Press Releases

National Bank announces net income of $167 million for the third quarter of 2004 versus $162 million for the corresponding period of 2003

Montreal, 26 August 2004 -

National Bank announces net income of $167 million for the third quarter of 2004 versus $162 million for the corresponding period of 2003

Earnings per share up 7% to $0.95
Credit losses down to $31 million
Return on common shareholders' equity of 17.2%
Dividend of $0.38 per share declared

              

For the quarter ended
July 31

 

Net income

2004

2003

%

Personal and Commercial

95

92

+  3

Wealth Management

23

22

+  5

Financial Markets

54

53

+  2

Other

(5)

(5)

 

Total

167

162

+  3

Earnings per share

$0.95

$0.89

+  7

Return on common shareholders' equity

17.2%

17.3%

 

 

               

For the nine months ended
July 31

 

Net income

2004

2003

%

Personal and Commercial

291

265

+  10

Wealth Management

80

60

+  33

Financial Markets

185

154

+  20

Other

(23)

(13)

 

Total

533

466

+  14

Earnings per share

$2.99

$2.50

+  20

Return on common shareholders' equity

18.4%

16.6%

 

National Bank earned net income of $167 million in the third quarter ended July 31, 2004, compared to $162 million in the corresponding quarter of 2003. Earnings per share amounted to $0.95 for the quarter, an increase of 7% over $0.89 in the third quarter of 2003, the highest quarterly earnings per share in fiscal 2003.   Return on common shareholders' equity was 17.2% for the third quarter of 2004, compared to 17.3% for the same period of 2003.

All of the Bank's operating segments contributed to the quarter's earnings and helped boost the Bank's net income over the corresponding quarter of 2003.

At $95 million, net income for the Personal and Commercial segment in the third quarter of 2004 was up $3 million or 3% from the corresponding quarter of 2003.

Lower credit losses and 6% growth in loan volumes over the year-earlier period had a favourable impact on this segment's performance.  These positive factors were partly offset by a narrower spread and by investments made to better serve clients.

The Wealth Management segment declared net income of $23 million for the quarter, an increase of 5% over the $22 million posted in the third quarter of 2003.  Off balance sheet savings under administration were up 13% over the third quarter of 2003 to $56.3 billion as at July 31, 2004.

Net income for the Financial Markets segment was $54 million, up 2% from $53 million a year earlier.  Lower trading revenues were offset by higher corporate financing revenues and lower credit losses.

For the nine months ended July 31, 2004, the Bank recorded net income of $533 million as against $466 million for the same period last year, for growth of 14%.  At $2.99, earnings per share for the first nine months of fiscal 2004 were up 20% from $2.50 for the year-earlier period.  Return on common shareholders' equity was 18.4% for the period compared to 16.6% for the first nine months of fiscal 2003.

As at July 31, 2004, the specific and general allowances for credit risk exceeded gross impaired loans by $186 million versus $165 million as at April 30, 2004 and $154 million as at October 31, 2003. The $21 million decrease from the previous quarter was largely attributable to the Financial Markets segment.  The general allowance for credit risk remained at $385 million as at July 31, 2004.

Tier 1 and total capital ratios were 9.5% and 13.0%, respectively, as at July 31, 2004 compared to 9.6% and 13.2% as at April 30, 2004 and 9.6% and 13.4% as at October 31, 2003.  As at July  31, 2004, the Bank repurchased 7.7 million common shares for cancellation under the normal course issuer bid for the repurchase of up to 8.7 million common shares.

Commenting on the Bank's third-quarter results, Réal Raymond, President and Chief Executive Officer, expressed satisfaction with this performance. “Once again, all three of the Bank's business segments contributed to growing our earnings. The volume of new loans generated by our various partnerships is up significantly, the quality of our loan portfolio remains strong, driving down credit losses, and we remain committed to pursuing our annual objectives and maximizing shareholder value.”

 

 Objectives

 Results Q3 2004

 Results 9 months ended
July 31, 2004

 Growth in earnings per share

 5% - 10%

 7%

 20%

 Return on common shareholders' equity (ROE)

 15% - 17%

 17.2%

 18.4%

 Tier 1 capital ratio

 8.75% - 9.50%

 9.5%

 9.5%

 Dividend payour ratio

 35% - 45%

 34%

 34%

 

MANAGEMENT'S DISCUSSION AND ANALYISIS 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 third quarter and the nine-month period ended July 31, 2004.

