National Bank posts record earnings of over half a billion dollars in fiscal 2000, for an increase of 24%

National Bank of Canada today announced its results for the fourth quarter and year ended October 31, 2000. Highlights of these results are provided below. More detailed results are contained in the attached tables.

For the quarter:

• Income before goodwill charges of $138 million or 68 cents per share, up 20% in 12 months and 4% from the third quarter.
• Return on common shareholders' equity before goodwill charges of 15.8% as against 15.1% for the corresponding quarter of 1999.
• Total income, on a taxable equivalent basis, of $795 million, for an increase of 22% over the fourth quarter of 1999.

For the year:

• Income before goodwill charges of $531 million or $2.66 per share, up 24% from a year ago.
• Return on common shareholders' equity before goodwill charges of 16% as against 15.5% for fiscal 1999.
• Total income, on a taxable equivalent basis, of $3.3 billion, for an increase of 28% over fiscal 1999.
• Tier 1 and total capital ratios of 8.7% and 11.4% respectively as at October 31, 2000 compared to 7.7% and 11% a year earlier.

Mr. Bérard, Chairman of the Board and Chief Executive Officer, commented on the Bank's results for fiscal 1999-2000 by affirming that "we pursued our plans for restructuring our internal organization and managing our operations, with the result that our employees are able to focus more on the quality of their relations with clients. We also revamped our product and service offerings for our varied clientele. It is therefore not surprising," he concluded, "that these actions contributed to our solid results, of which we can be very proud. The National Bank is now in a better position than ever to tackle the challenges that lie ahead."

For the fourth quarter ended October 31, 2000, the National Bank reported income before goodwill charges of $138 million or 68¢ per share, up from $115 million or 59¢ per share for the same period of fiscal 1999. Return on common shareholders' equity before goodwill charges was 15.8% for the quarter, compared to 15.1% for the corresponding quarter of fiscal 1999.

For fiscal 2000, income before goodwill charges surpassed the half-billion dollar mark to reach $531 million or $2.66 per share, up 24% from $428 million or $2.30 per share for fiscal 1999. Return on common shareholders' equity was 16% for the year as against 15.5% for fiscal 1999.

The fourth quarter was notable for many initiatives that illustrate the National Bank's commitment to developing and strengthening its ties with clients. They include measures taken to further develop electronic distribution networks, the launch of a new advertising campaign which focuses on the quality of the Bank's relationship with its clients, and the introduction of new products. Here is a brief recap:

• In October, the Bank kicked off a new promotional campaign (print and TV ads) under the theme "Be in a better position". The main goal of this campaign is to reach a target clientele consisting of active individuals with sizeable assets or superior savings and investment potential. The theme is designed to remind clients that the National Bank has many tangible advantages to offer them thanks to the quality of the integrated financial solutions it has developed.
• In May, National Bank Securities Inc., a wholly-owned subsidiary of the National Bank, announced that it had signed a partnership agreement with Fidelity Investments Canada Limited. This agreement will lead to the creation and distribution of new National Bank/Fidelity funds, which will complement the National Bank Mutual Funds family. Under the terms of the agreement, Fidelity will also make its training expertise available to the National Bank's network of financial advisors. The National Bank will gain from this partnership mainly through the pooling of resources and the expanded line of investment products it can offer.
• Since August, as a result of a partnership with Bell Mobility, National Bank Discount Brokerage clients have been able to access their investments in real time via their cell phone, wherever they happen to be. For instance, they can:
  • buy and sell stocks;
  • check stock prices and indexes and the exchange rate of various currencies;
  • obtain news on stocks; and
  • obtain account-related information (balance, account positions, outstanding orders).
• In September, the National Bank received an Iris award for organizational change from the Order of industrial relations consultants in Quebec. The award, which recognizes the work of professionals belonging to the Order who have contributed to a major organizational change, was presented to the National Bank for the human resources certification program it launched in 1997. This program was created in response to the transformation of the banking industry and clients' growing need for advisory services. It primarily seeks to improve training for Bank personnel and retain the most valuable employees in terms of both performance and expertise. Quantifying human resources management practices in this way marks a first among Canadian businesses.

Results by segment

Income for Personal Banking and Wealth Management amounted to $67 million for the fourth quarter of 2000, for an increase of $14 million or 26%. For the year, this segment's income reached $258 million, representing a gain of 43%. Total revenues for the year were up 20% to $1,883 million, largely due to higher personal loan and deposit volumes, brokerage income from National Bank Financial and the correspondent network acquired last year. Moreover, as a result of improved productivity, operating expenses represented 72.5% of total income for fiscal 2000 compared to 75.5% in 1999.

Commercial Banking earnings reached $39 million for the quarter as against $33 million for the same period in 1999, for an increase of 18%. These results brought income for the year to $155 million, up $22 million or 17% from a year ago. The approximately $1 billion growth in the volume of loans and acceptances, and an improvement in the spread, which went from 2.50% of average assets in 1999 to 2.56% this year, were responsible for the increase.

