NATIONAL BANK OF CANADA
TSX : NA

NATIONAL BANK OF CANADA

May 25, 2006 09:25 ET

National Bank: Robust Revenue and Diluted EPS Growth in the Second Quarter of 2006

MONTREAL, QUEBEC--(CCNMatthews - May 25, 2006) - National Bank of Canada (TSX:NA)



- Revenues of $949 million, an increase of 5.4%
- Diluted earnings per share of $1.26, up 10%
- Return on common shareholders' equity of 20.4%
- Increase in the quarterly dividend of 4% to 50 cents per share


(millions of dollars) For the quarter
ended April 30
----------------
2006 2005 %
---- ----
Personal and Commercial 111 105 +6
Wealth Management 42 30 +40
Financial Markets 59 61 -3
Other 2 6 -
-------- --------
Net income 214 202 +6

Less: Reduction in general
allowance for credit risk - (11)
Net gain on sale of shareholder
management activities included in
Wealth Management (5) -
Gain on disposal of investments in
South America - -
-------- --------
Net income excluding preceding items 209 191 +9
-------- --------
-------- --------

Diluted earnings per share $1.26 $1.15 +10
Less: Reduction in general
allowance for credit risk - (0.07)
Net gain on sale of shareholder
management activities included
in Wealth Management (0.03) -
Gain on disposal of investments in
South America - -
-------- --------
Diluted earnings per share
excluding preceding items $1.23 $1.08 +14
-------- --------
-------- --------
Return on common shareholders' equity 20.4% 19.9%
-------- --------
-------- --------

(millions of dollars) For the six months
ended April 30
----------------
2006 2005 %
---- ----
Personal and Commercial 225 217 +4

Wealth Management 80 56 +43

Financial Markets 141 137 +3

Other (15) 31 -
-------- --------
Net income 431 441 -2

Less: Reduction in general
allowance for credit risk - (11)
Net gain on sale of shareholder
management activities included in
Wealth Management (5) -
Gain on disposal of investments in
South America - (25)
-------- --------
Net income excluding preceding items 426 405 +5
-------- --------
-------- --------

Diluted earnings per share $2.52 $2.52 -
Less: Reduction in general
allowance for credit risk - (0.07)
Net gain on sale of shareholder
management activities included in
Wealth Management (0.03) -
Gain on disposal of investments in
South America - (0.15)
-------- --------
Diluted earnings per share
excluding preceding items
$2.49 $2.30 +8
-------- --------
-------- --------
Return on common shareholders' equity 20.2% 21.8%
-------- --------
-------- --------


National Bank reported net income of $214 million for the second quarter of fiscal 2006, an increase of $12 million over the same period in 2005. Diluted earnings per share totaled $1.26, up 10% from $1.15 in the second quarter of 2005. Had it not been for the reduction in the general allowance for credit risk in the second quarter of 2005 and the net gain on the sale of its shareholder management activities in the second quarter of 2006, the increase would have been 14%.

Return on common shareholders' equity was 20.4% in the second quarter of 2006 versus 19.9% for the same quarter last year. The Board of Directors also approved an increase of 4% in the quarterly dividend to 50 cents per share.

The quarter saw robust growth in revenues in both the Personal and Commercial and Wealth Management segments as well as a slight decrease in operating expenses. These activities also showed excellent profitability. "Over 8% of personal savings on deposit with the six major Canadian banks, be they securities, mutual funds or other vehicles(1), are held at the Bank-a proportion far exceeding our relative size in the Canadian market. This competitive advantage is fully reflected in our quarterly results and is a source of long-term profitability for our shareholders," stated Real Raymond, President and Chief Executive Officer.

The Bank posted net income of $431 million for the first six months of fiscal 2006 versus $441 million for the same period in 2005. Diluted earnings per share for the first six months of 2006 stood at $2.52, unchanged from the first half of 2005. Had it not been for the reduction in the general allowance for credit risk, the gain on disposal of investments in South America and the net gain on the sale of the shareholder management activities in the first half of 2005 and 2006, diluted earnings per share would have increased 8%. Lastly, return on common shareholders' equity was 20.2% in the first half of 2006 compared to 21.8% for the same period last year.

(1) Source: Investor Economics Inc.

Results by Segment

In the second quarter of 2006, net income for Personal and Commercial totaled $111 million, up 6% from $105 million for the same quarter the previous year. The segment recorded sustained growth in total revenues due to insurance and foreign exchange activities and higher net interest income resulting primarily from increased loan volumes. Operating expenses rose chiefly due to the higher cost of salaries and staff benefits. The segment's contribution before the provision for credit losses and income taxes was $200 million for the quarter, 10% higher than in the corresponding period of 2005. This growth was partly offset by the increase in the provision for credit losses. In the first six months of 2006, net income for the Personal and Commercial segment was $225 million, up 4% over the $217 million recorded for the corresponding period of 2005. Total revenues for the segment grew 5.4% to $1,049 million.

Net income for Wealth Management totaled $42 million for the quarter, compared to $30 million for the corresponding period of 2005, an increase of 40%. The gain on the sale of National Bank Trust's shareholder management activities during the quarter, less certain expenses, contributed $5 million to the increase in quarterly net income. The segment's total revenues rose 11% on the strength of increased activity in almost all of its business units. A slight increase in operating expenses resulted in a decrease in the efficiency ratio from 77.3% in the second quarter of 2005 to 71.7% this quarter. In the first six months of 2006, net income for Wealth Management reached $80 million, 43% more than for the same period of 2005. Total revenues for the segment grew 11% to $444 million in the first half of 2006.

Financial Markets posted net income of $59 million in the second quarter of 2006, for a decrease of $2 million versus the corresponding quarter of 2005. The segment's revenues declined by $8 million to $237 million. Lower financial market fees were partly offset by higher gains on securities and trading revenues. The decrease in operating expenses therefore enabled the segment to substantially maintain its profitability. In the first half of 2006, net income for the segment stood at $141 million, $4 million more than for the same period of 2005. The improvement mainly reflects the decline in operating expenses.

Credit Risk

For the second quarter of 2006, the Bank recorded $22 million in specific provisions for credit losses. Excluding the $17 million reduction in the general allowance for credit risk in the corresponding period of 2005, the increase in credit losses was $4 million this quarter. As at April 30, 2006, gross impaired loans stood at $242 million versus $260 million at the end of fiscal 2005. This decline was primarily due to the decrease in gross impaired real estate loans. As at April 30, 2006, allowances for credit losses exceeded gross impaired loans by $197 million compared to $191 million as at October 31, 2005.

