NATIONAL BANK OF CANADA

NATIONAL BANK OF CANADA

February 24, 2005 10:06 ET

National Bank Announces Record Net Income of $239 Million for the First Quarter of 2005, Up 28% from $186 Million for the Same Period of 2004


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: NATIONAL BANK OF CANADA

TSX SYMBOL: NA

FEBRUARY 24, 2005 - 10:06 ET

National Bank Announces Record Net Income of $239
Million for the First Quarter of 2005, Up 28% from
$186 Million for the Same Period of 2004

MONTREAL, QUEBEC--(CCNMatthews - Feb. 24, 2005) - National Bank of
Canada (TSX:NA)



- Quarterly earnings per share of $1.39, an increase of 35%
- Return on common shareholders' equity of 23.6%


For the quarter
ended January 31
----------------
2005 2004 %
---------------------
Net income
Personal and Commercial 114 105 +9
Wealth Management 27 23 +17
Financial Markets 78 73 +7
Other 20 (15)
----------------
Total 239 186 +28
----------------
Earnings per share $1.39 $1.03 +35
----------------
Return on common
shareholders' equity 23.6% 19.0%


For the first quarter ended January 31, 2005, National Bank reported
record net income of $239 million, compared to $186 million for the
corresponding quarter one year earlier. Earnings per share for the
quarter stood at $1.39, up 35% from $1.03 per share in the first quarter
of 2004.

Return on common shareholders' equity reached a new high of 23.6% for
the quarter, compared to 19.0% for the same period one year earlier.

This sterling performance was attributable to the contribution of the
Personal and Commercial and Wealth Management segments and the high
quality of the loan portfolio, which was reflected in a major reduction
in the allowance for credit losses, particularly in the Financial
Markets segment. The Bank also realized a pre-tax gain of about $37
million when it disposed of investments in financial institutions in
South America, which added 15 cents to earnings per share for the
quarter.

Total revenues stood at $983 million for the quarter, as against $911
million for the first quarter of 2004, for an increase of nearly 8%.
Excluding the gain realized on the disposal of investments, more than
50% of this increase was attributable to the Personal and Commercial
segment.

Operating expenses were $613 million for the quarter versus $577 million
for the corresponding quarter one year earlier. Two-thirds of the
increase derived from the Financial Markets segment, primarily due to
variable compensation. The efficiency ratio improved from 62.7% for the
first quarter of 2004 to 61.4% this quarter.

The provision for credit losses amounted to $17 million for the first
quarter of 2005, down more than 60% compared to the corresponding period
of 2004.

The Personal and Commercial segment generated net income of $114 million
for the quarter, up 9% from $105 million for the same period one year
earlier. This growth resulted from an increase in the volume of consumer
loans and in credit card and insurance revenues, and from the decrease
in credit losses for Commercial Banking.

In the first quarter of 2005, retail brokerage activities, mutual funds
distribution and private investment management products continued to
make gains, helping to push up net income in the Wealth Management
segment by 17% to $27 million from the $23 million reported for the
corresponding quarter of 2004.

The Financial Markets segment earned net income of $78 million for the
quarter, as against $73 million for the first quarter of 2004. This 7%
increase was mainly due to the decrease in credit losses.

Net income for the "Other" heading of segment results progressed from a
$15 million net loss in the first quarter of 2004 to net income of $20
million for the first quarter of 2005, primarily on the strength of the
gain on the disposal of investments in South America.

"The Bank's performance underscores its ability to achieve high growth
through a balanced portfolio of activities and the positive contribution
of its activities under development, which are suited to our
competencies and competitive strengths," commented Real Raymond,
President and Chief Executive Officer.

As at January 31, 2005, gross impaired loans amounted to $304 million,
down $84 million from October 31, 2004. This decrease was mirrored
across all business loan categories. The ratio of gross impaired loans
to total risk-adjusted capital and allowances stood at only 8.2%.
Specific allowances and the general allowance for credit risk exceeded
gross impaired loans by $216 million as at January 31, 2005, compared to
$190 million as at October 31, 2004. At $350 million, the general
allowance for credit risk remained unchanged at the end of the first
quarter.

