National Bank achieves or exceeds all its objectives for fiscal 2003

• Net income up 17% to $158 million for the fourth quarter of 2003
• Earnings per share up 23% to $0.87 versus $0.71 for the fourth quarter of 2002
• Record net income of $624 million for fiscal 2003 or $3.37 per share compared to $429 million or $2.18 per share in 2002
• Return on common shareholders' equity of 16.5% for fiscal 2003

National Bank of Canada recorded net income of $158 million in the fourth quarter of 2003, for a 17% increase, compared to $135 million in the corresponding quarter of 2002.

Earnings per share amounted to $0.87 for the fourth quarter versus $0.71 for the corresponding quarter of 2002. Return on common shareholders' equity was 16.4% for the quarter compared to 14.5% for the fourth quarter of 2002.

Each of the Bank's three business segments posted solid growth in quarterly net income.

Personal and Commercial declared net income of $79 million for the fourth quarter of 2003 for an increase of $11 million, or 16%, compared to the same period in 2002. The improvement was attributable to wider spreads and higher other income, particularly for insurance products.

Wealth Management benefitted from the stock market recovery, generating net income of $24 million in the fourth quarter, a jump of 60% from $15 million in the fourth quarter of 2002.

Net income for Financial Markets was up 49% to $73 million in the fourth quarter of 2003 versus $49 million for the same period a year earlier. Trading activities accounted for most of the net income growth in this segment.

Commenting on these results, Réal Raymond, President and Chief Executive Officer of the National Bank, stated that he was very pleased with the strong performance of all business units in the fourth quarter and with the Bank's record net income for 2003. "Our results are proof of the determination, diligence and discipline with which we pursued our strategies. Diversifying our revenue streams has proven beneficial not only for each of our segments, but for each of our markets as well."

At the meeting on December 4, 2003, the Board of Directors raised the target dividend payout ratio to between 35% and 45% of income available to common shareholders. The Board also approved an 18% increase in the quarterly dividend bringing it to $0.33 per share.

Moreover, the Bank received approval to repurchase up to 8.7 million common shares under a normal course issuer bid.

For fiscal 2003, the Bank posted record net income of $624 million, up 45% from $429 million the previous year. In 2002, the Bank had recorded a $112 million impairment charge (after taxes) following the revaluation of its investment in a technology firm. Excluding the impact of this impairment charge on results for fiscal 2002, net income for 2003 was up $83 million or 15%. Earnings per share rose to $3.37 for the year from $2.18 for 2002 ($2.79 if the impairment charge for an investment is excluded). Return on common shareholders' equity was 16.5% in 2003, up from 11.3% a year earlier (14.3% if the impairment charge for an investment is excluded).

Personal and Commercial recorded net income of $328 million in 2003 for an increase of $45 million or 16%. Wider spreads, growth of more than 6% in other income, a better efficiency ratio and improved credit quality accounted for this increase.

Net income at Wealth Management totalled $81 million in 2003 compared to $66 million in 2002 for an increase of 23%. The improvement was chiefly attributable to the contribution of one full year of income from Altamira and renewed trading by individual investors on capital markets in the second half of fiscal 2003.

Lastly, the Financial Markets segment recorded net income of $235 million in 2003 versus $241 million a year earlier. The excellent performance at Treasury, primarily in trading activities, was offset by a decrease in demand for corporate financing and a decline in merger and acquisition activities.

As at October 31, 2003, specific and general allowances for credit risk exceeded gross impaired loans by $154 million compared to $159 million as at October 31, 2002. The decrease in net impaired loans at Personal and Commercial, however, was offset by the increase in net impaired corporate loans.

Tier 1 and total capital ratios were 9.6% and 13.4% respectively as at October 31, 2003 compared to 9.6% and 13.6% as at October 31, 2002.

Business Development

During the fourth quarter, the Bank continued its efforts to improve its offering of financial products and investment solutions and position itself as a wealth management leader. It also continued to expand its distribution network, by capitalizing on partnerships with various distributors and resellers of financial products.

