August 31, 2006 at 09:19 AM EDT
National Bank Maintains Revenue and Profitability Growth in Third Quarter of 2006
- Revenues of $933 million, an increase of 5%

National Bank (TSX: NA) today released its earnings report for the third quarter ended July 31, 2006. During the quarter, the Bank posted growth in revenues and profitability compared to the corresponding year-earlier period.

The Bank's three main business segments each reported higher revenues and profitability, and improved productivity. Total revenues increased robustly on the strength of the Personal and Commercial segment. With net income totalling $220 million, the third quarter was the best quarter for the Bank this fiscal year.

"The disciplined deployment of our strategies continues to pay off. Increasing the profitability of our operations is more important than just trying to grab a larger share of the market. The success of this approach is borne out in wider spreads and the continued high quality of our loan portfolio. We are well on our way to achieving our financial targets for fiscal 2006," said Real Raymond, President and Chief Executive Officer.

During the quarter, National Bank appointed Louis Vachon as Chief Operating Officer of the Bank. In creating this position, the Bank intends to boost operational efficiency by fostering synergy among its operating units. It will also afford Mr. Raymond more time to focus on the Bank's strategic development, client and investor relations and risk management.


Highlights

- Growth in total revenues in the third quarter of 2006 to
  $933 million, up 5% from $889 million in the third quarter of 2005.

- Rise in diluted earnings per share to $1.30, a 10% increase over
  the year-earlier period. The quarter was highlighted by an after-
  tax gain of 5 cents per share associated with the initial public
  offering of MasterCard Inc., of which the Bank is a shareholder.

- Increase in ROE of 60 basis points to 20.2% versus 19.6% in the
  corresponding quarter of 2005.

- Optimization of the capital structure through the issue of $225
  million of innovative instruments that qualify as Tier 1 capital.


Personal and Commercial

- Rise of 6.5% in total revenues at Personal and Commercial due
  mainly to vigorous growth in loan volumes over the third quarter of
  2005. Insurance-related revenues increased 15% from the third
  quarter of 2005.

- Return of the net interest margin to Q1 2006 levels, just shy of
  where it stood in Q3 2005.

- Continued improvement in commercial loans and deposits as a result
  of the propitious business climate in Quebec and the ongoing
  development of specialized markets. Foreign exchange revenues rose
  25% from the year-earlier period.

- Signing of a cooperation agreement between the Bank and UniCredit
  Group to assist commercial clients in their business dealings with
  counterparties in Central and Eastern Europe, Russia, Ukraine and
  Turkey.


Wealth Management

- Growth of 16% in revenues from trust services and mutual funds
  owing to continued interest in private investment management
  services and long-term mutual funds.

- Launch of six new tax-effective Monthly Income Portfolios to meet
  the needs of investors seeking regular income streams.


Financial Markets

- Strong performance from Financial Markets despite reduced activity
  on secondary markets and fewer new securities issues. The marked
  increase in gains on investment account securities offset the
  decline in trading revenues.

--------------------------------------------------------------------
Financial Objectives             Objectives     Results     Results
                                                    3rd        Nine
                                                quarter      months
                                                   2006        2006

Growth in diluted earnings
 per share excluding
 specified items                    5% - 10%         6%           8%

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

Tier 1 capital ratio          More than 8.5%       9.4%         9.4%

Dividend payout ratio              35% - 45%        37%          37%


                                            For the quarter
(unaudited)                                   ended July 31
                                           ----------------
(millions of dollars)                        2006       2005    %
                                           ----------------------
Personal and Commercial                       130        116  +12
Wealth Management                              34         29  +17
Financial Markets                              60         54  +11
Other                                          (4)         8    -
                                            ----------------
Net income                                    220        207   +6

Less specified items:
- gain related to the MasterCard IPO           (9)         -
- net gain on the sale of shareholder
  management activities
 (included in Wealth Management)                -          -
- gain on the disposal of
  investments in South America                  -          -
- reduction in the general allowance
  for credit risk                               -          -
                                           -----------------
Net income excluding specified items          211        207   +2
                                           -----------------

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

Diluted earnings per share                  $1.30      $1.18  +10
Less specified items:
- gain related to the MasterCard IPO        (0.05)         -
- net gain on the sale of shareholder
  management activities
 (included in Wealth Management)                -          -
- gain on the disposal of
  investments in South America                  -          -
- reduction in the general allowance
  for credit risk                               -          -
                                           -----------------
Diluted earnings per share excluding
 specified items                            $1.25      $1.18   +6
                                           -----------------
                                           -----------------
Return on common shareholders' equity        20.2%      19.6%
                                           -----------------
                                           -----------------

                                                     For the
                                                nine  months
                                               ended July 31
                                           -----------------
(millions of dollars)                        2006       2005    %
                                           ----------------------
Personal and Commercial                       355        333   +7
Wealth Management                             114         85  +34
Financial Markets                             208        192   +8
Other                                         (26)        38    -
                                           -----------------
Net income                                    651        648    -

Less specified items:
- gain related to the MasterCard IPO           (9)         -
- net gain on the sale of shareholder
  management activities
 (included in Wealth Management)               (5)         -
- gain on the disposal of
  investments in South America                  -        (25)
- reduction in the general allowance
  for credit risk                               -        (11)
                                           -----------------
Net earnings excluding
 specified items                              637        612   +4
                                           -----------------
                                           -----------------

Diluted earnings per share                  $3.83      $3.70   +4

Less specified items:
- gain related to the MasterCard IPO        (0.05)         -
- net gain on the sale of shareholder
  management activities
  (included in Wealth Management)           (0.03)         -
- gain on the disposal of
  investments in South America                 -       (0.15)
- reduction in the general allowance
  for credit risk                              -       (0.07)
                                           -----------------
Diluted earnings per share excluding
 specified items                           $3.75       $3.48  +8
                                           -----------------
                                           -----------------
Return on common shareholders' equity       20.2%       21.1%
                                           -----------------
                                           -----------------