Regulatory Capital

As at April 30, 2006, Tier 1 and total capital ratios stood at 9.1% and 12.2%, respectively, compared to 9.6% and 12.8% as at October 31, 2005, taking into account the $500 million debenture issued on November 2, 2005. During the quarter, the Bank repurchased 2.7 million common shares, at a total cost of $168 million, as part of its normal course issuer bid. Under this program, the Bank is seeking to repurchase a maximum of 8.3 million common shares by January 22, 2007.



Financial Objectives

---------------------------------------------------------------------
Results Results
Objectives 2nd quarter 1st six months
2006 2006
Growth in diluted earnings
per share excluding the
reduction in the general
allowance for credit risk 5% - 10% 14% 8%
and the gains on disposal
of investments and
activities

Return on common 16% - 18% 20.4% 20.2%
shareholders' equity

Tier 1 capital ratio More than 9.1% 9.1%
8.5%
Dividend payout ratio 35% - 45% 37% 37%
---------------------------------------------------------------------



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

May 25, 2006 - The following text presents Management's discussion and analysis of the Bank's financial condition and operating results. This analysis was prepared in accordance with Multilateral Instrument 51-102 respecting Continuous Disclosure Obligations of the Canadian Securities Administrators and is based on the unaudited interim consolidated financial statements for the second quarter and the first six months of 2006. Additional information about National Bank of Canada, including the Annual Information Form, can be obtained from the SEDAR website at www.sedar.com and the Bank's website at www.nbc.ca.

Analysis of Results

Consolidated Results

National Bank recorded net income of $214 million in the second quarter of fiscal 2006, up 6% from the $202 million recorded for the corresponding period of 2005. Excluding the reduction in the general allowance for credit risk in the second quarter of 2005 and the net gain on the sale of the shareholder management activities in the second quarter of 2006, the increase would have been 9%. The Bank's net income for the first six months of fiscal 2006 was $431 million, $10 million less than for the year-earlier period. Excluding the reduction in the general allowance for credit risk, the gain on the disposal of investments in South America and the net gain on the sale of the shareholder management activities in the first half of 2005 and 2006, net income increased $21 million, or 5%, year over year.

Diluted earnings per share amounted to $1.26 in the second quarter of 2006, up 10% from $1.15 for the same period of 2005. Excluding the reduction in the general allowance for credit risk in the first quarter of 2005 and the net gain on the sale of the shareholder management activities in the second quarter of 2006, diluted earnings per share increased 14%. Diluted earnings per share in the first half of 2006 were $2.52, unchanged from the first half of 2005. Excluding the reduction in the general allowance for credit risk, the gain on the disposal of investments in South America and the net gain on the sale of the shareholder management activities, diluted earnings per share grew 8% for the first six months.

Total Revenues

At $949 million, the Bank's total revenues rose 5.4% in the second quarter of 2006, as against $900 million in the second quarter of 2005. Personal and Commercial net interest income advanced $14 million, or 4.5%, to $328 million for the quarter, owing to higher volumes of consumer and business loans. While the spread on credit products narrowed from the second quarter of 2005 to the second quarter of 2006, the effect was partly offset by the wider spread on deposits.

Trading revenues totaled $86 million for the second quarter of 2006, up $11 million, owing primarily to commodity and currency trading. Gains on investment account securities climbed $11 million to $28 million in the second quarter of 2006.

Revenues from mutual funds and trust services, particularly Private Investment Management, climbed $14 million from the second quarter of 2005 to reach $83 million in the second quarter of 2006. Aside from these items, the increase in other income was attributable to lending fees and foreign exchange revenues, each of which rose $6 million. Securitization revenues, however, were $39 million this quarter, as against $47 million in the second quarter of 2005. Financial market fees amounted to $164 million in the second quarter of 2006, compared to $189 million in the year-earlier period when institutional brokerage activities were significantly higher.

Total revenues in the first half of 2006 grew 2.4%, reaching $1,928 million versus $1,883 million in the first half of 2005. Personal and Commercial net interest income advanced $28 million, or 4.4%, to $665 million. Trading revenues climbed $22 million to $179 million. Revenues from mutual funds and trust services, including Private Investment Management, rose $30 million from the first half of 2005 to $164 million in the first six months of 2006. Lending fees and foreign exchange revenues increased $10 million and $11 million, respectively, while securitization revenues amounted to $79 million, compared to $95 million for the same period in 2005. Financial market fees totaled $323 million in the first six months of 2006, as against $358 million in the first six months of 2005.

Operating Expenses

In the second quarter of 2006, operating expenses were $623 million, down $1 million from the year-earlier period. Salaries and staff benefits remained substantially the same for the comparison period. At 57%, the ratio of salaries and staff benefits to operating expenses also remained stable. The increase in regular salaries and pension plan costs during the second quarter of 2006 was offset by the decrease in variable compensation.

In the first half of 2006, operating expenses climbed $30 million to $1,267 million, owing to the $13 million growth in salaries and staff benefits. Technology expenses were up $8 million to $215 million, while other expenses, including professional fees, increased $9 million to $315 million.

Income Taxes

Income taxes for the second quarter of 2006 totaled $82 million, representing an effective tax rate of 27.0%, compared to $66 million and an effective tax rate of 24.0% for the year-earlier period. For the first half of 2006, income taxes amounted to $175 million, representing an effective tax rate of 28.1%, as against $173 million and an effective tax rate of 27.6% for the corresponding period of 2005.

Results by Segment

Personal and Commercial

Net income for the Personal and Commercial segment totaled $111 million for the second quarter of 2006, up 5.7% from the $105 million in net income earned in the corresponding quarter of 2005. Total revenues for the segment climbed 5.5% to $520 million. At Personal Banking, total revenues rose $21 million or 6.5% owing to growth of $3 billion in average asset volumes, attributable mainly to consumer loans, but also to residential mortgages and credit card advances. The increase in revenues stemming from higher loan volumes was partly offset by a narrowing of the spread on these products. However, the spread on transaction deposits widened because of rising interest rates. Insurance revenues jumped 31%, at an annualized rate. Total revenues for Commercial Banking were up $6 million or 3.9% due to the increase in net interest income attributable to higher volumes of loans and acceptances and growth in foreign exchange revenues. While the spread narrowed slightly on Commercial Banking credit products, it widened on deposits. Operating expenses for the Personal and Commercial segment were $320 million for the second quarter of 2006, as against $311 million for the year-earlier period, for an increase of 2.9%. As a result, the efficiency ratio declined to 61.5% for the quarter from 63.1% for the second quarter of 2005. The segment provision for credit losses was increased by $7 million to $33 million.