Analysis of Results

Operating Results

For the third quarter ended July 31, 2004, National Bank earned net income of $167 million, compared to $162 million for the same period one year earlier. Quarterly earnings per share reached $0.95, compared to $0.89 for the third quarter of 2003, an increase of 7%. Return on common shareholders' equity was 17.2%, as against 17.3% for the quarter ended July 31, 2003.

For the nine-month period ended July 31, 2004, net income totalled $533 million, compared to $466 million for the same period of 2003, an increase of 14%. At $2.99, earnings per share for the first nine months of 2004 were up 20% from $2.50 per share for the corresponding period one year earlier. Finally, return on common shareholders' equity, at 18.4%, was ahead of the 16.6% result recorded for the first nine months of 2003.

Results by Segment

Since the beginning of fiscal 2004, the Bank has measured the results of its operating segments in terms of actual losses rather than expected losses. Prior year figures have been restated to comply with the current year presentation.

Personal and Commercial

For the third quarter of 2004, net income for the Personal and Commercial segment amounted to $95 million, up 3% from $92 million for the same period of 2003. This increase in net income reflects growth in the volume of loans and the decrease in credit losses, partly offset by a narrower spread and the investments required in order to serve customers.

At $324 million, net interest income for the quarter rose $9 million, or 3%, as against the third quarter of 2003. The average volume of loans and acceptances climbed 6% to $40.2 billion, generating an additional $18 million in net interest income compared to the same period one year earlier. However, due to the lower interest rates in the third quarter of 2004 compared to the same quarter of 2003, which trims the spread on deposits, and to the change in the mix of products chosen by customers, the spread narrowed 8 basis points between the third quarter of 2003 and the same quarter of 2004, pushing net interest income down $9 million for the period.Other income was up $2 million or 1% over the same period of 2003, to $167 million.

Operating expenses for the quarter were $311 million, as against $296 million for the same period of 2003. The increase was divided mainly between compensation and the cost of technological investments.

For the first nine months of fiscal 2004, net income for the Personal and Commercial segment amounted to $291 million, up 10% from the $265 million reported for the corresponding period of 2003. This improvement is explained by the increase of more than 4% in the volume of loans and acceptances, growth of more than 4% in other income and the decrease in credit losses, which fell from $115 million in the first nine months of 2003 to $97 million for the same period of 2004.

Wealth Management

Lower security prices on the principal trading floors resulted in a reduced trading volume, which pushed Wealth Management net income back to the level observed from the third quarter of 2003 to the first quarter of 2004. Net income for the segment amounted to $23 million for the third quarter of 2004, compared to $22 million for the same period one year earlier.

Total revenues grew to $172 million in the third quarter of 2004 from $166 million in the same period of 2003, an increase of nearly 4%. Most of the increase derived from mutual fund and portfolio management revenues.

Operating expenses totalled $135 million for the third quarter of 2004, as against $132 million for the same period of 2003, an increase of 2%. The efficiency ratio nonetheless improved, from 79.5% in the third quarter of 2003 to 78.5% this quarter.

For the nine months ended July 31,l 2004, net income for the Wealth Management segment reached $80 million, compared to $60 million for the same period of 2003, with revenues growing 16% and operating expenses increasing 13%.

Financial Markets

Net income for the Financial Markets segment amounted to $54 million for the third quarter of 2004, as against $53 million for the year-earlier period.  The increase was largely attributable to lower credit losses.

The segment posted revenues of $225 million for the quarter compared to $232 million for the corresponding quarter of 2003.  Corporate financing activities grew substantially, and revenues generated by these activities accounted for more than half of the segment's revenues for the third quarter of 2004, versus 30% for the same period of 2003.   The significant increase in corporate financing revenues was offset by decreases in both trading and asset and liability management revenues.

    

Trading Revenues
(millions of dollars)

   Q3  2004

Q3  2003

First nine months 2004

First nine months 2003

Financial Markets

 

 

 

 

Interest rate

12

15

46

68

Equity

31

51

131

102

Commodities and foreign exchange

9

16

22

38

 

52

82

199

208

Other segments

1

3

5

9

Total

53

85

204

217

Net interest income

40

(35)

(23)

(8)

Other income

2

117

211

199

Taxable equivalent (1)

11

3

16

26

Total

53

85

204

217

(1) See Note 10 (1).