Caution regarding forward-looking statements

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

By their very nature, such forward-looking statements require us to make assumptions and involve inherent risks and uncertainties, both general and specific. There is significant risk that express or implied projections contained in such statements will not materialize or will not be accurate. A number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. Such differences may be caused by factors, many of which are beyond the Bank's control, which include, but are not limited to, the management of credit, market and liquidity risks; the strength of the Canadian and United States economies and the economies of other countries in which the Bank conducts business; the impact of the movement of the Canadian dollar relative to other currencies, particularly the U.S. dollar; the effects of changes in monetary policy, including changes in interest rate policies of the Bank of Canada; the effects of competition in the markets in which the Bank operates; the impact of changes in the laws and regulations regulating financial services and enforcement thereof (including banking, insurance and securities); judicial judgments and legal proceedings; the Bank's ability to obtain accurate and complete information from or on behalf of its clients or counterparties; the Bank's ability to successfully realign its organization, resources and processes; its ability to complete strategic acquisitions and integrate them successfully; changes in the accounting policies and methods the Bank uses to report its financial condition, including uncertainties associated with critical accounting assumptions and estimates; operational and infrastructure risks; other factors that may affect future results, including changes in trade policies, timely development of new products and services, changes in estimates relating to reserves, changes in tax laws, technological changes, unexpected changes in consumer spending and saving habits; natural disasters; the possible impact on the business from public health emergencies, conflicts, other international events and other developments, including those relating to the war on terrorism; and the Bank's success in anticipating and managing the foregoing risks.

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

The Bank cautions that the foregoing list of important factors is not exhaustive. Investors and others who base themselves on the Bank's forward-looking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. The Bank also cautions readers not to place undue reliance on these forward-looking statements.

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

August 31, 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 third quarter and the first nine months of fiscal 2006. Additional information about National Bank of Canada, including the Annual Information Form, can be obtained from the SEDAR website at www.sedar.com and the Bank's website at www.nbc.ca.

Analysis of Results

Consolidated Results

National Bank posted net income of $220 million in the third quarter of fiscal 2006, up 6% from $207 million for the same period of 2005. Excluding the after-tax gain of $9 million from the initial public offering by MasterCard Inc., of which the Bank is a shareholder, net income was $211 million. Net income for the first nine months of fiscal 2006 was $651 million for the Bank, $3 million more than for the same period of 2005. Had it not been for specified items, i.e., the MasterCard IPO, the net gain on the sale of shareholder management activities, the gain on the disposal of investments in South America and the reduction in the general allowance for credit risk in the first nine months of 2005 and 2006, net income would have been $25 million or 4% higher period over period.

Diluted earnings per share amounted to $1.30 in the third quarter of 2006, up 10% from $1.18 for the same period of 2005. Excluding the gain from the MasterCard IPO in the third quarter of 2006, diluted earnings per share increased $0.07. Diluted earnings per share in the first nine months of 2006 were $3.83, up 4% from the first nine months of 2005. Excluding specified items, diluted earnings per share grew 8% from period to period.

Total Revenues

The Bank's total revenues rose 5% in the third quarter of 2006 to reach $933 million, as against $889 million in the third quarter of 2005. Personal and Commercial net interest income advanced $19 million, or 5.8%, to $348 million for the quarter, owing to higher volumes of both consumer loans and business loans and deposits. Although the net interest margin narrowed compared to the corresponding quarter of 2005, it widened between the second and third quarter of 2006. The improvement in the spread on deposits cancelled out the deterioration of credit product spreads caused by competition.

Trading revenues, recorded in both net interest income and other income, decreased by $40 million from the third quarter of 2005 to the third quarter of 2006. The decline was more than offset by gains on investment account securities. These gains amounted to $60 million in the third quarter of 2006, with $13 million before tax coming from the MasterCard IPO, and represented a substantial increase compared to the $7 million loss in the third quarter of 2005.

Revenues from mutual funds and trust services climbed $10 million from the third quarter of 2005 to reach $83 million in the third quarter of 2006. Most of the increase stemmed from the growth in private investment management and mutual funds.

Aside from these items, the increase in other income was attributable to commissions on loans and bankers' acceptances, foreign exchange revenues and other revenues, which together rose $27 million. Securitization revenues, however, were $38 million this quarter, as against $48 million in the third quarter of 2005. Financial market fees amounted to $139 million in the third quarter of 2006, compared to $158 million in the year-earlier period, due to the slowdown in secondary market activities and the smaller number of new issues.

Total revenues in the first nine months of 2006 grew 3% to reach $2,861 million, versus $2,772 million in the corresponding period of 2005. Personal and Commercial net interest income advanced $47 million, or 4.9%, to $1,013 million in the first nine months of 2006. Compared to the same period of 2005, trading revenues fell $17 million to $246 million, gains on securities rose $43 million to $130 million and revenues from trust services and mutual funds grew $40 million to $247 million. Similarly, other revenues, foreign exchange revenues and lending fees increased $80 million. Securitization revenues declined $26 million to $117 million and financial market fees decreased $54 million to $462 million.

Operating Expenses

In the third quarter of 2006, operating expenses were $634 million, up $18 million from the year-earlier period. Salaries and staff benefits decreased $1 million to $354 million, with the decrease in variable compensation offsetting the increase in regular salaries and pension plan costs during the third quarter of 2006. The ratio of salaries and staff benefits to operating expenses fell 2% to 56%. Technology expenses were up $6 million while professional fees increased $7 million to $40 million. Changes in these expenses depend on the completion schedule for technological development projects.

For the first nine months of 2006, operating expenses were up $48 million, to $1,901 million. This growth was due to professional fees, which were up $12 million, salaries and staff benefits, which rose $12 million, and technology expenses, which increased $14 million.

Income Taxes

Income taxes for the third quarter of 2006 totalled $58 million, representing an effective tax rate of 20.5%, compared to $46 million and an effective tax rate of 17.8% for the year-earlier period. The tax rate for the third quarter of 2006 was affected by the receipt of tax-exempt dividends, while in the third quarter of 2005 the tax rate was reduced by a transaction on the financial markets. For the first nine months of 2006, income taxes amounted to $233 million, for an effective tax rate of 25.7%, as against $219 million and an effective tax rate of 24.7% for the corresponding period of 2005.

