NATIONAL BANK OF CANADA
TSX : NA

NATIONAL BANK OF CANADA

August 25, 2005 10:01 ET

National Bank Announces Net Income of $207 Million for the Third Quarter of 2005, Up 24% From $167 Million for the Same Period of 2004

MONTREAL, QUEBEC--(CCNMatthews - Aug. 25, 2005) -



- Earnings per share up 26% to $1.20 for the quarter
- Return on common shareholders' equity of 19.6%
- Dividend of 44 cents per common share


For the quarter
ended July 31
--------------
(millions of dollars) 2005 2004 %
----------------------
Net income
Personal and Commercial 119 96 + 24
Wealth Management 30 22 + 36
Financial Markets 59 50 + 18
Other (1) (1)
--------------
Total 207 167 + 24
--------------
Earnings per share $1.20 $0.95 + 26
--------------
Return on common shareholders' equity 19.6% 17.2%


For the nine months
ended July 31
--------------
(millions of dollars) 2005 2004 %
----------------------
Net income
Personal and Commercial 341 294 + 16
Wealth Management 88 77 + 14
Financial Markets 200 182 + 10
Other 19 (20)
--------------
Total 648 533 + 22
--------------
Earnings per share $3.76 $2.99 + 26
--------------
Return on common shareholders' equity 21.1% 18.4%


National Bank reported net income of $207 million for the third quarter ended July 31, 2005, compared to $167 million for the corresponding quarter of 2004, for an increase of 24%. Earnings per share for the quarter totalled $1.20, up 26% from $0.95 per share for the third quarter of 2004. Return on common shareholders' equity was 19.6% for the quarter versus 17.2% for the same period a year earlier.

All segments posted substantial increases in net income for the third quarter. Higher volumes of personal and business loans as well as retail brokerage and private investment management activities contributed to the growth in revenues. Moreover, credit quality held steady which enabled the provision for credit losses to be cut by half, especially in the Financial Markets segment.

"Our third-quarter results confirm that the Bank is capable of delivering consistently solid growth," declared Real Raymond, President and Chief Executive Officer. "Once again, we capitalized on our strategy to enhance our core business through various initiatives aimed at improving customer satisfaction while continuing to invest in the Bank's internal growth and keeping a tight rein on operating expenses."

For the nine months ended July 31, 2005, the Bank recorded net income of $648 million as against $533 million for the corresponding period of 2004, for growth of 22%. At $3.76, earnings per share for the first nine months of fiscal 2005 were up 26% from $2.99 for the year-earlier period. Return on common shareholders' equity was 21.1% for the period compared to 18.4% for the first nine months of 2004.

Total revenues for the quarter amounted to $889 million in comparison to $858 million for the third quarter of 2004, with much of the increase generated by the Personal and Commercial and Wealth Management segments.

Operating expenses for the quarter were $616 million versus $586 million for the corresponding quarter of 2004. The $30 million increase was primarily attributable to variable compensation. Two of the three operating segments improved their efficiency ratio. Personal and Commercial recorded a ratio of 61.0% for the third quarter of 2005 compared to 63.3% for the yearearlier period. At Wealth Management, the efficiency ratio improved from 79.1% for the third quarter of 2004 to 74.6%, as this segment benefits from leverage when revenues increase. Lastly, the efficiency ratio for the Financial Markets segment was 60.7% as against 57.9% for the corresponding quarter of 2004 owing to a change in revenue mix.

The provision for credit losses amounted to $15 million for the quarter versus $31 million for the third quarter of 2004. The decline was mainly due to the Financial Markets segment.

The Personal and Commercial segment generated net income of $119 million for the quarter, up 24% from $96 million for the same period one year earlier. This gain resulted from a 7% increase in revenues versus just 3% growth in expenses, combined with an almost 20% reduction in the provision for credit losses, particularly business loans. The jump in revenues was due to growth of more than 10% in personal loans and close to 5% in business loans.

Net income for the Wealth Management segment reached $30 million for the third quarter of 2005 for an increase of 36% compared to $22 million for the corresponding quarter a year earlier. Revenues rose by 17%, fuelled by brokerage activities and private investment management which continued to progress versus the third quarter of 2004. Operating expenses, for their part, rose more slowly, increasing 10 %.

Net income for the Financial Markets segment increased to $59 million for the third quarter of 2005 from $50 million for the same period of 2004, or 18%, mainly due to lower credit losses.

As at July 31, 2005, gross impaired loans amounted to $261 million, down $127 million or 33% from the beginning of the fiscal year. All business loan portfolios contributed to the decrease. The ratio of gross impaired loans to total adjusted capital and allowances was a mere 7.0%. Specific and general allowances exceeded gross impaired loans by $219 million as at July 31, 2005, compared to $190 million as at October 31, 2004. The general allowance stood at $333 million, compared to $350 million as at October 31, 2004.

Tier 1 and total capital ratios were 9.2% and 12.1%, respectively, as at July 31, 2005 versus 9.6% and 13.0% as at October 31, 2004. During the first quarter of 2005, the Bank issued $350 million of subordinated debentures and subsequently redeemed the same amount of debentures in the third quarter. During the second quarter, the Bank issued $200 million of First Preferred Shares Series 16. The Bank also ceased to take into account First Preferred Shares Series 13 totalling $175 million for capital ratio purposes. These two items had a negligible impact on capital ratios. As at July 31, 2005, the Bank had repurchased 4.2 million common shares under its normal course issuer bid to repurchase up to 8.4 million shares commenced on January 13, 2005. In addition, risk-weighted assets rose by close to $5 billion or 12%, chiefly because of higher loan volumes.

"I would like to thank the Bank's employees for having contributed to these excellent results," stated Mr. Raymond. "We will continue in this direction with a view to building solid and lasting foundations from which to pursue our growth."