Operating expenses were $127 million for the quarter, down $2 million compared to $129 million for the year-earlier period.

The provision for credit losses declined more than 40% from the third quarter of 2003 to $12 million in the third quarter of 2004.

For the first nine months of fiscal 2004, the Financial Markets segment generated net income of $185 million, a 20% increase over the same period last year, despite a $9 million or 20% rise in credit losses.  The reason for the increase is twofold: first, revenues climbed 13%, fuelled by a resurgence in corporate financing activities and the solid performance of Treasury, to reach $741 million.  Second, the efficiency ratio improved, going from 56.9% for the first nine months of 2003 to 53.3% for the corresponding period of 2004.

Other

The net loss for the “Other” heading of results by segment totalled $5 million for the third quarter of 2004, unchanged year over year.

The cumulative net loss for fiscal 2004 for the “Other” heading of results by segment was $23 million as against $13 million for the same period of 2003.  The higher net loss was due to lower net interest income on excess capital, mainly resulting from the common share repurchase programs.

Consolidated Results

Revenues

Total revenues for the third quarter of 2004 stood at $858 million, up slightly from the $851 million posted in the corresponding quarter of 2003.

Net interest income totalled $390 million for the period, as against $305 million for the year-earlier period, an increase of $85 million or 28%.  Net interest income for the Financial Markets segment accounted for $83 million of the increase, attributable to higher corporate financing fees and less interest paid on indexed deposits in a trading portfolio, because of lower trading revenues in the portfolio.  Moreover, net interest income at Personal and Commercial grew by $9 million or 3%, to $324 million for the third quarter of 2004.  This improvement was largely driven by higher volumes for loans and acceptances, offset, in part, by a narrower spread.

Other income for the third quarter of 2004 amounted to $468 million, down $78 million compared to $546 million for the corresponding quarter of 2003.   The decrease was primarily attributable to lower trading revenues this quarter.  In fact, the portion of trading revenues recorded in other income fell $115 million versus the third quarter of 2003.  However, due to interest paid on trading activities recorded in net interest income, total trading revenues for the quarter declined $40 million. Financial market fees, totalling $152 million for the quarter, climbed $14 million or 10%. This growth was chiefly due to corporate financing activities, since individuals retreated from financial markets, generating fewer commissions this quarter compared to the year-earlier period.  Gains on investment account securities were up $19 million to $12 million in the third quarter of 2004.  Finally, revenues from trust services and mutual funds, amounting to $62 million for the quarter, were ahead $10 million or 19%.  This growth was attributable to the Correspondent Network, investment management and the increase in mutual fund assets under management. 

For the first nine months of fiscal 2004, total revenues were $2,655 million compared to $2,459 million for the corresponding period of 2003, an increase of 8%.  Excluding the “Other” heading, slightly more than 25% of the increase was derived from Personal and Commercial banking activities, approximately 35% from Wealth Management and the remainder, almost 40%, from revenues at Financial Markets.

Operating Expenses

Operating expenses for the quarter totalled $586 million, an increase of $29 million, compared to $557 million for the same quarter of 2003.  Salaries and staff benefits, which amounted to $325 million for the quarter and accounted for approximately 55% of expenses, were stable year over year.  The increase in operating expenses was mainly attributable to technology improvement initiatives as demonstrated by the $9 million rise in expenses for computers and equipment, which totalled $81 million, as well as the $12 million increase in professional fees, which amounted to $42 million for the quarter.  Finally, other expenses were up $11 million due to the provision for capital tax and marketing expenses.

For the first nine months of fiscal 2004, operating expenses were $1,767 million as against $1,634 million for the same period of 2003.  More than 60% of the $133 million increase was attributable to compensation, particularly variable compensation.  At 64.9%, the efficiency ratio was stable over the first nine months of 2004 compared to the year-earlier period.

Risk Management

Credit Risk

The provision for credit losses for the quarter was $31 million compared to $45 million for the corresponding quarter of 2003.  Credit losses declined $9 million at Financial Markets and $3 million at Personal and Commercial.  On an annualized basis, credit losses for the quarter represent 29 basis points of loans and acceptances volume.

For the first nine months of fiscal 2004, credit losses amounted to $94 million, down $33 million or 26% versus the same period a year earlier.

