Press Releases

National Bank announces net income of $202 million for the second quarter of 2005, up 12% from $180 million for the same period of 2004

Montreal, 26 May 2005 -

·  Quarterly earnings per share of $1.17, up 16%
·  Return on common shareholders’ equity of 19.9%
·  Quarterly dividend raised 2 cents per share, or 5%

 

                 For the quarter
                 ended April 30

 

Net income

2005

2004

%

Personal and Commercial

              108

             93

+  16

Wealth Management

              31

                32

-  3

Financial Markets

              63

                59

+  7

Other

                   -

               (4)

     

Total

              202

               180

+  12

Earnings per share

$1.17

$1.01

+  16

Return on common shareholders’ equity

19.9%

19.0%

 

 

                For the six months
               ended April 30

 

Net income

2005

2004

%

Personal and Commercial

              222

             198

+  12

Wealth Management

               58

              55

+ 5

Financial Markets

               141

               132

+  7

Other

               20

               (19)

 

Total

             441

            366

+  20

Earnings per share

$2.56

$2.04

+  25

Return on common shareholders’ equity

21.8%

19.0%

 

National Bank recorded net income of $202 million for the second quarter ended April 30, 2005, compared to $180 million for the corresponding quarter of 2004, for an increase of 12%. Earnings per share for the quarter totalled $1.17, up 16% from $1.01 per share for the second quarter of 2004. Return on common shareholders’ equity was 19.9% for the quarter versus 19.0% for the same period a year earlier.

During the quarter, the Bank posted strong growth in personal and commercial banking activities and maintained the quality of its credit portfolio, as reflected in the relatively low provision for credit losses. It also reduced the general allowance for credit risk by $17 million ($11 million net of income taxes) or 7 cents per share. In the second quarter of 2004, the Bank had reduced its general allowance for credit risk by $20 million ($13 million net of income taxes), also equivalent to 7 cents per share.

In addition, the Board of Directors approved a 5% increase in the quarterly dividend at its meeting on May 26, 2005, raising it to 44 cents per share.

Réal Raymond, President and Chief Executive Officer of National Bank, highlighted the sustained growth in net income for the second quarter of 2005 in a favourable credit environment. Much of the increase in operating expenses stemmed from the strategy to step up the pace of investment projects designed to create synergy within the banking network. “Investing in our technological infrastructure is key to ensuring the Bank’s performance in the future,” Mr. Raymond added.

For the first six months of fiscal 2005, net income for the Bank stood at $441 million, up 20% from $366 million for the same period of 2004. Earnings per share for the first half of 2005 amounted to $2.56 versus $2.04 for the six months ended April 30, 2004, an increase of 25%. Lastly, return on common shareholders’ equity was 21.8% for the first six months of 2005, as against 19.0% for the corresponding period of 2004.

Total revenues for the quarter reached $900 million in comparison to $884 million for the corresponding period of 2004. Excluding the “Other” heading, more than 80% of this increase was generated by the Personal and Commercial segment, which recorded strong growth in loans to individuals and small and medium-sized enterprises.

Operating expenses for the quarter were $624 million versus $602 million for the corresponding quarter of 2004. Technological infrastructure investment programs and variable compensation in the Financial Markets segment accounted for the lion’s share of this increase. The efficiency ratio stood at 66.5% for the second quarter of 2005, as against 65.8% for the corresponding quarter of 2004.

The provision for credit losses amounted to $1 million for the second quarter of 2005, reflecting specific provisions of $18 million that were largely offset by a $17 million reversal in the general allowance. The provision for credit losses for the corresponding quarter of 2004 was $19 million, consisting of $39 million in specific provisions and a reversal of $20 million in the general allowance. The significant reduction in specific provisions in the second quarter of 2005 was attributable to the commercial loan portfolio and corporate credit activities.

For the second quarter of 2005, net income for the Personal and Commercial segment totalled $108 million, up from $93 million for the corresponding period of 2004, for an increase of 16%. This improvement primarily resulted from lower credit losses due to good credit quality. A portion of the additional revenues from personal and commercial banking activities was reinvested in the Bank’s technological infrastructure.

Net income for the Wealth Management segment reached $31 million for the second quarter of 2005, compared to $32 million for the corresponding quarter a year earlier, which was, by far, the best quarterly result for this segment in fiscal 2004. Full-service retail brokerage and private investment management revenues were up from the corresponding quarter of 2004, but were partly offset by lower portfolio management revenues.

