National Bank Report to Shareholders First Quarter 2012

National Bank releases its results for the First Quarter of 2012 Q1 National Bank Report to Shareholders First Quarter 2012 Highlights: A record $332 million in net income attributable to the Bank s shareholders for the first quarter of 2012, up 3% from $322 million in the same quarter of 2011; Record diluted earnings per share of $1.99 for the first quarter of 2012, up 7% from $1.86 in the same quarter of 2011; Acquisition of the full-service investment advisory business of HSBC Securities (Canada) Inc. completed on January 1, 2012; Return on equity of 21.8%; Pro forma Core Tier 1 capital ratio under Basel III of 7.9% as at January 31, 2012. Highlights Excluding Specified Items (1) : A record $334 million in net income attributable to the Bank s shareholders for the first quarter of 2012, up 4% from $322 million in the first quarter of 2011; Record diluted earnings per share of $2.00 for the first quarter of 2012, up 8% from $1.86 in the same quarter of 2011; Return on equity of 21.9%. (1) The financial reporting method is explained in detail on page 3. The Bank begins its financial reporting in accordance with International Financial Reporting Standards (IFRS) The information reported herein is presented in Canadian dollars and is based on the unaudited interim financial results for the first quarter ended January 31, 2012. The quantitative information in this document has been prepared in accordance with IFRS. MONTREAL, March 1, 2012 National Bank reports a record $332 million in net income attributable to the Bank s shareholders for the first quarter of 2012, a 3% increase from $322 million in the same quarter of 2011. Diluted earnings per share for the quarter ended January 31, 2012 stood at $1.99, up $0.13 or 7% from $1.86 in the same quarter of 2011. Excluding the specified items described on page 3, the first quarter net income attributable to the Bank s shareholders was a record $334 million, up 4% from $322 million in the first quarter of 2011, and diluted earnings per share was a record $2.00, up 8% from $1.86 in the first quarter of 2011. National Bank posted excellent results for the first quarter of 2012 stemming from ongoing strong volume growth in P&C Banking and good performance in Financial Markets. In addition, the credit quality is excellent and the Bank continues to prudently manage its expenses and maintain a sound capital position, stated Louis Vachon, President and Chief Executive Officer. Financial Indicators Results excluding Results specified Q1 2012 items (1) Growth in diluted earnings per share 7 % 8 % Return on common shareholders' equity 21.8 % 21.9 % Tier 1 capital ratio under Basel II 12.7 % 12.7 % Pro forma Core Tier 1 capital ratio under Basel III 7.9 % 7.9 % Dividend payout ratio 40 % 38 % (1) See "Financial Reporting Method" on page 3.

Personal and Commercial Net income attributable to the Bank s shareholders totalled $170 million, up 9% from $156 million in the first quarter of 2011. At $642 million in the first quarter of 2012, revenues experienced steady growth, rising $17 million or 3% year over year. Rising 13%, personal loan volume experienced sustained growth, with the strongest increases coming from consumer loans and mortgage loans. Net interest margin was 2.26% in the first quarter of 2012 versus 2.44% in the same quarter of 2011. The quality of the loan portfolio was maintained, as the segment s provisions for credit losses, at $45 million for the quarter, were down $10 million from the first quarter of 2011. Wealth Management First quarter net income attributable to the Bank s shareholders totalled $33 million versus $48 million in the same quarter of 2011. Excluding specified items (1), net income attributable to the Bank s shareholders totalled $38 million for the first quarter of 2012. Acquisition of the full-service investment advisory business of HSBC Securities (Canada) Inc., whose assets under administration exceed $10 billion, was completed on January 1, 2012. First quarter total revenues amounted to $238 million versus $221 million in the first quarter of 2011, an 8% increase that comes mainly from the acquisitions of Wellington West Holdings Inc. and the full-service investment advisory business of HSBC Securities (Canada) Inc. Financial Markets First quarter net income attributable to the Bank s shareholders totalled $129 million, up 13% from $114 million in the same quarter of 2011. Revenues rose $21 million or 6% owing mainly to trading activity revenues on fixed income securities. At $173 million, operating expenses rose $7 million or 4% in the first quarter of 2012, improving the efficiency ratio to 49% from 50% in the first quarter of 2011. Other Net income attributable to the Bank s shareholders for the first quarter of 2012 was nil versus a net gain of $4 million in the same quarter of 2011. Revenues increased owing essentially to greater treasury activity. At $31 million, operating expenses increased $11 million, primarily due to higher technology expenses. Capital Management The Tier 1 capital ratio of 12.7% and the total capital ratio of 15.2% as at January 31, 2012 were lower than the respective ratios of 13.6% and 16.9% as at October 31, 2011, mainly due to the application of IFRS and to the goodwill that arose from the acquisition of the full-service investment advisory business of HSBC Securities (Canada) Inc. Subordinated debentures with a face value of $500 million were redeemed for cancellation purposes. The pro forma Core Tier 1 capital ratio under Basel III was 7.9%. (1) See Financial Reporting Method on page 3. 2