Tier 1 and total capital ratios were 9.6% and 13.5%, respectively, as at
January 31, 2005 versus 9.6% and 13.0% as at October 31, 2004. During
the quarter, the Bank issued $350 million of subordinated debentures,
which added 0.8% to the total capital ratio. As at the end of quarter,
the Bank had not made any purchases under its normal course issuer bid
commenced on January 13, 2005 to repurchase up to 8.4 million common
shares.

"These strong results were supported by active risk and capital
management. National Bank's excellent performance is a tribute to the
quality of our strategies and teams," Mr. Raymond added.



Results
1st quarter
Objectives 2005

Growth in earnings per share 5% - 10% 35%
Return on common shareholders' equity 16% - 18% 23.6%
Tier 1 capital ratio More than 8.5% 9.6%
Dividend payout ratio 35% - 45% 34%



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

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 first quarter of 2005.

Critical Accounting Estimates

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

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

Changes in Accounting Policies

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

Variable interest entities

On November 1, 2004, the Bank adopted CICA Accounting Guideline No.15
"Consolidation of Variable Interest Entities" (AcG-15). This Guideline
is harmonized with 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 results 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 $93 million, "Non-controlling
interest" of $45 million and "Retained earnings" of $3 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 Canadian
Institute of Chartered Accountants. 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 first quarter
of 2005 is negligible.

Analysis of Results

Operating Results

National Bank reported net income of $239 million for the first quarter
ended January 31, 2005, compared to $186 million for the corresponding
quarter one year earlier. Earnings per share for the quarter amounted
to $1.39, as against $1.03 for the same period of 2004, for an increase
of 35%. Return on common shareholders' equity stood at 23.6% for the
quarter, up from 19% for the quarter ended January 31, 2004.

Results by Segment

Personal and Commercial

Net income for the Personal and Commercial segment totalled $114 million
for the first quarter of 2005, up 9% from $105 million in the
corresponding quarter of 2004. Growth in the volume of consumer loans
and in credit card and insurance revenues, combined with lower credit
losses at Commercial Banking were the main reason for the improvement in
this segment's results.

At $324 million, net interest income for the quarter was $10 million or
3% higher than for the same period of 2004. The increase in net interest
income was due to $2.9 billion or 7% growth in average assets,
especially consumer loans, while the spread was 14 basis points narrower
than in the corresponding quarter of 2004. Other income for the quarter
totalled $179 million, up $8 million or 5% from the first quarter of
2004. The main sources of growth were credit card and insurance
revenues. Operating expenses for the first quarter of 2005 stood at $304
million, compared to $292 million for the same period of 2004, an
increase of 4%. The efficiency ratio remained relatively stable at about
60%. The provision for credit losses was $27 million, down $2 million
or 7%, owing to Commercial Banking.

Wealth Management

Net income for Wealth Management in the first quarter of 2005 was $27
million compared to $23 million for the same period in 2004,
representing an increase of $4 million or 17%. Total revenues amounted
to $195 million for the quarter, up 5% from the $186 million recorded in
the corresponding quarter of 2004. Most of the increase was derived from
retail brokerage activities, the distribution of mutual funds and
private investment management products. Operating expenses were $153
million for the first quarter of 2005, up 3% from $149 million for the
year-earlier period. The efficiency ratio improved from 80.1% in the
first quarter of 2004 to 78.5% this quarter.

Financial Markets

Net income for the Financial Markets segment stood at $78 million as
against $73 million for the same period in 2004, an increase of 7%. At
$2 million, the provision for credit losses for the quarter was down
significantly from the $24 million that the Bank had recorded for this
segment in the first quarter of 2004, due to specific allowances for the
steel industry.

Total revenues for the segment amounted to $275 million for the quarter
ended January 31, 2005 compared to $269 for the year-earlier period.
Gains on investment account securities were up approximately $10
million, while trading revenues declined by $6 million.