For the first six months of fiscal 2006, the Personal and Commercial segment posted net income of $225 million, a 3.7% increase over the $217 million recorded for the same period of 2005. Total revenues for the segment rose 5.4% to $1,049 million on growth of $39 million or 6.0% at Personal Banking and $15 million or 4.4% at Commercial Banking. The efficiency ratio moved down to 61.6% in the first half of 2006 from 62.0% for the same period a year earlier.

Wealth Management

Net income for the Wealth Management segment totaled $42 million for the second quarter of 2006, compared to $30 million for the corresponding quarter of 2005, for an increase of 40%. The net gain realized on the sale of National Bank Trust's shareholder management activities during the quarter contributed $5 million to the increase in net income for the quarter. The segment's total revenues advanced 11% to $230 million for the second quarter of 2006. Almost all the business units in the segment saw increased activity. Operating expenses were up $5 million or 3% to $165 million for the quarter. With revenue growth outstripping expense growth, the efficiency ratio was reduced from 77.3% in the second quarter of 2005 to 71.7% this quarter.

For the first half of fiscal 2006, net income for the Wealth Management segment amounted to $80 million versus $56 million for the same period in 2005, for an increase of 43%. Total revenues for the segment rose by 11% to $444 million in the first six months of fiscal 2006. Operating expenses edged up barely $9 million or 3% to $320 million for the six-month period.

Financial Markets

For the quarter ended April 30, 2006, the Financial Markets segment posted net income of $59 million, down $2 million from the year-earlier period. Segment revenues fell $8 million to $237 million. Lower financial market fees were offset by higher gains on securities and trading revenues. Operating expenses for the quarter were $142 million, a decline of 5.3% from the $150 million recorded in the corresponding quarter of 2005, primarily owing to variable compensation. The provision for credit losses for the quarter stood at $1 million, compared to $2 million for the second quarter of 2005. For the first half of fiscal 2006, the segment's net income totaled $141 million, or $4 million more than the corresponding period of 2005.



Financial Market Revenues Q2 Q2
2006 2005
(taxable equivalent basis (1))
(millions of dollars)
Trading revenues
Equity 57 57
Interest rate 14 13
Commodity and foreign exchange 12 5
---------------------------------------------------------------------
83 75
Financial market fees 65 88
Gains on securities 31 14
Banking services 29 34
Other 29 34
---------------------------------------------------------------------
Total 237 245
---------------------------------------------------------------------
---------------------------------------------------------------------


(1) Taxable equivalent basis is a calculation method that consists in
grossing up certain tax-exempt income by the amount of income tax
that otherwise would have been payable. The use of the taxable
equivalent basis is not in accordance with GAAP. Securities
regulators require that companies caution readers that measures
adjusted on a basis other than GAAP do not have standardized
meanings under GAAP and may not be comparable to similar measures
used by other companies. Please refer to Note 11 to the unaudited
interim consolidated financial statements for the impact of the
taxable equivalent adjustment to segment results.


Other

The "Other" heading of segment results posted net income of $2 million for the second quarter of 2006, compared to $6 million for the same period a year earlier. For the first six months of 2006, the "Other" heading recorded a loss of $15 million, as against a gain of $31 million for the corresponding period of 2005. In the first half of 2005, the Bank recorded a $37 million pre-tax gain on the disposal of investments and reversed the general allowance for credit risk by $17 million.

Cash Flows

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

For the second quarter of 2006, cash and cash equivalents were up $1.2 billion, compared to an increase of $2.3 billion for the second quarter of 2005. As at April 30, 2006, cash and cash equivalents totaled $9.6 billion versus $8.9 billion the previous year.

Operating activities required cash of $5.2 billion for the second quarter of 2006, mainly because of the increase in trading account securities. For the corresponding quarter of 2005, operating activities required cash of $3.9 billion for the same reason.

Financing activities provided cash inflows of $5.2 billion, most of which was generated by higher deposits, particularly purchased funds. For the second quarter of 2005, the $5.1 billion rise in deposits and the $3.4 billion increase in obligations related to securities sold short accounted for $8.0 billion in cash inflows from financing activities.

Finally, cash inflows from investing activities were $1.2 billion in the second quarter of 2006. Investing activities in the corresponding quarter of 2005 required cash of $1.8 billion due to the $1.9 billion increase in loans.

Risk Management

Credit Risk

In the second quarter of 2006, the Bank recorded specific provisions for credit losses of $22 million, an increase of $4 million over the second quarter of 2005. As at April 30, 2006, gross impaired loans stood at $242 million compared to $260 million at the end of fiscal 2005. This decline was primarily due to the decrease in gross impaired real estate loans. The ratio of gross impaired loans to total adjusted capital and allowances was only 6.4%. As at April 30, 2006, allowances for credit losses exceeded gross impaired loans by $197 million versus $191 million as at October 31, 2005.

Market Risk - Trading Activities

The Value-at-Risk (VaR) simulation model is one of the main tools used to manage market risk in trading activities. 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 61 of the 2005 Annual Report.

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



Trading Activities(1)
(millions of dollars)

Global VaR For the quarter ended For the quarter ended
by risk category April 30, 2006 January 31, 2006
Period High Average Low Period High Average Low
end end
---------------------------------------------------------------------
Interest rate (7.1) (8.2) (5.8) (3.6) (5.2) (7.2) (3.7) (1.8)
Foreign exchange (0.9) (2.2) (1.5) (0.6) (1.9) (2.8) (1.8) (0.6)
Equity (3.7) (6.7) (4.9) (3.7) (6.1) (6.2) (4.7) (3.0)
Commodity (1.4) (1.4) (0.9) (0.7) (1.6) (2.3) (1.2) (0.5)
Correlation
effect(2) 6.5 9.5 6.0 3.2 5.7 8.3 5.6 1.8
---------------------------------------------------------------------
Global VaR (6.6) (9.0) (7.1) (5.4) (9.1)(10.2) (5.8) (4.1)
---------------------------------------------------------------------
(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 April 30, 2006, the Bank had assets of $111.2 billion, up $3.6
billion versus $107.6 billion at the end of fiscal 2005. Loans and
acceptances were up $700 million. In addition, cash, deposits with
financial institutions, securities and securities purchased under
reverse repurchase agreements increased $3.4 billion. The table below
presents the main portfolios.