Results by Segment

Personal and Commercial

Net income for the Personal and Commercial segment totalled $130 million for the third quarter of 2006, up 12% from the $116 million in net income earned in the corresponding quarter of 2005. Total revenues for the segment climbed 7% to $559 million. At Personal Banking, total revenues rose $22 million, or 6%, owing chiefly to growth of $2.8 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 decrease in the spread on credit products was fully offset by the improvement in the spread on transaction deposits that resulted from the rise in interest rates. Insurance revenues jumped 15%, at an annualized rate. Total revenues for Commercial Banking were up $12 million, or 7%, due to the increase in net interest income attributable to higher volumes of loans and acceptances and growth in foreign exchange revenues. Although the spread on Commercial Banking credit products in the third quarter of 2006 was slightly narrower than in the third quarter of 2005, it was relatively steady compared to the second quarter of 2006. The spread on deposits cancelled out the decrease in the spread on credit products, at an annualized rate.

Operating expenses for the Personal and Commercial segment were $339 million for the third quarter of 2006, as against $324 million for the year-earlier period, for an increase of 5%, which is lower than the growth in total revenues. As a result, the efficiency ratio declined to 60.6% for the third quarter of 2006 from 61.7% for the same quarter of 2005. The segment's provision for credit losses was decreased by $2 million to $24 million due to a higher recovery rate for Commercial Banking.

For the first nine months of fiscal 2006, the Personal and Commercial segment posted net income of $355 million, a 7% increase over the $333 million recorded for the same period of 2005. Total revenues for the segment rose 6% to $1,608 million on growth of $62 million or 6% at Personal Banking and $26 million or 5% at Commercial Banking. The efficiency ratio moved down to 61.3% in the first nine months of 2006 from 61.9% for the same period a year earlier.

Wealth Management

Net income for the Wealth Management segment totalled $34 million for the third quarter of 2006, compared to $29 million for the corresponding quarter of 2005, for an increase of 17%. The segment's total revenues advanced 3% to $204 million for the third quarter of 2006. A slowdown of activities on secondary markets affecting revenues for Individual Investor Services at National Bank Financial was offset by strong growth in trust and mutual fund activities. Operating expenses were up $2 million, or 1%, to $152 million this quarter. The efficiency ratio dropped from 75.4% in the third quarter of 2005 to 74.5% this quarter.

For the first nine months of fiscal 2006, net income for the Wealth Management segment amounted to $114 million versus $85 million for the same period in 2005, for an increase of 34%. Total revenues for the segment rose 8% to $648 million in the first nine months of fiscal 2006. Operating expenses edged up barely $11 million or 2% to $472 million.

Financial Markets

For the quarter ended July 31, 2006, the Financial Markets segment posted net income of $60 million, up $6 million or 11% from the year-earlier period. Total segment revenues rose $15 million to $238 million. Higher gains on securities were partly offset by lower trading revenues. The reduction in new issues of securities was evident in the $9 million drop in financial market fees, while revenues from corporate banking services rose $9 million, mainly because of an increase in the value of credit derivatives. Operating expenses for the quarter were $143 million, up $3 million from the year-earlier period. This modest increase was due to a reduction in variable compensation. The provision for credit losses for the quarter stood at $1 million, compared to nil in the corresponding quarter of 2005. For the first nine months of fiscal 2006, the segment's net income totalled $208 million, up $16 million, or 8%, from the year-earlier period.


Financial Market Revenues
(taxable equivalent basis (1))                  Q3       Q3
(millions of dollars)                         2006     2005
Trading revenues
 Equity                                         56       86
 Interest rate                                  11       11
 Commodity and foreign exchange                  1       10
-----------------------------------------------------------
                                                68      107
Financial market fees                           57       66
Gains on securities                             43        -
Banking services                                34       25
Other                                           36       25
-----------------------------------------------------------
Total                                          238      223
-----------------------------------------------------------
-----------------------------------------------------------

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

Other

The "Other" heading of segment results recorded a loss of $4 million for the third quarter of 2006, compared to net income of $8 million for the same period a year earlier. The pre-tax gain of $13 million related to the MasterCard IPO partly offset the impact of lower securitization revenues and net interest income. For the first nine months of fiscal 2006, the "Other" heading recorded a loss of $26 million, as against a gain of $38 million for the corresponding period of 2005, when the Bank recorded a $37 million pre-tax gain on the disposal of investments and reversed $17 million of the general allowance for credit risk.

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 third quarter of 2006, cash and cash equivalents declined $0.4 billion compared to a decrease of $0.9 billion for the third quarter of 2005. As at July 31, 2006, cash and cash equivalents totalled $9.2 billion versus $8.0 billion the previous year.

Operating activities generated cash inflows of $1.2 billion for the third quarter of 2006, mainly because of the decrease in trading account securities. For the corresponding quarter of 2005, operating activities required cash of $1.6 billion because of the increase of $3.4 billion for trading account securities, partly offset by $1.6 billion in inflows from other items.

Financing activities in the third quarter of 2006 required cash of $2.3 billion, mostly in purchased funds, owing chiefly to lower deposits. For the third quarter of 2005, the $1.7 billion increase in obligations related to securities sold short and the $7.6 billion rise in securities sold under repurchase agreements accounted for $8.2 billion in cash inflows from financing activities.

Finally, investing activities generated cash of $0.7 billion in the third quarter of 2006. In the corresponding quarter of 2005, investing activities required cash of $7.5 billion due to the $2.3 billion increase in loans, the $3.7 billion rise in deposits with financial institutions pledged as collateral and the $1.4 billion in securities purchased under reverse repurchase agreements.

Risk Management

Credit Risk

In the third quarter of 2006, the Bank recorded specific provisions for credit losses of $16 million, an increase of $1 million over the third quarter of 2005. As at July 31, 2006, gross impaired loans stood at $214 million compared to $260 million at the end of fiscal 2005. This decline was primarily due to the successful recovery of impaired business loans. The ratio of gross impaired loans to total adjusted capital and allowances was only 5.6% . As at July 31, 2006, allowances for credit losses exceeded gross impaired loans by $210 million versus $191 million as at October 31, 2005.

Market Risk -- Trading Activities

The Value-at-Risk (VaR) simulation model is one of the main tools used to manage market risk in trading activities. VaR is the maximum value of potential daily losses, measured at a 99% confidence level, which means that actual losses are likely to exceed VaR only one day out of 100. The computerized VaR calculation model is based on two years of historical data. Market risk management is discussed in more detail on page 61 of the 2005 Annual Report.

