NATIONAL BANK OF CANADA
TSX : NA

NATIONAL BANK OF CANADA

November 30, 2006 09:30 ET

National Bank: A Vigorous Fourth Quarter Yields Record Net Income for Fiscal 2006

- Financial objectives for the quarter and the fiscal year achieved or exceeded - Diluted earnings per share for the quarter increased 9% - Shareholders' equity reached 19.7% for the quarter - Quarterly dividend at 54 cents, increase of 13% in a year - Target dividend payout range increased

MONTREAL, QUEBEC--(CCNMatthews - Nov. 30, 2006) - National Bank (TSX:NA) today released its earnings report for the fourth quarter of 2006 and for its fiscal year ended October 31, 2006.

During the quarter, total revenues of the Bank expanded 6%, to $984 million on the strength of increased business in the Personal and Commercial Banking and Financial Markets segments. Net income increased 6% to $220 million. Excluding the reduction in the general allowance for credit risk in the fourth quarter of 2005, net income grew $29 million, or 15%. Diluted earnings per share (EPS) improved 9% to stand at $1.31. Excluding the reduction in the general allowance in Q4 2005, diluted EPS increased 19%.

For fiscal 2006, total revenues were up 4% to $3.8 billion, driven by the growth in the Bank's three business segments. Net income was up $16 million to a record $871 million. Excluding specified items, i.e., the gain related to the MasterCard Inc. IPO, the net gain on the sale of shareholder management activities in 2006, the gain on the disposal of investments in South America and the reduction in the general allowance in 2005, net income for fiscal 2006 was $54 million, or 7%, higher than the previous fiscal year. Moreover, diluted EPS increased 5% to $5.13. Excluding the specified items, diluted EPS stood at $5.05, or 10% higher.

"All of our financial targets have been achieved or exceeded through disciplined implementation of strategies at all levels of the organization. The rigour with which we executed these strategies drove the robust growth of our core business activities with individuals and businesses, and the substantially higher profitability in our Wealth Management and Financial Markets segments. As a result, the Bank posted record net income in fiscal 2006, which puts it in a strong position to continue creating value for its shareholders and maintaining balance among all stakeholders who are partners in its success," confirmed Real Raymond, President and Chief Executive Officer.

Highlights

- Increase in the target dividend payout range from 35% - 45% to 40% - 50% and increase in the quarterly dividend of 4 cents, to $0.54.

- Diluted EPS of $1.31 in Q4 2006, or 9% growth; excluding the reduction in the general allowance in Q4 2005, diluted EPS increased 19%.

- Improvement of 6% in total revenues in Q4 2006 to $984 million; total revenues for fiscal 2006 ahead 4% to $3.8 billion.

- Record net income of $871 million for fiscal 2006, up $16 million over the preceding fiscal year.

- Diluted earnings per share of $5.13 during the year, growth of 5% over fiscal 2005; the increase is 10% when the specified items for 2005 and 2006 are excluded.

Personal and Commercial

- Growth of 7% in total revenues at Personal and Commercial in Q4 2006 as a result of sustained growth in loan and deposit volumes compared to the corresponding quarter of 2005.

- Continued improvement in Q4 2006 in the net interest margin, which returned to its Q4 2005 level.

- Increase in segment net income of 8% for fiscal 2006 to $479 million, compared to $443 million in 2005, due to improved productivity and business growth.

Wealth Management

- Increase in segment net income from $26 million in Q4 2005 to $29 million in Q4 2006.

- Marked improvement in segment productivity as a result of the decline in the efficiency ratio from 77.3% for fiscal 2005 to 74.0% in 2006.

- Rapid growth in segment net income during fiscal 2006 to $143 million, up 29% from 2005.

- Year-over-year increase of 14% in deposits and off-balance sheet savings, which reached $74.9 billion, on the strength of the growth in assets administered by brokerage services, mutual funds and private investment management.

Financial Markets

- Segment revenue growth of 24% in Q4 2006 on higher trading revenues, financial market fees and gains on securities.

- Segment net income up 16% to $283 million for fiscal 2006, a record high.

- Notable progression in segment productivity as a result of the decrease in the efficiency ratio, which went from 60.7% for fiscal 2005 to 57.7% in 2006.



---------------------------------------------------------------------
(unaudited) Quarter ended October 31
----------------------
(millions of dollars) 2006 2005 %
----------------------
Personal and Commercial 124 110 +13
Wealth Management 29 26 +12
Financial Markets 75 52 +44
Other (8) 19 --
-------------
Net income 220 207 +6
Less specified items:
- gain related to the MasterCard IPO -- --
- net gain on the sale of shareholder
management activities -- --
- gain on the disposal of investments
in South America -- --
- reduction in the general allowance
for credit risk -- (16)
-------------
Net income excluding specified items 220 191 +15
-------------
-------------

Diluted earnings per share $1.31 $1.20 +9
Less specified items:
- gain related to the MasterCard IPO -- --
- net gain on the sale of shareholder
management activities -- --
- gain on the disposal of investments
in South America -- --
- reduction in the general allowance
for credit risk -- (0.10)
-------------
Diluted earnings per share
excluding specified items $1.31 $1.10 +19
-------------
-------------

Return on common shareholders' equity 19.7% 19.4%
-------------
-------------


(unaudited) Fiscal year ended October 31
----------------------
(millions of dollars) 2006 2005 %
----------------------
Personal and Commercial 479 443 +8
Wealth Management 143 111 +29
Financial Markets 283 244 +16
Other (34) 57 --
-------------
Net income 871 855 +2
Less specified items:
- gain related to the MasterCard IPO (9) --
- net gain on the sale of shareholder
management activities (5) --
- gain on the disposal of investments
in South America -- (25)
- reduction in the general allowance
for credit risk -- (27)
-------------
Net income excluding specified items 857 803 +7
-------------
-------------

Diluted earnings per share $5.13 $4.90 +5
Less specified items:
- gain related to the MasterCard IPO (0.05) --
- net gain on the sale of shareholder
management activities (0.03) --
- gain on the disposal of investments
in South America -- (0.15)
- reduction in the general allowance
for credit risk -- (0.17)
-------------
Diluted earnings per share
excluding specified items $5.05 $4.58 +10
-------------
-------------

Return on common shareholders' equity 20.1% 20.7%
-------------
-------------

----------------------------------------------------------------
Financial Objectives Objectives Results Results
4th quarter Fiscal
2006 2006
Growth in diluted earnings
per share excluding
specified items 5% -- 10% 19% 10%
Return on common
shareholders' equity 16% -- 18% 19.7% 20.1%
Tier 1 capital ratio More than 8.5% 9.9% 9.9%
Dividend payout ratio 35% -- 45% 38% 38%
----------------------------------------------------------------


Caution regarding forward-looking statements

From time to time, National Bank of Canada makes written and oral forward-looking statements in this quarterly report, in other filings with Canadian regulators or the United States Securities and Exchange Commission, in reports to shareholders, in press releases and in other communications. All such statements are made pursuant to Canadian securities regulations and the 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, 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, the management of credit, market and liquidity risks; the strength of the Canadian and United States economies and the economies of other countries in which the Bank conducts business; the impact of the movement of the Canadian dollar relative to other currencies, particularly the U.S. dollar; the effects of changes in monetary policy, including changes in interest rate policies of the Bank of Canada; the effects of competition in the markets in which the Bank operates; the impact of changes in the laws and regulations regulating financial services and enforcement thereof (including banking, insurance and securities); judicial judgments and legal proceedings; the Bank's ability to obtain accurate and complete information from or on behalf of its clients or counterparties; the Bank's ability to successfully realign its organization, resources and processes; its ability to complete strategic acquisitions and integrate them successfully; changes in the accounting policies and methods the Bank uses to report its financial condition, including uncertainties associated with critical accounting assumptions and estimates; operational and infrastructure risks; other factors that may affect future results, including changes in trade policies, timely development of new products and services, changes in estimates relating to reserves, changes in tax laws, technological changes, unexpected changes in consumer spending and saving habits; natural disasters; the possible impact on the business from public health emergencies, conflicts, other international events and other developments, including those relating to the war on terrorism; and the Bank's success in anticipating and managing the foregoing risks.