---------------------------------------------------------------------
Average monthly volumes April October April
(millions of dollars) 2006 2005 2005
----------------------------
Loans and acceptances(i)
Residential mortgages 20,972 20,728 20,053
Consumer loans 9,049 8,283 7,354
Credit card receivables 1,716 1,707 1,646
SME loans 15,312 14,182 15,009
Corporate loans 3,558 3,216 2,741
----------------------------
50,607 48,116 46,803
----------------------------
----------------------------
Deposits
Personal (balance) 28,270 26,385 25,033
Off-balance sheet personal
savings (balance) 68,636 63,262 60,239
Business 11,310 11,103 10,533
(i) including securitized assets


Residential mortgage loans rose steadily during the second quarter, with the average monthly volume reaching $21.0 billion as against $20.1 billion in the second quarter of 2005. Consumer loans climbed 23% to $9.0 billion, driven by volumes from secured lines of credit. The rise in credit card receivables, which were up 4.3% over the previous year to total $1.7 billion as at April 30, 2006, was attributable to increased consumer spending. Business loans continued to grow, with SME loans up $300 million year over year, representing an average volume of $15.3 billion as at April 30, 2006. Average volumes of corporate loans, for their part, rose $800 million to $3.6 billion.

Personal deposits stood at $28.3 billion as at April 30, 2006, up $3.2 billion or 12.9% from the corresponding quarter of 2005, chiefly owing to deposits distributed by Altamira. Off-balance sheet personal savings administered by the Bank as at April 30, 2006 totaled $68.6 billion, an increase of $8.4 billion or 13.9% in a year. The rise was primarily attributable to savings administered by brokerage subsidiaries, with the remainder divided between Private Investment Management and mutual funds.

Accounting policies and estimates

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

There have not been any changes to the Bank's significant accounting policies affecting the first half of 2006.

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

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

Capital

Tier 1 and total capital ratios, according to the rules of the Bank for International Settlements, stood at 9.1% and 12.2%, respectively, as at April 30, 2006 versus 9.6% and 12.8% as at October 31, 2005, including the $500 million debenture issued on November 2, 2005. During the quarter, the Bank repurchased 2.7 million common shares for a total of $168 million as part of its normal course issuer bid. Under the program, the Bank intends to repurchase a maximum of 8,278,000 common shares by January 22, 2007.

In addition, risk-weighted assets rose $1.8 billion or 3.8% since the start of the fiscal year mainly because of higher loan volumes.

Dividends

At its Meeting on May 25, 2006, the Board of Directors declared regular dividends on the various classes and series of preferred shares as well as a 2 cents increase to 50 cents per common share, payable on August 1, 2006 to shareholders of record on June 22, 2006.



Additional Financial Information

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

2006 2005
Q2 Q1 Q4 Q3 Q2 Q1
-----------------------------------------------
Total revenues $949 $979 $931 $889 $900 $983
Net income $214 $217 $207 $207 $202 $239


Earnings per share
Basic 1.29 1.28 1.22 1.20 1.17 1.39
Diluted 1.26 1.26 1.20 1.18 1.15 1.37

Dividends per
common share 0.48 0.48 0.44 0.44 0.42 0.42

Return on common
shareholders'
equity 20.4 19.9% 19.4% 19.6% 19.9% 23.6%

Total assets $111,183 $105,276 $107,598 $110,593 $99,917 $91,703

Impaired loans, net 111 113 117 114 119 134

Per common share
Book value 25.77 25.72 25.39 24.70 24.19 23.97
Stock trading range
High 65.60 63.90 61.47 58.21 55.24 49.75
Low 61.35 58.35 55.87 51.60 48.72 46.39
---------------------------------------------------------------------

2004 2005 2004
Q4 Q3 Total Total
--------------------------------------------------------------------
Total revenues $892 $858 $3,703 $3,545
Net income $192 $167 $855 $725

Earnings per share
Basic 1.11 0.95 4.98 4.10
Diluted 1.09 0.94 4.90 4.05

Dividends per common share 0.38 0.38 1.72 1.42

Return on common
shareholders' equity 19.7% 17.2% 20.7% 18.8%

Total assets $88,497 $85,481

Impaired loans, net 160 199

Per common share
Book value 22.87 22.30
Stock trading range
High 48.78 45.50
Low 42.31 42.72
------------------------------------------------


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 April 30 Six months ended April 30
-----------------------------------------------------
% %
2006 2005 Change 2006 2005 Change
-----------------------------------------------------
Operating results
(millions of
dollars)
Total revenues $949 $900 5 $1,928 $1,883 2
Net income 214 202 6 431 441 (2)
Return on common
shareholders'
equity
20.4 % 19.9 % 20.2 % 21.8 %
-----------------------------------------------------
Per common share
Earnings - basic $1.29 $1.17 10 $2.57 $2.56 -
Earnings - diluted $1.26 $1.15 10 $2.52 $2.52 -
Dividends paid 0.48 0.42 14 0.96 0.84 14
Book value 25.77 24.19 7
Stock trading range
High 65.60 55.24 65.60 55.24
Low 61.35 48.72 58.35 46.39
Close 62.34 52.41 62.34 52.41

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

Financial position April 30 October 31
(millions of dollars) 2006 2005
-------------------------

Total assets $111,183 $107,598 3
Loans and acceptances 51,099 50,360 1
Deposits 70,118 61,977 13
Subordinated debentures and
shareholders' equity 6,171 5,699 8
Capital ratios - BIS
Tier 1 9,1 % 9.6 %
Total 12,2 % 12.8 %(1)
Impaired loans, net of specific and
general allowances (197) (191)
as a % of loans and acceptances (0.4)% (0.4)%
Assets under administration/management 228,946 221,132
Total personal savings 96,906 89,647
Interest coverage 14.38 12.71
Asset coverage 3.58 4.73

Other information
Number of employees 16,955 16,890 -
Number of branches in Canada 455 457 -
Number of banking machines 802 788 2
-------------------------
-------------------------
(1) Taking into account the issuance of $500 million of subordinated
debentures on November 2, 2005.