---------------------------------------------------------------------
Objectives Results Results
Q3 2005 Nine months
2005

Growth in earnings per share 5% - 10% 26% 26%
Return on common
shareholders' equity 16% - 18% 19.6% 21.1%
Tier 1 capital ratio More than 8.5% 9.2% 9.2%
Dividend payout ratio 35% - 45% 34% 34%
---------------------------------------------------------------------


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

August 25, 2005 - The following text presents Management's discussion and analysis of the Bank's financial condition and operating results. This analysis was prepared in accordance with the requirements set out in Regulation 51-102 respecting Continuous Disclosure Obligations of the Canadian Securities Administrators and is based on the unaudited interim consolidated financial statements for the third quarter and the nine-month period ended July 31, 2005. 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.

Critical Accounting Estimates

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

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

Changes in Accounting Policies

On November 1, 2004, the Bank adopted the following accounting standards:

Variable Interest Entities

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

Investment Companies

On November 1, 2004, the Bank adopted Accounting Guideline No. 18 "Investment Companies" published in January 2004 by the CICA. Under this Guideline, investment companies are required to account for all investments at fair value, including investments that would otherwise be consolidated or accounted for using the equity method. The Guideline sets out the criteria for determining whether a company is an investment company and also provides guidance on the circumstances in which the parent company of, or equity method investor in, an investment company should account for the investment company's investments at fair value. The impact of this new Guideline on the consolidated financial statements for the nine-month period ended July 31, 2005 is negligible.

Future Changes in Accounting Policies

Financial Instruments - Recognition and Measurement, Hedges and Comprehensive Income

In January 2005, the CICA issued three new accounting standards: "Financial Instruments - Recognition and Measurement," "Hedges" and "Comprehensive Income." These standards provide guidance on the recognition and measurement of financial assets, financial liabilities and non-financial derivatives. They also provide guidance on the classification of financial instruments and standards on hedge accounting (see Note 3 to the unaudited interim consolidated financial statements).

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

Analysis of Results

Operating Results

National Bank reported net income of $207 million for the third quarter ended July 31, 2005, compared to $167 million for the corresponding quarter of 2004, for an increase of 24%. Earnings per share for the quarter totalled $1.20, up 26% from $0.95 per share for the third quarter of 2004. Return on common shareholders' equity was 19.6% for the quarter versus 17.2% for the same period a year earlier.

For the nine months ended July 31, 2005, the Bank recorded net income of $648 million as against $533 million for the corresponding period of 2004, for growth of 22%. At $3.76, earnings per share for the first nine months of fiscal 2005 were up 26% from $2.99 for the year-earlier period. Return on common shareholders' equity was 21.1% for the period compared to 18.4% for the first nine months of 2004.

Results by Segment

Personal and Commercial

Net income for the Personal and Commercial segment totaled $119 million for the third quarter of 2005, up $23 million or 24% from the corresponding quarter of 2004. This performance was due to strong growth in personal and business loan volumes as well as insurance, foreign exchange and credit card revenues, while credit losses declined, especially in the Commercial subsegment.

Net interest income for the quarter was $330 million, up 5% from the $314 million recorded for the same period in 2004. The increase in net interest income was chiefly attributable to greater volumes of personal and business loans, which expanded by $3.7 billion or 9%. However, this increase in volume was offset by the narrowing of the spread by 11 basis points in the third quarter of 2005, compared to the corresponding quarter of 2004. The spread narrowed because of growth in less risky loans, for which the interest spread is narrower.

Other income for the quarter totalled $196 million, up $17 million or 9% from the third quarter of 2004. Insurance revenues increased by $4 million, foreign exchange revenues by $3 million, and credit card revenues by $2 million.

Operating expenses were $321 million for the quarter, compared to $312 million for the same period of 2004, an increase of $9 million or 3%. Investments to improve the technological infrastructure accounted for most of the increase. Nevertheless, the efficiency ratio improved to 61.0% for the third quarter of 2005, compared to 63.3% for the same period in 2004.

For the first nine months of fiscal 2005, net income for the Personal and Commercial segment was $341 million, a 16% increase over the $294 million recorded for the corresponding period of 2004. Revenues for the period rose by 5% due to increased volumes with both retail and commercial clients, higher commissions on business loans, and insurance, foreign exchange and credit card revenues. Although operating expenses rose 3%, the increase was kept below that of revenues. Credit losses were down by almost 20% to $79 million for the first nine months of fiscal 2005.

Wealth Management

Net income for the Wealth Management segment amounted to $30 million for the third quarter of 2005, up 36% from the $22 million posted for the corresponding quarter of 2004.

Total revenues for the segment were $201 million for the quarter, up 17% from the third quarter of 2004. As in previous quarters, this growth was generated by brokerage and private investment management activities.
Operating expenses were $150 million for the quarter, compared to $136 million for the year-earlier period, for an increase of 10%, two thirds of which were due to variable compensation. The efficiency ratio improved to 74.6% for the quarter from 79.1% for the third quarter of 2004.

For the first nine months of 2005, net income for the Wealth Management segment amounted to $88 million, compared to $77 million for the same period of 2004, an increase of 14%. Revenues were up 7% to $601 million, while the efficiency ratio improved to 76.5% for the period, compared to 78.2% for the nine months ended July 31, 2004.

Financial Markets

Net income for the Financial Markets segment totalled $59 million for the third quarter of 2005, an increase of 18% over the corresponding period in 2004. The improvement was attributable to the absence of a provision for credit losses this quarter, while a provision of $12 million had been recorded for the corresponding period a year earlier.

Total revenues for the segment amounted to $229 million for the third quarter of 2005, compared to $221 million for the year-earlier period. Corporate and Investment Banking revenues, which had been high in the third quarter of 2004, and the unfavourable variance due to credit derivatives being recorded at fair market value, were offset by trading revenues in the third quarter of 2005.



Trading Revenues
(millions of dollars) Q3 Q3 Nine Nine
2005 2004 months months
2005 2004
Financial Markets
Interest rate 11 12 41 46
Equities 86 31 200 131
Commodities and foreign exchange 10 9 19 22
107 52 260 199
Other segments (1) 1 3 5
Total 106 53 263 204

Breakdown by Income
Statement line item
Net interest income (26) 40 30 (23)
Other income 94 2 180 211
Taxable equivalent(1) 38 11 53 16
Total 106 53 263 204

(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 generally accepted
accounting principles (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 10 to the unaudited interim
consolidated financial statements for particulars on the taxable
equivalent adjustment to segment results.