Net income for the Financial Markets segment increased to $63 million for the second quarter of 2005 from $59 million for the same period of 2004, or 7%, due to lower credit losses.

As at April 30, 2005, gross impaired loans amounted to $271 million, down $117 million or 30% from the beginning of the fiscal year. All business loan portfolios contributed to the decrease. The ratio of gross impaired loans to total risk-adjusted capital and allowances was a mere 7.4%. Specific and general allowances exceeded gross impaired loans by $214 million as at April 30, 2005, compared to $190 million as at October 31, 2004. The general allowance stood at $333 million, compared to $350 million as at October 31, 2004.

Tier 1 and total capital ratios were 9.5% and 13.3%, respectively, as at April 30, 2005 versus 9.6% and 13.0% as at October 31, 2004. During the first quarter of 2005, the Bank issued $350 million of subordinated debentures, which added 0.8% to the total capital ratio. During the second quarter, the Bank issued $200 million of First Preferred Shares Series 16. The Bank also discontinued including First Preferred Shares Series 13 totalling $175 million for capital ratio purposes (1).

These two items had a negligible impact on capital ratios. As at April 30, 2005, the Bank had repurchased 2.8 million common shares under its normal course issuer bid to repurchase up to 8.4 million shares commenced on January 13, 2005.

Réal Raymond, President and Chief Executive Officer, said he was very satisfied with the results for the second quarter, adding that the Bank continues to be in a good position to offer shareholders sustainable growth opportunities.





 


Objectives

Results
2nd Quarter
2005

Results
First 6 Months
2005

Growth in earnings per share

         5% - 10%

16%

25%

Return on common
shareholders’ equity

  16% - 18%

19.9%

21.8%

Tier 1 capital ratio

More than 8.5%

9.5%

9.5%

Dividend payout ratio

35% - 45%

35%

35%

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

As at May 26, 2005 - The following text presents Management’s discussion and analysis of the Bank’s financial condition and operating results.  This analysis was prepared in accordance with the requirements set out in Regulation 51-102 respecting Continuous Disclosure Obligations of the Canadian Securities Administrators and is based on the unaudited interim consolidated financial statements for the second quarter and first six months of 2005.

Critical Accounting Estimates
A summary of the significant accounting policies used by the Bank is presented in Note 1 and Note 2 to the audited consolidated financial statements as at October 31, 2004 on pages 90 to 97 of the 2004 Annual Report. 

Page 56 of the 2004 Annual Report presents explanations of certain accounting policies that are considered critical because they are important to the presentation of the Bank’s financial condition and operating results, and require difficult, subjective and complex judgements and estimates because they relate to matters that are inherently uncertain. We invite the reader to refer to the Annual Report for these explanations. 

Changes in Accounting Policies
On November 1, 2004, the Bank adopted the following accounting standards:

Variable Interest Entities

On November 1, 2004, the Bank adopted Accounting Guideline No.15 “Consolidation of Variable Interest Entities” (AcG-15) issued by the Canadian Institute of Chartered Accountants (CICA).

This Guideline is similar to new FASB Interpretation No. 46 (FIN 46R) of the same name and provides guidance on the application of the standards set out in CICA Handbook Section 1590 “Subsidiaries” for certain entities defined as variable interest entities (“VIEs”). VIEs are entities in which equity investors do not have a controlling financial interest or the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties. AcG-15 requires the consolidation of a VIE by its primary beneficiary, i.e., the party that receives the majority of the expected residual returns and/or absorbs the majority of the entity’s expected losses. The application of the provisions of AcG-15 on November 1, 2004 resulted in the consolidation of certain mutual funds in which the Bank had a significant investment and the consolidation of the VIE that leases the Bank’s head office building. The impact of the application of this standard as at November 1, 2004 was an increase in “Premises and equipment” of $84 million, “Securities” of $54 million, “Other assets” of $3 million, “Other liabilities” of $90 million, “Non-controlling interest” of $45 million and “Retained earnings” of $6 million. Prior period consolidated financial statements have not been restated for this change.

Investment Companies

On November 1, 2004, the Bank adopted Accounting Guideline No. 18 “Investment Companies” issued in January 2004 by the CICA. Under this Guideline, investment companies are required to account for all investments at fair value, including investments that would otherwise be consolidated or accounted for using the equity method. The Guideline sets out the criteria for determining whether a company is an investment company and also provides guidance on the circumstances in which the parent company of, or equity method investor in, an investment company should account for the investment company’s investments at fair value. The impact of the adoption of this new Guideline on the consolidated financial statements for the first six months of 2005 is negligible.