FINANCIAL REPORTING METHOD The Bank uses certain measures that do not comply with International Financial Reporting Standards (IFRS) to assess results. Securities regulators require companies to caution readers that net income attributable to the Bank s shareholders and other measures adjusted using non-ifrs criteria are not standard under IFRS and cannot be easily compared with similar measures used by other companies. Financial Information Quarter ended January 31, 2012 January 31, 2011 % Change Excluding specified items Personal and Commercial 170 156 9 Wealth Management 38 48 (21) Financial Markets 129 114 13 Other (3) 4 Net income attributable to the Bank s shareholders, excluding specified items 334 322 4 Less: Acquisition-related items (1) (5) Plus: Items related to holding restructured notes of the MAV conduits (2) 3 Net income attributable to the Bank s shareholders 332 322 3 Diluted earnings per share excluding specified items $ 2.00 $ 1.86 8 Less: Acquisition-related items (1) (0.03) Plus: Items related to holding restructured notes of the MAV conduits (2) 0.02 Diluted earnings per share $ 1.99 $ 1.86 7 Return on common shareholders' equity Including specified items 21.8 % 22.3 % Excluding specified items 21.9 % 22.3 % (1) During the quarter ended January 31, 2012, $8 million ($5 million net of income taxes) in charges were recorded relative to the acquisitions of Wellington West Holdings Inc. and the full-service investment advisory business of HSBC Securities (Canada) Inc. The charges consisted of $5 million in retention bonuses, $0.7 million for the amortization of an intangible asset and $2.3 million in integration costs. (2) During the quarter ended January 31, 2012, $5 million ($3 million net of income taxes) in revenues related to holding restructured notes of the master asset vehicle (MAV) conduits was recorded. 3

CAUTION REGARDING FORWARD-LOOKING STATEMENTS From time to time, (the Bank) makes written and oral forward-looking statements, such as those contained in the "Major Economic Trends" and "Outlook for National Bank" sections of the 2011 Annual Report, and in other filings with Canadian securities regulators and in other communications, for the purpose of describing the economic environment in which the Bank will operate during 2012 and the objectives it has set for itself for that period. These forward-looking statements are made pursuant to the safe harbour provisions of Canadian and U.S. securities legislation. They include, among others, statements with respect to the economy particularly the Canadian and U.S. economies market changes, observations regarding the Bank s objectives and its strategies for achieving them, Bank projected financial returns and certain risks faced by the Bank. These forward-looking statements are typically identified by future or conditional verbs or words such as outlook, believe, anticipate, estimate, project, expect, intend, plan, and terms and expressions of similar import. By their very nature, such forward-looking statements require assumptions to be made and involve inherent risks and uncertainties, both general and specific. Assumptions about the performance of the Canadian and U.S. economies in 2012 and how that will affect the Bank s business are among the main factors considered in setting the Bank s strategic priorities and objectives and in determining its financial targets, including provisions for credit losses. In determining its expectations for economic growth, both broadly and in the financial services sector in particular, the Bank primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies. Tax laws in the countries in which the Bank operates, primarily Canada and the United States, are major factors it considers when establishing its effective tax rate. There is a strong possibility that express or implied projections contained in these forward-looking statements will not materialize or will not be accurate. The Bank recommends that readers not place undue reliance on these statements, as a number of factors, many of which are beyond the Bank s control, could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forwardlooking statements. These factors include the management of credit, market and liquidity risks; general economic conditions of the financial market in Canada, the United States and other countries in which the Bank conducts business, including the impact of the debt crisis affecting certain European countries; the downward adjustment of the long-term sovereign debt rating of the United States attributed by Standard & Poor s and the downward adjustment of the sovereign debt rating of other European countries; 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 and the U.S. Federal Reserve; the effects of competition in the markets in which the Bank operates; the impact of changes in the laws and regulations regulating financial services (including banking, insurance and securities) and enforcement thereof; judicial proceedings, regulatory proceedings or claims, class actions or other recourses of various nature; the situation with respect to the restructured notes of the master asset vehicle (MAV) conduits, in particular the realizable value of the underlying assets; 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, judgments and estimates; the Bank s ability to recruit and retain key officers; operational risks, including risks related to the Bank s reliance on third parties to ensure access to the infrastructure essential to the Bank s business as well as 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 developments, including those relating to the war on terrorism; and the Bank s success in anticipating and managing the foregoing risks. A substantial amount of the Bank s business involves making loans or otherwise committing resources to specific companies, industries or countries. Unforeseen events affecting such borrowers, industries or countries could have a material adverse effect on the Bank s financial results, businesses, financial condition, or liquidity. The foregoing list of risk factors is not exhaustive. Additional information about these factors can be found under the "Risk Management" and "Factors That Could Affect Future Results" sections of the 2011 Annual Report. 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. Except as required by law, the Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time, by it or on its behalf. The forward-looking information contained in this document is presented for the purpose of interpreting the information contained herein and may not be appropriate for other purposes. For more information: Ghislain Parent Chief Financial Officer and Executive Vice-President Finance and Treasury 514-394-6807 Jean Dagenais Senior Vice-President Finance, Taxation and Investor Relations 514-394-6233 Claude Breton Senior Director Public Affairs 514-394-8644 Hélène Baril Senior Director Investor Relations 514-394-0296 4