Operating expenses for the Financial Markets segment were $139 million for the quarter, compared to $128 million for the third quarter of 2004. Higher variable compensation accounted for most of the total increase in operating expenses.

For the first nine months of 2005, net income for the segment was $200 million, a 10% increase over the same period of 2004, because of substantially lower credit losses.

Other

The net loss for the "Other" heading of segment results was $1 million for the third quarter of 2005, or the same level as the corresponding period of 2004. For the first nine months of fiscal 2005, net income for the "Other" heading of segment results was $19 million as against a net loss of $20 million for the year-earlier period. The variance was chiefly attributable to the gain on the disposal of investments in financial institutions in South America.

Consolidated Results

Total Revenues

Total revenues for the third quarter of 2005 amounted to $889 million, up 4% compared to the $858 million recorded in the corresponding quarter of 2004.

Net interest income was $306 million for the quarter as against $384 million posted in the third quarter of 2004. The decrease was attributable to the $78 million decline in net interest income for the Financial Markets segment, which must be analyzed in conjunction with the trading revenues recorded in other income. Net interest income for Personal and Commercial rose $16 million or 5% to $330 million for the third quarter of 2005, because of higher volumes of personal and business loans, which were partially offset by a narrowing of the spread.

Other income for the third quarter totalled $583 million as against $474 million for the corresponding quarter of 2004. The increase, stemming primarily from trading activities, must be analyzed by taking into consideration the decrease in net interest income for the Financial Markets segment.

The portion of trading revenues recorded as other income rose $92 million from the third quarter of 2004. However, if net interest income related to trading activities is included, total trading revenues for the quarter were up $53 million.

For the quarter, the Bank recorded a $7 million loss under investment account securities compared to a $12 million gain for the year-earlier period. The mark-to-market of credit default swaps accounted for the loss.

Financial market fees totalled $158 million for the quarter, up $6 million over the corresponding period of 2004. Although fees from retail brokerage and institutional brokerage activities rose by $14 million and $11 million respectively, they were offset by a $20 million decline in fees at Corporate and Investment Banking, which had been especially active in the third quarter of 2004.

Credit operations contributed to the solid growth in other income, specifically, the $4 million or 31% increase in credit card revenues to $17 million for the third quarter of 2005, and growth of $6 million, or 8%, in lending fees and revenues from acceptances and letters of credit and guarantee to $82 million.

Trust service and mutual fund fees for the quarter grew $12 million or 19% to $74 million, attributable to private investment management and the National Bank Financial correspondent network.

For the nine-month period ended July 31, 2005, total revenues amounted to $2,772 million, for an increase of $119 million or 4.5% compared to the $2,653 million recorded for the year-earlier period. More than 55% of the increase was attributable to Personal and Commercial, while Wealth Management accounted for one third of this growth.

Operating Expenses

Operating expenses for the third quarter of 2005 were $616 million compared to $586 million for the corresponding period of 2004, an increase of 5%. The increase stemmed chiefly from salaries and staff benefits, which rose $30 million to $355 million, representing 58% of operating expenses. Two-thirds of the increase were attributable to variable compensation for retail brokerage activities and financial market trading.

For the first nine months of fiscal 2005, operating expenses were $1,853 million, up 5% versus $1,765 million for the corresponding period of 2004. More than 70% of the increase was attributable to compensation, chiefly variable compensation and staff benefits, with the remainder owing primarily to information technology.

Income Taxes

Income taxes for the third quarter of 2005 totalled $46 million, representing an effective tax rate of 17.8%, compared to $68 million and an effective tax rate of 28.2% for the year-earlier period, due to income tax reductions in certain jurisdictions and changes of geographic mix of revenues from financial market activities.

The effective tax rate for the nine-month period ended July 31, 2005 was 24.7% as against 30.4% for the corresponding period of 2004.

Cash Flows

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

For the third quarter of 2005, cash and cash equivalents rose $2.7 billion compared to a decrease of $2.5 billion for the third quarter of 2004. As at July 31, 2005, cash and cash equivalents totalled $12.0 billion versus $7.0 billion a year earlier.

Operating activities required cash of $1.6 billion principally because of the increase in trading account securities. For the corresponding quarter of 2004, operating activities required $1.5 billion.

Financing activities generated cash flows of $8.2 billion due to an increase in securities sold short and securities sold under repurchase agreements. For the third quarter of 2004, cash flows from financing activities were negligible.

Lastly, investing activities in the third quarter of 2005 required $3.8 billion in cash owing to the $2.3 billion increase in loans and the $1.4 billion increase in securities purchased under reverse repurchase agreements. For the corresponding period of 2004, investing activities required $1.2 billion mainly because of higher loan volumes.

Risk Management

Credit Risk

The Bank recorded a $15 million provision for credit losses for the third quarter compared to $31 million for the corresponding quarter of 2004. Three-quarters of the reduction were attributable to corporate financing activities in the Financial Markets segment.

Credit losses in the first nine months of fiscal 2005 amounted to $33 million as against $94 million for the same period a year earlier. The drop stemmed from commercial and corporate lending activities.

As at July 31, 2005, the allowance for credit losses exceeded impaired loans by $219 million, compared to $190 million as at October 31, 2004. The $29 million improvement was attributable to all segments that offer business loans. The general allowance for credit losses stood at $333 million at the end of the quarter versus $350 million as at October 31, 2004.

The ratio of gross private impaired loans to total adjusted capital and allowances was excellent at 7.0% as at July 31, 2005 versus 10.9% as at October 31, 2004.

Market Risk - Trading Activities

The Value-at-Risk (VaR) simulation model is one of the main tools used to manage market risk in trading activities. The VaR measure is based on a 99% confidence level, which is an estimate of the maximum potential trading loss in 99 out of 100 days, which means that actual losses will probably exceed VaR on only one day out of 100. The computerized VaR calculation model is based on two years of historical data. Market risk management is discussed in more detail on page 63 of the 2004 Annual Report.