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


Trading Activities(1)
(millions of dollars)

Global VaR by risk category

                   For the quarter ended       For the quarter ended
                           July 31, 2006              April 30, 2006
--------------------------------------------------------------------
              Period  High  Average  Low  Period  High  Average  Low
                 end                         end
--------------------------------------------------------------------
Interest rate   (3.3) (7.6)   (4.2) (2.4)   (7.1) (8.2)   (5.8) (3.6)
Foreign
 exchange       (1.6) (1.9)   (1.3) (0.8)   (0.9) (2.2)   (1.5) (0.6)
Equity          (3.8) (4.2)   (3.4) (2.3)   (3.7) (6.7)   (4.9) (3.7)
Commodity       (1.0) (1.6)   (1.1) (0.7)   (1.4) (1.4)   (0.9) (0.7)
Correlation
 effect(2)       4.8   7.3     4.5   2.3     6.5   9.5     6.0   3.2
--------------------------------------------------------------------
Global VaR      (4.9) (8.0)   (5.5) (3.9)   (6.6) (9.0)   (7.1) (5.4)
--------------------------------------------------------------------

(1) Amounts are presented on a pre-tax basis and represent one-day VaR.
(2) The correlation effect is the result of the diversification of
    types of risk.

Balance Sheet

As at July 31, 2006, the Bank had assets of $108.6 billion, up $1.0
billion versus $107.6 billion at the end of fiscal 2005. Loans and
acceptances were up $1.6 billion. In addition, cash, deposits with
financial institutions, securities and securities purchased under
reverse repurchase agreements increased $0.3 billion. The table below
presents the main portfolios.


Average monthly volumes                        July  October     July
(millions of dollars)                          2006     2005     2005
                                            -------------------------
Loans and acceptances(i)
Residential mortgages                        21,313   20,728   20,419
Consumer loans                                9,302    8,283    7,832
Credit card receivables                       1,741    1,707    1,680
SME loans                                    15,210   14,182   14,858
Corporate loans                               3,614    3,216    2,892
                                            -------------------------
                                             51,180   48,116   47,681
                                            -------------------------
                                            -------------------------
Deposits
Personal (balance)                           29,178   26,385   25,476
Off-balance sheet personal savings (balance) 67,580   63,262   63,776
Business                                     12,288   11,103   11,250

(i) including securitized assets

Residential mortgage loans rose steadily during the third quarter of 2006, reaching $21.3 billion as against $20.4 billion in the year-earlier period. Consumer loans climbed 19% to $9.3 billion, primarily driven by secured lines of credit. Higher consumer spending also accounted for the increase in credit card receivables, which were up 3.6% over the previous year to total $1.7 billion as at July 31, 2006. Business loans continued to grow, with SME loans up 2.4% year over year, to $15.2 billion as at July 31, 2006. Average volumes of corporate loans, for their part, rose $700 million to $3.6 billion.

Personal deposits stood at $29.2 billion as at July 31, 2006, up $3.7 billion or 14.5% from the corresponding quarter of 2005, chiefly owing to deposits distributed by Altamira. Off-balance sheet personal savings administered by the Bank as at July 31, 2006 totalled $67.6 billion, an increase of $3.8 billion or 6.0% 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 nine months ended July 31, 2006.

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

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

Capital

Tier 1 and total capital ratios, according to the rules of the Bank for International Settlements, stood at 9.4% and 12.4%, respectively, as at July 31, 2006 versus 9.6% and 12.8% as at October 31, 2005, including the $500 million debenture issued on November 2, 2005. During the third quarter of 2006, the Bank issued $225 million in innovative capital instruments. During the first nine months of fiscal 2006, the Bank repurchased 4.5 million common shares for a total of $275 million as part of its normal course issuer bids.

Risk-weighted assets rose $2.4 billion or 5.2% since the start of the fiscal year mainly because of higher loan volumes.

Dividends

At its meeting on August 31, 2006, the Board of Directors declared regular dividends on the various classes and series of preferred shares as well as a 50 cent dividend per common share, payable on November 1, 2006 to shareholders of record on September 28, 2006.


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



                       2006                      2005
             -----------------------     -----------------------------
                Q3       Q2       Q1       Q4       Q3      Q2      Q1
             -----------------------     -----------------------------
Total
 revenues     $933     $949     $979     $931     $889    $900    $983
Net income     220      214      217      207      207     202     239

Earnings per
 share
  Basic       1.32     1.29     1.28     1.22     1.20    1.17    1.39
  Diluted     1.30     1.26     1.26     1.20     1.18    1.15    1.37

Dividends
 per
 common
 share        0.50     0.48     0.48     0.44     0.44    0.42    0.42

Return on
 common
 shareholders'
 equity       20.2%    20.4%    19.9%    19.4%    19.6%   19.9%   23.6%

Total
 assets   $108,645  $111,183 $105,276 $107,598 $110,593 $99,917 $91,703

Impaired
 loans,
 net           98        111      113      117      114     119     134

Per common
 share
  Book
  value     26.57      25.77    25.72    25.39    24.70   24.19   23.97
  Stock
  trading
  range
    High    62.69      65.60    63.90    61.47    58.21   55.24   49.75
    Low     56.14      61.35    58.35    55.87    51.60   48.72   46.39
            -------------------------    ------------------------------

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

Earnings per share
  Basic                                        1.11     4.98    4.10
  Diluted                                      1.09     4.90    4.05

Dividends per common share                     0.38     1.72    1.42

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

Total assets                                $88,497

Impaired loans, net                             160

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


Highlights

(unaudited)                    Quarter ended       Nine months ended
                                     July 31                 July 31
                       ---------------------------------------------
                                           %                       %
                          2006  2005  Change   2006     2005  Change
                       ---------------------------------------------
Operating results
(millions of dollars)
Total revenues            $933  $889       5 $2,861   $2,772       3
Net income                 220   207       6    651      648       -
Return on common
 shareholders' equity    20.2% 19.6%          20.2%    21.1%
                       ---------------------------------------------
Per common share
Earnings - basic         $1.32 $1.20      10  $3.89    $3.76       3
Earnings - diluted       $1.30 $1.18      10  $3.83    $3.70       4
Dividends declared        0.50  0.44      14   1.46     1.28      14
Book value                                    26.57    24.70       8
Stock trading range
 High                    62.69 58.21          65.60    58.21
 Low                     56.14 51.60          56.14    46.39
 Close                   58.55 57.30          58.55    57.30
                       ---------------------------------------------
                       ---------------------------------------------