Future Changes in Accounting Policies

Financial Instruments – Recognition and Measurement, Hedges and Comprehensive Income
The CICA has issued new accounting standards regarding financial instruments, hedges and comprehensive income. The main consequences of implementing these standards are described below.

All financial assets and liabilities will be carried at fair value in the Consolidated Balance Sheet, except for items classified in the following categories, which will be carried at amortized cost: loans and receivables, held-to-maturity securities and financial liabilities not held for trading. Realized and unrealized gains and losses on financial assets and liabilities that are held for trading will be recorded in the Consolidated Statement of Income. Unrealized gains and losses on financial assets that are available for sale will be reported in Other comprehensive income until realized, at which time they will be recorded in the Consolidated Statement of Income. All derivatives, including embedded derivatives that must be accounted for separately, will be recorded at fair value in the Consolidated Balance Sheet.

For fair value hedges, changes in the fair value of the derivatives and corresponding changes in fair value of the hedged items attributed to the risk being hedged will be recognized in the Consolidated Statement of Income. For cash flow hedges, the effective portion of the changes in the fair values of the derivative instruments will be recorded in Other comprehensive income until the hedged items are recognized in the Consolidated Statement of Income.

Other comprehensive income, which comprises the above items as well as unrealized exchange gains and losses on self-sustaining foreign operations (net of hedging activities), will be included as a separate component of the Consolidated Statement of Changes in Shareholders’ Equity. A new statement entitled “Statement of Comprehensive Income” will be added to the Bank’s consolidated financial statements.

These new standards will apply to the Bank effective November 1, 2006. The impact of implementing these new standards on the Bank’s consolidated financial statements cannot yet be determined as it is dependent on the Bank's unsettled positions and hedging strategies and on market volatility at the time of transition.

Analysis of Results

Operating Results

National Bank reported net income of $202 million for the second quarter ended April 30, 2005, up 12% compared to $180 million for the same period of 2004. Earnings per share for the quarter amounted to $1.17, as against $1.01 for the second quarter of 2004, for an increase of 16%. Return on common shareholders’ equity stood at 19.9% for the quarter, versus 19.0% for the second quarter of 2004.

Net income at the Bank for the first six months of fiscal 2005 totalled $441 million, an increase of 20% over the $366 million recorded for the same period of 2004. Earnings per share for the first six months of 2005 were $2.56, up 25% compared to $2.04 for the six months ended April 30, 2004. Lastly, return on common shareholders’ equity was 21.8% for the six-month period as against 19.0% for the first half of fiscal 2004.

Results by Segment

Personal and Commercial

Net income for the Personal and Commercial segment totaled $108 million for the second quarter of 2005, up $15 million or 16.1% from the corresponding quarter of 2004. Lower credit losses, especially in the Commercial subsegment, were the main reason for the improvement: credit losses were $26 million for the quarter, versus $36 million for the year-earlier quarter.

Net interest income for the quarter was $314 million, compared to $307 million for the same period of 2004, for an increase of 2.3%. The increase in net interest income was chiefly due to strong growth in consumer and small business loans, which expanded by $3.3 billion or 8.5%. However, the spread for the second quarter of 2005 was 15 basis points narrower than in the corresponding quarter of 2004. It should be noted that the spread has been narrowing by a smaller amount since the third quarter of 2004. This was due to transaction deposits, because of the low interest rate environment, and also to strong growth in less risky loans, for which the interest spread is necessarily narrower.

Other income for the quarter totalled $180 million, up $8 million or 4.7% from the second quarter of 2004. The main sources of growth were credit card and insurance revenues, commercial lending fees and fees paid by the Wealth Management segment.

Operating expenses were $308 million for the quarter compared to $298 million for the same period of 2004, an increase of 3.4%. The increase was attributable to the cost of staff benefits and investments to improve the technological infrastructure.

For the first six months of fiscal 2005, net income for the Personal and Commercial segment was $222 million, a 12.1% increase over $198 million for the first half of 2004. Excellent credit quality and growth in business volumes with individuals and businesses accounted for the rise in segment income.