Additional information about these factors can be found under "Risk Management," "Risk Management Framework," "Credit Risk Management," "Market Risk Management," "Liquidity Risk Management," "Operational Risk Management," and "Factors that could affect future results" in the 2005 Annual Report.

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 also cautions readers not to place undue reliance on these forward-looking statements.

Management's Discussion and Analysis of Financial Condition and Operating Results

November 30, 2006 -- 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 Multilateral Instrument 51-102 respecting Continuous Disclosure Obligations of the Canadian Securities Administrators and is based on the unaudited interim consolidated financial statements for the fourth quarter of fiscal 2006 and the unaudited consolidated financial statements for fiscal 2006. Additional information about National Bank of Canada, including the Annual Information Form, can be obtained from the SEDAR website at www.sedar.com and the Bank's website at www.nbc.ca.

Analysis of Results

Consolidated Results

National Bank recorded net income of $220 million in the fourth quarter of fiscal 2006, up 6% from $207 million for the same period of 2005. Excluding the reduction in the general allowance for credit risk in the fourth quarter of 2005, net income increased $29 million or 15%. For fiscal 2006, the Bank posted record net income of $871 million, an increase of $16 million over 2005. Had it not been for specified items, i.e., the gain related to the IPO of MasterCard Inc., of which the Bank is a shareholder, the net gain on the sale of shareholder management activities in 2006, and the gain on the disposal of investments in South America and the reduction in the general allowance in 2005, net income would have risen $54 million, or 7%, over the preceding year.

Diluted earnings per share amounted to $1.31 in the fourth quarter of 2006, up 9% from $1.20 for the same period of 2005. Excluding the reduction in the general allowance in the fourth quarter of 2005, diluted earnings per share increased 19%. Diluted earnings per share in fiscal 2006 were $5.13, up 5%. Excluding specified items, diluted earnings per share grew 10% from period to period to $5.05.

Return on common shareholders' equity was 19.7% in the fourth quarter, 30 basis points higher than for the year-earlier period. For fiscal 2006, return on equity stood at 20.1%, compared to 20.7% in 2005.

Total Revenues

The Bank's total revenues rose 6% in the fourth quarter of 2006 to reach $984 million, as against $931 million in the fourth quarter of 2005. Personal and Commercial net interest income advanced $21 million, or 6.3%, to stand at $354 million for the quarter, owing to higher loan and deposit volumes. This increase was accompanied by an ongoing improvement in the net interest margin as it returned to its fourth quarter 2005 level -- a trend that began in the second quarter. Over the past few quarters, the widening of the spread on deposits has completely offset the narrowing of the spread on loans.

Other income in the fourth quarter totalled $679 million, versus $527 million for the corresponding quarter of 2005. Financial market fees amounted to $167 million for the quarter, an increase of $1 million over the same period of 2005. The modest decline in retail brokerage activities was fully offset by business growth in the Financial Markets institutional group.

Trading revenues, recorded in both net interest income and other income, rose $22 million from the fourth quarter of 2005 to the same quarter of 2006. Gains on investment account securities stood at $50 million for the quarter, as against $4 million for the year-earlier period. Two thirds of the increase stemmed from financial market activities. Revenues from mutual funds and trust services climbed $3 million from the fourth quarter of 2005 to reach $77 million in the fourth quarter of 2006, mainly on the strength of growth in private investment management and mutual funds.

Aside from these items, the increase in other income in the fourth quarter was derived from securitization revenues, which grew $7 million, foreign exchange revenues, which were up $6 million, and other revenues, which climbed $16 million. Commissions on loans and bankers' acceptances, on the other hand, were down $6 million to $74 million.

Total revenues grew 3.8% during fiscal 2006 to reach $3,845 million, versus $3,703 million in the corresponding period of 2005. Personal and Commercial net interest income advanced $68 million, or 5.2%, to $1,367 million in fiscal 2006. This advance was driven by the 8% growth in loans, which was, however, partly offset by a 7-basis-point narrowing of the spread. Compared to the same period of 2005, trading revenues rose $5 million to $364 million; gains on securities, $89 million to $180 million, including the gain related to the MasterCard Inc. IPO; and revenues from trust services and mutual funds, $43 million to $324 million. Similarly, other revenues, foreign exchange revenues and lending fees increased $94 million. Securitization revenues declined $19 million to $175 million and financial market fees decreased $53 million to $629 million.

Operating Expenses

In the fourth quarter of 2006, operating expenses were $687 million, up $41 million from the year-earlier period. Salaries and staff benefits increased $17 million to $388 million owing to business growth. The ratio of salaries and staff benefits to operating expenses fell 1% to 56%. Technology expenses were down $6 million and professional fees, $3 million to $43 million. Changes in these expenses depend on the completion schedule for technological development projects.

For fiscal 2006, operating expenses were up 3.6% to $2,588 million. Salaries and staff benefits rose $28 million, or 2%, with the decrease in variable compensation offsetting the increase in regular salaries and pension plan costs. The ratio of salaries and staff benefits to operating expenses was down 1% from fiscal 2005 to 57% in 2006. Technology expenses were up $7 million and professional fees, $9 million. The $48 million increase in other expenses resulted from, among other things, higher capital and payroll tax payments. This increase was partly offset by the reduction in communications expenses.

Income Taxes

Income taxes for the fourth quarter of 2006 totalled $44 million, representing an effective tax rate of 16.0%, compared to $72 million and an effective tax rate of 25.3% for the year-earlier period. The tax rate for the fourth quarter of 2006 was affected by the increase in tax-exempt income from securities. For fiscal 2006, income taxes amounted to $277 million, for an effective tax rate of 23.5%, as against $291 million and an effective tax rate of 24.9% for the corresponding period of 2005.

Results by Segment

Personal and Commercial

Net income for the Personal and Commercial segment totalled $124 million for the fourth quarter of 2006, up 13% from the $110 million in net income earned in the corresponding quarter of 2005. Total revenues for the segment grew 7% to $565 million. At Personal Banking, total revenues climbed $29 million, or 8%, owing to the $2.4 billion growth in average assets, attributable to higher volumes of consumer loans and residential mortgages. The increase in revenues stemming from higher loan volumes was accompanied by a stabilization of the net interest margin between the fourth quarter of 2005 and the fourth quarter of 2006. The improvement in the net interest margin on transaction deposits fully offset the narrower spread on credit products. The wider spread on transaction deposits resulted from the rise in interest rates during the fiscal year. Moreover, insurance revenues continued to grow primarily on the strength of gains realized on securities. Total revenues at Commercial Banking were up $8 million, or 4%, owing to the growth in net interest income because of the increase in loans and acceptances and foreign exchange revenues. The net interest margin at Commercial Banking rose slightly between the fourth quarter of 2005 and same period of 2006 thanks to the wider spread on deposits, which fully offset the narrower spread on credit products.

Operating expenses for the Personal and Commercial segment were $344 million in the fourth quarter of 2006, as against $324 million for the year-earlier period. The efficiency ratio improved to 60.9% in the quarter from 61.4% for the same quarter of 2005. The segment's provision for credit losses was reduced $5 million for a total of $33 million due to a higher recovery rate for Commercial Banking.

For fiscal 2006, the Personal and Commercial segment posted net income of $479 million, an 8% increase over the $443 million recorded for the same period of 2005. Total revenues for the segment rose 6% to $2,173 million on growth of $92 million, or 7% at Personal Banking and $33 million, or 5%, at Commercial Banking. The efficiency ratio moved down to 61.2% in fiscal 2006 from 61.8 % for the previous year. Provisions for credit losses for the segment were increased $4 million, or 3%, for a total of $121 million. This slight increase was attributable to higher provisions at Personal Banking, primarily for credit cards, which were almost entirely offset by the higher recovery rate at Commercial Banking.