For example, National Bank Securities (NBS) introduced its Advisor Series which enables independent financial advisors to sell all of its mutual funds. This initiative was formalized by the signing of agreements with ScotiaMcLeod, Avantages Services Financiers, the PEAK Financial Group, BBA Investments, Le Groupe financier Everest, Desjardins Securities and other well-known brokerage firms. The National Bank, which is relying on the quality customer service provided by NBS to make inroads into the independent market, has thus become one of the first financial institutions in Quebec to make its family of mutual funds available to such a large group of financial experts.

In addition, the National Bank recently launched the Monthly Income Fund, an investment fund composed of four asset classes: preferred shares, common shares, high-yield bonds and income trusts. The Fund provides investors with a monthly income consisting of dividends, interest, capital gains and capital returns.

Furthermore, Great-West Life and London Life representatives can now offer National Bank financial products under their respective banners. They join Investors Group representatives who have been distributing our products since the previous quarter.

In October, National Bank Financial strengthened its position in the cities of Saint-Hyacinthe and Rimouski, Quebec by acquiring two ScotiaMcLeod branches.

The National Bank introduced several other initiatives aimed at offering a broader array of products to its customers. As a result, consumers now have the option of opening bank accounts online at www.nbc.ca. For their part, companies that subscribe to Internet Banking Solutions can now safely conclude transactions with their domestic and international partners in a number of currencies via wire transfers. This fast, easy way of doing business will considerably facilitate their financial and commercial transactions in Canada and abroad.

Lastly, in the past three months, the Bank launched two new credit cards providing clients with definite advantages. The new National Bank Platinum MasterCard is designed for individuals looking for a generous reward program as well as a broad range of travel insurance coverage and attractive rates. The National Bank Premia BusinessCard is intended for companies and self-employed individuals. An excellent tool for managing expenses, it allows cardholders to benefit from a unique combination of advantages and save substantially. It, also, offers a generous reward program and comprehensive insurance coverage.

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

Conference call on results for the fourth quarter and the fiscal year ended October 31, 2003

• A conference call will be held on December 4, 2003 at 2:00 p.m. Eastern time.
• Access by telephone: 1-800-387-6216 or (416) 405-9328
• The conference call will be webcast live at www.nbc.ca/investorrelations.
• The Report to Shareholders, supplementary financial information and a slide presentation will be available on the investor relations page of the National Bank's website shortly before the start of the conference call.
  
• A recording of the conference call can be heard until December 11, 2003 by calling 1-800-408-3053 or (416) 695-5800. The access code is 1497513.
  
• A recording of the webcast will also be available on the Internet after the call at www.nbc.ca/investorrelations.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS

The following text presents management's analysis of the Bank's financial condition and operating results as presented in the unaudited consolidated financial statements for the fourth quarter of 2003 and in the unaudited consolidated financial statements for the fiscal year ended October 31, 2003.

Strategic Objectives

The National Bank published its strategic objectives for fiscal 2003 in its 2002 Annual Report. The table below compares these objectives with the results for the fourth quarter and the fiscal year ended October 31, 2003.

(1)Excluding the impairment charge for an investment in 2002

Analysis of Results

Operating Results

For the fourth quarter ended October 31, 2003, the National Bank earned net income of $158 million, compared to $135 million for the corresponding quarter of 2002. Earnings per share were $0.87 for the quarter versus $0.71 for the fourth quarter of 2002. Return on common shareholders' equity rose to 16.4% for the quarter as against 14.5% for the fourth quarter ended October 31, 2002.

For fiscal 2003, the National Bank recorded net income of $624 million compared to $429 million in 2002, representing an increase of 45% ($83 million or 15% if the impairment charge for an investment is excluded). At $3.37 for fiscal 2003, earnings per share were up 55% versus $2.18 for fiscal 2002 (excluding the impairment charge which amounted to $0.61 per share , the increase is 21%). Return on common shareholders' equity rose to 16.5% for the fiscal year ended October 31, 2003 versus 11.3% for fiscal 2002 (14.3% if the impairment charge for an investment is excluded).

