 2000
• Income before goodwill charges of $582 million or $2.88 per share, up 10% from a year ago
• Return on common shareholders' equity before goodwill charges of 16.0%
• Improvement in efficiency ratio, excluding discontinued operations and non-recurring items, which went from 65.8% in 2000 to 62.7% in 2001
• Tier 1 capital ratio of 9.6% versus 8.7% a year ago

André Bérard, Chairman of the Board and Chief Executive Officer, described the results of the last fiscal year as excellent in every respect. "Despite the marked slowdown in Canada's economy and a confirmed recession in the United States," Mr. Bérard said, "the National Bank succeeded in maintaining its steady growth and staying on course as regards its ambitious profitability and performance objectives."

Strategic objectives

During the fiscal year just ended, the National Bank attained all the strategic financial objectives it set for itself at the beginning of the year, as the following results demonstrate:

Events in the fourth quarter

During the fourth quarter, the Bank demonstrated its ability to innovate by rolling out new services and finalizing a partnership. Below is a brief description of the highlights of the fourth quarter of 2001:

• New Wireless Internet access: On August 30, 2001, the National Bank announced its new Wireless Internet banking service. Now, clients who have a cell phone compatible with the Bell Mobility Internet mobile service can use their cell phone to access most of the services available on the National Bank's website.
  
  
• Introduction of a new business line, National Bank Wealth Management: In order to be well positioned and take advantage of the high growth prospects afforded by the rapidly growing wealth management market, the Bank has just created a new business line: National Bank Wealth Management. Its target market consists of clients in our "Upscale" and "Wealthy" market segments as well as business people and professionals. Deployment of this new sales force has already begun in the Laval/North Shore region. It will soon be extended to the Montérégie region, to be followed with implementation in all our regions in Quebec.
  
  
• Agreement with Global Payments Inc. finalized: The Bank completed the sale it had announced on June 27, 2001 of its merchant credit card operations as part of a strategic alliance with Global Payments Inc.

"Lastly," Mr. Bérard concluded, "the year's remarkable results are due to the sustained efforts made by each member of the National Bank group. It clearly demonstrates the high level of efficiency and competence we have instilled throughout the entire group, and which are our guarantee of continued success in the future."

MANAGEMENT'S REPORT

For the fourth quarter ended October 31, 2001, the National Bank recorded income before discontinued operations and goodwill charges of $163 million or 81 cents per share, compared to $131 million or 65 cents per share for the same period of fiscal 2000. Return on common shareholders' equity before discontinued operations and goodwill charges was 17.2% versus 14.9% for the fourth quarter of 2000.

Income before discontinued operations and goodwill charges for the fiscal year ended October 31, 2001 was $627 million or $3.11 per share, up 26% from $499 million or $2.49 a year earlier. Excluding discontinued operations, income before goodwill charges was $582 million or $2.88 per share as against $528 million or $2.65 per share, for an increase of 10%. Return on common shareholders' equity before discontinued operations and goodwill charges was 17.2% for fiscal 2001 versus 15.0% for fiscal 2000. Excluding discontinued operations, return on shareholders' equity remained stable at its 2000 level of 16.0%.

Results by segment
For the purpose of presenting the financial results by business segment, commercial operations in the United States have been excluded and are presented separately under the Other segment since, at the end of October 2001, the Bank had concluded a firm agreement to sell its asset-based lending operations in the United States.

Earnings for Personal Banking and Wealth Management amounted to $62 million for the fourth quarter of 2001 compared to $67 million for the corresponding period of 2000. Net interest income for the quarter reached $254 million, compared to $235 million for the same quarter last year. The increase was primarily attributable to higher spreads on personal loans, especially mortgage loans and credit card advances, because of the lower cost of financing. However, other income was $225 million, down $30 million from the last quarter of 2000 due to the decline in brokerage activities in the fourth quarter of 2001 and a one-time gain recorded by the insurance sector in the corresponding quarter of 2000. Operating expenses for the quarter were $361 million compared to $356 million for the same period a year ago, representing an increase of less than 2%. The provision for credit losses totalled $27 million versus $22 million for the fourth quarter in fiscal 2000. This increase reflects changes in credit risk given current economic conditions.