Wealth Management

Net income for the Wealth Management segment totalled $29 million in the fourth quarter of 2006, compared to $26 million for the corresponding quarter of 2005, for an increase of 12%. The segment's total revenues advanced $5 million to $210 million for the quarter ended October 31, 2006. A slowdown in the new issue market which reduced slightly on revenues for Individual Investor Services at National Bank Financial was offset by growth in private investment management and mutual funds. Operating expenses for the quarter were up $3 million, or 2%, to $163 million. The efficiency ratio dropped from 78.0% in the fourth quarter of 2005 to 77.6% this quarter.

For fiscal 2006, net income for the Wealth Management segment reached $143 million, versus $111 million for the same period of 2005, for an increase of 29%. During the fiscal year, the segment recorded a $5 million gain net of income tax following the sale of its shareholder management activities. The segment's total revenues climbed 7% to $858 million in fiscal 2006. Operating expenses edged up barely 2% to $635 million. As a result, the efficiency ratio greatly improved to 74.0% during the year from 77.3% as at October 31, 2005.

Financial Markets

The Financial Markets segment posted net income of $75 million in the fourth quarter of 2006, up $23 million or 44% from the corresponding quarter of 2005. Total revenues for the segment rose $58 million, or 24%, to $296 million. Trading revenues reached $112 million in the quarter, up $29 million from the fourth quarter of 2005. Financial market fees climbed $10 million, or 14%, on the strength of increased merger and acquisition activities. In addition, gains on securities amounted to $36 million, as against $7 million a year earlier.

Operating expenses for the quarter were $174 million, up $23 million from the fourth quarter of 2005, owing to higher compensation related to business growth and expenses associated with the acquisition of Credigy Ltd. during the year. Provisions for credit losses for the quarter were $1 million, down from $4 million in the year-earlier period.

For fiscal 2006, the segment's net income totalled $283 million, up $39 million, or 16%, over fiscal 2005. Total revenues for Financial Markets grew $78 million, or 8%, to $1,058 million. Trading revenues amounted to $352 million in 2006, for a $9 million increase versus 2005. Gains on securities represented $152 million, up from $56 million a year earlier. Given the strong equity market, gains were earned on investments and private placements. These gains were partially tempered by the decline in capital market fees during a record year when mergers and acquisitions only offset in part the reduced number of income trust IPOs. Operating expenses for fiscal 2006 were $610 million, up less than 3% from 2005. Consequently, the efficiency ratio dropped from 60.7% in 2005 to 57.7% in 2006, an improvement stemming from cost control measures and a migration of revenue streams toward activities with lower commissions. Provisions for credit losses in fiscal 2006 amounted to $4 million, half the level of the previous fiscal year.




Financial Market Revenues
(taxable equivalent basis (1)) Q4 Q4 Fiscal Fiscal
(millions of dollars) 2006 2005 2006 2005
Trading revenues
Equity 95 43 276 244
Interest rate 12 30 51 71
Commodity and foreign exchange 5 10 25 28
-------------------------------------------------------
112 83 352 343
Financial market fees 83 73 269 302
Gains on securities 36 7 152 56
Banking services 35 37 132 139
Other 30 38 153 140
-------------------------------------------------------
Total 296 238 1,058 980
-------------------------------------------------------
-------------------------------------------------------

(1) Taxable equivalent basis is a calculation method that consists in
grossing up certain tax-exempt income by the amount of income tax that
otherwise would have been payable. The use of the taxable equivalent
basis is not in accordance with GAAP. Securities regulators require that
companies caution readers that measures adjusted on a basis other than
GAAP do not have standardized meanings under GAAP and may not be
comparable to similar measures used by other companies. Please refer to
Note 12 to the unaudited interim consolidated financial statements for
the impact of the taxable equivalent adjustment to segment results.


Other

The "Other" heading of segment results recorded a loss of $8 million for the fourth quarter of 2006, compared to net income of $19 million for the same period a year earlier. The difference was mainly attributable to a $25 million reversal ($16 million after income tax) of the general allowance in the fourth quarter of 2005. For fiscal 2006, the "Other" heading recorded a loss of $34 million, as against a gain of $57 million for the corresponding period of 2005, when the Bank recorded a $37 million pre-tax gain ($25 million after income tax) on the disposal of investments and reversed $42 million ($27 million after income tax) of the general allowance for credit risk. In 2006, the $13 million pre-tax gain related to the MasterCard Inc. IPO partially mitigated the impact of the $20 million decline in securitization revenues.

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 in certain activities, such as trading activities, and could impact several assets and liabilities, such as trading account securities, securities sold short or securities sold under repurchase agreements.

For the fourth quarter of 2006, cash and cash equivalents were up $1.7 billion after having decreased by the same amount in the fourth quarter of 2005. As at October 31, 2006, cash and cash equivalents totalled $10.9 billion versus $6.3 billion a year earlier.

The increase in trading account securities explains most of the $3.2 billion required for operating activities in the fourth quarter of 2006. For the corresponding quarter of 2005, operating activities required $0.6 billion. The decline in trading account securities generated $1.6 billion, which partly reduced the funds required for the $2.1 billion increase in other items, primarily amounts in the settlement process.

Financing activities in the fourth quarter of 2006 provided cash inflows of $6.3 billion owing to a $3.9 billion increase in deposits, mostly in purchased funds, and a $1.9 billion increase in securities sold under repurchase agreements. For the fourth quarter of 2005, financing activities required cash of $2.2 billion because of the reduction in securities sold short and securities sold under repurchase agreements.

Finally, investing activities required $1.4 billion in cash flows in the fourth quarter of 2006 while in the corresponding quarter of 2005, cash flows amounting to $1.1 billion were generated for investing activities primarily because variances in securities purchased under reverse repurchase agreements.

Risk Management

Credit Risk

For the fourth quarter of 2006, the Bank recorded provisions for credit losses of $22 million. In the corresponding quarter of 2005, specific provisions of $25 million had been offset by the reversal of $25 million of the general allowance for credit risk. Provisions for credit losses for fiscal 2006 were $77 million versus $33 million for the previous fiscal year. In 2005, specific provisions of $75 million had been partially offset by the reversal of $42 million of the general allowance for credit risk.

As at October 31, 2006, gross impaired loans stood at $234 million, compared to $260 million at the end of fiscal 2005. This decline was primarily due to the successful recovery of impaired business loans. The ratio of gross impaired loans to total adjusted capital and allowances was only 5.9% at the end of the fiscal year, compared to 6.8% a year earlier. As at October 31, 2006, allowances for credit losses exceeded gross impaired loans by $192 million versus $191 million as at October 31, 2005.

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. VaR is the maximum value of potential daily losses, measured at a 99% confidence level, which means that actual losses are likely to exceed VaR 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 61 of the 2005 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 For the quarter ended
October 31, 2006 July 31, 2006
Period High Average Low Period High Average Low
end end
Interest rate (4.1) (7.3) (4.3) (2.6) (3.3) (7.6) (4.2) (2.4)
Foreign
exchange (1.2) (1.7) (1.2) (0.5) (1.6) (1.9) (1.3) (0.8)
Equity (4.2) (6.7) (3.9) (2.6) (3.8) (4.2) (3.4) (2.3)
Commodity (1.4) (2.1) (1.2) (0.8) (1.0) (1.6) (1.1) (0.7)
Correlation
effect (2) 5.1 8.7 5.0 2.4 4.8 7.3 4.5 2.3
----------------------------------------------------------------------
Global VaR (5.8) (9.1) (5.6) (4.1) (4.9) (8.0) (5.5) (3.9)
----------------------------------------------------------------------

(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, 2006, the Bank had assets of $116.9 billion, up $8.9
billion from $108.0 billion at the end of fiscal 2005. Loans and
acceptances rose $3.2 billion. In addition, cash, deposits with
financial institutions, securities and securities purchased under
reverse repurchase agreements increased $6.8 billion. The table below
presents the main portfolios.