Wealth Management

Net income for the Wealth Management segment was $31 million in the second quarter of 2005, virtually unchanged from the $32 million in net income recorded for the corresponding period of 2004, the segment’s best performance of the year.

Total revenues for the segment amounted to $207 million for the quarter, as against $205 million for the same period of 2004. Full-service brokerage and private investment management revenues continued to rise from the corresponding quarter of 2004, but were partially offset by lower portfolio management revenues.

Operating expenses were $159 million for the second quarter of 2005, versus $155 million for the second quarter of 2004, an increase of 2.6%. The efficiency ratio deteriorated to 76.8% for the quarter, compared to 75.6% for the second quarter of 2004, when it was lower than what it had been in the past.

For the first half of 2005, net income for the Wealth Management segment amounted to $58 million, compared to $55 million for the first six months of 2004, an increase of  5.5%. Revenues were up 2.8% to $402 million, owing especially to fullservice brokerage, private investment management and mutual fund activities, while the efficiency ratio remained stable.

Financial Markets

Net income for the Financial Markets segment totalled $63 million for the second quarter of 2005, or 6.8% higher than in the corresponding period of 2004. At $2 million, the provision for credit losses for the quarter was down $15 million from the $17 million that the Bank had recorded for this segment in the second quarter of 2004, which accounts for the growth in this segment’s net income.

Total revenues for the segment amounted to $249 million for the second quarter of 2005, compared to $248 million for the year-earlier period. The reduction in gains on securities was offset by trading revenues and financial market fees for institutional brokerage activities.

Trading Revenues
(millions of dollars)

Q2
2005

Q2
2004

First six
months
2005

First six
months
2004

Financial Markets

 

 

 

 

Interest rate

           13

           10

           30

           34

Equities

           57

           53

          114

          100

Commodities and foreign exchange

              5

           -

             9

           13

 

           75

           63

         153

          147

Other segments

           -

             2

            4

             4

Total

           75

           65

        157

         151

 

 

 

 

 

Breakdown by Income Statement line item

 

 

 

 

Net interest income

           57

             7

           56

(63)

Other income

            2

           49

           86

          209

Taxable equivalent

           16

             9

           15

             5

Total

           75

            65

         157

         151

The segment’s operating expenses were $151 million for the quarter, compared to $136 million for the second quarter of 2004. Higher variable compensation accounted for 40% of the total increase in operating expenses.

For the first half of 2005, net income for the segment was $141 million, a 6.8% increase over the same period of 2004 because of substantially lower credit losses.

Other

Net income for the "Other" heading of segment results was nil for the second quarter of 2005 compared to a loss of $4 million for the same period in 2004. For the first six months of fiscal 2005, net income for the “Other” heading of segment results was $20 million as against a loss of $19 million for the year-earlier period. The variance was chiefly attributable to the gain on the disposal of investments in financial institutions in South America.

Consolidated Results

Total Revenues

Total revenues for the second quarter of 2005 amounted to $900 million, up 1.8% compared to the $884 million recorded in the corresponding quarter of 2004.

Net interest income totalled $379 million for the quarter, up $54 million or 16.6% from the $325 million posted in the second quarter of 2004. Net interest income for the Financial Markets segment was up $53 million, which must be analyzed in conjunction with the trading revenues recorded in other income. Net interest income for Personal and Commercial rose $7 million to $314 million for the second quarter of 2005, primarily because of higher volumes of consumer and commercial loans, which were partially offset by a narrowing of the spread.

Other income for the second quarter of 2005 was $521 million as against $559 million for the corresponding period of fiscal 2004. The decrease, which stemmed from trading activities, must be analyzed by taking into consideration the significant increase in net interest income for the Financial Markets segment.

The portion of trading revenues recorded as other income fell $47 million from the corresponding quarter of 2004. However, if net interest income related to trading activities is included, total trading revenues for the quarter were up $10 million. Moreover, gains on investment account securities were $17 million for the quarter, down $18 million.

Financial market fees totalled $189 million for the quarter, up $11 million over the corresponding period of 2004, attributable to institutional brokerage activities.

Card service revenues, for their part, rose $5 million to $17 million and trust service and mutual fund fees grew $7 million to $69 million, while revenues from lending operations were up $3 million to total $57 million for the quarter.