For the fiscal year ended October 31, 2001, Personal Banking and Wealth Management earnings were $275 million, up 3% from the $268 million recorded for the corresponding quarter of 2000. Net interest income was $989 million for fiscal 2001, up $74 million or more than 8% chiefly because of the improved interest margin, which went from 3.39% of average assets in 2000 to 3.60% in 2001. Loan volumes rose by approximately 5%, excluding the withdrawal of certain products that did not generate the required yields, while deposits were up by nearly 4%. Other income decreased by $54 million from $995 million in 2000 to $941 million this year. The slowdown on capital markets had a direct impact on trading volume which reduced the revenues of National Bank Financial and the correspondent network by a total of more than $75 million. This decrease was partly offset by the rise in trading by retail clients and in income from trust operations. Operating expenses for the year amounted to $1,398 million as against $1,375 million in 2000. The increase was kept below 2% owing to a change in the mix of revenue sources as well as efforts to rationalize banking operations. The provision for credit losses in Personal Banking and Wealth Management totalled $98 million versus $90 million in 2000. As was the case for the quarter, changes in credit risk profile mainly accounted for the increase.

Earnings for Commercial Banking in Canada amounted to $24 million for the quarter compared to $33 million for the same period a year earlier. The decline in income was almost wholly attributable to the provision for credit losses which totalled $20 million this quarter as against $10 million for the final quarter of 2000. The rapid deterioration in the economy in the fourth quarter affected the level of expected losses attributed to each segment based on credit risk. Moreover, net interest income remained relatively stable at $65 million versus $64 million for the same quarter in 2000, as the lower volume of loans and acceptances was offset by the improved interest spread which, in fact, widened to 2.71% from 2.55% in the fourth quarter of 2000. Operating expenses amounted to $37 million in the fourth quarter of 2001 compared to $34 million for the same quarter last year. The rise was in part due to fine-tuning the allocation of certain centralized expenses.

Commercial Banking's contribution before loan losses and income taxes was $240 million in 2001 compared to $238 million in 2000 as revenues increased 2% over 2000. The provision for credit losses for the year was $62 million as against $42 million in fiscal 2000. Net of income taxes, Commercial Banking earnings amounted to $110 million in 2001 versus $120 million in 2000.

For Financial Markets, Treasury and Investment Banking, earnings of $57 million for the fourth quarter, before goodwill charges, were relatively stable compared to the corresponding quarter of 2000. At $208 million, revenues were up $17 million or close to 9%. Corporate lending activities and treasury operations, particularly trading, accounted for most of this increase, which was partly offset by a decline in institutional activities at National Bank Financial. However, the increase in revenues was cancelled out by the $19 million rise in fourth-quarter operating expenses and by higher provisions for credit losses which went from $4 million in the fourth quarter of 2000 to $10 million this quarter.

For the fiscal year ended October 31, 2001, Financial Markets, Treasury and Investment Banking earnings before goodwill charges reached $217 million, up 22% over 2000. Revenues rose $93 million or more than 13% to reach $780 million in 2001, owing primarily to treasury and corporate lending activities. Operating expenses at $387 million increased less than 5%, which had a favourable impact on the efficiency ratio, which went from 53.7% in 2000 to 49.6% in 2001. The improved ratio was mainly due to the fact that this year's mix of revenue sources had lower variable expenses. The provision for credit losses totalled $39 million for fiscal 2001 versus $16 million last year.

The Other segment consists primarily of securitization activities and operating expenses that are not allocated to any specific segment. This year, revenues for the Other segment included a gain of $76 million, on a taxable equivalent basis, from the sale of the Bank's merchant credit card operations as part of a strategic alliance with Global Payments Inc. In 2000, a gain of $136 million, on a taxable equivalent basis, was recorded following the sale of SIBN Inc., the Bank's information technology subsidiary, to Cognicase Inc. Moreover, operating expenses for the Other segment in 2000 included restructuring charges, expenses for upgrading information technology systems and certain other costs totalling $120 million. Lastly, net income from asset-based lending operations in the United States are presented as "Discontinued operations" in the Other segment. In 2001, these operations recorded losses of $45 million in contrast to fiscal 2000 when they generated income of $29 million. The provision for credit losses, which went from $16 million in 2000 to $120 million in 2001, was mainly responsible for the difference.

Revenues
For the fourth quarter of 2001, total revenues, on a taxable equivalent basis, were $875 million, up 15% from the $759 million recorded for the fourth quarter of 2000. Of this increase, a net gain of $76 million on a taxable equivalent basis was attributable to the sale of our merchant credit card operations as part of a strategic alliance with Global Payments Inc. The remainder was due, among other things, to the 9% growth in revenues at Financial Markets, Treasury and Investment Banking.