------------------------------------------------------------
Average monthly volumes October October
(millions of dollars) 2006 2005
---------------
Loans and acceptances(i)
Residential mortgages 21,461 20,728
Consumer loans 9,553 8,283
Credit card receivables 1,743 1,707
SME loans 15,091 14,182
Corporate loans 3,885 3,216
---------------
51,733 48,116
---------------
---------------
Deposits
Personal (balance) 29,164 26,385
Off-balance sheet personal savings (balance) 70,164 63,262
Business 12,035 11,103

(i) including securitized assets


Residential mortgage loans rose steadily to October 31, 2006, reaching $21.5 billion as against $20.7 billion in the year-earlier period. Consumer loans climbed 15% to $9.6 billion, primarily driven by secured lines of credit. Higher consumer spending also accounted for the increase in credit card receivables, which totalled $1.7 billion as at October 31, 2006. Business loans continued to grow, with average SME loan volumes up 6% year over year, to $15.1 billion as at October 31, 2006. Average volumes of corporate loans, for their part, rose $669 million to $3.9 billion.

Personal deposits stood at $29.2 billion as at October 31, 2006, up $2.8 billion or 11% from the year-earlier period, chiefly owing to deposits distributed by Altamira. Off-balance sheet personal savings administered by the Bank as at October 31, 2006 totalled $70.2 billion, an increase of $6.9 billion or 11% in a year. The rise was primarily attributable to savings administered by brokerage subsidiaries, with the remainder divided between private investment management and mutual funds.

Accounting Policies and Estimates

The interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). The reader is referred to Note 1 and Note 2a to the 2005 annual consolidated financial statements for more information on the significant accounting policies used to prepare the financial statements.

There have not been any changes to the Bank's significant accounting policies affecting the fiscal year ended October 31, 2006.

Details of significant future changes in accounting standards are presented in Note 2 to the interim consolidated financial statements.

The key assumptions and bases for estimates made by Management in accordance with GAAP and their impact on amounts presented in the interim consolidated financial statements and notes remain essentially unchanged from those described in the 2005 Annual Report.

Capital

Tier 1 and total capital ratios, according to the rules of the Bank for International Settlements, stood at 9.9% and 14.0%, respectively, as at October 31, 2006 versus 9.6% and 12.8% as at October 31, 2005, taking into account the $500 million in subordinated debentures issued on November 2, 2005 and 2006. During fiscal 2006, the Bank issued $225 million in innovative capital instruments and repurchased 5.1 million common shares for a total of $309 million as part of normal course issuer bids. Risk-weighted assets rose $1.1 billion during the fiscal year because of higher loan volumes and increased liquidities.


Dividends

At its meeting on November 30, 2006, the Board of Directors declared regular dividends on the various classes and series of preferred shares as well as a 4 cent increase in the dividend to 54 cents per common share, payable on February 1, 2007 to shareholders of record on December 28, 2006.



Additional Financial Information

(unaudited)
(millions of dollars except
per share amounts)
2006
--------------------------------------
Q4 Q3 Q2 Q1
--------------------------------------
Total revenues $984 $933 $949 $979
Net income 220 220 214 217

Earnings per share
Basic 1.33 1.32 1.29 1.28
Diluted 1.31 1.30 1.26 1.26

Dividends per common share 0.50 0.50 0.48 0.48

Return on common
shareholders' equity 19.7% 20.2% 20.4% 19.9%

Total assets $116,885 $108,645 $111,183 $105,276

Impaired loans, net 116 98 111 113

Per common share
Book value 27.17 26.57 25.77 25.72
Stock trading range
High 62.86 62.69 65.60 63.90
Low 58.26 56.14 61.35 58.35
--------------------------------------

(unaudited)
(millions of dollars except
per share amounts)
2005
--------------------------------------
Q4 Q3 Q2 Q1
--------------------------------------
Total revenues $931 $889 $900 $983
Net income 207 207 202 239

Earnings per share
Basic 1.22 1.20 1.17 1.39
Diluted 1.20 1.18 1.15 1.37

Dividends per common share 0.44 0.44 0.42 0.42

Return on common
shareholders' equity 19.4% 19.6% 19.9% 23.6%

Total assets $107,970 $110,593 $99,917 $91,703

Impaired loans, net 117 114 119 134

Per common share
Book value 25.39 24.70 24.19 23.97
Stock trading range
High 61.47 58.21 55.24 49.75
Low 55.87 51.60 48.72 46.39
--------------------------------------

(unaudited)
(millions of dollars except per share amounts)
2006 2005
--------------
Total Total
--------------
Total revenues $3,845 $3,703
Net income 871 855

Earnings per share
Basic 5.22 4.98
Diluted 5.13 4.90

Dividends per common share 1.96 1.72
Return on common
shareholders' equity 20.1% 20.7%


Highlights
Quarter ended Fiscal year
October 31 ended October 31
---------------------------------------------
% %
(unaudited) 2006 2005 Change 2006 2005 Change
---------------------------------------------
Operating results
(millions of dollars)
Total revenues $984 $931 6 $3,845 $3,703 4
Net income 220 207 6 871 855 2
Return on common
shareholders' equity 19.7% 19.4% 20.1% 20.7%
---------------------------------------------

Per common share
Earnings - basic $1.33 $1.22 9 $5.22 $4.98 5
Earnings - diluted 1.31 1.20 9 5.13 4.90 5
Dividends declared 0.50 0.44 14 1.96 1.72 14
Book value 27.17 25.39 7
Stock trading range
High 62.86 61.47 65.60 61.47
Low 58.26 55.87 56.14 46.39
Close 61.25 59.14 61.25 59.14
----------------------------------------------
----------------------------------------------


Financial position October 31 October 31
(millions of dollars) 2006 2005
---------------------------
Total assets $116,885 $107,970 8
Loans and acceptances 50,488 47,311 7
Deposits 71,989 62,219 16
Subordinated debentures and
shareholders' equity 6,237 5,699 9
Capital ratios - BIS
Tier 1 9.9% 9.6%
Total(1) 14.0% 12.8%
Impaired loans, net of specific and
general allowances (192) (191)
as a % of loans and acceptances (0.4)% (0.4)%
Assets under administration/management 228,749 221,132
Total personal savings 99,328 89,647
Interest coverage 14.11 12.71
Asset coverage 4.01 4.73
Other information
Number of employees 16,972 16,890 -
Number of branches in Canada 451 457 (1)
Number of banking machines 801 788 2
---------------------------
---------------------------

(1) Taking into account the issuances of $500 million of subordinated
debentures on November 2, 2006 and 2005.