Consolidated Statement of Income

Quarter ended Six months ended
-----------------------------------------------
(unaudited) April 30 January 31 April 30 April 30 April 30
(millions of dollars) 2006 2006 2005 2006 2005
-----------------------------------------------

Interest income and
dividends
Loans 627 614 506 1,241 1,015
Securities 260 204 182 464 361
Deposits with
financial
institutions 77 58 46 135 74
-----------------------------------------------
964 876 734 1,840 1,450
-----------------------------------------------
Interest expense
Deposits 447 439 253 886 513
Subordinated debentures 22 24 28 46 54
Other 194 135 73 329 154
-----------------------------------------------
663 598 354 1,261 721
-----------------------------------------------
Net interest income 301 278 380 579 729
-----------------------------------------------

Other income
Financial market fees 164 159 189 323 358
Deposit and payment
service charges 52 50 49 102 98
Trading revenues 102 166 2 268 86
Gains on investment
account securities, net 28 42 17 70 94
Card service revenues 14 14 17 28 32
Lending fees 63 62 57 125 115
Acceptances, letters of
credit and guarantee 16 16 15 32 31
Securitization
revenues 39 40 47 79 95
Foreign exchange
revenues 24 23 18 47 36
Trust services and
mutual funds 83 81 69 164 134
Other 63 48 40 111 75
-----------------------------------------------
648 701 520 1,349 1,154
-----------------------------------------------
Total revenues 949 979 900 1,928 1,883
Provision for credit
losses 22 17 1 39 18
-----------------------------------------------
927 962 899 1,889 1,865
-----------------------------------------------

Operating expenses
Salaries and staff
benefits 358 379 357 737 724
Occupancy 33 30 31 63 61
Technology 105 110 108 215 207
Communications 19 18 21 37 40
Professional fees 32 30 32 62 57
Other 76 77 75 153 148
-----------------------------------------------
623 644 624 1,267 1,237
-----------------------------------------------

Income before income
taxes and non-
controlling
interest 304 318 275 622 628
Income taxes 82 93 66 175 173
-----------------------------------------------
222 225 209 447 455
Non-controlling
interest 8 8 7 16 14
-----------------------------------------------
Net income 214 217 202 431 441
Dividends on preferred
shares 5 6 7 11 13
-----------------------------------------------
Net income available to
common shareholders 209 211 195 420 428
-----------------------------------------------
Number of common
shares outstanding
(thousands)
Average - basic 162,598 164,903 167,327 163,770 167,513
Average - diluted 165,552 167,781 169,938 166,685 170,053
End of period 161,882 164,313 165,744 161,882 165,744
-----------------------------------------------
Net earnings per
common share (dollars)
Basic 1.29 1.28 1.17 2.57 2.56
Diluted 1.26 1.26 1.15 2.52 2.52
Dividends per common
share (dollars) 0.48 0.48 0.42 0.96 0.84
-----------------------------------------------
-----------------------------------------------



Consolidated Balance Sheet

---------------------------------------
(unaudited) April 30 January 31 October 31 April 30
(millions of dollars) 2006 2006 2005 2005
---------------------------------------


ASSETS

Cash 226 250 227 208
---------------------------------------
Deposits with financial
institutions 9,467 9,234 10,087 9,089
---------------------------------------

Securities
Investment account 7,671 7,129 6,716 6,815
Trading account 28,839 22,943 26,336 24,347
---------------------------------------
36,510 30,072 33,052 31,162
---------------------------------------

Securities purchased under
reverse repurchase agreements 7,549 7,980 7,023 6,843
---------------------------------------

Loans
Residential mortgage 14,889 15,348 15,677 15,446
Personal and credit card 10,687 10,124 9,796 8,689
Business and government 22,285 22,749 22,096 19,896
---------------------------------------
47,861 48,221 47,569 44,031
Allowance for credit losses (439) (454) (451) (485)
---------------------------------------
47,422 47,767 47,118 43,546
---------------------------------------
Other
Customers' liability
under acceptances 3,677 3,468 3,242 2,902
Fair value of trading
derivative financial
instruments 2,593 2,634 2,390 2,618
Premises and equipment 345 350 355 343
Goodwill 662 662 662 662
Intangible assets 177 178 178 179
Other assets 2,555 2,681 3,264 2,365
---------------------------------------
10,009 9,973 10,091 9,069
---------------------------------------
111,183 105,276 107,598 99,917
---------------------------------------
---------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits
Personal 28,270 27,103 26,385 25,033
Business and government 30,930 29,640 29,636 27,787
Deposit-taking institutions 10,918 8,177 5,956 8,926
---------------------------------------
70,118 64,920 61,977 61,746
---------------------------------------
Other
Acceptances 3,677 3,468 3,242 2,902
Obligations related to
securities sold short 15,094 14,495 15,504 15,088
Securities sold under
repurchase agreements 7,541 7,840 12,915 6,885
Fair value of trading
derivative financial
instruments 1,997 2,060 1,846 2,213
Other liabilities 6,068 5,788 5,928 4,301
---------------------------------------
34,377 33,651 39,435 31,389
---------------------------------------
Subordinated debentures 1,599 1,600 1,102 1,770
---------------------------------------
Non-controlling interest 517 479 487 427

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

Shareholders' equity
Preferred shares 400 400 400 575
Common shares 1,558 1,573 1,565 1,552
Contributed surplus 17 15 13 10
Unrealized foreign currency
translation adjustments (77) (49) (26) (1)
Retained earnings 2,674 2,687 2,645 2,449
---------------------------------------
4,572 4,626 4,597 4,585
---------------------------------------
111,183 105,276 107,598 99,917
---------------------------------------
---------------------------------------



Consolidated Statement of Changes in Shareholders' Equity

(unaudited) Six months ended April 30
-------------------------
(millions of dollars) 2006 2005
-------------------------


Preferred shares at begining 400 375
Issuance of preferred shares, Series 16 - 200
-------------------------
Preferred shares at end 400 575
-------------------------

Common shares at beginning 1,565 1,545
Issuance of common shares
Dividend Reinvestment and Share Purchase plan 7 6
Stock Option Plan 29 28
Repurchase of common shares for
cancellation (Note 8) (43) (26)
Impact of shares acquired or sold for
trading purposes - (1)
-------------------------
Common shares at end 1,558 1,552
-------------------------