Financial position                             July  October
                                                 31       31
(millions of dollars)                          2006     2005
                                           -------------------------
Total assets                               $108,645 $107,598       1
Loans and acceptances                        51,943   50,360       3
Deposits                                     68,094   61,977      10
Subordinated debentures
 and shareholders' equity                     6,301    5,699      11
Capital ratios - BIS
  Tier 1                                        9.4%     9.6%
  Total                                        12.4(1)  12.8%
Impaired loans, net of specific
 and general allowances                        (210)    (191)
 as a % of loans and acceptances               (0.4)%   (0.4)%
Assets under administration/management      227,699  221,132
Total personal savings                       96,758   89,647
Interest coverage                             14.60    12.71
Asset coverage                                 3.65     4.73

Other information
Number of employees                          17,183   16 890       2
Number of branches in Canada                    453      457      (1)
Number of banking machines                      800      788       2
                       ---------------------------------------------
                       ---------------------------------------------

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


Consolidated Statement of Income


(unaudited)                  Quarter ended          Nine months ended
                         --------------------------------------------
                         July 31  April 30  July 31  July 31  July 31
(millions of dollars)       2006      2006     2005     2006     2005
                         --------------------------------------------
Interest income
 and dividends
Loans                        687       627      538    1,928    1,553
Securities                   236       260      189      700      550
Deposits with
financial institutions        83        77       52      218      126
                         --------------------------------------------
                           1,006       964      779    2,846    2,229
                         --------------------------------------------
Interest expense
Deposits                     433       447      330    1,319      843
Subordinated debentures       23        22       25       69       79
Other                        142       194      116      471      270
                         --------------------------------------------
                             598       663      471    1,859    1,192
                         --------------------------------------------
Net interest income          408       301      308      987    1,037
                         --------------------------------------------

Other income
Financial market fees        139       164      158      462      516
Deposit and payment
 service charges              53        52       51      155      149
Trading revenues
 (losses)                    (39)      102       94      229      180
Gains (losses) on
 investment account
 securities, net              60        28       (7)     130       87
Card service revenues         17        14       17       45       49
Lending fees                  69        63       66      194      181
Acceptances, letters
 of credit and guarantee      19        16       15       51       46
Securitization revenues       38        39       48      117      143
Foreign exchange revenues     25        24       20       72       56
Trust services and
 mutual funds                 83        83       73      247      207
Other                         61        63       46      172      121
                         --------------------------------------------
                             525       648      581    1,874    1,735
                         --------------------------------------------
Total revenues               933       949      889    2,861    2,772
Provision for
 credit losses                16        22       15       55       33
                         --------------------------------------------

                             917       927      874    2,806    2,739
                         --------------------------------------------

Operating expenses
Salaries and
 staff benefits              354       358      355    1,091    1,079
Occupancy                     31        33       29       94       90
Technology                   107       105      101      322      308
Communications                18        19       19       55       59
Professional fees             40        32       33      102       90
Other                         84        76       79      237      227
                         --------------------------------------------
                             634       623      616    1,901    1,853
                         --------------------------------------------

Income before income
 taxes and non-controlling
 interest                    283       304      258      905      886
Income taxes                  58        82       46      233      219
                         --------------------------------------------
                             225       222      212      672      667
Non-controlling interest       5         8        5       21       19

Net income                   220       214      207      651      648
Dividends on
 preferred shares              6         5        8       16       21
                         --------------------------------------------
Net income available
 to common shareholders      214       209      199      635      627
                         --------------------------------------------
Number of common shares
 outstanding (thousands)
  Average - basic        161,927   162,598  165,363  163,149  166,789
  Average - diluted      164,512   165,552  167,849  165,903  169,310
  End of period          161,918   161,882  165,096  161,918  165,096
                         --------------------------------------------
Net earnings per common
 share (dollars)
   Basic                    1.32      1.29     1.20     3.89     3.76
   Diluted                  1.30      1.26     1.18     3.83     3.70
Dividends per common share
 (dollars)                  0.50      0.48     0.44     1.46     1.28
                         --------------------------------------------
                         --------------------------------------------



Consolidated Balance Sheet

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

Cash                              257       226         227      232
                              --------------------------------------
Deposits with
 financial institutions         9,029     9,467      10,087   11,799
                              --------------------------------------

Securities
Investment account              7,715     7,671       6,716    6,945
Trading account                27,705    28,839      26,336   27,745
                              --------------------------------------
                               35,420    36,510      33,052   34,690
                              --------------------------------------

Securities purchased under
 reverse repurchase agreements  5,954     7,549       7,023    8,270
                              --------------------------------------

Loans (Notes 4 and 5)
Residential mortgage           15,440    14,889      15,677   16,005
Personal and credit card       10,961    10,687       9,796    9,292
Business and government        22,368    22,285      22,096   20,978
                              --------------------------------------
                               48,769    47,861      47,569   46,275
Allowance for credit losses      (424)     (439)       (451)    (480)
                              --------------------------------------
                              48,345    47,422      47,118    45,795

Other
Customers' liability
 under acceptances              3,598     3,677       3,242    2,842
Fair value of trading
 derivative financial
 instruments                    2,438     2,599       2,390    2,844
Premises and equipment            355       345         355      345
Goodwill                          686       662         662      662
Intangible assets                 177       177         178      179
Other assets                    2,386     2,549       3,264    2,935
                              --------------------------------------
                                9,640    10,009      10,091    9,807
                              --------------------------------------
                              108,645   111,183     107,598  110,593
                              --------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits
Personal                       29,178    28,270      26,385   25,476
Business and government        29,097    30,930      29,636   28,474
Deposit-taking institutions     9,594    10,918       5,956    7,043
Deposit from NBC Capital
 Trust (Note 6)                   225         -           -        -
                              --------------------------------------
                               68,094    70,118      61,977   60,993
                              --------------------------------------
Other
Acceptances                     3,598     3,677       3,242    2,842
Obligations related to
 securities sold short         14,864    15,094      15,504   16,776
Securities sold under
 repurchase agreements          7,620     7,541      12,915   14,526
Fair value of trading
 derivative financial
 instruments                    1,623     1,997       1,846    2,386
Other liabilities               6,023     6,068       5,928    6,593
                              --------------------------------------
                               33,728    34,377      39,435   43,123
                              --------------------------------------
Subordinated debentures
 (Note 7)                       1,599     1,599       1,102    1,409
                              --------------------------------------
Non-controlling interest          522       517         487      415
                              --------------------------------------