Net interest income, on a taxable equivalent basis, totalled $340 million versus $291 million for the corresponding quarter of 2000, for an increase of 17%. The substantial growth in net interest income was chiefly generated by higher spreads in the Personal and Corporate Banking segments as well as revenues from treasury operations.

Other income, on a taxable equivalent basis, amounted to $535 million as against $468 million for the fourth quarter of 2000, for an increase of $67 million or 14%. The $76 million gain recorded by the Bank on the sale of its merchant credit card operations was partially offset by the lower revenues generated by its brokerage subsidiaries.

For fiscal 2001, total revenues, on a taxable equivalent basis, reached $3,247 million compared to $3,172 million in 2000. Excluding this year's gain of $76 million and the gain of $136 million on the sale of the Bank's information technology subsidiary in 2000, total revenues grew by more than 4% over fiscal 2000. Higher revenues from the branch network, credit card advances, commercial and corporate loans as well as treasury operations were partly offset by lower revenues from brokerage activities.

Net interest income, on a taxable equivalent basis, for fiscal 2001 amounted to $1,389 million, up $157 million or 13%. The increase was attributable to treasury operations as well as higher spreads on personal loans, commercial loans and corporate lending activities.

Other income on a taxable equivalent basis in 2001 was down $82 million in relation to 2000 when the Bank recorded a gain of $136 million on the sale of its information technology subsidiary. This year, the $76 million gain on the sale of the Bank's merchant credit card operations was more than offset by the decline in brokerage revenues.

Operating expenses
Operating expenses for the fourth quarter of 2001 were $506 million compared to $490 million for the corresponding quarter of 2000, for an increase of $16 million or 3%. The efficiency ratio, or operating expenses as a percentage of total revenues (adjusted for non-recurring items), went from 64.5% in the fourth quarter of 2000 to 63.3% this quarter. For fiscal 2001, operating expenses reached $1,989 million compared to $2,120 million for the corresponding period of 2000, when the Bank recorded restructuring charges, expenses for upgrading its information technology systems and certain other costs totalling $120 million. The efficiency ratio (adjusted for non-recurring items) for fiscal 2001 stood at 62.7% versus 65.8% in 2000.

Loan losses and impaired loans
The provision for credit losses for fiscal 2001 was $205 million compared to $184 million in 2000, for an increase of $21 million or 11%. With respect to loan losses on discontinued operations, $120 million in 2001 and $16 million in 2000 were charged to a separate heading related to discontinued operations.

Net impaired loans as at October 31, 2001 stood at $91 million versus $44 million as at October 31, 2000. Of the impaired loans outstanding for 2001, discontinued operations accounted for $117 million, compared to $51 million as at October 31, 2000. Excluding discontinued operations, impaired loans were down $19 million from a year ago.

Assets
As at October 31, 2001, the Bank had total assets of $75.8 billion, virtually unchanged from October 31, 2000, with most of the main items showing minimal variances from last year.

Savings
Total personal savings administered by the Bank stood at $61 billion as at October 31, 2001, compared to $62 billion as at October 31, 2000. The decline in the market value of assets under administration was offset by the 2.7% increase in personal deposits.

Capital
Tier 1 and total capital ratios, in accordance with the rules of the Bank for International Settlements, were 9.6% and 13.1% respectively, compared to 8.7% and 11.4% a year earlier. The improvement in the Tier 1 capital ratio was due to the $1.1 billion decrease in risk-weighted assets and to internally generated funds. In addition to the above items, the issue of a $300 million debenture in the first quarter contributed to the improvement in the total capital ratio.

Moreover, on November 16, 2001, the Bank redeemed $92 million of Series 10 non-cumulative preferred shares.

This redemption will reduce Tier 1 and total capital ratios by 21 basis points.

Dividends
At its meeting on December 6, 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 February 1, 2002 to shareholders of record on December 27, 2001.

For more information:

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

Conference call on fourth-quarter results

• A conference call for financial analysts will be held on December 6, 2001 at 2:00 p.m.
• Access by telephone: 1-800-478-9326 or (416) 695-5801.
• 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 December 17, 2001 by calling 1-800-408-3053 or (416) 695-5800. The access code is 971637.
• A recording of the conference call will also be available on the Internet after the call at www.nbc.ca/investorrelations.