National Bank declares record earnings of $143 million (+17.3%) for the first quarter of 2001 and increases dividend by 10.5%

National Bank of Canada today announced its results for the first quarter ended January 31, 2001. Highlights of these results are presented below. More detailed results are contained in the attached tables.

• Income before goodwill charges of $143.3 million or 71 cents per share, up 17.3% from the corresponding quarter of 2000.
• Return on common shareholders' equity before goodwill charges of 16.1% as against 15.3% for the corresponding quarter of 2000.
• Total revenues, on a taxable equivalent basis, of $795 million, for an increase of 6.1% over the first quarter of 2000.
• Operating expenses of $494 million, up less than 1% compared to the quarter ended January 31, 2000.
• Operating expenses down from 65.6% to 62.1% as a percentage of total revenues.
• Tier 1 capital ratio of 8.8% versus 7.6% a year earlier.

In addition, the Board of Directors of the Bank approved a dividend increase of 2 cents per common share bringing the quarterly dividend to 21 cents per share.

"We can pride ourselves on the excellent quality of the results obtained in the first quarter", declared André Bérard, Chairman of the Board and Chief Executive Officer of the Bank, "especially as we also posted overall productivity gains. This last fact is important under the circumstances since it signals to our shareholders - and to investors in general - that the choices made by the Bank with respect to its development and management are reflected in how we manage our institution. Lastly, our clients are also instrumental in these results as they helped us to attain them. It shows that we know how to respond to what they ask for and what they need."

Strategic objectives

As stated in the 2000 annual report, the Bank has established strategic financial objectives to guide its actions in the years ahead. These first-quarter results attest to the Bank's commitment to reaching these objectives.

Results such as these are achieved through the concerted efforts of a large number of people within the Bank's various business segments. Their work most often becomes apparent when the Bank publicly announces the agreements and partnerships that contribute to its results.

In keeping with the National Bank's strategies for improving its service offerings, below are some of the announcements made during the first quarter.

• New ClicCommerce B2B e-commerce portal launched in conjunction with COGNICASE. ClicCommerce, a joint venture formed last summer, received a license from RightWorks Corporation for a second generation e-commerce application that will serve as the foundation for the new ClicCommerce Portal. This new portal will enable business and government clients throughout Canada to order supplies of goods and services electronically. Not only will this produce efficiency gains for our clients but it will also allow them to obtain additional savings from their main suppliers.
  
  
• National Bank teams up with Groupe Promutuel. Under the terms of this agreement, both partners will pool their expertise. Accordingly, the National Bank will oversee the development of financial products and services while Groupe Promutuel will ensure their distribution via its extensive network and solid presence in the fields of insurance and financial services throughout Quebec. Both partners thereby hope to improve their positioning in these markets.
  
  
• Faster way to trade on-line with National Bank Discount Brokerage. In the coming weeks, clients of National Bank Discount Brokerage will be asked to choose whether they want to carry out their trades in Express mode or Direct mode. Clients who want greater control in managing their investments and who, above all, want an accessible, efficient and even faster way to carry out their trades can opt for the Express brokerage mode. Clients who prefer the status quo and who want to maintain direct access to their portfolio while benefiting from the assistance of an investment advisor can opt for the Direct brokerage mode.
  
  
• National Bank acquires 17 former Bank of Montreal branches. On December 13, 2000, the National Bank announced that it was acquiring 17 Bank of Montreal branches in Quebec. Total loan and deposit volumes thus obtained were approximately $700 million. The changeover will be done gradually in January and February 2001.

In addition, National Bank Financial, a wholly-owned subsidiary of the National Bank, announced the appointment of Jean Turmel, President - Financial Markets, Treasury and Investment Bank, as Chairman of the Board of National Bank Financial. Other appointments in the NBF management team were Kym Anthony as President and Chief Executive Officer, Germain Carrière as President and Chief Operating Officer - Individual Investor Services, and W. David Wood as Chief Administration Officer.

In January 2001, the Bank announced a capital issue of $300 million in Series 2 medium term notes. The purpose of the issue was to increase the Bank's regulatory capital.

Lastly, the Board of Directors of the Bank adopted a shareholder rights plan. Under the terms of this plan, the Bank could issue subscription rights to all its shareholders should a takeover or share exchange bid be made for its common shares. The purpose of the plan is to ensure, to the extent possible, that the Board of Directors has sufficient time to properly consider any proposed takeover or share exchange bid for the Bank and to allow enough time for competing offers to emerge. The plan will be submitted to the shareholders of the Bank on March 7, 2001.

"It is clear that the National Bank is a healthy institution," Mr. Bérard concluded. "We intend to maintain this course for the foreseeable future. Our clients and our market shares, the niches we have chosen to focus on, alone or with partners, are the keys to our continued success."

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

A conference call for financial analysts will be broadcast live via the Internet on February 22, 2001 at 2 p.m. and will also be available to the media and investors over the telephone at 1-800-273-9672 or (416) 695-5806. Supplementary financial information as well as a slide presentation are available on the investor relations page of the National Bank's website at the following address: www.nbc.ca/investorrelations. After the conference call, a recorded version of the event will be available on the Bank's web site.