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



Trading Activities (1)
(millions of dollars)

Global VaR by risk
category For the quarter ended For the quarter ended
July 31, 2005 April 30, 2005
Period Period
end High Average Low end High Average Low
Interest rate (6.1) (6.7) (4.7) (2.8) (3.9) (4.1) (2.9) (1.8)
Foreign
exchange (1.7) (2.2) (1.3) (0.5) (1.2) (2.6) (1.1) (0.4)
Equity (3.8) (4.7) (3.5) (2.4) (2.6) (4.8) (3.1) (2.3)
Commodity (0.8) (0.9) (0.7) (0.6) (0.8) (0.9) (0.6) (0.4)
Correlation
effect (2) 5.5 6.5 4.4 2.3 4.8 6.1 3.6 2.0
---------------------------------------------------------------------
Global VaR (6.9) (8.0) (5.8) (4.0) (3.7) (6.3) (4.1) (2.9)
---------------------------------------------------------------------
(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 July 31, 2005, the Bank's assets stood at $110.6 billion
compared to $88.7 billion as at October 31, 2004. Loans and
acceptances were up $4.1 billion. Moreover, cash resources,
securities and securities purchased under reverse repurchase
agreements rose $16.7 billion. The following table presents the main
portfolios.

Average monthly volumes July October July
(millions of dollars) 2005 2004 2004
Loans and acceptances(i)
Residential mortgages 20,419 19,554 19,228
Consumer loans 7,832 6,491 6,119
Credit card receivables 1,680 1,589 1,543
SME loans 15,169 14,354 14,372
Corporate loans 2,892 2,922 3,238
47,992 44,910 44,500
Deposits
Personal (balance) 25,476 24,008 24,252
Off-balance sheet personal
savings (balance) 63,776 57,207 56,994
Business 11,250 10,668 10,825

(i) including securitized assets


As at July 31, 2005, residential mortgage loans amounted to $20.4 billion, up $865 million from October 31, 2004 and $1.2 billion or 6% higher compared to July 31, 2004. At $7.8 billion, the volume of consumer loans has increased 21% since the beginning of the fiscal year. Consumer loans were up $1.7 billion or 28% from July 31, 2004, with approximately 40% of this strong growth attributable to volumes from partnerships. Credit card receivables increased 9% year-over-year to reach $1.7 billion as at July 31, 2005. SME loans and acceptances were $15.2 billion at the end of the third quarter as compared to $14.4 billion at the end of fiscal 2004, an increase of close to 6%. Corporate loans have remained relatively stable since the start of the fiscal year.

Personal deposits stood at $25.5 billion as at July 31, 2005, up 1.5 billion from $24.0 billion as at October 31, 2004. The increase stems from deposits distributed by Altamira. Off-balance sheet personal savings administered by the Bank as at July 31, 2005 totalled $63.8 billion, an increase of $6.6 billion or 11% since the end of the previous fiscal year. The increase was primarily attributable to savings administered by the brokerage subsidiaries.

Capital

Tier 1 and total capital ratios, according to the rules of the Bank for International Settlements, were 9.2% and 12.1%, respectively, as at July 31, 2005, compared to 9.6% and 13.0% as at October 31, 2004.

During the first quarter, the Bank issued $350 million of subordinated debentures and subsequently redeemed the same amount in the third quarter of 2005.

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

During the third quarter of fiscal 2005, the Bank repurchased 1.4 million common shares for a total of $75 million, as part of a normal course issuer bid to repurchase up to 8.4 million shares commenced on January 13, 2005. Since the start of fiscal 2005, the Bank has repurchased 4.2 million common shares for a total of $224 million.

In addition, risk-weighted assets rose by close to $5 billion or 12%, chiefly because of higher loan volumes.

Dividends

At its meeting on August 25, 2005, the Board of Directors declared regular dividends on the various classes and series of preferred shares as well as a dividend of 44 cents per common share payable on November 1, 2005 to shareholders of record on September 22, 2005.



Additional Financial Information
----------------------------------------------------------------------
(unaudited)
(millions of dollars except per share amounts)

2005 2004
-------------------- ----------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1

Total revenues $889 $900 $983 $892 $858 $884 $911
Net income $207 $202 $239 $192 $167 $180 $186

Earnings per share
Basic 1.20 1.17 1.39 1.11 0.95 1.01 1.03
Diluted 1.18 1.15 1.37 1.09 0.94 1.00 1.02

Dividends per
common share 0.44 0.42 0.42 0.38 0.38 0.33 0.33

Return on
common
shareholders'
equity 19.6% 19.9% 23.6% 19.7% 17.2% 19.0% 19.0%
Total assets $110,593 $99,917 $91,703 $88,721 $85,481 $86,466 $83,156

Impaired loans
Net private $114 $119 $134 $160 $199 $219 $232
Designated
countries
Gross
outstanding - - - - - 10 10
Allowances - - - - - 9 8
-------------------- ----------------------------
Net total $114 $119 $134 $160 $199 $220 $234
-------------------- ----------------------------

Per common share
Book value $24.70 $24.19 $23.97 $22.87 $22.30 $21.94 $21.81
Stock trading
range
High 58.21 55.24 49.75 48.78 45.50 47.93 45.00
Low 51.60 48.72 46.39 42.31 42.72 43.27 40.17
-------------------- ----------------------------


2003 2004 2003
----- ------ ------
Q4 Total Total

Total revenues $903 $3,545 $3,363
Net income $158 $725 $624

Earnings per share
Basic 0.87 4.10 3.37
Diluted 0.86 4.05 3.34

Dividends per common share 0.28 1.42 1.08


Return on common shareholders' equity 16.4% 18.8% 16.5%

Total assets $84,626

Impaired loans
Net private $248
Designated countries
Gross outstanding 22
Allowances 19
-------
Net total $251
-------
Per common share
Book value $21.32
Stock trading range
High 41.19
Low 34.50
-------