As at July 31, 2004, allowances for credit losses exceeded impaired loans by $186 million as against $154 million as at October 31, 2003 and $172 million as at July 31, 2003. Since the start of fiscal 2004, impaired loans have declined $37 million for Corporate Banking, $13 million for Real Estate and $14 million for consumer and small business loans, whereas they have increased $20 million for Commercial.

The ratio of gross private impaired loans to total tangible capital and allowances was excellent at 12.4% as at July 31, 2004 versus 13.0% as at October 31, 2003 and 13.2% as at July 31, 2003.

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 59 of the 2003 Annual Report.

The following table entitled “Trading Activities” illustrates the allocation of market risk by type of risk: interest rate, foreign exchange, commodities and equity price. 

Trading Activities (1)
(millions of dollars)

Global VaR by risk category

For the quarter ended July 31, 2004

For the quarter ended April 30, 2004

 

Period end

High

Average

Low

Period end

High

Average

Low

Interest rate

(4.8)

(6.5)

(4.3)

(2.2)

(5.9)

(7.2)

(4.4)

(2.9)

Foreign exchange

(0.9)

(3.2)

(1.4)

(0.2)

(1.3)

(2.4)

(1.2)

(0.5)

Equity

(4.8)

(5.6)

(3.1)

(1.1)

(2.3)

(3.3)

(2.1)

(1.6)

Commodities

(0.9)

(1.0)

(0.7)

(0.6)

(0.5)

(0.5)

(0.4)

(0.3)

Correlation effect(2)

4.0

8.7

4.5

1.4

4.5

7.0

3.9

2.2

Global VaR

(7.4)

(7.6)

(5.0)

(2.7)

(5.5)

(6.4)

(4.2)

(3.1)

(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 July 31, 2004, the Bank's total assets stood at $83.7 billion, compared to $82.4 billion as at October 31, 2003.   Loans and acceptances rose $2.5 billion, while cash resources, securities and securities purchased under reverse repurchase agreements declined $1.3 billion.  The table below presents the main portfolios. 

Average monthly volumes

July

October

(millions of dollars)

2004

2003

Loans and acceptances*

 

 

Residential mortgages

19,228

18,105

Consumer loans

6,118

5,193

Credit card receivables

1,609

1,525

Business loans

17,671

18,143

 

44,626

42,966

Deposits

 

 

Personal (balance)

23,888

23,512

Off-balance sheet personal savings (balance)

56,283

51,525

Business

10,825

10,533

*including securitized assets

As at July 31, 2004, residential mortgages were up $1.1 billion or 6% from October 31, 2003 to $19.2 billion. Consumer loans, which stood at $6.1 billion, have risen close to 18% since the beginning of fiscal 2004.  Excluding indirect loans, this strong growth, which was mainly due to partnership volumes, would have been 21%.   Credit card receivables have increased 5.5% since the beginning of the fiscal year to $1.6 billion as at July 31, 2004. Business loans and acceptances totalled $17.7 billion as against $18.1 billion at the end of fiscal 2003.  Corporate loans were down $600 million, while small business loans and acceptances posted an increase of close to $200 million or 1%.

Personal deposits have grown by approximately $400 million or 1.6% since October 31, 2003 to $23.9 billion.   As at July 31, 2004, off-balance sheet savings administered by the Bank totalled $56.3 billion, for an increase of $4.8 billion or 9% since the end of fiscal 2003.  More than half of the increase was attributable to savings administered by brokerage subsidiaries.  Of the remainder, $1.1 billion stemmed from mutual funds which posted a 14% increase.  Lastly, the savings products administered by National Bank Trust have risen $700 million or 37% since the beginning of fiscal 2004. 

Capital

Tier 1 and total capital ratios, in accordance with the rules of the Bank for International Settlements, were 9.5% and 13.0% respectively, as at July 31, 2004 compared to 9.6% and 13.4% as at October 31, 2003. Since the beginning of the 2004 fiscal year, net income, net of dividends, have been offset by the repurchase of common shares.

Dividends

At its meeting on August 26, 2004, the Board of Directors declared regular dividends on the various classes and series of preferred shares, and a dividend of 38 cents per common share, payable on November 1, 2004 to shareholders of record on September 23, 2004.