Trading Revenues Q1 Q1
(millions of dollars) 2005 2004
Financial Markets
Interest rate 17 25
Equities 58 46
Commodities and foreign exchange 3 13
78 84
Other segments 4 2
Total 82 86
Breakdown by Income Statement line item
Net interest income (2) (70)
Other income 84 160
Taxable equivalent - (4)
82 86


Operating expenses were $155 million for the quarter compared to $132
million for the first quarter of 2004. The increase was essentially
attributable to variable compensation.

Other

Net income for the "Other" heading of segment results totalled $20
million in the first quarter of 2005 compared to a loss of $15 million
for the same period last year. Total revenues were $10 million for the
quarter as against a loss of $29 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 first quarter of 2005 amounted to $983 million,
for an increase of 8% compared to the $911 million recorded in the
corresponding quarter of 2004.

Net interest income totalled $349 million for the quarter, up $75
million from the $274 million posted in the first quarter of 2004. Net
interest income for the Financial Markets segment was up $68 million,
which must be analyzed in conjunction with the trading revenues recorded
in other income. Net interest income for Personal and Commercial rose
$10 million or 3% to $324 million for the first quarter of 2005,
primarily because of higher volumes of consumer loans, which were
partially offset by a narrowing of the spread.

Other income for the first quarter of 2005 was $634 million as against
$637 million for the corresponding period of fiscal 2004.

The portion of trading revenues recorded as other income fell $76
million from the corresponding quarter of 2004. However, if net
interest income related to trading activities is included, total trading
revenues for the quarter were down only $4 million. Gains on investment
account securities advanced $84 million to $77 million in the first
quarter of 2005 owing to gains from merchant banking, a gain on the
disposal of investments in South America and the $31 million impairment
charge recorded on corporate investments in the first quarter of 2004.

Financial market fees, for their part, were $169 million for the
quarter, up $5 million over the corresponding period of 2004, card
service revenues rose $3 million to total $15 million, and trust service
and mutual fund fees rose $8 million to $65 million.

Lastly, at $58 million for the first quarter of 2005, lending fees were
down $22 million due to the $25 million that had been recorded as income
last year for the unamortized balance of certain mortgage prepayment
fees further to the application of a new accounting standard that came
into effect in the first quarter of 2004.

Operating Expenses

Operating expenses for the quarter were $613 million compared to $577
million for the corresponding period of 2004. Salaries and staff
benefits, at $367 million for the quarter, were $22 million higher than
the year-earlier period, mainly as a result of variable compensation.
The increase in salaries and staff benefits accounted for close to
two-thirds of the total increase in operating expenses. The computers
and equipment heading, which was $84 million for the first quarter of
2005, increased by $11 million because of investments in technology.

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 first quarter of 2005, cash and cash equivalents rose $1.3
billion compared to an increase of $1.2 billion for the first quarter of
2004. As at January 31, 2005, cash and cash equivalents totalled $7.0
billion versus $8.3 billion one year earlier.

Operating activities required cash of $0.9 billion chiefly because of
trades in settlement. For the corresponding quarter of 2004, the
reduction in trading account securities represented $1.5 billion of the
$1.9 billion in cash flows from operating activities.

Financing activities generated cash of $4.1 billion, of which $3.2
billion was attributable to higher deposits, particularly purchased
funds, whereas in the first quarter of 2004, the $2 billion variation in
securities sold under repurchase agreements accounted for the cash
outflows from financing activities.

Lastly, investing activities in the first quarter of 2005 required $1.9
billion in cash owing to the $1.3 billion increase in loans and a higher
volume of securities purchased under reverse repurchase agreements. For
the corresponding period of 2004, investing activities generated $1.3
billion primarily because of purchases and sales of investment account
securities.


Risk Management

Credit Risk

The Bank recorded a provision for credit losses of $17 million for the
quarter compared to $44 million for the corresponding quarter of 2004.
Of the $27 million decline, $22 million can be attributed to the
reduction in the provision at Corporate Banking.

As at January 31, 2005, the allowance for credit losses exceeded
impaired loans by $216 million compared to $190 million as at October
31, 2004. The $26 million improvement is attributable to all segments
offering business loans.