Caution regarding forward-looking statements

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

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

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



Highlights


(unaudited) Quarter ended Nine months ended
July 31 July 31
-------------------------------------------
% %
2005 2004 Change 2005 2004 Change
-------------------------------------------
Operating results
(millions of dollars)
Total revenues $889 $858 4 $2,772 $2,653 4
Net income 207 167 24 648 533 22
Return on common
shareholders' equity
19.6 % 17.2 % 21.1 % 18.4 %
-------------------------------------------
Per common share
Net earnings - basic $1.20 $0.95 26 $3.76 $2.99 26
Dividends paid 0.44 0.38 16 1.28 1.04 23
Book value 24.70 22.30 11
Stock trading range
High 58.21 45.50 58.21 47.93
Low 51.60 42.72 46.39 40.17
Close 57.30 44.76 57.30 44.76
-------------------------------------------
-------------------------------------------

Financial position July October
31 31
(millions of dollars) 2005 2004
------------------------
Total assets $110,593 $88,721 25
Loans and acceptances 48,637 44,574 9
Deposits 60,993 53,432 14
Subordinated debentures
and shareholders' equity 6,062 5,612 8
Capital ratios - BIS
Tier 1 9.2% 9.6%
Total 12.1% 13.0%
Impaired loans, net of specific
and general allowances (219) (190)
as a % of loans and acceptances (0.5)% (0.4)%
Assets under administration/management 205,982 180,598
Total personal savings 89,252 81,215
Interest coverage 11.49 12,61
Asset coverage 3.77 3.42

Other information
Number of employees 17,049 16,555 3
Number of branches in Canada 460 462 -
Number of banking machines 774 770 1
-------------------------------------------
-------------------------------------------



Consolidated Statement of Income

(unaudited) Quarter ended Nine months ended
-------------------------------------------
(millions of dollars except July 31 April 30 July 31 July 31 July 31
per share amounts) 2005 2005 2004 2005 2004
-------------------------------------------
Interest income
and dividends
Loans 538 506 466 1,554 1,408
Securities 189 182 152 550 433
Deposits with
financial institutions 52 46 28 126 89
-------------------------------------------
779 734 646 2,230 1,930
-------------------------------------------
Interest expense
Deposits 332 253 173 846 606
Subordinated debentures 25 28 25 78 75
Other 116 74 64 271 266
-------------------------------------------
473 355 262 1,195 947
-------------------------------------------
Net interest income 306 379 384 1,035 983
-------------------------------------------

Other income
Financial market fees 158 189 152 516 494
Deposit and payment
service charges 51 49 50 149 150
Trading revenues 94 2 2 180 211
Gains (losses) on
investment account
securities, net (7) 17 12 87 40
Card service revenues 17 17 13 49 37
Lending fees 67 57 59 182 193
Acceptances, letters
of credit and guarantee 15 15 17 46 49
Securitization revenues 48 47 45 143 139
Foreign exchange revenues 20 18 18 56 55
Trust services and
mutual funds 74 69 62 208 181
Other 46 41 44 121 121
-------------------------------------------
583 521 474 1,737 1,670
-------------------------------------------
Total revenues 889 900 858 2,772 2,653
Provision for
credit losses 15 1 31 33 94
-------------------------------------------
874 899 827 2,739 2,559
-------------------------------------------

Operating expenses
Salaries and
staff benefits 355 357 325 1,080 1,017
Occupancy 45 46 46 136 140
Computers and equipment 85 93 81 262 238
Communications 19 21 19 59 58
Professional fees 33 32 42 89 98
Other 79 75 73 227 214
-------------------------------------------
616 624 586 1,853 1,765
-------------------------------------------

Income before income
taxes and non-controlling
interest 258 275 241 886 794
Income taxes 46 66 68 219 241
-------------------------------------------
212 209 173 667 553
Non-controlling interest 5 7 6 19 20
-------------------------------------------
Net income 207 202 167 648 533
Dividends on
preferred shares 8 7 6 21 18
-------------------------------------------
Net income available
to common shareholders 199 195 161 627 515
-------------------------------------------
Number of common shares
outstanding (thousands)
Average - basic 165,363 167,327 169,332 166,789 172,008
Average - diluted 167,849 169,938 171,634 169,310 174,386
End of period 165,096 165,744 168,058 165,096 168,058

--------------------------------------------
Earnings per common share
Basic 1.20 1.17 0.95 3.76 2.99
Diluted 1.18 1.15 0.94 3.70 2.96
Dividends per common share 0.44 0.42 0.38 1.28 1.04
--------------------------------------------
--------------------------------------------

Consolidated Balance Sheet

(unaudited) July 31 April 30 October 31 July 31
(millions of dollars) 2005 2005 2004 2004
-------------------------------------
ASSETS

Cash resources
Cash 232 208 481 226
Deposits with
financial institutions 11,799 9,089 5,296 6,743
-------------------------------------
12,031 9,297 5,777 6,969
-------------------------------------
Securities
Investment account 6,938 6,808 7,428 5,631
Trading account 27,745 24,347 20,561 18,992
Loan substitutes 7 7 18 18
-------------------------------------
34,690 31,162 28,007 24,641
-------------------------------------

Securities purchased under
reverse repurchase agreements 8,270 6,843 4,496 4,451
-------------------------------------

Loans
Residential mortgage 16,005 15,446 15,500 15,170
Personal and credit card 9,292 8,689 7,825 7,146
Business and government 20,978 19,896 18,751 19,394
Allowance for credit losses (480) (485) (578) (622)
-------------------------------------
45,795 43,546 41,498 41,088
-------------------------------------
Other
Customers' liability
under acceptances 2,842 2,902 3,076 3,038
Premises and equipment 345 343 267 272
Goodwill 662 662 662 662
Intangible assets 179 179 180 181
Other assets 5,779 4,983 4,758 4,179
-------------------------------------
9,807 9,069 8,943 8,332
-------------------------------------
110,593 99,917 88,721 85,481
-------------------------------------