Contributed surplus at beginning 13 7
Stock option expense (Note 9) 4 3
-------------------------
Contributed surplus at end 17 10
-------------------------

Unrealized foreign currency translation
adjustments at beginning (26) (10)
Gains (losses) on foreign exchange
operations with a functional currency
other than the Canadian dollar, net of
income taxes (51) 9
-------------------------
Unrealized foreign currency translation
adjustments at end (77) (1)
-------------------------

Retained earnings at beginning 2,645 2,287
Net income 431 441
Impact of initial adoption of AcG-15
Consolidation of Variable
Interest Entities - 6
Dividends
Preferred shares (11) (13)
Common shares (158) (141)
Premium paid on common shares
repurchased for cancellation (Note 8) (232) (123)
Share issuance and other expenses,
net of income taxes (1) (8)
-------------------------
Retained earnings at end 2,674 2,449
-------------------------

Shareholders' equity 4,572 4,585
-------------------------
-------------------------



Consolidated Statement of Cash Flows
(unaudited) Quarter ended Six months ended
April 30 April 30
-------------------------------------------------------------------
(millions of dollars) 2006 2005 2006 2005
-------------------------------------------------------------------

Cash flows from operating
activities
Net income 214 202 431 441
Adjustments for:
Provision for credit losses 22 1 39 18
Amortization of premises and
equipment 16 15 32 30
Future income taxes - 1 4 (29)
Translation adjustment on
foreign currency subordinated
debentures (1) 6 (3) 12
Gains on sale of investment
account securities, net (28) (17) (70) (94)
Gains on asset securitizations
and other transfers of
receivables, net (20) (30) (42) (55)
Stock option expense 2 2 4 3
Change in interest payable 15 (4) 98 12
Change in interest and dividends
receivable (17) (24) 54 (24)
Change in income taxes payable 20 (18) 68 28
Change in net fair value amounts
of trading derivative financial
instruments (22) (112) (52) (56)
Change in trading account
securities (5,896) (4,069) (2,503) (3,786)
Change in other items 445 173 690 (1,313)
-------------------------------------------------------------------
(5,250) (3,874) (1,250) (4,813)
-------------------------------------------------------------------

Cash flows from financing
activities
Change in deposits 5,198 5,086 8,141 8,314
Issuance of subordinated
debentures - - 500 350
Issuance of common shares 11 15 36 33
Issuance of preferred shares - 200 - 200
Repurchase of common shares
for cancellation (168) (149) (275) (149)
Dividends paid on common shares (80) (141) (153) (205)
Dividends paid on preferred shares (5) (6) (11) (12)
Change in obligations related to
securities sold short 599 3,417 (410) 4,884
Change in securities sold
under repurchase agreements (299) (384) (5,374) (1,297)
Change in other items (26) (9) (49) 5
-------------------------------------------------------------------
5,230 8,029 2,405 12,123
-------------------------------------------------------------------

Cash flows from investing
activities
Change in deposits with financial
institutions pledged as
collateral 1,005 66 3,940 61
Change in loans (295) (1,943) (1,521) (3,335)
Proceeds from securitization of
assets and other transfers
of receivables 618 1,190 1,178 1,769
Maturity of securitized assets - (500) - (500)
Purchases of investment account
securities (33,951) (6,701) (56,719) (11,992)
Sales of investment account
securities 33,437 7,349 55,834 12,769
Change in securities purchased
under reverse repurchase
agreements 431 (1,277) (526) (2,347)
Consolidation of assets
in accordance with AcG-15 - - - (132)
Net acquisitions of premises
and equipment (11) (12) (22) (22)
-------------------------------------------------------------------
1,234 (1,828) 2,164 (3,729)
-------------------------------------------------------------------

Increase in cash and cash
equivalents 1,214 2,327 3,319 3,581
Cash and cash equivalents
at beginning 8,381 6,587 6,276 5,333
-------------------------------------------------------------------
Cash and cash equivalents
at end 9,595 8,914 9,595 8,914
-------------------------------------------------------------------

Cash and cash equivalents
Cash 226 208 226 208
Deposits with financial
institutions 9,467 9,089 9,467 9,089
Less: Amount pledged as
collateral (98) (383) (98) (383)
-------------------------------------------------------------------
9,595 8,914 9,595 8,914
-------------------------------------------------------------------
Supplementary information
Interest paid 648 358 1,163 709
Income taxes paid 42 85 75 136
-------------------------------------------------------------------
-------------------------------------------------------------------


Notes to the Consolidated Financial Statements
(unaudited) (millions of dollars)

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

1. Significant Accounting Policies

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

2. Recent Accounting Standards Pending Adoption

Financial Instruments - Recognition and Measurement, Hedges and Comprehensive Income

In January 2005, the Canadian Institute of Chartered Accountants (CICA) issued three new standards: "Financial Instruments - Recognition and Measurement," "Hedges" and "Comprehensive Income." The main consequences of implementing these standards are described below.

All financial assets and liabilities will be carried at fair value in the Consolidated Balance Sheet, except for items classified in the following categories, which will be carried at amortized cost: loans and receivables, held-to-maturity securities and financial liabilities not held for trading. Realized and unrealized gains and losses on financial assets and liabilities that are held for trading will be recorded in the Consolidated Statement of Income. Unrealized gains and losses on financial assets that are available for sale will be reported in Other comprehensive income until realized, at which time they will be recorded in the Consolidated Statement of Income. All derivatives, including embedded derivatives that must be accounted for separately, will be recorded at fair value in the Consolidated Balance Sheet.

For fair value hedges, changes in the fair value of the derivatives and corresponding changes in fair value of the hedged items attributed to the risk being hedged will be recognized in the Consolidated Statement of Income. For cash flow hedges, the effective portion of the changes in the fair values of the derivative instruments will be recorded in Other comprehensive income until the hedged items are recognized in the Consolidated Statement of Income.

Other comprehensive income, which comprises the above items as well as unrealized exchange gains and losses on self-sustaining foreign operations (net of hedging activities), will be included as a separate component of the Consolidated Statement of Changes in Shareholders' Equity. A new statement entitled "Statement of Comprehensive Income" will be added to the Bank's consolidated financial statements.

These new standards will apply to the Bank effective November 1, 2006. 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.