Revenues

Total revenues for the fourth quarter of 2003 were $903 million, an increase of $108 million, or 14%, compared to $795 million for the year-earlier period.

Net interest income amounted to $321 million for the quarter, down $40 million from $361 million for the fourth quarter of 2002. The $57 million decrease in net interest income at Financial Markets was primarily due to the cost of financing trading account investments and interest charges on index-linked deposits for which revenues are recorded as other income. Moreover, net interest income for Personal and Commercial rose by $16 million, or 5%, to $320 million, mainly owing to the wider spread, which improved from 3.15% of average assets in the fourth quarter of 2002 to 3.25% this quarter.

Other income for the quarter totalled $582 million as against $434 million for the fourth quarter of 2002, an increase of $148 million, owing largely to a $126 million rise in trading income. Of the remainder, $16 million was attributable to capital market fees reflecting the stock market rally and $8 million to commissions on loans and acceptances.

For fiscal 2003, total revenues reached a new high of $3.4 billion, an increase of more than $300 million, or 11%, over fiscal 2002.

Net interest income for fiscal 2003 stood at $1,324 million, down $120 million from fiscal 2002. The decline was attributable to securitization activities and the cost of financing trading account securities as well as interest paid on index-linked deposits for which revenues are generally recorded as Other income. For Personal and Commercial, net interest income rose by 5% to $1,248 million in 2003. As the increase in the spread on credit products was greater than the reduction in the spread on deposits, the segment's overall spread rose by 13 basis points to 3.23% of average assets in 2003.

Other income for fiscal 2003 rose by $454 million or 29% to $2,038 million. Part of the increase was attributable to a $137 million impairment charge for an investment recorded in 2002. The remainder was chiefly due to a $261 million increase in trading income, a $23 million increase in commissions on loans and acceptances, and the contribution of revenues generated by Altamira and Putnam Lovell for a full year.

Operating Expenses

Operating expenses for the fourth quarter of 2003 were $624 million compared to $540 million for the corresponding period of 2002. Salaries and staff benefits, representing $353 million, increased $53 million. Close to half of this increase was due to variable compensation linked to the sizeable growth in revenues at Treasury and National Bank Financial, while an adjustment to the provision for capital taxes and marketing expenses accounted for much of the remainder.

For fiscal 2003, operating expenses were $2,259 million, up $219 million. The inclusion of 12 months of operating expenses for the companies acquired in 2002 accounted for $83 million of the increase, and higher variable compensation, for approximately $30 million. Had it not been for these items, operating expenses would have increased by approximately 5% due, in part, to the cost of staff benefits, including the pension plan, professional fees and marketing expenses, in particular bonus points for credit cards.

Results by Segment

The revenues of each segment are presented on a taxable equivalent basis, i.e., they are grossed up to make the tax-exempt income earned on certain securities comparable with income from other financial instruments. An equivalent amount was added to income taxes. In addition, the provision for credit losses of each operating segment is based on expected losses which are calculated using statistical analyses. The difference between expected losses and actual losses is charged to the "Other" heading.

Personal and Commercial

Personal and Commercial posted net income of $79 million for the fourth quarter compared to $68 million for the corresponding quarter of 2002, for an increase of 16%. Net interest income, which totalled $320 million, rose by $16 million owing mainly to the spread, which went from 3.15% in the fourth quarter of 2002 to 3.25% this quarter. At $161 million, other income was up by $12 million or 8%, with insurance activities accounting for half of the increase. Operating expenses for the quarter were $307 million compared to $293 million for the fourth quarter of 2002. The increase in operating expenses of less than 5% was more than one percentage point lower than the growth in revenues. Expected loan losses were $51 million for the fourth quarter, down $2 million compared to the same quarter of 2002.

For fiscal 2003, net income for Personal and Commercial amounted to $328 million, up $45 million or 16%. Net interest income was $1,248 million, an increase of $58 million, or 5%, primarily due to the spread, which went from 3.10% in 2002 to 3.23% in 2003. Other income was up $37 million, or 6%, to $629 million chiefly owing to commercial lending fees and revenues from insurance activities. At $1,157 million for fiscal 2003, operating expenses were $44 million or 4% more than for fiscal 2002. The efficiency ratio improved from 62.5% in 2002 to 61.6% in 2003. The improved quality of the portfolio, as evidenced by the decline in impaired loans at Personal and Commercial, was also reflected in the lower expected losses, which dropped 5% from $219 million in 2002 to $207 million in 2003.