LIABILITIES AND
SHAREHOLDERS' EQUITY

Deposits
Personal 25,476 25,034 24,008 24,252
Business and government 28,474 27,786 23,966 23,483
Deposit-taking institutions 7,043 8,926 5,458 6,533
-------------------------------------
60,993 61,746 53,432 54,268
-------------------------------------
Other
Acceptances 2,842 2,902 3,076 3,038
Obligations related to
securities sold short 16,776 15,088 10,204 9,140
Securities sold under
repurchase agreements 14,526 6,885 8,182 7,233
Other liabilities 8,979 6,514 7,845 5,804
-------------------------------------
43,123 31,389 29,307 25,215
-------------------------------------
Subordinated debentures 1,409 1,770 1,408 1,474
-------------------------------------
Non-controlling interest 415 427 370 402
-------------------------------------

Shareholders' equity
Preferred shares 575 575 375 375
Common shares 1,557 1,552 1,545 1,544
Contributed surplus 12 10 7 6
Unrealized foreign currency
translation adjustments (10) (1) (10) -
Retained earnings 2,519 2,449 2,287 2,197
-------------------------------------
4,653 4,585 4,204 4,122
-------------------------------------
110,593 99,917 88,721 85,481
-------------------------------------
-------------------------------------

Consolidated Statement of Cash Flows

(unaudited) Quarter ended Nine months ended
(millions of dollars) July 31 July 31
-------------------------------------
2005 2004 2005 2004
-------------------------------------

Cash flows from less than
operating activities
Net income 207 167 648 533
Adjustments for:
Provision for credit losses 15 31 33 94
Amortization of premises
and equipment 15 12 45 37
Future income taxes (1) (1) (30) -
Translation adjustment
on foreign currency
subordinated debentures (11) (14) 1 3
Losses (gains) on sales
of investment account
securities, net 7 (12) (87) (40)
Gains on asset securitization (32) (18) (87) (53)
Stock option expense 2 2 5 4
Change in interest payable 50 (8) 62 (2)
Change in interest
and dividends receivable 12 46 (12) 226
Change in income taxes payable (18) 9 10 (144)
Change in unrealized losses
(gains) and net amounts payable
on derivative contracts (54) 200 (46) 28
Change in trading
account securities (3,398) (653) (7,184) 159
Excess of pension plan
contributions over expenses - - - (20)
Change in other items 1,632 (1,243) 270 (455)
-------------------------------------
(1,574) (1,482) (6,372) 370
-------------------------------------

Cash flows from financing activities
Change in deposits (753) (387) 7,561 2,805
Issuance of subordinated
debentures - - 350 -
Repurchase of subordinated
debentures (350) - (350) (45)
Issuance of common shares 18 4 51 31
Issuance of preferred shares - - 200 -
Repurchase of common
shares for cancellation (75) (78) (224) (341)
Dividends paid on common shares - (65) (205) (180)
Dividends paid on preferred shares (7) (6) (19) (18)
Change in obligations related
to securities sold short 1,688 (341) 6,572 683
Change in securities sold
under repurchase agreements 7,641 1,025 6,344 (1,441)
Change in other items (9) (2) (4) (6)
-------------------------------------
8,153 150 20,276 1,488
-------------------------------------

Cash flows from
investing activities
Change in loans (2,336) (1,641) (5,645) (4,037)
Proceeds from
securitization of assets 278 516 2,021 1,236
Maturity of securitized assets (206) - (706) -
Purchases of investment
account securities (9,226) (3,232) (21,281) (8,112)
Sales of investment
account securities 9,089 3,438 21,858 9,519
Change in securities purchased
under reverse repurchase
agreements (1,427) (217) (3,774) (496)
Net acquisitions of
premises and equipment (17) (16) (123) (46)
-------------------------------------
(3,845) (1,152) (7,650) (1,936)
-------------------------------------

Increase (decrease) in cash
and cash equivalents 2,734 (2,484) 6,254 (78)
Cash and cash equivalents
at beginning 9,297 9,453 5,777 7,047
-------------------------------------
Cash and cash
equivalents at end 12,031 6,969 12,031 6,969
-------------------------------------

Cash and cash equivalents
Cash 232 226 232 226
Deposits with
financial institutions 11,799 6,743 11,799 6,743
-------------------------------------
12,031 6,969 12,031 6,969
-------------------------------------
Supplementary information
Interest and dividends paid 430 341 1,357 1,147
Income taxes paid 63 58 239 387
-------------------------------------
-------------------------------------



Consolidated Statement of Changes in Shareholders' Equity

(unaudited) Nine months ended July 31
(millions of dollars) --------------------
2005 2004
--------------------

Preferred shares at beginning 375 375
Issuance of preferred shares, Series 16 (Note 7) 200 -
--------------------
Preferred shares at end 575 375
--------------------

Common shares at beginning 1,545 1,583
Issuance of common shares 51 32
Repurchase of common shares for cancellation (Note 7) (39) (71)
Impact of shares acquired/sold for trading purposes - -
--------------------
Common shares at end 1,557 1,544
--------------------

Contributed surplus at beginning 7 2
Stock option expense 5 4
--------------------
Contributed surplus at end 12 6
--------------------

Unrealized foreign currency
translation adjustments at beginning (10) 6
Gains (losses) on foreign exchange
operations with a functional currency
other than the Canadian dollar, net of income taxes - (6)
--------------------
Unrealized foreign currency
translation adjustments at end (10) -
--------------------

Retained earnings at beginning 2,287 2,131
Net income 648 533
Initial adoption of AcG-15 (Note 2) 6 -
Dividends
Preferred shares (21) (17)
Common shares (214) (179)
Premium paid on common shares repurchased
for cancellation (Note 7) (185) (271)
Share issuance and other expenses, net of income taxes (2) -
--------------------
Retained earnings at end 2,519 2,197
--------------------

Shareholders' equity 4,653 4,122
--------------------
--------------------



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, 2004. Certain comparative figures have been reclassified to comply with the presentation adopted in fiscal 2005.

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, 2004, except for the new standards described in Note 2.

2. Recent Accounting Standards Adopted
---------------------------------------------------------------------

Variable Interest Entities

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

Investment Companies

In January 2004, the CICA issued Accounting Guideline No. 18 "Investment Companies" (AcG-18). Under this Guideline, investment companies are required to account for all their investments at fair value, including investments that would otherwise be consolidated or accounted for using the equity method. AcG-18 sets out the criteria for determining whether a company is an investment company and also provides guidance on the circumstances in which the parent company of, or equity method investor in, an investment company should account for the investment company's investments at fair value.