For Financial Markets, Treasury and Investment Banking, income before goodwill charges doubled versus the fourth quarter of fiscal 1999 to reach $48 million, mainly owing to trading activities and gains on securities. For fiscal 2000, income for this segment was $173 million, for an increase of $55 million or 47%. Total revenues rose to $674 million from $402 million in 1999, for an increase of 68% chiefly attributable to the inclusion of First Marathon income over a full year and growth in capital market and trading activities.

Revenues

Total revenues on a taxable equivalent basis reached $795 million for the quarter, up $144 million, or 22% from the $651 million posted in the fourth quarter of 1999.

Net interest income totalled $317 million versus $327 million for the corresponding period in 1999. The decrease in net interest income was due to asset securitization as well as new treasury activities that generate other income, while funding costs are deducted from net interest income.

Other income amounted to $478 million as against $324 million for the fourth quarter of 1999, for an increase of almost 48% which was primarily attributable to trading income and gains on securities, capital market activities and lending fees.

Excluding the gain on the sale of a subsidiary, total revenues on a taxable equivalent basis for fiscal 2000 reached $3,168 million, up $586 million or 23% over the $2,582 million recorded for 1999. The increase stemmed from capital market fees (particularly as 12 months of income from the acquisition of First Marathon was included), growth in personal and commercial banking activities and trading income.

The Bank also realized a gain of $105 million ($136 million on a taxable equivalent basis) on the sale of SIBN Inc., its information technology subsidiary, to Cognicase Inc. in exchange for common shares.

Operating expenses

Operating expenses for the fourth quarter of 2000 amounted to $507 million compared to $419 million for the corresponding period in 1999. Excluding one-time charges of $120 million, operating expenses for the year were $2,064 million as against $1,662 million for 1999. Salaries and staff benefits, including variable remuneration at National Bank Financial, accounted for almost 70% of the increase. The balance was attributable to information technology costs, professional fees (particularly due to the outsourcing of information technology development) and capital taxes.

During the year, the Bank recorded expenses totalling $120 million mainly for projects designed to reduce costs and to accelerate development of its electronic infrastructure.

Loan losses and impaired loans

The provision for credit losses for the year was $200 million compared with $185 million in 1999. Loan losses represented 0.45% of average loans and acceptances for fiscal 2000 versus 0.43% in 1999.

Impaired loans as at October 31, 2000 stood at $44 million as against $42 million a year earlier. Impaired loans rose by $21 million for Commercial Banking in the United States and $20 million for Corporate Banking. These increases were substantially offset by a reduction of $22 million for Personal Banking and Small Businesses, $7 million for Real Estate and $7 million for Commercial Banking in Canada.

Assets

The Bank had total assets of $75.8 billion as at October 31, 2000 compared with $69.8 billion as at October 31, 1999. Cash resources and securities as well as securities purchased under resale agreements were up by $3.9 billion. Residential mortgage loans increased by approximately $800 million while commercial loans in Canada and in the United States as well as corporate loans rose by $400 million each. Moreover, the Bank securitized mortgage loans totalling $1.8 billion.

Savings

Total personal savings administered by the Bank stood at $64 billion as at October 31, 2000, up $7.8 billion in 12 months. National Bank Financial was responsible for 82% of this increase.

Capital

Tier 1 and total capital ratios, in accordance with the rules of the Bank for International Settlements, were 8.7% and 11.4%, respectively, compared to 7.7% and 11% as at October 31, 1999. A number of operations to improve the Bank's capital ratios were completed during the year, including the issuance of $175 million of preferred shares in July 2000, the insuring of conventional mortgages for an approximate amount of $2 billion, and the securitization of approximately $1 billion of mortgages on properties with five or more units. The impact of the issuance of $350 million of debentures in June 2000 was offset by the conversion of $250 million of debentures into deposit notes as well as the reduced eligibility of debentures maturing within five years under capital adequacy rules.

Dividends

At its meeting on November 30, 2000, the Board of Directors declared regular dividends on the various classes and series of preferred shares, as well as a dividend of 19¢ per common share, payable on February 1, 2001 to shareholders of record on December 28, 2000.

André Bérard, Chairman of the Board and Chief Executive Officer, stated that in his opinion, "The results for the year demonstrate, beyond any doubt, the merit and appropriateness of the decisions we made during the year, and that they were necessary given our commitment to the future development of our institution. These decisions are in fact decisions for the future. The National Bank has all the advantages needed to tackle the changes that financial markets and the entire banking industry are experiencing. Two of particular importance to us are our sound financial position and our strong, dedicated team."

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

A conference call for financial analysts will be broadcast live via the Internet on November 30, 2000 at 2 p.m. Supplementary financial information as well as a slide presentation are available on the investor relations page of the National Bank's web site 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.

Investors can also hear a recording of the conference call by calling 1-800-408-3053 or (416) 695-5800. The access code is 607521.

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.