Wealth Management

Net income for the Wealth Management segment reached $24 million for the fourth quarter of 2003, up 60% from $15 million for the corresponding quarter a year earlier. Total revenues amounted to $176 million for the fourth quarter of 2003 versus $155 million for the same period of 2002, representing growth of 14%. Increased trading activity by individuals on capital markets accounted for the strong growth in income for this segment. Operating expenses for the quarter were $137 million compared to $131 million for the fourth quarter of 2002 owing to variable compensation at the Bank's brokerage subsidiary.

For fiscal 2003, net income for Wealth Management amounted to $81 million as against $66 million for fiscal 2002, an increase of 23%. Total revenues for 2003 were up $47 million, or 8%, to $658 million, notably due to the inclusion of Altamira revenues for one full year. Operating expenses were $526 million, for an increase of $20 million. The inclusion of 12 months of operating expenses for Altamira was partially offset by lower expenses related to individual investor services at the Bank's full-service brokerage subsidiary.

Financial Markets

For the fourth quarter of 2003, Financial Markets posted net income of $73 million as against $49 million for the same period of 2002, for an increase of 49%. Revenues for the quarter reached $275 million, up $75 million or 38%, due to trading income at Treasury. At $153 million, operating expenses increased by $33 million compared to the fourth quarter a year earlier as a result of variable compensation at Treasury. Expected loan losses were $8 million for the quarter as against $9 million for the fourth quarter of 2002.

For fiscal 2003, net income for Financial Markets was $235 million, down $6 million from the previous year. Revenues were $931 million for the year compared to $829 million for fiscal 2002, for an increase of 12%. Revenue from Treasury accounted for 90% of the increase. Operating expenses were $527 million for fiscal 2003, versus $416 million for the previous year. Close to 40% of the increase was attributable to Treasury, largely because of variable compensation. The remainder was due to the inclusion of 12 months of operating expenses for Putnam Lovell. Expected losses for 2003 stood at $39 million, relatively unchanged from a year earlier.

Other

The net loss for the "Other" heading totalled $18 million for the fourth quarter of 2003 compared to net income of $3 million for the same quarter of 2002. An adjustment to the provision for capital taxes and the purchase of an insurance policy for the long-term disability program accounted for this loss.

For fiscal 2003, the net loss for the "Other" heading was $20 million as against $161 million for fiscal 2002. Total revenues were $101 million higher mainly because of an impairment charge for an investment recorded a year earlier. The favourable $300 million variance in the provision for credit losses was primarily due to the revision of the estimated allowance of $185 million recorded in 2002, $120 million in losses for the telecommunications sector, the $30 million reduction in the general allowance for credit risk and the difference between the expected losses charged to the business units and the actual losses incurred. These favourable variances were offset in part by the $111 million net gain recorded in 2002 under "Discontinued Operations" generated by the sale of U.S. asset-based lending operations.

Risk Management

Credit Risk

The provision for credit losses for the quarter was $50 million as against $53 million for the fourth quarter of 2002. For fiscal 2003, credit losses were $177 million compared to $490 million a year earlier. Excluding the revision of the estimated allowance of $185 million recorded in 2002, the provision for credit losses was reduced by $128 million in 2003, largely due to losses incurred in the telecommunications sector in 2002.

As at October 31, 2003, allowances for credit losses exceeded impaired loans by $154 million, compared to $159 million as at October 31, 2002. The reduction in impaired loans, particularly consumer loans, but also commercial and real estate loans, was offset by an increase in impaired corporate loans.

Credit quality remained excellent. The ratio of gross private impaired loans to total tangible capital and allowances was extremely good at 13.0% as at October 31, 2003, versus 14.1% as at October 31, 2002.