Consolidated Statement of Income
Quarter ended Fiscal year ended
---------------------------------------------
(unaudited) October July October October October
31 31 31 31 31
(millions of dollars) 2006 2006 2005 2006 2005
--------------------------------------------
Interest income
Loans 720 687 568 2,648 2,122
Securities 260 236 189 960 739
Deposits with financial
institutions 96 83 67 314 193
--------------------------------------------
1,076 1,006 824 3,922 3,054
--------------------------------------------
Interest expense
Deposits 558 433 265 1,877 1,109
Subordinated debentures 21 23 21 90 100
Other 192 142 134 663 404
--------------------------------------------
771 598 420 2,630 1,613
--------------------------------------------
Net interest income 305 408 404 1,292 1,441
--------------------------------------------

Other income
Financial market fees 167 139 166 629 682
Deposit and payment
service charges 53 53 52 208 201
Trading revenues (losses) 88 (39) 12 317 192
Gains on investment
account securities, net 50 60 4 180 91
Card service revenues 16 17 14 61 63
Lending fees 57 69 65 251 246
Acceptances, letters of
credit and guarantee 17 19 15 68 61
Securitization revenues 58 38 51 175 194
Foreign exchange revenues 26 25 20 98 76
Trust services and mutual
funds 77 83 74 324 281
Other 70 61 54 242 175
--------------------------------------------
679 525 527 2,553 2,262
--------------------------------------------
Total revenues 984 933 931 3,845 3,703
Provision for credit
losses 22 16 -- 77 33
--------------------------------------------
962 917 931 3,768 3,670
--------------------------------------------

Operating expenses
Salaries and staff
benefits 388 354 371 1,479 1,451
Occupancy 41 41 42 164 160
Technology 94 97 100 387 380
Communications 19 18 22 74 81
Professional fees 43 40 46 145 136
Other 102 84 65 339 291
--------------------------------------------
687 634 646 2,588 2,499
--------------------------------------------

Income before income
taxes and non-controlling
interest 275 283 285 1,180 1,171
Income taxes 44 58 72 277 291
--------------------------------------------
231 225 213 903 880
Non-controlling interest 11 5 6 32 25
--------------------------------------------
Net income 220 220 207 871 855
Dividends on preferred
shares 5 6 5 21 26
--------------------------------------------
Net income available to
common shareholders 215 214 202 850 829
--------------------------------------------
Number of common shares
outstanding (thousands)
Average - basic 161,969 161,927 165,176 162,851 166,382
Average - diluted 164,599 164,512 167,939 165,549 168,964
End of period 161,512 161,918 165,335 161,512 165,335
--------------------------------------------
Earnings per common share
(dollars)
Basic 1.33 1.32 1.22 5.22 4.98
Diluted 1.31 1.30 1.20 5.13 4.90
Dividends per common
share (dollars) 0.50 0.50 0.44 1.96 1.72
--------------------------------------------
--------------------------------------------


Consolidated Balance Sheet

(unaudited) October 31 July 31 October 31
(millions of dollars) 2006 2006 2005
--------------------------------
ASSETS

Cash 268 257 227
--------------------------------
Deposits with financial
institutions 10,611 9,029 10,087
--------------------------------

Securities
Investment account 6,814 7,865 6,869
Trading account 31,864 27,555 26,183
--------------------------------
38,678 35,420 33,052
--------------------------------
Securities purchased under reverse
repurchase agreements 7,592 5,954 7,023
--------------------------------
Loans (Notes 3, 4 and 5)
Residential mortgage 15,230 15,440 15,677
Personal and credit card 11,280 10,961 9,796
Business and government 20,679 19,946 19,047
--------------------------------
47,189 46,347 44,520
Allowance for credit losses (426) (424) (451)
--------------------------------
46,763 45,923 44,069
--------------------------------

Other
Customers' liability under
acceptances 3,725 3,598 3,242
Fair value of trading derivative
financial instruments 2,269 2,438 2,390
Premises and equipment 383 355 355
Goodwill 683 686 662
Intangible assets 177 177 178
Other assets 5,736 4,808 6,685
---------------------------------
12,973 12,062 13,512
---------------------------------
116,885 108,645 107,970
---------------------------------
---------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Personal 29,164 29,178 26,385
Business and government 33,998 29,097 29,878
Deposit-taking institutions 8,602 9,594 5,956
Deposit from NBC Capital Trust
(Note 6) 225 225 -
---------------------------------
71,989 68,094 62,219
---------------------------------

Other
Acceptances 3,725 3,598 3,242
Obligations related to securities
sold short 15,621 14,864 15,504
Securities sold under repurchase
agreements 9,517 7,620 12,915
Fair value of trading derivative
financial instruments 1,646 1,623 1,846
Other liabilities 7,574 6,023 6,058
---------------------------------
38,083 33,728 39,565
---------------------------------
Subordinated debentures (Note 7) 1,449 1,599 1,102
---------------------------------
Non-controlling interest 576 522 487
---------------------------------

Shareholders' equity
Preferred shares (Note 9) 400 400 400
Common shares (Note 9) 1,566 1,563 1,565
Contributed surplus (Note 10) 21 19 13
Unrealized foreign currency
translation adjustments (92) (82) (26)
Retained earnings 2,893 2,802 2,645
---------------------------------
4,788 4,702 4,597
---------------------------------
116,885 108,645 107,970
---------------------------------
---------------------------------



Consolidated Statement of Changes in Shareholders' Equity

(unaudited) Fiscal year ended October 31
------------------
(millions of dollars) 2006 2005
------------------
Preferred shares at beginning 400 375
Issuance of preferred shares, Series 16 -- 200
Redemption of preferred shares, Series 13 for
cancellation -- (175)
------------------
Preferred shares at end 400 400
------------------

Common shares at beginning 1,565 1,545
Issuance of common shares
Dividend Reinvestment and Share Purchase Plan 15 12
Stock Option Plan 35 46
Repurchase of common shares for cancellation
(Note 9) (48) (39)
Impact of shares acquired or sold for trading
purposes (1) 1
------------------
Common shares at end 1,566 1,565
------------------

Contributed surplus at beginning 13 7
Stock option expense (Note 10) 12 6
Stock options exercised (4) --
------------------
Contributed surplus at end 21 13
------------------

Unrealized foreign currency translation
adjustments at beginning (26) (10)
Losses on foreign exchange operations with a
functional currency other than the
Canadian dollar, net of income
taxes (66) (16)
------------------
Unrealized foreign currency translation
adjustments at end (92) (26)
------------------

Retained earnings at beginning 2,645 2,287
Net income 871 855
Impact of initial adoption of AcG-15 -- 1
Dividends
Preferred shares (21) (26)
Common shares (320) (286)
Premium paid on common shares repurchased for
cancellation (Note 9) (261) (185)
Other adjustments, net of income taxes (21) (1)
------------------
Retained earnings at end 2,893 2,645
------------------

Shareholders' equity 4,788 4,597
------------------
------------------



Consolidated Statement of Cash Flows

(unaudited) Quarter ended Fiscal year ended
October 31 October 31
-------------------------------------
(millions of dollars) 2006 2005 2006 2005
-------------------------------------
Cash flows from operating
activities
Net income 220 207 871 855
Adjustments for:
Provision for credit losses 22 -- 77 33
Amortization of premises and
equipment 21 16 69 63
Future income taxes 9 1 21 (31)
Translation adjustment on
foreign currency subordinated
debentures - (12) (3) (11)
Gains on sale of investment
account securities, net (50) (4) (180) (91)
Gains on asset securitization
and other transfers of
receivables, net (35) (36) (97) (125)
Stock option expense 4 1 12 6
Change in interest payable 127 (35) 185 (73)
Change in interest and
dividends receivable (108) (154) (45) 11
Change in income taxes payable (62) (2) 33 6
Change in net fair value
amounts of trading derivative
financial instruments 192 (86) (79) (195)
Change in trading account
securities (4,309) 1,562 (5,681) (5,622)
Change in other items 740 (2,080) 2,414 (2,143)
-------------------------------------
(3,229) (622) (2,403) (7,317)
-------------------------------------

Cash flows from financing
activities
Change in deposits 3,895 931 9,545 8,492
Issuance of deposit from NBC
Capital Trust -- - 225 -
Issuance of subordinated
debentures - - 500 350
Repurchase of subordinated
debentures (150) -- (150) (350)
Issuance of common shares 9 8 50 58
Issuance of preferred shares - - - 200
Repurchase of common shares
for cancellation (34) (175) (309) (224)
Repurchase of preferred shares
for cancellation -- -- -- (175)
Dividends paid on common
shares (80) (73) (311) (278)
Dividends paid on preferred
shares (5) (8) (21) (27)
Change in obligations related
to securities sold short 757 (1,272) 117 5,300
Change in securities sold
under repurchase agreements 1,897 (1,611) (3,398) 4,733
Change in other items (19) (16) (78) (19)
-------------------------------------
6,270 (2,216) 6,170 18,060
-------------------------------------