The ratio of gross private impaired loans to total risk-weighted assets
and allowances was excellent at 8.2% as at January 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 For the quarter ended For the quarter ended
risk category January 31, 2005 October 31, 2004

Period Period
end High Average Low end High Average Low
Interest rate (3.6) (6.5) (4.0) (2.0) (3.7) (4.9) (3.7) (2.7)
Foreign exchange (0.9) (3.3) (1.3) (0.5) (0.9) (2.9) (1.7) (0.7)
Equity (4.7) (6.2) (4.4) (2.7) (3.6) (5.4) (3.8) (3.0)
Commodity (0.7) (1.0) (0.7) (0.5) (1.0) (1.0) (0.8) (0.6)
Correlation
effect(2) 4.2 9.9 4.7 1.3 3.6 6.6 4.2 2.4
---------------------------------------------------------------------
Global VaR (5.7) (7.1) (5.7) (4.4) (5.6) (7.6) (5.8) (4.6)
---------------------------------------------------------------------

(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 January 31, 2005, the Bank's assets stood at $91.7 billion
compared to $88.7 billion at the end of fiscal 2004. Loans and
acceptances were up $0.8 billion, while cash resources, securities and
securities purchased under reverse repurchase agreements rose $2
billion. The following table presents the main portfolios.



Average monthly volumes January October January
(millions of dollars) 2005 2004 2004
Loans and acceptances(i)
Residential mortgages 19,846 19,554 18,308
Consumer loans 6,629 6,491 5,357
Credit card receivables 1,652 1,589 1,539
Business loans 17,062 17,276 17,901
45,189 44,910 43,105
Deposits
Personal (balance) 24,089 23,675 23,853
Off-balance sheet savings (balance) 59,526 57,207 49,383
Business 10,485 10,668 10,359

(i) including securitized assets


Residential mortgages as at January 31, 2005 were up $300 million from
October 31, 2004 to $19.8 billion. Residential mortgages rose $1.5
billion or 8% versus January 31, 2004. At $6.6 billion, the volume of
consumer loans has increased nearly 2% since the beginning of the fiscal
year. Consumer loans were up $1.3 billion or 24% from January 31, 2004,
with close to half of this strong growth attributable to volumes from
partnerships. Credit card receivables have increased 4% since November
1, 2004 to $1.7 billion as at January 31, 2005. Business loans and
acceptances were $17.1 billion at the end of the first quarter as
compared to $17.3 billion at the end of fiscal 2004. Corporate loans
accounted for the slight decline.

Personal deposits stood at $24.1 billion as at January 31, 2005 compared
to $23.7 billion as at October 31, 2004. Off-balance sheet personal
savings administered by the Bank as at January 31, 2005 totalled $59.5
billion, up $2.3 billion or 4% since the end of the previous fiscal
year. The increase was attributable to savings administered by the
brokerage subsidiaries.

Capital

Tier 1 and total capital ratios, according to the rules of the Bank for
International Settlements, were 9.6% and 13.5%, respectively, as at
January 31, 2005, compared to 9.6% and 13.0% as at October 31, 2004.
During the quarter, the Bank issued $350 million of subordinated
debentures, which added 0.8% to the total capital ratio. At the end of
the quarter, the Bank had not made any purchases of common shares under
its normal course issuer bid commenced on January 13, 2005 to repurchase
up to 8.4 million common shares.

Dividends

At its meeting on February 24, 2005, the Board of Directors declared
regular dividends on the various classes and series of preferred shares
as well as a dividend of 42 cents per common share payable on May 1,
2005 to shareholders of record on March 24, 2005.