3. Transfers of Receivables

Securitization transactions

CMHC-guaranteed mortgage loans and credit card receivables

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



--------------------------------------------
Securitization operations
for the quarter ended: April 30, January 31, April 30,
2006 2006 2005
--------------------------------------------
Mortgage Mortgage Mortgage Credit card
loans loans loans receivables
--------------------------------------------
Net cash proceeds 618 419 307 795
Retained interests 17 13 13 21
Retained servicing liability (4) (2) (2) (4)
--------------------------------------------
631 430 318 812
Receivables securitized
and sold 626 425 309 800
--------------------------------------------
Gain before income taxes,
net of transaction fees 5 5 9 12
--------------------------------------------
Mortgage-backed securities
created and retained
included in the item
"Securities - investment
account" 278 275 140 -
--------------------------------------------
--------------------------------------------

Securitization operations
for the six months
ended:
April 30, April 30,
2006 2005
---------------------------------
Mortgage Mortgage Credit card
loans loans receivables
---------------------------------
Net cash proceeds 1,037 799 795
Retained interests 30 37 21
Retained servicing liability (6) (5) (4)
---------------------------------
1,061 831 812
Receivables securitized and
sold 1,051 803 800
---------------------------------
Gain before income taxes,
net of transaction fees 10 28 12
---------------------------------
Mortgage-backed securities
created and retained
included in the item
"Securities - investment
account" 553 140 -
---------------------------------

The key assumptions used to measure the fair value of retained
interests at the securitization date for transactions carried out
during the quarter ended April 30, 2006 were as follows:


Guaranteed mortgage loans - Key assumptions 2006
----
Weighted average term (months) 27.2
Prepayment rate 20.0 %
Excess spread, net of credit losses 1.2 %
Expected credit losses -
Discount rate 4.0 %


Other transfers

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


-------------------------------------
Quarter ended Six months ended
-------------------------------------
April January April April April
30, 31, 30, 30, 30,
2006 2006 2005 2006 2005
-------------------------------------
Net cash proceeds - 141 88 141 173
-------------------------------------
Insured and uninsured mortgage
loans sold - 140 90 140 176
-------------------------------------
Gain (loss) before income taxes - 1 (2) 1 (3)
-------------------------------------


4. Loans and Impaired loans

Impaired loans
-------------------------
Gross Specific
amount Gross allowances Net
------------------------------------
April 30, 2006
Residential mortgage 14,889 10 2 8
Personal and credit card 10,687 36 17 19
Business and government 22,285 196 112 84
-------------------------------------------------------------------
47,861 242 131 111
General allowance (1) (308)
------------------------------------
Impaired loans, net of specific
and general allowances (197)
------------------------------------
------------------------------------

October 31, 2005
Residential mortgage 15,677 10 2 8
Personal and credit card 9,796 35 18 17
Business and government 22,096 215 123 92
------------------------------------
47,569 260 143 117
General allowance (1) (308)
------------------------------------
Impaired loans, net of specific
and general allowances (191)
------------------------------------
------------------------------------

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


5. Allowance for credit losses

The changes made to allowances
are as follows:

Six months ended
Allocated Unallocated------------------
Specific general general April April
allowances allowance allowance 30 30
2006 2005
---------------------------------------------------

Allowances at
beginning 143 241 67 451 578
Provision for
credit losses 39 (6) 6 39 18
Write-offs (84) - - (84) (134)
Recoveries 33 - - 33 23
---------------------------------------------------
Allowances at end 131 235 73 439 485
---------------------------------------------------
---------------------------------------------------


6. Subordinated Debentures

On November 2, 2005, the Bank issued $500 million of subordinated
debentures that mature in 2020. Interest at the annual rate of 4.70%
is payable semi-annually on May 2 and November 2 of each year.


7. Pension and Other Employee Future Benefits

Quarter ended Six months ended
---------------------------------------------------
April 30, January 31 April 30 April 30 April 30
2006 2006 2005 2006 2005
---------------------------------------------------
Pension benefit
expense 15 15 12 30 25
Other employee
future benefit
expense 2 3 2 5 2
--------------------------------------------------------------------
--------------------------------------------------------------------


8. Capital Stock

---------------------------------------------------------------------
Shares outstanding
and dividends Shares Dividends
---------------------------------------------------------------------
Number of per
shares $ $ share
---------------------------------------------------------------------
First preferred shares
Series 15 8,000,000 200 6 0.3656
Series 16 8,000,000 200 5 0.3031
---------------------------------------------------------------------

16,000,000 400 11
---------------------------------------------------------------------

Common shares 161,881,773 1,558 158 0.4800
---------------------------------------------------------------------
1,958 169
-------------------------------------


Repurchase of common shares

On January 23, 2006, the Bank commenced a normal course issuer bid to repurchase, for cancellation, up to 8,278,000 common shares over a 12-month period ending no later than January 22, 2007. 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 April 30, 2006, the Bank had repurchased 2,700,820 common shares at a cost of $169 million, which reduced common share capital by $26 million and retained earnings by $143 million.

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 ended 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. During the period ended April 30, 2006, the Bank repurchased 1,771,600 common shares at a cost of $106 million, which reduced common share capital by $17 million and retained earnings by $89 million.


9. Stock-Based Compensation

Stock Option Plan

On December 7, 2005, the Bank awarded 943,200 stock options at an exercise price of $61.44 and with an expiry date of December 6, 2015. The fair value of these options on the award date, estimated using the Black-Scholes model, was $12.81. The following assumptions were used: i) a risk-free interest rate of 4.18%, ii) an expected life of the options of 6 years, iii) an expected volatility of 24%, and iv) an expected dividend yield of 5.00%.

As at April 30, 2006, a total of 5,574,542 stock options were outstanding.

Stock Appreciation Rights (SAR) Plan

In December 2005, the Bank awarded 5,400 SARs. As at April 30, 2006, a total of 322,075 SARs were outstanding.

Deferred Stock Unit (DSU) Plan for Officers

In December 2005, the Bank awarded 32,911 DSUs. As at April 30, 2006, a total of 124,934 DSUs for officers were outstanding.

Restricted Stock Unit Plan (RSU)

In December 2005, the Bank awarded 41,073 RSUs. As at April 30, 2006, a total of 91,904 RSUs were outstanding.

10. Subsequent Event

Subsequent to quarter-end, the Bank announced that NBC Capital Trust (the "Trust"), an open-end trust established under the laws of Ontario, had filed a preliminary prospectus with the various securities commissions across Canada relating to the offering of Trust Capital Securities - Series 1 ("NBC CapS - Series 1"). The proceeds from the issue of NBC CapS - Series 1 will be used by the Trust to purchase a senior deposit note from the Bank.