Cash flows from investing
activities
Change in deposits with
financial institutions
pledged as collateral 70 25 4,028 (3,594)
Change in loans (excluding
securitization) (1,682) (1,028) (5,092) (6,559)
Proceeds from securitization
of assets and other transfers
of receivables 820 848 2,321 3,069
Maturity of securitized assets - -- - (706)
Purchases of investment
account securities (25,333) (31,378) (126,404) (52,611)
Sales of investment account
securities 26,434 31,458 126,639 53,327
Change in securities purchased
under reverse repurchase
agreements (1,638) 1,247 (569) (2,527)
Consolidation of assets on
initial adoption of AcG-15 -- - -- (132)
Net acquisitions of premises
and equipment (49) (26) (97) (67)
--------------------------------------
(1,378) 1,146 826 (9,800)
-------------------------------------

Increase (decrease) in cash
and cash equivalents 1,663 (1,692) 4,593 943
Cash and cash equivalents at
beginning 9,206 7,968 6,276 5,333
-------------------------------------
Cash and cash equivalents at
end 10,869 6,276 10,869 6,276
-------------------------------------

Cash and cash equivalents
Cash 268 227 268 227
Deposits with financial
institutions 10,611 10,087 10,611 10,087
Less: Amount pledged as
collateral (10) (4,038) (10) (4,038)
-------------------------------------
10,869 6,276 10,869 6,276
-------------------------------------

Supplementary information
Interest paid 644 455 2,445 1,686
Income taxes paid 95 58 217 243
-------------------------------------
-------------------------------------



Notes to the Consolidated Financial Statements

(unaudited) (millions of dollars)

These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended October 31, 2005. Certain comparative figures have been reclassified to comply with the presentation adopted in fiscal 2006.

1. Significant Accounting Policies

These unaudited interim consolidated financial statements of the Bank have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and the accounting policies described in the Bank's most recent Annual Report for the year ended October 31, 2005.

2. Recent Accounting Standards Pending Adoption

Financial Instruments -- Recognition and Measurement, Hedges and Comprehensive Income

In January 2005, the Canadian Institute of Chartered Accountants (CICA) issued three new standards: "Financial Instruments -- Recognition and Measurement," "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. As at November 1, 2006, the Bank will recognize all of its financial assets and liabilities in the Consolidated Balance Sheet according to their classification. Any adjustment made to a previous carrying amount will be recognized as an adjustment to the balance of retained earnings at that date or as the opening balance of a separate item in "Accumulated other comprehensive income," net of income taxes. The Bank will complete its assessment of the impact these new standards will have on its consolidated financial statements once the transition rules are adopted.



3. Loans and Impaired Loans
-----------------------------------------------------------------------
Impaired loans
--------------------------
Gross Specific Net
amount Gross allowances balance
-----------------------------------
October 31, 2006
Residential mortgage 15,230 13 2 11
Personal and credit card 11,280 36 16 20
Business and government 20,679 185 100 85
-----------------------------------
47,189 234 118 116
General allowance (1) (308)
-----------------------------------
Impaired loans, net of specific and
general allowances (192)
-----------------------------------

October 31, 2005
Residential mortgage 15,677 10 2 8
Personal and credit card 9,796 35 18 17
Business and government 19,047 215 123 92
-----------------------------------
44,520 260 143 117
General allowance (1) (308)
-----------------------------------
Impaired loans, net of specific and
general allowances (191)
-----------------------------------

(1) The general allowance for credit risk was created taking into
account the Bank's credit in its entirety.






4. Allowance for Credit Losses
----------------------------------------------------------------------
The changes made to allowances during the fiscal years are as follows:

Specific General Specific General
allowances allowance 2006 allowances allowance 2005

---------------------------------------------------------
Allowances
at beginning 143 308 451 228 350 578
Provisions
for credit losses 77 -- 77 75 (42) 33
Write-offs (166) -- (166) (215) -- (215)
Recoveries 64 -- 64 55 -- 55
---------------------------------------------------------
Allowances
at end 118 308 426 143 308 451
---------------------------------------------------------
---------------------------------------------------------


5. Transfers of Receivables

Securitization transactions

CMHC-insured mortgage loans and credit card receivables

The Bank securitizes insured residential mortgage loans through the
creation of mortgage-backed securities. The Bank also sells credit card
receivables on a revolving basis to a trust. The pre-tax gain or loss
from securitization transactions, net of transaction fees, is recognized
in the Consolidated Statement of Income under "Securitization revenues."


Securitization operations for the quarter ended:
October 31, July 31, October 31,
2006 2006 2005
--------------------------------
Mortgage Mortgage Mortgage
loans loans loans
--------------------------------
Net cash proceeds 820 324 710
Retained interests 25 7 25
Retained servicing liability (5) (2) (4)
--------------------------------
840 329 731
Receivables securitized and sold 821 328 713
--------------------------------
Gain before income taxes, net of
transaction fees 19 1 18
--------------------------------
Mortgage-backed securities created
and retained included in the item
"Securities -- investment account" 78 43 195
--------------------------------

Securitization operations for fiscal year ended:
October 31, 2006 October 31, 2005
----------------------------------
Mortgage Mortgage Credit card
loans loans receivables
----------------------------------
Net cash proceeds 2,180 1,845 795
Retained interests 63 79 21
Retained servicing liability (13) (11) (4)
----------------------------------
2,230 1,913 812
Receivables securitized and sold 2,200 1,854 800
----------------------------------
Gain before income taxes, net of
transaction fees 30 59 12
----------------------------------
Mortgage-backed securities created
and retained included in the item
"Securities -- investment account" 674 276 --
----------------------------------


The key assumptions used to measure the fair value of retained interests
at the securitization date for transactions carried out during the
quarter ended October 31, 2006 were as follows:


Key assumptions -- mortgage loans 2006
----
Weighted average term (months) 30.1
Prepayment rate 20.0%
Excess spread, net of credit losses 1.3%
Expected credit losses --
Discount rate 4.1%


Other transfers

The Bank sells insured and uninsured mortgage loans to a mutual fund
administered by the Bank. The pre-tax gain or loss is carried in the
Consolidated Statement of Income under "Other income -- Other." The
following table summarizes the other transfers carried out by the Bank:


Fiscal year ended
---------------------------------
October 31, 2006 October 31, 2005
---------------------------------
Net cash proceeds 141 429
Insured and uninsured
mortgage loans sold 140 431
---------------------------------
Gain (loss) before
income taxes 1 (2)
---------------------------------


6. Deposit from NBC Capital Trust


On June 15, 2006, NBC Capital Trust (the "Trust"), an open-end trust established under the laws of the Province of Ontario, issued 225,000 transferable non-voting trust units called Trust Capital Securities -- Series 1, or NBC CapS-Series 1. The gross proceeds from the offering of $225 million were used by the Trust to acquire a deposit note from the Bank. Since the Bank does not consolidate the Trust, the deposit note is presented on the consolidated balance sheet of the Bank under "Deposits".

The deposit note bears interest at a fixed annual rate of 5.329% payable semi-annually in arrears up to June 30, 2016 and thereafter at a fixed annual rate equal to the Bankers' Acceptance Rate plus 1.50% . The deposit note, which will mature on June 30, 2056, may be redeemed, on and after June 30, 2011, at the option of the Bank, without the consent of the Trust, subject to prior written notice and prior approval of the Superintendent of Financial Institutions (the "Superintendent"), or upon the occurrence of certain regulatory or tax events as defined. If the Bank redeems the deposit note, in whole or in part, the Trust will be required to redeem a corresponding amount of NBC CapS-Series 1.

Each $1,000 of principal amount of the deposit note is convertible at any time into 40 First Preferred Shares Series 17 of the Bank at the option of the Trust. The Trust will exercise this conversion right in circumstances in which holders of NBC CapS-Series 1 exercise their exchange rights.

Failure by the Bank to make payment or to satisfy its other obligations under the deposit note will not entitle the Trust to accelerate payment of the deposit note.