Caution regarding forward-looking statements

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

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

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



Highlights


(unaudited) Quarter ended January 31
-------------------------------
%
2005 2004 Change
-------------------------------
Operating results
(millions of dollars)
Total revenues $983 $911 8
Net income 239 186 28
Return on common shareholders' equity 23.6% 19.0%
-------------------------------
-------------------------------
Per common share
Net earnings - basic $1.39 $1.03 35
Dividends paid 0.42 0.33 27
Book value 23.97 21.81 10
Stock trading range
High 49.75 45.00
Low 46.39 40.17
Close 49.19 43.85
-------------------------------
-------------------------------

Financial position January 31 October 31
(millions of dollars) 2005 2004
-------------------------------

Total assets $91,703 $88,721 3
Loans and acceptances 45,019 44,574 1
Deposits 56,660 53,432 6
Subordinated debentures and
shareholders' equity 6,167 5,612 10
Capital ratios - BIS
Tier 1 9.6% 9.6%
Total 13.5% 13.0%
Impaired loans, net of specific
and general allowances (216) (190)
as a % of loans and acceptances (0.5)% (0.4)%
Assets under
administration/management 191,822 180,598
Total personal savings 83,615 80,882
Interest coverage 11.17 12.61
Asset coverage 3.08 3.42

Other information
Number of employees 16,610 16,555 -
Number of branches in Canada 462 462 -
Number of banking machines 768 770 -
-------------------------------
-------------------------------


Consolidated Statement of Income

Quarter ended
------------------------------------------
(unaudited) January 31 October 31 January 31
(millions of dollars 2005 2004 2004
except per share
amounts)
------------------------------------
Interest income and dividends
Loans 509 476 485
Securities 179 155 138
Deposits with financial
institutions 28 24 33
------------------------------------
716 655 656
------------------------------------
Interest expense
Deposits 260 194 247
Subordinated debentures 26 24 25
Other 81 57 110
------------------------------------
367 275 382
------------------------------------
Net interest income 349 380 274
------------------------------------

Other income
Financial market fees 169 139 164
Deposit and payment
service charges 49 50 49
Trading revenues 84 (13) 160
Gains on investment account
securities, net 77 51 (7)
Card service revenues 15 12 12
Lending fees 58 65 80
Acceptances, letters of credit
and guarantee 16 16 16
Securitization revenues 48 41 51
Foreign exchange revenues 18 17 19
Trust services and mutual funds 65 63 57
Other 35 71 36
------------------------------------
634 512 637
------------------------------------
Total revenues 983 892 911
Provision for credit
losses (recovery) 17 (8) 44
------------------------------------
966 900 867
------------------------------------

Operating expenses
Salaries and staff benefits 367 342 345
Occupancy 45 60 46
Computers and equipment 84 96 73
Communications 19 19 19
Professional fees 25 20 24
Other 73 86 70
------------------------------------
613 623 577
------------------------------------

Income before income taxes
and non-controlling interest 353 277 290
Income taxes 107 77 97
------------------------------------
246 200 193
Non-controlling interest 7 8 7
------------------------------------
Net income 239 192 186
Dividends on preferred shares 6 5 6
------------------------------------
Net income available to
common shareholders 233 187 180
------------------------------------
Number of common shares
outstanding (thousands)
Average - basic 167,693 167,671 174,669
Average - diluted 170,164 169,936 177,008
End of period 168,049 167,430 173,569
----------------------------------------
Net earnings per
common share
Basic 1.39 1.11 1.03
Diluted 1.37 1.09 1.02
Dividends per common share 0.42 0.38 0.33
-------------------------------------
-------------------------------------



Consolidated Balance Sheet

-------------------------------------
(unaudited) January 31 October 31 January 31
(millions of dollars) 2005 2004 2004
-------------------------------------

ASSETS

Cash resources
Cash 213 481 193
Deposits with financial
institutions 6,823 5,296 8,091
-------------------------------------
7,036 5,777 8,284
-------------------------------------
Securities
Investment account 7,439 7,428 5,770
Trading account 20,278 20,561 17,701
Loan substitutes 3 18 20
-------------------------------------
27,720 28,007 23,491
-------------------------------------

Securities purchased under
reverse repurchase
agreements 5,566 4,496 4,411
-------------------------------------

Loans
Residential mortgage 15,452 15,500 14,014
Personal and credit card 8,209 7,825 6,260
Business and government 19,153 18,751 18,181
Allowance for credit losses (520) (578) (643)
-------------------------------------
42,294 41,498 37,812
-------------------------------------
Other
Customers' liability
under acceptances 2,725 3,076 3,160
Premises and equipment 346 267 264
Goodwill 662 662 662
Intangible assets 180 180 182
Other assets 5,174 4,758 4,890
-------------------------------------
9,087 8,943 9,158
-------------------------------------
91,703 88,721 83,156
-------------------------------------