The provisions of this Guideline have applied to the Bank since November 1, 2004. They have been applied prospectively.

The impact of the adoption of this new Guideline on the consolidated financial statements for the nine-month period ended July 31, 2005 is negligible.

3. Recent Accounting Standards Pending Adoption
---------------------------------------------------------------------

Financial Instruments - Recognition and Measurement, Hedges and Comprehensive Income

In January 2005, the 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. The impact of implementing these new standards on the Bank's consolidated financial statements cannot yet be determined as it is dependent on the Bank's unsettled positions and hedging strategies and on market volatility at the time of transition.



4. Loans and Impaired Loans
--------------------------------------------------------------------
Impaired loans
---------------------------
Gross Specific Net
amount Gross allowances balance
-----------------------------------------
July 31, 2005
Residential mortgage 16,005 6 2 4
Personal and credit card 9,292 35 18 17
Business and government 20,978 220 127 93
-----------------------------------------
46,275 261 147 114
General allowance (1) (333)
-----------------------------------------
Impaired loans, net of
specific and general allowances (219)
-----------------------------------------


October 31, 2004
Residential mortgage 15,500 4 2 2
Personal and credit card 7,825 32 17 15
Business and government 18,751 352 209 143
-----------------------------------------
42,076 388 228 160
General allowance (1) (350)
-----------------------------------------
Impaired loans, net of
specific and
general allowances (190)
-----------------------------------------

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


5. Allowance for Credit Losses
--------------------------------------------------------------------

The changes made to allowances are as follows:

Nine months ended
Allocated Unallocated -----------------
Specific general general July 31 July 31
allowances allowance allowance 2005 2004
---------------------------------------------------------------------
Allowances
at beginning 228 272 78 578 630
Provision for
credit losses 50 - (17) 33 94
Write-offs (171) - - (171) (149)
Recoveries 40 - - 40 47
------------------------------------------------
Allowances at end 147 272 61 480 622
------------------------------------------------

6. Pension and Other Employee Future Benefits
--------------------------------------------------------------------

Quarter ended Nine months ended
---------------------------- ------------------
July 31 April 30 July 31 July 31 July 31
2005 2005 2004 2005 2004
---------------------------- ------------------
Pension benefit expense 14 13 11 38 33
Other employee future
benefit expense 2 2 2 4 6
---------------------------- ------------------
---------------------------- ------------------


7. Share Capital
--------------------------------------------------------------------
Issued and fully paid as at July 31, 2005

First preferred shares

7,000,000 shares, Series 13 175
8,000,000 shares, Series 15 200
8,000,000 shares, Series 16 200
---------------------------------------------------------------------
575
---------------------------------------------------------------------
165,096,215 common shares 1,557
---------------------------------------------------------------------
2,132
---------------------------------------------------------------------
5,856,460 stock options outstanding N/A
---------------------------------------------------------------------
---------------------------------------------------------------------

Issuance of preferred shares

On March 15, 2005, the Bank issued 8,000,000 First Preferred Shares
Series 16 with non-cumulative dividends of $0.303125 per share payable
quarterly for a cash consideration of $194 million, net of commissions
of $6 million.

On August 15, 2005, the Bank received approval to redeem, for
cancellation, the aggregate 7,000,000 Non-Cumulative First Preferred
Shares Series 13 at a price of $25.00 per share, plus $0.40,
representing declared and unpaid dividends per share up to the
redemption date.

Repurchase of common shares

On January 13, 2005, the Bank commenced a normal course issuer bid to
repurchase, for cancellation, up to 8,400,000 common shares over a 12-
month period ending no later than January 12, 2006. Repurchases are
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 July 31, 2005, the Bank had completed the repurchase of 4,178,900
common shares at a cost of $224 million, which reduced common share
capital by $39 million and retained earnings by $185 million.


8. Securitization
---------------------------------------------------------------------

CMHC-guaranteed mortgage loans

During the nine months ended July 31, 2005, the Bank securitized $1,222
million of guaranteed residential mortgage loans through the creation
of mortgage-backed securities ($278 million for the three months ended
July 31, 2005). The Bank sold $1,131 million of these securities in
addition to $10 million of mortgage-backed securities created in
October 2001 ($278 million and $58 million of mortgage-backed
securities created in March 2005 and October 2001, respectively, forthe three months ended July 31, 2005). Mortgage-backed securities
created and not sold remain on the Consolidated Balance Sheet under
"Securities - Investment account." The Bank received net cash proceeds
of $1,135 million and retained the rights to the excess spread of $54
million earned on the mortgage loans ($335 million and $16 million,
respectively, for the three months ended July 31, 2005). The Bank also
recorded a servicing liability of $7 million ($2 million for the three
months ended July 31, 2005). A pre-tax gain of $41 million, net of
transaction fees, was recognized in the Consolidated Statement of
Income under "Securitization revenues" ($13 million for the three
months ended July 31, 2005).

Personnal loans

A series of personal loan-backed notes (personal loans sold by the
Bank) totalling $206 million issued by a trust in 2002 matured in July
2005. The remaining two series of notes total $309 million as at July
31, 2005.

Credit card receivables

Credit card-backed investor certificates in the amount of $500 million
issued by a trust in 1998 matured in March 2005. In addition, the Bank
sold $800 million of credit card receivables to this trust during the
second quarter ended April 30, 2005. The Bank received cash proceeds of
$795 million and retained the rights to the excess spread of $21
million generated by the receivables, net of credit losses. The Bank
also recorded a servicing liability of $4 million as well as a pre-tax
gain of approximately $12 million, net of transaction fees of $5
million. As a result of these transactions, total securitized credit
card receivables increased by $300 million in the second quarter of
2005 to $1.2 billion as at July 31, 2005.

9. Subordinated Debentures
---------------------------------------------------------------------

On December 20, 2004, the Bank issued $350 million of subordinated
debentures under its Canadian Medium Term Note Program. The issue,
Series 3 Medium Term Notes, matures in December 2019. Interest on this
issue is payable semi-annually at a fixed rate of 4.926% until December
22, 2014, and at a floating rate equal to the rate on three-month
bankers' acceptances plus 1.00% (paid quarterly) thereafter to
maturity.