Caution regarding forward-looking statements

From time to time, National Bank of Canada makes written and oral forward-looking statements, included in this quarterly report, in other filings with Canadian regulators or the U.S. Securities and Exchange Commission, in reports to shareholders, in press releases and in other communications.  All such statements are made pursuant to the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements with respect to the economy, market changes, the achievement of strategic objectives, certain risks as well as statements with respect to our beliefs, plans, expectations, anticipations, estimates and intentions. These forward-looking statements are typically identified by the words “may,” “could,” “should,” “would,” “suspect,” “outlook,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” and words and expressions of similar import.

By their very nature, such forward-looking statements require us to make assumptions and involve inherent risks and uncertainties, both general and specific. There is significant risk that express or implied projections contained in such statements will not materialize or will not be accurate. A number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.  Such differences may be caused by factors, many of which are beyond the Bank's control, which include, but are not limited to, changes in Canadian and/or global economic and financial conditions (particularly fluctuations in interest rates, currencies and other financial instruments), liquidity, market trends, regulatory developments and competition in geographic areas where the Bank operates, technological changes, consolidation in the Canadian financial services sector, the possible impact on our businesses of international conflicts and other developments including those relating to the war on terrorism and the Bank's anticipation of and success in managing the risks implied by the foregoing.

The Bank cautions that the foregoing list of important factors is not exhaustive. Investors and others who base themselves on the Bank's forward-looking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. The Bank therefore cautions readers not to place undue reliance on these forward-looking statements. The Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Bank.

Information for Shareholders and Investors

Investor Relations
Financial analysts and investors who want to obtain financial information on the Bank are asked to contact the Investor Relations Department.
600 de La Gauchetière West, 7th Floor
Montreal, Quebec  H3B 4L2
Telephone: (514) 394-0296
Fax: (514) 394-6196
E-mail: investorrelations@nbc.ca
Website: www.nbc.ca/investorrelations

Public Relations
600 de La Gauchetière West, 10th Floor
Montreal, Quebec  H3B 4L2
Telephone: (514) 394-8644
Fax: (514) 394-6258

Website: www.nbc.ca
General information: telnat@nbc.ca

Quarterly report publication dates for fiscal 2003-2004
First quarter            February 26, 2004
Second quarter        May 27, 2004
Third quarter           August 26, 2004
Fourth quarter         December 2, 2004

Disclosure of 3rd quarter 2004 results

Conference call

A conference call for analysts and institutional investors will be held on August 26, 2004 at 1:30 p.m. EDT
Access by telephone: 1-800-387-6216 or (416) 405-9328.
A recording of the conference call can be heard until September 2, 2004, by calling  
1-800-408-3053 or (416) 695-5800. The access code is 3084056.

Webcast

The conference call will be webcast live at www.nbc.ca/investorrelations.
A recording of the webcast will also be available on the Internet after the call.

Financial documents

The quarterly financial statements are available at all times on the National Bank's website 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.

Transfer agent and registrar

For information about stock transfers, address changes, dividends, lost stock certificates, tax forms and estate transfers, shareholders are requested to contact the Transfer Agent, National Bank Trust Inc., at the address and telephone numbers below.

National Bank Trust Inc.

Share Ownership Management
1100 University, 9th Floor
Montreal, Quebec  H3B 2G7
Telephone:  (514) 871-7171
1-800-341-1419
Fax: (514) 871-7442
E-mail: clientele@tbn.bnc.ca

Direct deposit service for dividends

Shareholders may have their dividend payments deposited directly via electronic funds transfer to an account at any financial institution that is a member of the Canadian Payments Association.  To do so, simply contact the Transfer Agent, National Bank Trust Inc., in writing.

Dividend Reinvestment Plan

National Bank offers holders of its common and preferred shares a Dividend Reinvestment and Share Purchase Plan through which they can invest in shares without paying any commissions or administration fees.  Participants may reinvest all cash dividends paid on their shares held or make optional cash payments of at least $500 per payment, to a maximum of $5,000 per quarter, to purchase shares.  For more information, please contact the Registrar, National Bank Trust Inc., at 1-800-341-1419 or (514) 871-7171.

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 $84 billion and, together with its subsidiaries, employs close to 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.

Information:

Michel Labonté
Senior Vice-President
Finance, Technology and Corporate Affairs
(514) 394-8610

Denis Dubé
Director, Public Relations
(514) 394-8644

Third Quarter 2004

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