LIABILITIES AND SHAREHOLDERS'
EQUITY

Deposits
Personal 24,089 23,675 23,853
Business and government 25,520 24,299 21,637
Deposit-taking institutions 7,051 5,458 6,093
-------------------------------------
56,660 53,432 51,583
-------------------------------------
Other
Acceptances 2,725 3,076 3,160
Obligations related to
securities sold short 11,671 10,204 8,644
Securities sold under
repurchase agreements 7,269 8,182 6,643
Other liabilities 6,789 7,845 7,093
-------------------------------------
28,454 29,307 25,540
-------------------------------------
Subordinated debentures 1,764 1,408 1,473
-------------------------------------
Non-controlling interest 422 370 400
-------------------------------------

Shareholders' equity
Preferred shares 375 375 375
Common shares 1,563 1,545 1,583
Contributed surplus 8 7 3
Unrealized foreign currency
translation adjustments 4 (10) 1
Retained earnings 2,453 2,287 2,198
-------------------------------------
4,403 4,204 4,160
-------------------------------------
91,703 88,721 83,156
-------------------------------------
-------------------------------------


Consolidated Statement of Cash Flows

(unaudited) Quarter ended January 31
(millions of dollars) ---------------------
2005 2004
---------------------

Cash flows from operating activities
Net income 239 186
Adjustments for:
Provision for credit losses 17 44
Amortization of premises and equipment 15 12
Future income taxes (30) (3)
Translation adjustment on foreign currency
subordinated debentures 6 2
Losses (gains) on sales of investment
account securities, net (77) 7
Gains on asset securitization (25) (17)
Stock option expense 1 1
Change in interest payable 16 22
Change in interest and dividends receivable - 193
Change in income taxes payable 46 (119)
Change in unrealized losses (gains) and net
amounts payable on derivative contracts 120 (60)
Change in trading account securities 283 1,450
Excess of pension plan contributions
over expenses - (15)
Change in other items (1,535) 150
---------------------
(924) 1,853
---------------------

Cash flows from financing activities
Change in deposits 3,228 120
Issuance of subordinated debentures 350 -
Maturity of subordinated debentures - (45)
Issuance of common shares 18 14
Repurchase of common shares for cancellation - (69)
Dividends paid on common shares (64) (58)
Dividends paid on preferred shares (6) (6)
Change in obligations related to securities
sold short 1,467 187
Change in securities sold under
repurchase agreements (913) (2,031)
Change in other items 14 (5)
---------------------
4,094 (1,893)
---------------------

Cash flows from investing activities
Change in loans (1,307) 55
Proceeds from securitization of assets 494 470
Purchases of investment account securities (5,354) (2,595)
Sales of investment account securities 5,420 3,816
Change in securities purchased under reverse
repurchase agreements (1,070) (456)
Net acquisition of premises and equipment (94) (13)
---------------------
(1,911) 1,277
---------------------

Increase in cash and cash equivalents 1,259 1,237
Cash and cash equivalents at beginning 5,777 7,047
---------------------
Cash and cash equivalents at end 7,036 8,284
---------------------

Cash and cash equivalents
Cash 213 193
Deposits with financial institutions 6,823 8,091
---------------------
7,036 8,284

---------------------
Supplementary information
Interest and dividends paid 421 424
Income taxes paid 91 217
---------------------
---------------------



Consolidated Statement of Changes in Shareholders' Equity

(unaudited) Quarter ended January 31
(millions of dollars) ---------------------
2005 2004
---------------------


Preferred shares 375 375
---------------------

Common shares at beginning 1,545 1,583
Issuance of common shares 18 14
Repurchase of common shares for
cancellation (Note 6) - (14)
---------------------
Common shares at end 1,563 1,583
---------------------

Contributed surplus at beginning 7 2
Stock option expense 1 1
---------------------

Contributed surplus at end 8 3
---------------------

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 14 (5)
---------------------
Unrealized foreign currency translation
adjustments at end 4 1
---------------------