A recording of the conference call can also be heard by calling 1-800-408-3053 or (416) 695-5800. The access code is 687438.

Financial Results

The National Bank earned income before goodwill charges of $143 million or 71 cents per share for the quarter ended January 31, 2001 compared to $122 million or 62 cents per share for the same period in 2000. Return on common shareholders' equity before goodwill charges was 16.1% for the quarter as against 15.3% for the first quarter of fiscal 2000.

Results by segment

Income for Personal Banking and Wealth Management amounted to $66 million for the first quarter of 2001, for an increase of $4 million or 6.5%. Total revenues for the quarter were up 5.6% to $475 million, largely due to the improvement in the spread, which went from 3.33% of average assets in the first quarter of 2000 to 3.54% this quarter. Moreover, as a result of improved productivity, operating expenses represented 71.6% of income for the first quarter of 2001 compared to 72.7% in the corresponding quarter of 2000.

With regard to Commercial Banking, earnings were up 5.3% to reach $40 million for the quarter as against $38 million for the same period in 2000. The rise was chiefly due to the spread, which was 13 basis points wider this quarter, while operating expenses remained relatively stable in relation to income.

For Financial Markets, Treasury and Investment Banking, income before goodwill charges totalled $47 million for the quarter ended January 31, 2001, up 62% over the $29 million recorded for the corresponding period last year. This significant growth was attributable to the combined effect of a $36 million or 26% rise in income and an increase in operating expenses of only 2.4%. In fact, the increase in income for the quarter stemmed primarily from corporate lending activities and from asset and liability matching operations. Furthermore, the different mix of revenue sources for this quarter versus the first quarter of fiscal 2000 had a favourable impact on operating expenses. As a result, the productivity ratio for Financial Markets, Treasury and Investment Banking was 50% for the first quarter of 2001 compared to 61.6% for the same period a year earlier.

Revenues

Total revenues, on a taxable equivalent basis, reached $795 million for the quarter, up $46 million or 6.1% from the $749 million posted in the first quarter of 2000.

Net interest income totalled $364 million versus $325 million for the corresponding period in 2000, an increase of 12%. The rise was chiefly due to the improvement in the spread for the Personal Banking, Commercial Banking and Corporate Banking sectors.

Other income amounted to $431 million as against $424 million for the first quarter of 2000, for an increase of 1.7%.

Operating expenses

Operating expenses for the first quarter of 2001 were $494 million compared to $492 million for the corresponding period of 2000, up only 0.4%. At $273 million, salaries and staff benefits were down $7 million mainly attributable to the variable remuneration paid by subsidiary National Bank Financial. Professional fees rose $8 million due to the outsourcing of information technology development. Operating expenses as a percentage of total revenues went from 65.6% in the first quarter of 2000 to 62.1% this quarter.

Loan losses and impaired loans

The provision for credit losses for the quarter was $59 million compared with $46 million for the first quarter of 2000. The provision represented one quarter of the estimated credit losses of $236 million for fiscal 2001.

Impaired loans as at January 31, 2001 stood at $54 million as against $44 million a year earlier. Impaired loans increased by $28 million for Commercial Banking in the United States and by $15 million for Personal Banking, while they declined by $25 million for Commercial Banking in Canada.

Assets

The Bank had total assets of $75.2 billion at the end of the first quarter of 2001 compared with $73.5 billion as at January 31, 2000. Residential mortgages declined by approximately $600 million because growth of some $700 million was more than offset by the securitization of $1.3 billion in mortgage loans. Moreover, the Bank securitized consumer loans amounting to $670 million and $50 million in credit card advances, which accounted for part of the decline in personal loans. The remainder of the decrease was attributable to the Bank's decision to eliminate certain less profitable products.

Savings

Total personal savings administered by the Bank stood at $63 billion as at January 31, 2001, up $4.7 billion in 12 months. National Bank Financial was responsible for $4 billion of this increase.

Capital

Tier 1 and total capital ratios, in accordance with the rules of the Bank for International Settlements, were 8.8% and 12.1%, respectively, compared to 7.6% and 10.8% as at January 31, 2000. The improvement in the capital ratios was mainly attributable to the issuance of $300 million in subordinated debentures and the securitization of approximately $670 million in consumer loans.

Moreover, the Bank redeemed $20 million of subordinated debentures convertible into common shares for an aggregate consideration of $65 million. The difference between the amount paid and the book value, net of income taxes, was charged to retained earnings. These debentures were no longer included in regulatory capital.

Dividends

At its meeting on February 22, 2001, the Board of Directors declared regular dividends on the various classes and series of preferred shares, as well as a dividend of 21 cents per common share, payable on May 1, 2001 to shareholders of record on March 22, 2001.

For more information ( the telephone numbers are for the exclusive use of journalists and other media representatives ) :

Refer to Note 26 on page 79 of the 1999 Annual Report for information on the impact of the adjustment to the general allowance for credit risk as at October 31, 1998.

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.