For the six-month period ended April 30, 2005, total revenues amounted to $1,883 million, for an increase of $88 million or 4.9% compared to the $1,795 million recorded for the year-earlier period. However, if the “Other” heading of segment results, which includes a $37 million gain on the disposal of investments in South America, is excluded, total revenues were up $51 million or 2.7%. More than 60% of the increase was attributable to Personal and Commercial, while Wealth Management accounted for 25% of this growth.

Operating Expenses

Operating expenses for the quarter were $624 million compared to $602 million for the corresponding period of 2004, an increase of 3.7%. Salaries and staff benefits, at $357 million for the quarter, were up $11 million from the year-earlier period. Half of the increase was attributable to variable compensation at Financial Markets, while technological investments accounted for the remainder.

For the first six months of fiscal 2005, operating expenses were $1,237 million, up 4.9% versus $1,179 million for the first half of 2004. Close to 60% of the increase was attributable to compensation, chiefly variable compensation and staff benefits. The remainder was the result of information technology costs and amortization.

Cash Flows

Due to the nature of the Bank’s business, most of its revenues and expenses are cash items. Moreover, significant cash flow movement can be observed, especially in trading activities, which impacts several assets and liabilities such as trading account securities, securities sold short or securities sold under repurchase agreements.

For the second quarter of 2005, cash and cash equivalents rose $2.3 billion compared to an increase of $1.2 billion for the second quarter of 2004. As at April 30, 2005, cash and cash equivalents totalled $9.3 billion versus $9.5 billion a year earlier.

Operating activities required cash of $3.9 billion chiefly because of the increase in trading account securities. For the corresponding quarter of 2004, cash flows from operating activities were virtually nil.

Financing activities generated cash flows of $8.0 billion, of which $5.1 billion was attributable to increases in deposits, particularly purchased funds, and securities purchased under reverse repurchase agreements. For the second quarter of 2004, the $3.1 billion increase in deposits accounted for the $3.2 billion in cash inflows from financing activities.

Lastly, investing activities in the second quarter of 2005 required $1.9 billion in cash owing to the $2.0 billion increase in loans. For the corresponding period of 2004, investing activities used $2.1 billion also because of higher loan volumes.

Risk Management

Credit Risk

The Bank recorded a provision for credit losses of $1 million for the second quarter, reflecting specific provisions of $18 million that were largely offset by the $17 million reversal in the general allowance. This compares with a $19 million provision for credit losses in the corresponding quarter of 2004, which consisted of $39 million in specific provisions partially offset by a $20 million reversal in the general allowance. The substantial decline in specific provisions in the second quarter of 2005 was attributable to both the commercial loan portfolio and corporate leading activities.

Credit losses in the first half of fiscal 2005 amounted to $18 million as against $63 million for the same period a year earlier. The drop stemmed from both commercial and corporate lending activities.

As at April 30, 2005, allowances for credit losses exceeded impaired loans by $214 million, compared to $190 million as at October 31, 2004. The $24 million improvement was attributable to all segments that offer business loans. The general allowance for credit risk stood at $333 million at the end of the quarter versus $350 million as at October 31, 2004.

The ratio of gross private impaired loans to total risk-weighted capital and allowances was excellent at 7.4% as at April 30, 2005 versus 10.9% as at October 31, 2004.

Market Risk – Trading Activities

The Value-at-Risk (VaR) simulation model is one of the main tools used to manage market risk in trading activities. The VaR measure is based on a 99% confidence level, which is an estimate of the maximum potential trading loss in 99 out of 100 days, which means that actual losses will probably exceed VaR on only one day out of 100.

The computerized VaR calculation model is based on two years of historical data. Market risk management is discussed in more detail on page 63 of the 2004 Annual Report.

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

Trading Activities (1)
(millions of dollars)

Global VaR by risk category

For the quarter ended
April 30, 2005

For the quarter ended
January 31, 2005

 

Period
end

High

Average

Low

Period
end

High

Average

Low

Interest rate

(3.9)

  (4.1)

  (2.9)

(1.8)

(3.6)

  (6.5)

  (4.0)

(2.0)

Foreign exchange

(1.2)

  (2.6)

  (1.1)

(0.4)

(0.9)

  (3.3)

  (1.3)

(0.5)

Equity

(2.6)

  (4.8)

  (3.1)

(2.3)

(4.7)

  (6.2)

  (4.4)

(2.7)

Commodity

(0.8)

  (0.9)

  (0.6)

(0.4)

(0.7)

  (1.0)

  (0.7)

(0.5)

Correlation effect(2)

4.8

   6.1

   3.6

  2.0

4.2

   9.9

   4.7

  1.3

Global VaR

(3.7)

  (6.3)

  (4.1)

(2.9)

(5.7)

  (7.1)

  (5.7)

(4.4)

(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 April 30, 2005, the Bank’s assets stood at $99.9 billion compared to $88.7 billion as at October 31, 2004. Loans and acceptances were up $1.9 billion despite an increase of close to $700 million in securitized loans. Moreover, cash resources, securities and securities purchased under reverse repurchase agreements rose $9 billion. The following table presents the main portfolios.