Retained earnings at beginning 2,287 2,131
Net income 239 186
Initial adoption of AcG-15 (Note 2) 3 -
Dividends
Preferred shares (6) (6)
Common shares (70) (58)
Premium paid on common shares repurchased
for cancellation (Note 6) - (55)
---------------------
Retained earnings at end 2,453 2,198
---------------------

Shareholders' equity 4,403 4,160
---------------------
---------------------

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). This Guideline
is harmonized with 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 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 results 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. 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 $93 million, "Non-controlling interest" of $45 million,
and "Retained earnings" of $3 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." 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. 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 provisions of the 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 first quarter of 2005 is negligible.



3. Loans and Impaired Loans
--------------------------------------------------------------------

Impaired loans
----------------------------
Gross Specific
amount Gross allowances Net
-------------------------------------
January 31, 2005
Residential mortgage 15,452 3 1 2
Personal and credit card 8,209 33 18 15
Business and government 19,153 268 151 117
-------------------------------------
42,814 304 170 134
General allowance (1) (350)
-------------------------------------
Impaired loans, net
of specific and general
allowances (216)
-------------------------------------

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.

4. Allowance for Credit Losses
--------------------------------------------------------------------

The changes made to allowances during the first quarter are as
follows:

Allocated Unallocated
Specific general general January 31 January 31
allowances allowance allowance 2005 2004
-------------------------------------------------

Allowances
at beginning 228 272 78 578 630
Provision for
credit losses 17 - - 17 44
Write-offs (86) - - (86) (44)
Recoveries 11 - - 11 13
-------------------------------------------------
Allowances at end 170 272 78 520 643
-------------------------------------------------
-------------------------------------------------

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

Quarter ended
--------------------------------------------------------------------
January 31 October 31 January 31
2005 2004 2004
-----------------------------
Pension benefit expense 12 5 11
Other employee future benefit expense - 2 2
-----------------------------
-----------------------------

6. Capital Stock
--------------------------------------------------------------------

Issued and fully paid as at January 31, 2005
First preferred shares
7,000,000 shares, Series 13 175
8,000,000 shares, Series 15 200
--------------------------------------------------------------------
375
--------------------------------------------------------------------
168,049,508 common shares 1,563
--------------------------------------------------------------------
1,938


--------------------------------------------------------------------
7,088,099 stock options outstanding N/A
--------------------------------------------------------------------
--------------------------------------------------------------------

Repurchase of common shares

On January 13, 2005, the Bank started a normal course issuer bid for
the repurchase of up to 8,400,000 common shares over a 12-month
period ending no later than January 12, 2006. Repurchases will be
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 will be charged to retained earnings.

As at January 31, 2005, the Bank had not repurchased any common
shares under this program.

7. Securitization
--------------------------------------------------------------------

CMHC-guaranteed mortgage loans

During the first quarter of 2005, the Bank securitized $494 million
of guaranteed residential mortgage loans through the creation of
mortgage-backed securities. The Bank received net cash proceeds of
$492 million and retained the rights to the excess spread of $24
million generated on the mortgage loans. The Bank also recorded a
servicing liability of $3 million. A pre-tax gain of $19 million, net
of transaction fees, was recognized in the Consolidated Statement of
Income under "Securitization revenues."

8. 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, is due 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.

9. Segment Disclosures
--------------------------------------------------------------------

Quarter ended January 31

Personal and Wealth Financial
Commercial Management Markets
--------------------------------------------------------------------
2005 2004 2005 2004 2005 2004
--------------------------------------------------------------------
Net interest income(1) 324 314 23 22 62 (6)
Other income(1) 179 171 172 164 213 275
--------------------------------------------------------------------
Total revenues 503 485 195 186 275 269
Operating expenses 304 292 153 149 155 132
--------------------------------------------------------------------
Contribution 199 193 42 37 120 137
Provision for
credit losses 27 29 - - 2 24
--------------------------------------------------------------------
Income before income
taxes and
non-controlling
interest 172 164 42 37 118 113
Income taxes(1) 58 59 14 13 40 40
Non-controlling interest - - 1 1 - -
--------------------------------------------------------------------
Net income (net loss) 114 105 27 23 78 73
--------------------------------------------------------------------
--------------------------------------------------------------------
Average assets 42,382 39,443 855 802 44,302 42,678
--------------------------------------------------------------------
--------------------------------------------------------------------