Shareholders' equity (Note 9)
Preferred shares                  400       400         400      575
Common shares                   1,563     1,558       1,565    1,557
Contributed surplus                19        17          13       12
Unrealized foreign currency
 translation adjustments          (82)      (77)        (26)     (10)
Retained earnings               2,802     2,674       2,645    2,519
                              --------------------------------------
                                4,702     4,572       4,597    4,653
                              --------------------------------------
                              108,645   111,183     107,598  110,593
                              --------------------------------------
                              --------------------------------------



Consolidated Statement of Changes in Shareholders' Equity

(unaudited)                                Nine months ended July 31
                                                --------------------
(millions of dollars)                                 2006      2005
                                                --------------------

Preferred shares at beginning                          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          11         9
 Stock Option Plan                                      31        42
Repurchase of common shares for
 cancellation (Note 9)                                 (43)      (39)
Impact of shares acquired or sold for
 trading purposes                                       (1)        -
                                                --------------------
Common shares at end                                 1,563     1,557
                                                --------------------

Contributed surplus at beginning                        13         7
Stock option expense (Note 10)                           6         5
                                                --------------------
Contributed surplus at end                              19        12
                                                --------------------
Unrealized foreign currency translation
 adjustments at beginning                              (26)      (10)
Losses on foreign exchange
 operations with a functional currency
 other than the Canadian dollar,
 net of income taxes                                   (56)        -
                                                --------------------
Unrealized foreign currency translation
 adjustments at end                                    (82)      (10)
                                                --------------------

Retained earnings at beginning                       2,645     2,287
Net income                                             651       648
Impact of initial adoption of AcG-15
 "Consolidation of Variable
  Interest Entities"                                     -         6
Dividends
  Preferred shares                                     (16)      (21)
  Common shares                                       (240)     (214)
Premium paid on common shares repurchased
 for cancellation (Note 9)                            (232)     (185)
Share issuance and other expenses,
 net of income taxes                                    (6)       (2)
                                                --------------------

Retained earnings at end                             2,802     2,519
                                                --------------------
Shareholders' equity                                 4,702     4,653
                                                --------------------
                                                --------------------



Consolidated Statement of Cash Flows

(unaudited)                         Quarter ended  Nine months ended
(millions of dollars)                     July 31            July 31
                                ------------------------------------
                                    2006     2005       2006    2005
                                ------------------------------------

Cash flows from operating activities
Net income                           220      207        651     648
Adjustments for:
  Provision for credit losses         16       15         55      33
  Amortization of premises
   and equipment                      16       15         49      45
  Future income taxes                  5       (1)        10     (30)
  Translation adjustment
   on foreign currency
   subordinated debentures             -      (11)        (3)      1
  Gains (losses) on sale
   of investment account
   securities, net                   (60)       7       (130)    (87)
  Gains on asset securitization
   and other transfers
   of receivables, net               (19)     (32)       (62)    (87)
  Stock option expense                 2        2          6       5
Change in interest payable           (41)      50         57      62
Change in interest
 and dividends receivable              9       12         63     (12)
Change in income taxes payable        27      (18)        95      10
Change in net fair value amounts
 of trading derivative
 financial instruments              (213)     (54)      (271)    (46)
Change in trading
 account securities                1,134   (3,398)    (1,369) (7,184)
Change in other items                110    1,632        807     270
                                ------------------------------------
                                   1,206   (1,574)       (42) (6,372)
                                ------------------------------------

Cash flows from financing activities
Change in deposits                (2,249)    (753)     5,892   7,561
Issuance of deposit from
 NBC Capital Trust                   225        -        225       -
Issuance of subordinated
 debentures                            -        -        500     350
Repurchase of subordinated
 debentures                            -     (350)         -    (350)
Issuance of common shares              5       18         41      51
Issuance of preferred shares           -        -          -     200
Repurchase of common
 shares for cancellation               -      (75)      (275)   (224)
Dividends paid on common shares      (79)       -       (231)   (205)
Dividends paid on preferred shares    (5)      (7)       (16)    (19)
Change in obligations related
 to securities sold short           (230)   1,688       (640)  6,572
Change in securities sold
under repurchase agreements           79    7,641     (5,295)  6,344
Change in other items                 (5)      (9)       (56)     (4)
                                ------------------------------------
                                  (2,259)   8,153        145  20,276
                                ------------------------------------

Cash flows from
 investing activities
Change in deposits with
 financial institutions
 pledged as collateral               34    (3,680)     3,974  (3,619)
Change in loans                  (1,263)   (2,336)    (2,784) (5,645)
Proceeds from
securitization of assets
and other transfers of
 receivables                        324       278      1,502   2,021
Maturity of securitized assets        -      (206)         -    (706)
Purchases of investment
 account securities             (44,346)   (9,226)  (101,071)(21,233)
Sales of investment
 account securities              44,368     9,089    100,203  21,858
Change in securities
purchased under reverse
 repurchase agreements            1,595    (1,427)     1,069  (3,774)
Consolidation of assets in
 accordance with AcG-15              (6)        -         (1)   (132)
Net acquisitions of
 premises and equipment             (26)      (17)       (49)    (39)
                                ------------------------------------
                                    680    (7,525)     2,843 (11,269)
                                ------------------------------------

Increase in cash
 and cash equivalents              (373)     (946)     2,946   2,635
Cash and cash equivalents
 at beginning                     9,595     8,914      6,276   5,333
                                ------------------------------------
Cash and cash equivalents
 at end                           9,222     7,968      9,222   7,968
                                ------------------------------------