During the third quarter, the Bank redeemed a subordinated debenture in
the amount of $350 million of dollars maturing June 7, 2010 at a rate
of 6.90%.

10. Segment Disclosures
---------------------------------------------------------------------
Quarter ended July 31
Personal and Wealth Financial
Commercial Management Markets
-------------------------------------------------
2005 2004 2005 2004 2005 2004
-------------------------------------------------
Net interest
income(1) 330 314 25 24 20 98
Other income(1) 196 179 176 148 209 123
-------------------------------------------------
Total revenues 526 493 201 172 229 221
Operating expenses 321 312 150 136 139 128
-------------------------------------------------
Contribution 205 181 51 36 90 93
Provision for
credit losses 26 32 - - - 12
-------------------------------------------------
Income before
income taxes and
non-controlling
interest 179 149 51 36 90 81
Income taxes(1) 60 53 20 13 31 31
Non-controlling
interest - - 1 1 - -
-------------------------------------------------
Net income
(net loss) 119 96 30 22 59 50
-------------------------------------------------
-------------------------------------------------
Average assets 44,576 40,929 872 844 55,456 42,967
-------------------------------------------------
-------------------------------------------------

Other Total
------------------------------------------
2005 2004 2005 2004
------------------------------------------
Net interest income(1) (69) (52) 306 384
Other income(1) 2 24 583 474
------------------------------------------
Total revenues (67) (28) 889 858
Operating expenses 6 10 616 586
------------------------------------------
Contribution (73) (38) 273 272
Provision for
credit losses (11) (13) 15 31
------------------------------------------
Income before
income taxes and
non-controlling interest (62) (25) 258 241
Income taxes(1) (65) (29) 46 68
Non-controlling interest 4 5 5 6
------------------------------------------
Net income (net loss) (1) (1) 207 167
------------------------------------------
------------------------------------------
Average assets (5,458) (4,453) 95,446 80,287
------------------------------------------
------------------------------------------


Nine months ended July 31

Personal and Wealth Financial
Commercial Management Markets
-------------------------------------------------
2005 2004 2005 2004 2005 2004
-------------------------------------------------

Net interest
income(2) 968 935 73 70 189 146
Other income(2) 555 522 528 493 564 592
-------------------------------------------------
Total revenues 1,523 1,457 601 563 753 738
Operating expenses 933 902 460 440 445 396
-------------------------------------------------
Contribution 590 555 141 123 308 342
Provision for
credit losses 79 97 - - 4 53
-------------------------------------------------
Income before
income taxes and
non-controlling
interest 511 458 141 123 304 289
Income taxes(2) 170 164 50 43 103 107
-------------------------------------------------
Non-controlling
interest - - 3 3 1 -
-------------------------------------------------
Net income
(net loss) 341 294 88 77 200 182
-------------------------------------------------
-------------------------------------------------
Average assets 43,434 40,146 880 832 49,407 43,057
-------------------------------------------------
-------------------------------------------------

Other Total
------------------------------------------
2005 2004 2005 2004
------------------------------------------
Net interest income(2) (195) (168) 1,035 983
Other income(2) 90 63 1,737 1,670
------------------------------------------
Total revenues (105) (105) 2,772 2,653
Operating expenses 15 27 1,853 1,765
------------------------------------------
Contribution (120) (132) 919 888
Provision for
credit losses (50) (56) 33 94
------------------------------------------
Income before
income taxes and
non-controlling
interest (70) (76) 886 794
Income taxes(2) (104) (73) 219 241
Non-controlling interest 15 17 19 20
------------------------------------------
Net income (net loss) 19 (20) 648 533
------------------------------------------
------------------------------------------
Average assets (5,524) (5,159) 88,197 78,876
------------------------------------------
------------------------------------------


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,
discount 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, gains on the
sale of 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 $24
million ($15 million in 2004) and other income by $36 million ($13
million in 2004). An equal amount was added to income taxes. The
impact of these adjustments is reversed under the "Other" heading.

(2) For the nine months ended July 31, 2005, net interest income was
grossed up by $63 million ($45 million in 2004) and other income
by $52 million ($24 million in 2004). An equivalent amount was
added to income taxes. The impact of these increases is reversed
under the "Other" heading.

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
Telephone: (514) 394-0296
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 information: telnat@nbc.ca

Next quarterly report publication date for fiscal 2004-2005
Fourth quarter December 8, 2005

DISCLOSURE OF 3rd QUARTER 2005 RESULTS
--------------------------------------

Conference Call
- A conference call for analysts and institutional investors will be
held on August 25, 2005 at 1:30 EDT.
- Access by telephone in listen only mode is: (416) 340-2216 or
1-866-898-9626
- A recording of the conference call can be heard until September 1,
2005 by calling (416) 695-5800 or 1-800-408-3053. The access code is
3159782.

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

Financial Documents

- The quarterly financial statements are available at all times on
National Bank's website at www.nbc.ca/investorrelations.
- The Report to Shareholders, Supplementary Financial Information and a
slide presentation will be available on the Investor Relations page
of National Bank's website shortly before the start of the conference
call.

Transfer Agent and Registrar

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

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

Direct Deposit Service for Dividends

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

Dividend Reinvestment Plan

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

About the National Bank of Canada

National Bank of Canada is an integrated group which provides
comprehensive financial services to consumers, small and medium-sized
enterprises and large corporations in its core market, while offering
specialized services to its clients elsewhere in the world. The
National Bank offers a full array of banking services, including
retail, corporate and investment banking. It is an active player on
international capital markets and, through its subsidiaries, is
involved in securities brokerage, insurance and wealth management as
well as mutual fund and retirement plan management. The National Bank
has close to $110 billion in assets and, together with its
subsidiaries, employs 17,049 people. The Bank's securities are listed
on the Toronto Stock Exchange (NA:TSX). For more information, visit the
Bank's website at www.nbc.ca.


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