Market Risk - Trading Activities

The VaR (Value-at-Risk) method is one of the main tools used in managing trading-related market risk. The VaR measure is based on a 99% confidence level and uses two years of historical data for its computation. Market risk management is described in more detail on page 49 of the 2002 Annual Report.

The following table entitled "Trading Activities" illustrates the allocation of market risk by type of risk, namely, interest rate, foreign exchange, commodity and equity price. Global VaR as at October 31, 2003 was at more or less the same level as for the previous quarter.

Trading Activities (1)

(1) Amounts are presented on a pre-tax basis and represent one-day VaR.
(2) The correlation effect is the result of the diversification of types of risk.

Balance Sheet

As at October 31, 2003, the Bank's total assets amounted to $82.4 billion compared to $74.6 billion as at October 31, 2002. The table below presents the main loan and deposit headings.

*including securitized assets

As at October 31, 2003, residential mortgages totalled $18.1 billion, up approximately 4% from October 31, 2002. Excluding indirect loans, consumer loans have risen by 8% since October 2002 to $4.3 billion. Credit card receivables have increased by 10% since the beginning of the fiscal year, to $1.5 billion as at October 31, 2003. At $17.8 billion, business loans and acceptances are comparable to $18.3 billion as at October 31, 2002. This decline stems mainly from corporate loans.

Personal deposits have risen by about $900 million since October 31, 2002 to total $23.5 billion. Off-balance sheet savings administered by the Bank and its subsidiaries have grown by nearly $6 billion since October 31, 2002, to reach $51.5 billion. The brokerage subsidiaries, both full-service and online, contributed to the year-over-year increase in off-balance sheet savings. Business deposits were up by almost $800 million from October 31, 2002, chiefly because of deposits from small and medium-sized enterprises.

Capital

Tier 1 and total capital ratios, in accordance with the rules of the Bank for International Settlements, were 9.6% and 13.4% respectively as at October 31, 2003 compared to 9.6% and 13.6% as at October 31, 2002. The ratios are stable because the capital generated by net income less the dividends paid was reduced as a result of the repurchase of 9.1 million common shares under a normal course issuer bid and the redemption of $125 million of Series 12 preferred shares on May 15, 2003. The decrease was mitigated by the issue of $200 million of preferred shares in the first quarter of 2003.

Dividends

At its meeting on December 4, 2003, the Board of Directors declared regular dividends on the various classes and series of preferred shares, as well as a dividend of 33 cents per common share, payable on February 1, 2004 to shareholders of record on December 29, 2003.

Normal course issuer bid for the repurchase of common shares

The National Bank also announced its intention to make a normal course issuer bid for the repurchase of up to 5% of its outstanding common shares. The notice of intention was filed with and approved by The Toronto Stock Exchange.

The notice stipulates that the Bank may, during a 12-month period beginning on December 8, 2003 and ending no later than December 7, 2004, purchase through the facilities of The Toronto Stock Exchange up to a maximum of 8,700,000 common shares. The Bank will purchase for cancellation the shares at the market price in effect at the time of acquisition. The actual number of common shares repurchased and the timing of the purchases will be determined by the Bank.

As at November 28, 2003, there were 175,154,014 common shares of the Bank issued and outstanding. Under its previous normal course issuer bid, the Bank repurchased and cancelled 9,100,000 common shares.

The normal course issuer bid represents proper use of the Bank's surplus funds and aims to increase the value of shareholders' equity.

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.

About the National Bank of Canada

National Bank of Canada is an integrated group which provides comprehensive financial services to consumers, small and medium-sized enterprises and large corporations in its core market, while offering specialized services to its clients elsewhere in the world. The National Bank offers a full array of banking services, including retail, corporate and investment banking. It is an active player on international capital markets and, through its subsidiaries, is involved in securities brokerage, insurance and wealth management as well as mutual fund and retirement plan management. The National Bank has assets of over $75 billion and, together with its subsidiaries, employs over 17,000 people. The Bank's securities are listed on the Toronto Stock Exchange (NA:TSX). For more information, visit the Bank's website at www.nbc.ca.

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