The Trust is a variable interest entity under Accounting Guideline No.15 "Consolidation of Variable Interest Entities" (AcG -- 15). Although, the Bank owns the equity and voting control of the Trust, the Bank does not consolidate the Trust because the Bank is not the primary beneficiary; therefore, NBC CapS-Series 1 issued by the Trust are not reported on the Bank's Consolidated Balance Sheet, but the deposit note is reported under "Deposits".

The non-cumulative cash distribution per NBC CapS-Series 1 will be $26.645 (representing an annual yield of 5.329% of the $1,000 initial issue price) paid by the Trust semi-annually from December 31, 2006 to and including June 30, 2016, and thereafter, will be determined by multiplying $1,000 by one-half of the sum of the applicable Bankers' Acceptance Rate plus 1.50%. No cash distributions will be payable by the Trust on NBC CapS-Series 1 if the Bank fails to declare regular dividends on its preferred shares, or if no preferred shares are then outstanding, on its outstanding common shares. In this case, the net distributable funds of the Trust will be paid to the Bank as holder of the Special Trust Securities, representing the residual interest in the Trust. Should the Trust fail to pay the semi-annual distributions in full on the NBC CapS-Series 1, the Bank will not declare dividends on any of its preferred shares and common shares for a specified period of time. The NBC CapS-Series 1 are not redeemable at the option of the holder.

On or after June 30, 2011, the Trust may, at its option, redeem the NBC CapS-Series 1, in whole or in part, without the consent of the holders, subject to prior written notice and prior approval of the Superintendent or upon the occurrence of certain regulatory or tax events as defined.

Holders of NBC CapS-Series 1 may surrender at any time, subject to prior notice, each NBC CapS-Series 1 for 40 First Preferred Shares Series 17 of the Bank. The Bank's First Preferred Shares Series 17 pay semi-annual non-cumulative cash dividends as and when declared by the Board of Directors and will be redeemable at the option of the Bank, with the prior approval of the Superintendent, on or after June 30, 2011, but not at the option of the holders. This exchange right will be effected through the conversion by the Trust of the corresponding amount of the deposit note of the Bank. The NBC CapS-Series 1 exchanged for the Bank's First Preferred Shares Series 17 will be cancelled by the Trust.

Each NBC CapS-Series 1 will be exchanged automatically, without the consent of the holders, for 40 First Preferred Shares Series 18 of the Bank, upon the occurrence of any one of the following events: (i) proceedings are commenced for the winding-up of the Bank; (ii) the Superintendent takes control of the Bank; (iii) the Bank has a Tier 1 capital ratio of less than 5% or a total capital ratio of less than 8%; or (iv) the Superintendent has directed the Bank to increase its capital or to provide additional liquidity and the Bank elects such automatic exchange or the Bank fails to comply with such direction to the satisfaction of the Superintendent. The Bank's First Preferred Shares Series 18 pay semi-annual non-cumulative cash dividends and will be redeemable at the option of the Bank, with the prior approval of the Superintendent, on or after June 30, 2011, but not at the option of the holders. On an automatic exchange, the Bank will hold all outstanding trust capital securities of the Trust, the main asset of which is the deposit note.

As at October 31, 2006, for regulatory capital purposes, $225 million of NBC CapS-Series 1 qualify as Tier 1 capital.

7. Subordinated Debentures

During the fiscal year ended October 31, 2006, the Bank issued $500 million of subordinated debentures under its Canadian Medium Term Note Program, that mature in 2020. Interest at the annual rate of 4.70% is payable semi-annually on May 2 and November 2 of each year. The Bank also redeemed a subordinated debenture in the amount of $150 million, maturing on October 17, 2011, at a rate of 7.50%.

On November 2, 2006, the Bank issued $500 million of subordinated debentures that mature in 2016. Interest at an annual rate of 4.456% is payable semi-annually on May 2 and November 2 of each year.

During fiscal 2001, the Bank redeemed a subordinated debenture convertible into common shares for a total consideration of $65 million. As a result of this transaction, a $28 million loss, net of the $17 million in income taxes, was recognized in retained earnings. In 2006, $10 million in income taxes was recognized in retained earnings in order to record the portion not eligible for tax purposes.




8. Pension and Other Employee Future Benefits
-----------------------------------------------------------------------
Quarter ended Fiscal year ended
------------------------------------------------------
October 31 July 31 October 31 October 31 October 31
2006 2006 2005 2006 2005
------------------------------------------------------
Pension benefit
expense 15 15 13 59 51
Other employee
future benefit
expense 3 2 2 10 6
-----------------------------------------------------------------------
-----------------------------------------------------------------------

9. Capital Stock
------------------------------------------------------------------
Shares outstanding and dividends as at October 31, 2006
------------------------------------------------------------------
Shares Annual
dividends
------------------------------------------------------------------
Number of shares $ $
------------------------------------------------------------------
First preferred shares
Series 15 8,000,000 200 12
Series 16 8,000,000 200 9
------------------------------------------------------------------
16,000,000 400 21
------------------------------------------------------------------
Common shares 161,512,351 1,566 320
------------------------------------------------------------------
1,966 341
------------------------------------------------------------------


Repurchase of common shares

On January 23, 2006, the Bank commenced a normal course issuer bid for the repurchase and cancellation of up to 8,278,000 common shares over a 12-month period ending no later than January 22, 2007. On January 13, 2005, the Bank commenced a normal course issuer bid for the repurchase and cancellation of up to 8,400,000 common shares over a 12-month period ended January 12, 2006. Repurchases were made on the open market at market prices through the facilities of the Toronto Stock Exchange. Premiums paid above the average book value of the common shares are charged to retained earnings. As at October 31, 2006, the Bank completed the repurchase of 5,055,520 common shares (4,178,900 in 2005) at a cost of $309 million ($224 million in 2005), which reduced common share capital by $48 million ($39 million in 2005) and retained earnings by $261 million ($185 million in 2005).

10. Stock-Based Compensation

Stock Option Plan

During the fiscal year ended October 31, 2006, the Bank awarded 943,200 stock options (1,468,260 in 2005) at a fair value of $12,81 ($9,70 in 2005).

As at October 31, 2006, a total of 5,391,912 stock options were outstanding.

The fair value of these options was estimated, on the award date, using the Black-Scholes valuation model. The following assumptions were used:



Fiscal year ended
----------------------------------
October 31, 2006 October 31, 2005
----------------------------------
Risk-free interest rate 4.18% 4.05%
Expected life of the options 6 years 6 years
Expected volatility 24% 27%
Expected dividend yield 5% 5%
----------------------------------------------------------------------
----------------------------------------------------------------------

The following table presents the compensation expense recorded for the
stock options:
Quarter ended Fiscal year ended
----------------------------------------------------------------------
October July October October October
31, 2006, 31, 2006 31, 2005 31, 2006 31, 2005
------------------------------------------------------
Bank stock
options 4 2 2 12 6
----------------------------------------------------------------------
----------------------------------------------------------------------

Stock Appreciation Rights (SAR) Plan

During the fiscal year ended October 31, 2006, the Bank awarded 5,400
SARs. As at October 31, 2006, a total of 306,800 SARs were outstanding.

Deferred Stock Unit (DSU) Plan

During the fiscal year ended October 31, 2006, the Bank awarded 32,911
DSUs. As at October 31, 2006, a total of 219,047 DSUs were outstanding.

Restricted Stock Unit Plan (RSU)

During the fiscal year ended October 31, 2006, the Bank awarded 117,654
RSUs. As at October 31, 2006, a total of 163,538 RSUs were outstanding.


11. Acquisition -- Credigy Ltd.

On July 26, 2006, a subsidiary of the Bank acquired a 68% interest in Credigy Ltd., a privately held purchaser of and service-provider for distressed receivables of, mainly, U.S. consumers, for a total cash consideration of $57 million, including direct acquisition costs.