Cash and cash equivalents
Cash                                257       232        257     232
Deposits with
 financial institutions           9,029    11,799      9,029  11,799
Less: Amount pledged
 as collateral                      (64)   (4,063)       (64) (4,063)
                                ------------------------------------
                                  9,222     7,968      9,222   7,968
                                ------------------------------------
Supplementary information
Interest paid                       639       421      1,802   1,130
Income taxes paid                    28        79        176     174
                                ------------------------------------
                                ------------------------------------

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    July 31,   April 30,     July 31,
 quarter ended:                         2006        2006         2005
                                   ----------------------------------
                                    Mortgage    Mortgage     Mortgage
                                       loans       loans        loans
                                   ----------------------------------
Net cash proceeds                        324         618          335
Retained interests                         7          17           16
Retained servicing liability              (2)         (4)         (2)

                                   ----------------------------------
                                         329         631          349
Receivables securitized and sold         328         626          336
                                   ----------------------------------
Gain before income taxes, net of
 transaction fees                          1           5           13
                                   ----------------------------------
Mortgage-backed securities created
 and retained included in the item
 "Securities -- investment account"       43         278            -
                                   ----------------------------------
                                   ----------------------------------

Securitization operations
 for the nine months ended:    July 31, 2006           July 31, 2005
                                   ---------------------------------
                                    Mortgage   Mortgage  Credit card
                                       loans      loans  receivables

                                 -----------------------------------
Net cash proceeds                      1,361      1,135          795
Retained interests                        37         54           21
Retained servicing liability              (8)        (7)          (4)
                                 -----------------------------------
                                       1,390      1,182          812
Receivables securitized and sold       1,379      1,141          800
                                 -----------------------------------
Gain before income taxes, net of
 transaction fees                         11         41           12
                                 -----------------------------------
Mortgage-backed securities created
 and retained included in the item
 "Securities -- investment account"      596        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 July 31, 2006 were as follows:

Guaranteed mortgage loans -- Key assumptions                 2006
                                                            -----

Weighted average term (months)                               29.4
Prepayment rate                                              20.0 %
Excess spread, net of credit losses                           0.9 %
Expected credit losses                                          -
Discount rate                                                 4.6 %

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:


                                                    Nine months ended
                                         ----------------------------
                                         July 31, 2006  July 31, 2005
                                         ----------------------------
Net cash proceeds                                  141            294

Insured and uninsured mortgage loans sold          140            296
                                         ----------------------------
Gain (loss) before income taxes                      1             (2)
                                         ----------------------------


4. Loans and Impaired Loans

                                               Impaired loans
                                         -------------------------
                                Gross             Specific     Net
                               amount    Gross  allowances balance
                               -----------------------------------
July 31, 2006
Residential mortgage           15,440       13           2      11
Personal and credit card       10,961       36          17      19
Business and government        22,368      165          97      68
                               -----------------------------------
                               48,769      214         116      98
General allowance (1)                                         (308)
                               -----------------------------------
Impaired loans, net of
 specific and general
 allowances                                                   (210)
                               -----------------------------------


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:

                                                    Nine months ended
                             Allocated  Unallocated -----------------
                    Specific   general      general  July 31  July 31
                  allowances allowance    allowance     2006     2005
---------------------------------------------------------------------
Allowances at
 beginning               143       241           67      451      578
Provision for
 credit losses            55       (6)           6       55        33
Write-offs              (129)       -            -     (129)     (171)
Recoveries                47        -            -       47        40
                  ---------------------------------------------------
Allowances at end        116       235           73      424      480
                  ---------------------------------------------------


6. Deposit from NBC Capital Trust

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

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

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

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

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

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

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

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

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

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


7. 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.

8. Pension and Other Employee Future Benefits

                                     Quarter ended Nine months ended
                          ------------------------  ----------------
                          July 31 April 30 July 31  July 31  July 31
                             2006     2006    2005     2006     2005
                          ------------------------  ----------------

Pension benefit expense        15       15      14       44       38
Other employee future
 benefit expense                2        2       2        7        4
                          ------------------------  ----------------
                          ------------------------  ----------------

9. Capital Stock
--------------------------------------------------------------------
Shares outstanding and dividends
 as at July 31, 2006                            Shares     Dividends
--------------------------------------------------------------------
                               Number of shares      $   $ per share
--------------------------------------------------------------------
First preferred shares
Series 15                             8,000,000    200   9    0.3656
Series 16                             8,000,000    200   7    0.3031
--------------------------------------------------------------------
                                     16,000,000    400  16
--------------------------------------------------------------------
Common shares                       161,917,623  1,563 240    0.5000
--------------------------------------------------------------------
                                                 1,963 256
--------------------------------------------------------------------


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 July 31,
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 nine months ended
July 31, 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.

10. Stock-Based Compensation

Stock Option Plan

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

As at July 31, 2006, a total of 5,481,517 stock options were
outstanding.

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


                                              Nine months ended
                    -------------------------------
                                    July 31, 2006      July 31, 2005
                    -------------------------------
Risk-free interest rate                    4.18 %              4.05 %

Expected life of the options              6 years            6 years

Expected volatility                            24 %               27 %

Expected dividend yield                       5 %                5 %
--------------------------------------------------------------------
-------------------------------------------------------------------

The following table presents the compensation expense recorded for
the stock options :

                             Quarter ended         Nine months ended
                     -----------------------------------------------
                     July 31, April 30, July 31,    July 31, July 31,
                        2006      2006     2005        2006     2005
                  -----------------------------------------------
Bank stock options         2         2        2           6        5
--------------------------------------------------------------------


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

Stock Appreciation Rights (SAR) Plan

During the nine months ended July 31, 2006, the Bank awarded 5,400 SARs. As at July 31, 2006, a total of 316,850 SARs were outstanding.

Deferred Stock Unit (DSU) Plan for Officers

During the nine months ended July 31, 2006, the Bank awarded 32,911 DSUs. As at July 31, 2006, a total of 125,569 DSUs for officers were outstanding.

Restricted Stock Unit Plan (RSU)

During the nine months ended July 31, 2006, the Bank awarded 117,655 RSUs (76,582 during the quarter ended July 31, 2006). As at July 31, 2006, a total of 162,147 RSUs were outstanding.