Other Total
--------------------------------------------------------------------
2005 2004 2005 2004
--------------------------------------------------------------------
Net interest income(1) (60) (56) 349 274
Other income(1) 70 27 634 637
--------------------------------------------------------------------
Total revenues 10 (29) 983 911
Operating expenses 1 4 613 577
--------------------------------------------------------------------
Contribution 9 (33) 370 334
Provision for credit losses (12) (9) 17 44
--------------------------------------------------------------------
Income before income
taxes and
non-controlling
interest 21 (24) 353 290
Income taxes(1) (5) (15) 107 97
Non-controlling interest 6 6 7 7
--------------------------------------------------------------------
Net income (net loss) 20 (15) 239 186
--------------------------------------------------------------------
--------------------------------------------------------------------
Average assets (5,404) (5,446) 82,135 77,477


--------------------------------------------------------------------
--------------------------------------------------------------------

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.

(1) Taxable equivalent

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 $16 million ($13 million in 2004)
and other income by $1 million (decreased by $2 million in 2004). An
equal amount was added to income taxes. The impact of these
adjustments is reversed under the "Other" heading.

Additional Financial Information
--------------------------------------------------------------------

(unaudited)
(millions of dollars, except per share amounts)


2005 2004
--------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1
--------------------------------------------------------------------
Total revenues $983 $893 $857 $884 $911
Net income $239 $192 $167 $180 $186

Earnings per share
Basic 1.39 1.11 0.95 1.01 1.03
Diluted 1.37 1.09 0.94 1.00 1.02
--------------------------------------------------------------------

Dividends per common share 0.42 0.38 0.38 0.33 0.33

Return on common
shareholders' equity 23.6% 19.7% 17.2% 19.0% 19.0%


Total assets $91,703 $88,721 $85,481 $86,466 $83,156

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

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

(unaudited)
(millions of dollars, except per share amounts)


2003 2004 2003
--------------------------------------------------------------------
Q4 Q3 Q2 Total Total
--------------------------------------------------------------------

Total revenues $903 $851 $773 $3,545 $3,363
Net income $158 $162 $138 $725 $624

Earnings per share
Basic 0.87 0.89 0.73 4.10 3.37
Diluted 0.86 0.88 0.72 4.05 3.34
--------------------------------------------------------------------

Dividends per common share 0.28 0.28 0.26 1.42 1.08

Return on common
shareholders' equity 16.4% 16.4% 17.3% 18.8% 16.5%


Total assets $84,626 $80,474 $77,852

Impaired loans
Net private $248 $230 $225
Designated countries
Gross outstanding 22 23 23
Allowances 19 20 22
-----------------------------------------------------
Net total 251 233 226
-----------------------------------------------------
Per common share
Book value $21.32 $20.77 $20.28
Stock trading range
High 41.19 37.41 35.15
Low 34.50 34.55 31.26
-----------------------------------------------------


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

Quarterly report publication dates for fiscal 2004-2005
Second quarter May 26, 2005
Third quarter August 25, 2005
Fourth quarter December 8, 2005

DISCLOSURE OF 1st QUARTER 2005 RESULTS
--------------------------------------------------------------------

Conference Call
- A conference call for analysts and institutional investors will be
held on February 24, 2005 at 1:00 p.m. ET.
- Access by telephone is 1-877-211-7911 or (416) 405-9310
- A recording of the conference call can be heard until March 3, 2005
by calling 1-800-408-3053 or (416) 695-5800. The access code is
3139876.

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.


-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    National Bank of Canada
    Michel Labonte, Senior Vice-President
    Finance, Technology and Corporate Affairs
    (514) 394-8610
    or
    National Bank of Canada
    Denis Dube
    Director, Public Relations
    (514) 394-8644