The assets acquired totalled $109 million while the liabilities assumed, including non-controlling interest, were about $73 million. The excess of the purchase price over the estimated fair value of net assets of $21 million was recognized in the Consolidated Balance Sheet as goodwill. This amount could be adjusted once the Bank has completed its valuation of the assets acquired and liabilities assumed.

An additional cash consideration of up to $19 million could be paid over the next three years, provided certain profitability targets are achieved and, if applicable, would be recognized as goodwill.

Credigy's results have been recognized in the Consolidated Statement of Income as of the July 26, 2006 acquisition date.



12. Segment Disclosures
----------------------------------------------------------------
Quarter ended October 31
Personal and Wealth
Commercial Management
---------------------------------
2006 2005 2006 2005
---------------------------------
Net interest income(1) 354 333 32 28
Other income (1) 211 195 178 177
---------------------------------
Total revenues 565 528 210 205
Operating expenses 344 324 163 160
---------------------------------
Contribution 221 204 47 45
Provision for credit losses 33 38 - --
---------------------------------
Income before income taxes and
non-controlling interest 188 166 47 45
Income taxes(1) 64 56 16 19
Non-controlling interest - -- 2 --
---------------------------------
Net income (net loss) 124 110 29 26
---------------------------------
---------------------------------
Average assets 48,358 45,509 561 885
---------------------------------
---------------------------------

Financial
Markets Other Total
------------------------------------------------
2006 2005 2006 2005 2006 2005
------------------------------------------------
Net interest income(1) 28 129 (109) (86) 305 404
Other income(1) 268 109 22 46 679 527
------------------------------------------------
Total revenues 296 238 (87) (40) 984 931
Operating expenses 174 151 6 11 687 646
-----------------------------------------------
Contribution 122 87 (93) (51) 297 285
Provision for credit
losses 1 4 (12) (42) 22 --
------------------------------------------------
Income before income
taxes and
non-controlling
interest 121 83 (81) (9) 275 285
Income taxes(1) 41 31 (77) (34) 44 72
Non-controlling
interest 5 - 4 6 11 6
------------------------------------------------
Net income
(net loss) 75 52 (8) 19 220 207
------------------------------------------------
------------------------------------------------

Average assets 72,185 58,937 (11,696) (6,401) 109,408 98,930
------------------------------------------------
------------------------------------------------


Fiscal year ended October 31
Personal and Wealth
Commercial Management
---------------------------------
2006 2005 2006 2005
---------------------------------
Net interest income(2) 1,367 1,299 121 101
Other income(2) 806 749 737 702
---------------------------------
Total revenues 2,173 2,048 858 803
Operating expenses 1,329 1,265 635 621
---------------------------------
Contribution 844 783 223 182
Provision for credit losses 121 117 - --
---------------------------------
Income before income taxes and
non-controlling interest 723 666 223 182
Income taxes(2) 244 223 74 68
Non-controlling interest -- -- 6 3
---------------------------------
Net income (net loss) 479 443 143 111
---------------------------------
---------------------------------
Average assets 47,379 43,956 830 882
---------------------------------
---------------------------------

Financial
Markets Other Total
-----------------------------------------------
2006 2005 2006 2005 2006 2005
-----------------------------------------------
Net interest income(2) 141 309 (337) (268) 1,292 1,441
Other income(2) 917 671 93 140 2,553 2,262
-----------------------------------------------
Total revenues 1,058 980 (244) (128) 3,845 3,703
Operating expenses 610 595 14 18 2,588 2,499
-----------------------------------------------
Contribution 448 385 (258) (146) 1,257 1,204
Provision for credit
losses 4 8 (48) (92) 77 33
-----------------------------------------------
Income before income
taxes and
non-controlling
interest 444 377 (210) (54) 1,180 1,171
Income taxes(2) 152 132 (193) (132) 277 291
Non-controlling
interest 9 1 17 21 32 25
-----------------------------------------------
Net income
(net loss) 283 244 (34) 57 871 855
-----------------------------------------------
-----------------------------------------------
Average assets 67,839 51,809 (9,775) (5,745) 106,273 90,902
-----------------------------------------------
-----------------------------------------------


Personal and Commercial

The Personal and Commercial segment comprises the branch network, intermediary services, credit cards, insurance, commercial banking services and real estate.

Wealth Management

The Wealth Management segment comprises full-service retail brokerage, direct brokerage, mutual funds, trust services and portfolio management.

Financial Markets

The Financial Markets segment encompasses corporate financing and lending, treasury operations, including asset and liability management for the Bank, and corporate brokerage.

Other

The Other heading comprises securitization operations, certain non-recurring items and the unallocated portion of centralized services.


Taxable equivalent

(1) The accounting policies are the same as those described in the note on accounting policies (Note 1), with the exception of the net interest income, other income and income taxes of the operating segments, which are presented on a taxable equivalent basis. Taxable equivalent basis is a calculation method that consists in grossing up certain tax-exempt income by the amount of income tax that otherwise would have been payable. For all of the operating segments, net interest income was grossed up by $62 million ($26 million in 2005) and other income by $32 million ($8 million in 2005). An equal amount was added to income taxes. The impact of these adjustments is reversed under the "Other" heading.
(2) For the fiscal year ended October 31, 2006, net interest income was grossed up by $122 million ($90 million in 2005)
and other income by $77 million ($60 million in 2005). An equivalent amount was added to income taxes.
The impact of these increases is reversed under the "Other" heading.




National Bank of Canada
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 Gauchetiere West, 7th Floor
Montreal, Quebec H3B 4L2
Toll-free: 1-866-517-5455
Fax: (514) 394-6196
E-mail: investorrelations@nbc.ca
Website: www.nbc.ca/investorrelations

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

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

Quarterly report publication dates for fiscal 2006-2007

First quarter March 1, 2007
Second quarter May 31, 2007
Third quarter August 30, 2007
Fourth quarter November 29, 2007


DISCLOSURE OF 4th QUARTER AND FISCAL 2006 RESULTS

Conference call:

- A conference call for analysts and institutional investors will be
held on November 30, 2006 at 1:00 p.m. ET.
- Access by telephone in listen-only mode: 1-866-898-9626 or
(416) 340-2216
- A recording of the conference call can be heard until December 7,
2006 by calling 1-800-408-3053 or (416) 695-5800. The access code is
3201142#.

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
certificates, tax forms and estate transfers, shareholders are requested
to contact the transfer agent, Computershare Trust Company of Canada, at
the address or telephone numbers below.

Computershare Trust Company of Canada

Share Ownership Management 1500 University, 7th Floor
Montreal, Quebec H3A 3S8
Telephone: 1-888-838-1407
Fax: 1-888-453-0330
Email: service@computershare.com
Website: www.computershare.com

Direct Deposit Service for Dividends

Shareholders may elect to have their dividend payments deposited
directly via electronic funds transfer to their bank account at any
financial institution that is a member of the Canadian Payments
Association. To do so, they must send a written request to the transfer
agent, Computershare Trust Company of Canada.

Dividend Reinvestment and Share Purchase Plan

National Bank offers holders of its common shares a Dividend
Reinvestment and Share Purchase Plan through which they can invest in
common shares of the Bank without paying a commission or administration
fee. Participants in the Plan may acquire shares by reinvesting cash
dividends paid on shares they hold or by making optional cash payments
of at least $500 per payment, to a maximum of $5,000 per quarter. For
additional information, please contact the registrar, Computershare
Trust Company of Canada, at 1-888-838-1407.

www.nbc.ca/investorrelations


Contact Information

  • National Bank of Canada
    Pierre Fitzgibbon
    Senior Vice-President
    Finance, Technology and Corporate Affairs
    514-394-8610
    or
    National Bank of Canada
    Denis Dube
    Director
    Public Relations
    514-394-8644
    or
    National Bank of Canada
    Helene Baril
    Director
    Investor Relations
    514-394-0296