11. Acquisition -- Credigy Ltd.

On July 26, 2006, a subsidiary of the Bank acquired a 68% interest in Credigy Ltd., a privately held purchaser of and service-provider for distressed receivables of, mainly, U.S. consumers, for a total cash consideration of $59.1 million, including direct acquisition costs.

The assets acquired totalled approximately $105.2 million while the liabilities assumed, including non-controlling interest, were about $70.0 million. The excess of the purchase price over the estimated fair value of net assets of $23.9 million was recognized in the Consolidated Balance Sheet as goodwill. This amount could be adjusted once the Bank has completed its valuation of the assets acquired and liabilities assumed.

An additional cash consideration of up to $18.7 million could be paid over the next three years, provided certain profitability targets are achieved and, if applicable, would be recognized as goodwill.

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


12. Segment Disclosures

Quarter ended July 31
                        Personal and          Wealth       Financial
                          Commercial      Management         Markets
                     -----------------------------------------------
                        2006    2005    2006    2005   2006     2005
                     -----------------------------------------------
Net interest income (1)  348     329      30      25    111       19
Other income (1)         211     196     174     174    127      204
                     -----------------------------------------------
Total revenues           559     525     204     199    238      223
Operating expenses       339     324     152     150    143      140
                     -----------------------------------------------
Contribution             220     201      52      49     95       83
Provision for credit
 losses                   24      26       -       -      1        -
                     -----------------------------------------------
Income before income
 taxes and
 non-controlling
 interest                196     175      52      49     94       83
Income taxes (1)          66      59      17      19     34       29
Non-controlling
 interest                  -       -       1       1      -        -
                     -----------------------------------------------
Net income
 (net loss)              130     116      34      29     60       54
                     -----------------------------------------------
--------------------------------------------------------------------
Average assets        47,820  44,576     874     870 67,860   55,456
                     -----------------------------------------------
                     -----------------------------------------------

                                              Other           Total
                                       ----------------------------
                                       2006    2005     2006   2005
                                     ------------------------------
Net interest income (1)                 (81)    (65)     408    308
Other income (1)                         13       7      525    581

                                     ------------------------------
Total revenues                          (68)    (58)     933    889
Operating expenses                        -       2      634    616
                                     ------------------------------
Contribution                            (68)    (60)     299    273
Provision for credit losses              (9)    (11)      16     15
                                     ------------------------------
Income before income taxes and
non-controlling interest                (59)    (49)     283    258
Income taxes (1)                        (59)    (61)      58     46
Non-controlling interest                  4       4        5      5
                                     ------------------------------
Net income (net loss)                    (4)      8      220    207
                                     ------------------------------
                                     ------------------------------
Average assets                       (9,877) (5,458) 106,677 95,444
                                     ------------------------------
                                     ------------------------------


Nine months ended July 31

                       Personal and           Wealth       Financial
                         Commercial       Management         Markets
                     -----------------------------------------------
                        2006    2005   2006     2005   2006     2005
                     -----------------------------------------------
Net interest
 income (2)            1,013     966     89       73    113      180
Other income (2)         595     554    559      525    649      562
                     -----------------------------------------------
Total revenues         1,608   1,520    648      598    762      742
Operating expenses       985     941    472      461    436      444
                     -----------------------------------------------
Contribution             623     579    176      137    326      298
Provision for credit
 losses                   88      79      -        -      3        4
                     -----------------------------------------------
Income before income
 taxes and
 non-controlling
 interest                535     500    176      137    323      294
Income taxes (2)         180     167     58       49    111      101
Non-controlling
 interest                  -       -      4        3      4        1
                     -----------------------------------------------
Net income (net
 loss)                   355     333    114       85    208      192
                     -----------------------------------------------
                     -----------------------------------------------
Average assets        47,049  43,433    920      881 66,374   49,407
                     -----------------------------------------------
                     -----------------------------------------------


                                               Other           Total
                                       -----------------------------
                                         2006   2005     2006   2005
                                       -----------------------------
Net interest income (2)                  (228)  (182)     987  1,037
Other income (2)                           71     94    1,874  1,735
                                       -----------------------------
Total revenues                           (157)   (88)   2,861  2,772
Operating expenses                          8      7    1,901  1,853
                                       -----------------------------
                                       -----------------------------
Contribution                             (165)   (95)     960    919
Provision for credit losses               (36)   (50)      55     33
                                       -----------------------------
Income before income taxes
 and non-controlling interest            (129)   (45)     905    886
Income taxes (2)                         (116)   (98)     233    219
Non-controlling interest                   13     15       21     19
                                       -----------------------------
Net income (net loss)                     (26)    38      651    648
                                       -----------------------------
Average assets                         (9,127)(5,524) 105,216 88,197
                                       -----------------------------
                                       -----------------------------

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 $23 million
    ($24 million in 2005) and other income by $32 million ($36 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 nine months ended July 31, 2006, net interest income was
    grossed up by $60 million ($63 million in 2005) and other income by
    $46 million ($52 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 Street West, 7th Floor
Montreal, Quebec H3B 4L2
Telephone: (514) 394-0296
Toll free: 1-800-517-5455
Fax: (514) 394-6196

E-mail: investorrelations@nbc.ca
Website: www.nbc.ca/investorrelations

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

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

Next quarterly report publication date for fiscal 2005-2006
Fourth quarter: November 30, 2006

DISCLOSURE OF 3rd QUARTER 2006 RESULTS
-----------------------------------------------------------------------
Conference Call

- A conference call for analysts and institutional investors will be
  held on August 31, 2006 at 1:00 p.m. EDT.
- Access by telephone in listen-only mode : 1-866-898-9626 or
  (416) 340-2216
- A recording of the conference call can be heard until September 7,
  2006 by calling 1-800-408-3053 or (416) 695-5800. The access code is
  3194419#.


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 close to $109 billion in assets and, together with its subsidiaries, employs 17,183 people. The Bank's securities are listed on the Toronto Stock Exchange (NA: TSX). For more information, visit the Bank's website at www.nbc.ca.


Contacts:
National Bank of Canada
Pierre Fitzgibbon
Senior Vice-President
Finance, Technology and Corporate Affairs
(514) 394-8610

National Bank of Canada
Denis Dube
Senior Director
Public Relations
(514) 394-8644

National Bank of Canada
Helene Baril
Senior Director
Investor Relations
(514) 394-0296

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