The Trust is a variable interest entity under CICA Accounting Guideline No. 15 "Consolidation of Variable Interest Entities" (AcG-15). The Bank will not consolidate the Trust since the Bank is not the primary beneficiary; therefore, the NBC CapS - Series 1 issued by the Trust will not be reported on the Bank's Consolidated Balance Sheet, but the senior deposit note will be reported in Liabilities - Deposits.

The Bank expects that the NBC CapS -Series 1 will qualify as innovative Tier 1 Capital of the Bank for regulatory purposes. Subject to customary closing conditions, including the receipt of regulatory approvals, this transaction is expected to close in the third quarter of 2006.



11. Segment Disclosures

Quarter ended April 30
Personal and Wealth Financial
Commercial Management Markets
-------------------------------------------
2006 2005 2006 2005 2006 2005
-------------------------------------------
Net interest income (1) 328 314 30 25 15 103
Other income (1) 192 179 200 182 222 142
-------------------------------------------
Total revenues 520 493 230 207 237 245
Operating expenses 320 311 165 160 142 150
-------------------------------------------
Contribution 200 182 65 47 95 95
Provision for credit
losses 33 26 - - 1 2
-------------------------------------------
Income before income
taxes and non-
controlling interest 167 156 65 47 94 93
Income taxes (1) 56 51 22 16 33 31
Non-controlling
interest - - 1 1 2 1
-------------------------------------------
Net income (net loss) 111 105 42 30 59 61
-------------------------------------------
-------------------------------------------
Average assets 47,100 43,338 973 917 66,892 48,432
-------------------------------------------
-------------------------------------------


Other Total
---------------------------------
2006 2005 2006 2005

---------------------------------
Net interest income (1) (72) (62) 301 380
Other income (1) 34 17 648 520
---------------------------------
Total revenues (38) (45) 949 900
Operating expenses (4) 3 623 624
---------------------------------
Contribution (34) (48) 326 276
Provision for credit losses (12) (27) 22 1
---------------------------------
Income before income taxes and
non-controlling interest (22) (21) 304 275
Income taxes (1) (29) (32) 82 66
Non-controlling interest 5 5 8 7
---------------------------------
Net income (net loss) 2 6 214 202
---------------------------------
---------------------------------
Average assets (9,577) (5,715) 105,388 86,972
---------------------------------
---------------------------------


Six months ended April 30

Personal and Wealth Financial
Commercial Management Markets
-------------------------------------------
2006 2005 2006 2005 2006 2005
-------------------------------------------
Net interest income (2) 665 637 59 48 1 161
Other income (2) 384 358 385 351 513 356
-------------------------------------------
Total revenues 1,049 995 444 399 514 517
Operating expenses 646 617 320 311 293 304

--------------------------------------------
Contribution 403 378 124 88 221 213
Provision for credit
losses 64 53 - - 2 4
-------------------------------------------
Income before income
taxes and
non-controlling interest 339 325 124 88 219 209
Income taxes (2) 114 108 41 30 74 71
Non-controlling
interest - - 3 2 4 1
-------------------------------------------
Net income (net loss) 225 217 80 56 141 137
-------------------------------------------
-------------------------------------------
Average assets 46,657 42,852 944 886 65,619 46,332
-------------------------------------------
-------------------------------------------


Other Total
---------------------------------
2006 2005 2006 2005
---------------------------------
Net interest income (2) (146) (117) 579 729
Other income (2) 67 89 1,349 1,154
---------------------------------
Total revenues (79) (28) 1,928 1,883
Operating expenses 8 5 1,267 1,237
---------------------------------
Contribution (87) (33) 661 646
Provision for credit losses (27) (39) 39 18
---------------------------------
Income before income taxes and
non-controlling interest (60) 6 622 628
Income taxes (2) (54) (36) 175 173
Non-controlling interest 9 11 16 14
---------------------------------
Net income (net loss) (15) 31 431 441
---------------------------------
---------------------------------
Average assets (8,746) (5,557) 104,474 84,513
---------------------------------
---------------------------------


Personal and Commercial

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

Wealth Management

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

Financial Markets

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

Other

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

(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 $17
million ($23 million in 2005) and other income by $13 million
($15 million in 2005). An equal amount was added to income taxes.
The impact of these adjustments is reversed under the "Other"
heading.

(2) For the six months ended April 30, 2006, net interest income was
grossed up by $36 million ($39 million in 2005) and other income
by $14 million ($16 million in 2005). 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

Quarterly report publication dates for fiscal 2005-2006
Third quarter: August 31, 2006
Fourth quarter: November 30, 2006

DISCLOSURE OF 2nd QUARTER 2006 RESULTS

Conference Call

- A conference call for analysts and institutional investors will be
held on May 25, 2006 at 1:00 p.m. EDT.
- Access by telephone is 1-866-898-9626 or (416) 340-2216
- A recording of the conference call can be heard until June 1, 2006
by calling 1-800-408-3053 or (416) 695-5800. The access code is
3185725#.

Webcast:

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

Financial Documents

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

Transfer Agent and Registrar

For information about stock transfers, address changes, dividends,
lost certificates, tax forms and estate transfers, shareholders are
requested to contact the Transfer Agent, Computershare Trust Company
of Canada, at the address or telephone numbers below.

Computershare Trust Company of Canada
Share Ownership Management
1100 University, 12th 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 elect to have their dividend payments deposited directly via electronic funds transfer to their bank account at any financial institution that is a member of the Canadian Payments Association. To do so, they must send a written request to the Transfer Agent, Computershare Trust Company of Canada.

Dividend Reinvestment and Share Purchase Plan

National Bank offers holders of its common shares a Dividend Reinvestment and Share Purchase Plan through which they can invest in common shares of the Bank without paying a commission or administration fee. Participants in the Plan may acquire shares by reinvesting cash dividends paid on shares they hold or by making optional cash payments of at least $500 per payment, to a maximum of $5,000 per quarter. For additional information, please contact the Registrar, Computershare Trust Company of Canada, at 1-800-341-1419 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. National Bank has more than $110 billion in assets and, together with its subsidiaries, employs 16,955 people. The Bank's securities are listed on the Toronto Stock Exchange (NA:TSX).

Contact Information

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