Average monthly volumes

April

October

April

(millions of dollars)

2005

2004

2004

Loans and acceptances*

 

 

 

Residential mortgages

20,053

19,554

18,544

Consumer loans

7,354

6,491

5,843

Credit card receivables

1,646

1,589

1,514

SME loans
Corporate loans

15,009
2,741

14,354
2,922

14,507
3,639

 

46,803

44,910

44,047

Deposits

 

 

 

Personal (balance)

24,281

23,675

24,048

Off-balance sheet personal savings (balance)

60,239

57,207

55,771

Business

10,533

10,668

10,554

*including securitized assets

As at April 30, 2005, residential mortgage loans amounted to $20.1 billion, up $500 million from October 31, 2004 and $1.5 billion or 8% higher compared to April 30, 2004. At $7.4 billion, the volume of consumer loans has increased 13% since the beginning of the fiscal year. Consumer loans were up $1.5 billion or 26% from April 30, 2004, with more than 40% of this strong growth attributable to volumes from partnerships. Credit card receivables increased 9% year-over-year to reach $1.6 billion as at April 30, 2005. SME loans and acceptances were $15.0 billion at the end of the second quarter as compared to $14.4 billion at the end of fiscal 2004, an increase of close to 5%. Corporate loans were down approximately 25% from the year-earlier period.

Personal deposits stood at $24.3 billion as at April 30, 2005 compared to $23.7 billion as at October 31, 2004. Off-balance sheet personal savings administered by the Bank as at April 30, 2005 totalled $60.2 billion, up $3 billion or 5% since the end of the previous fiscal year. Two-thirds of the increase was attributable to savings administered by the brokerage subsidiaries.

Capital

Tier 1 and total capital ratios, according to the rules of the Bank for International Settlements, were 9.5% and 13.3%, respectively, as at April 30, 2005, compared to 9.6% and 13.0% as at October 31, 2004. During the first quarter, the Bank issued $350 million of subordinated debentures, which added 0.8% to the total capital ratio.

On March 15, 2005, the Bank issued 8,000,000 Non-Cumulative Fixed Rate First Preferred Shares Series 16 to take advantage of the current market conditions which allowed the Bank to issue the shares at a rate considerably lower than the 6.15% fixed rate that would likely have been the rate at which dividends would have been paid on the 7,000,000 Non-Cumulative First Preferred Shares Series 13 after August 15, 2005. The Bank ceased to take into account the Non-Cumulative First Preferred Shares Series 13 as Tier 1 capital for capital adequacy purposes effective March 15, 2005, the date on which the Non-Cumulative Fixed Rate First Preferred Shares Series 16 were issued.

During the second quarter of fiscal 2005, the Bank repurchased 2.8 million common shares for a total of $149 million, as part of a normal course issuer bid to repurchase up to 8.4 million shares commenced on January 13, 2005.

Dividends

At its meeting on May 26, 2005, the Board of Directors declared regular dividends on the various classes and series of preferred shares as well as a dividend of 44 cents per common share payable on August 1, 2005 to shareholders of record on June 27, 2005.

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 2004-2005
Third quarter           August 25, 2005
Fourth quarter         December 8, 2005

DISCLOSURE OF 2nd QUARTER 2005 RESULTS

Conference Call
·  A conference call for analysts and institutional investors will be held on May 26, 2005 at 1:00 EDT.
·  Access by telephone is: (416) 405-9310 or 1-877-211-7911
·  A recording of the conference call can be heard until June 2, 2005 by calling (416) 695-5800 or 1-800-408-3053.  The access code is 3152153.

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 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 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 or 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 National Bank of CanadaNational 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 close to $100 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 atwww.nbc.ca.

For information:

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

Denis Dubé
Director
Public Relations
(514) 394-8644

Second Quarter 2005

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