HIGHLIGHTS Quarter ended January 31, 2012 January 31, 2011 % Change Operating results Total revenues $ 1,243 $ 1,162 7 Net income attributable to the Bank's shareholders 332 322 3 Return on common shareholders' equity 21.8 % 22.3 % Per common share (dollars) Earnings Basic $ 2.00 $ 1.88 6 Earnings Diluted 1.99 1.86 7 EXCLUDING SPECIFIED ITEMS (1) Operating results Total revenues $ 1,238 $ 1,162 7 Net income attributable to the Bank's shareholders 334 322 4 Return on common shareholders' equity 21.9 % 22.3 % Per common share (dollars) Earnings Basic $ 2.02 $ 1.88 7 Earnings Diluted 2.00 1.86 8 Per common share (dollars) Dividends declared $ 0.75 $ 0.66 Book value 37.28 33.93 Stock trading range High 77.94 71.49 Low 63.27 64.86 Close 75.22 69.81 As at January 31, 2012 As at October 31, 2011 % Change Financial position Total assets $ 175,247 $ 166,858 5 Loans and acceptances 83,056 80,758 3 Deposits 92,402 85,562 8 Subordinated debentures and shareholders' equity 9,265 9,570 (3) Pro forma Core Tier 1 capital ratio under Basel III (2) 7.9 % 7.6 % Capital ratios BIS under Basel II (2) Tier 1 12.7 % 13.6 % Total 15.2 % 16.9 % Capital ratios BIS under Basel I (2) Tier 1 11.4 % 11.1 % Total 14.0 % 14.1 % Impaired loans, net of individually and collectively assessed allowances (210) (201) as a % of loans and acceptances (0.3) % (0.2) % Assets under administration/management 247,027 242,995 Total personal savings 144,576 133,798 Interest coverage 11.49 9.97 Asset coverage 4.87 3.87 Other information Number of employees 19,785 19,431 2 Number of branches in Canada 447 448 Number of banking machines 900 893 1 (1) See Financial Reporting Method on page 3. (2) Ratios as at October 31, 2011 are presented in accordance with Canadian GAAP. 5

MANAGEMENT S DISCUSSION AND ANALYSIS (unaudited) 7 Analysis of Results 14 Risk Management 8 Results by Segment 16 Accounting Policies and Estimates 9 Acquisition 16 Future Accounting Policy Changes 9 Cash Flows 16 Disclosure of Internal Control Over Financial Reporting 9 Financial Position 17 Capital 11 Off-Balance Sheet Arrangements 17 Subsequent Event 11 Additional Financial Disclosure 17 Dividends 12 Special Purpose Entities 18 Additional Financial Information 6

MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND OPERATING RESULTS The Bank begins its financial reporting in accordance with International Financial Reporting Standards (IFRS) The information reported herein is presented in Canadian dollars and is based on the unaudited interim financial results for the first quarter ended January 31, 2012. The quantitative information in this document has been prepared in accordance with IFRS. March 1, 2012 - The following text presents Management s Discussion and Analysis of the Bank s financial condition and operating results. This analysis was prepared in accordance with the requirements set out in National Instrument 51-102, Continuous Disclosure Obligations, of the Canadian Securities Administrators and is based on the unaudited interim condensed consolidated financial statements prepared for the first quarter of 2012. Additional information about, including the Annual Information Form, can be obtained from the SEDAR website (sedar.com) and the Bank s website (nbc.ca). Analysis of Results Consolidated Results National Bank reports a record $332 million in net income attributable to the Bank s shareholders for the first quarter of 2012, a 3% increase from $322 million in the same quarter of 2011. Diluted earnings per share for the quarter ended January 31, 2012 stood at $1.99, up $0.13 or 7% from $1.86 in the same quarter of 2011. Excluding specified items, the first quarter net income attributable to the Bank s shareholders was a record $334 million, up 4% from $322 million in the first quarter of 2011, and diluted earnings per share was a record $2.00, up 8% from $1.86 in the first quarter of 2011. The specified items recorded in the first quarter of 2012, net of income taxes, include $5 million in charges related to the acquisitions of Wellington West Holdings Inc. and the full-service investment advisory business of HSBC Securities (Canada) Inc. and $3 million in revenues related to the holding of master asset vehicle (MAV) conduits. No specified items were recorded in the first quarter of 2011. Return on common shareholders equity was 21.8% in the first quarter of 2012 compared to 22.3% in the same quarter of 2011. Total Revenues For the first quarter of 2012, the Bank s total revenues amounted to $1,243 million compared to $1,162 million in the same quarter of 2011. Net interest income from the Personal and Commercial segment totalled $411 million in the first quarter of 2012, a $15 million increase owing mainly to growth in personal loan volumes, offsetting a decline in net interest margins. First quarter trading activity revenues, including both net interest income and other income, totalled $89 million, up from $65 million in the first quarter of 2011. Securities brokerage commissions and revenues from trust and mutual fund services totalled $202 million, a $17 million increase that comes from the integration of Wellington West Holdings Inc. and the full-service investment advisory business of HSBC Securities (Canada) Inc. Gains on available-for-sale securities increased by $9 million, mainly due to gains generated by investment activities. At $46 million, revenues from acceptances, letters of credit and letters of guarantee were up $7 million due to greater volumes. The share in the net income of associates and joint ventures increased owing mainly to a greater contribution from associate Maple Financial Group Inc., and other income was up $7 million, mainly due to greater treasury activity. Operating Expenses For the first quarter of 2012, operating expenses stood at $759 million, up $64 million or 9% from the same quarter of 2011. The increase came mainly from the salaries and staff benefits expense, including variable compensation, which rose as a result of revenue growth, new branch openings and the acquisitions of Wellington West Holdings Inc. and the fullservice investment advisory business of HSBC Securities (Canada) Inc. Professional fees and technology expenses were up $4 million due to technology development projects. Provisions for Credit Losses At $45 million in the first quarter of 2012, the Bank s provisions for credit losses were $10 million less than in the same quarter of 2011 as a result of lower provisions for losses on credit card receivables and business loans. As at January 31, 2012, gross impaired loans stood at $387 million, a $20 million decrease from October 31, 2011 that came mainly from business loans. Impaired loans accounted for 8.0% of the tangible capital adjusted for the allowances as at January 31, 2012 compared to 8.5% as at October 31, 2011. As at January 31, 2012, the allowances for credit losses exceeded gross impaired loans by $210 million compared to $201 million as at October 31, 2011. Income Taxes For the first quarter of 2012, income taxes stood at $88 million and the tax rate at 20% compared to $71 million and 17% for the same quarter in 2011. The higher effective rate in the first quarter of 2012 resulted from the decrease in non-taxable dividends compared to the first quarter of 2011. 7

MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND OPERATING RESULTS (CONT.) Results by Segment The presentation of segment disclosures is consistent with the presentation adopted by Bank for the year beginning November 1, 2011. It reflects the fact that treasury operations, including the Bank s asset and liability management activities, which had previously been presented in the Financial Markets segment, are now presented in the Other heading. The Bank made this change to align the monitoring of its activities with its management structure. Personal and Commercial In the Personal and Commercial segment, net income attributable to the Bank s shareholders rose 9% to total $170 million for the quarter. Total revenues amounted to $642 million, a $17 million increase that owes mainly to higher net interest income, which, at $411 million, rose $15 million mainly as a result of the growth in personal loan volume. This growth was tempered by a narrowing of the net interest margin, which was 2.26% in the first quarter of 2012 compared to 2.44% in the same quarter of 2011, mainly due to a decline in spreads on loans. Personal Banking s total revenues amounted to $438 million, a $19 million increase that was mainly due to higher loan volumes, especially consumer and mortgage loans, partly offset by a narrowing of net interest margins. Commercial Banking s total revenues amounted to $204 million, a $2 million decrease that was mainly due to narrower net interest margins and lower foreign exchange revenues. The segment s first quarter operating expenses stood at $364 million, a year-over-year increase of $11 million resulting mainly from a higher salaries and staff benefits expense, as new branches were opened and business hours extended. At 57%, the efficiency ratio for the first quarter of 2012 remained steady compared to the same quarter of last year. At $45 million, the segment s provisions for credit losses were $10 million lower, as lower provisions for business and credit card loan losses offset the higher provisions for losses on personal credit. Wealth Management In the Wealth Management segment, net income attributable to the Bank s shareholders totalled $33 million in the first quarter of 2012, down from $48 million in the same quarter of 2011. Total revenues amounted to $238 million in the first quarter of 2012 compared to $221 million in the first quarter of 2011. Net interest income rose $6 million or 17%, and other income increased by $11 million or 6%. The year-over-year increase in first quarter revenues stems from the acquisitions of Wellington West Holdings Inc. and the full-service investment advisory business of HSBC Securities (Canada) Inc. The segment s first quarter operating expenses stood at $191 million, a $35 million year-over-year increase associated primarily with the Bank s acquisitions, which increased expenses for the quarter by $31 million, $8 million of which constitutes a specified item. Financial Markets In the Financial Markets segment, net income attributable to the Bank s shareholders totalled $129 million for the first quarter of 2012, up $15 million from $114 million in the same quarter of 2011. Total revenues amounted to $352 million compared to $331 million in the first quarter of 2011. Trading activity revenues on a taxable equivalent basis were $134 million for the quarter, up $7 million from the same year-earlier quarter, mainly due to higher revenues from fixed-income securities offset by lower revenues from equity securities, commodity securities and foreign exchange transactions. Financial market fees and banking services were virtually unchanged from the same period in 2011. At $33 million, net gains on available-for-sale securities increased by $10 million from the same quarter of 2011, due to gains generated by investment activities. Other income increased by $4 million owing to a higher contribution from associate Maple Financial Group Inc. The segment s first quarter operating expenses stood at $173 million, a $7 million year-over-year increase that was due in part to a higher salaries and staff benefits expense. The provisions for credit losses balance was nil for the first quarters of 2012 and 2011. Financial Market Revenues (taxable equivalent basis) (1) (millions of Canadian dollars) Q1 2012 2011 Trading activity revenues Equity 61 74 Fixed income 54 28 Commodity and foreign exchange 19 25 134 127 Financial market fees 63 62 Gains on available-for-sale securities, net 33 23 Banking services 62 63 Other 60 56 Total 352 331 (1) For additional information, see Note 4 to the unaudited interim condensed consolidated financial statements. Other For the Other heading of segment results, net income attributable to the Bank s shareholders was nil for the first quarter of 2012 compared to a $4 million net gain in the same quarter of 2011. Year-over-year, first quarter total revenues increased $26 million, essentially due to greater treasury activity and a decrease in the taxable equivalent basis adjustment on taxexempt income. At $31 million, operating expenses were up $11 million, primarily due to higher technology expenses. 8

MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND OPERATING RESULTS (CONT.) Acquisition On January 1, 2012, the Bank completed the acquisition of the full-service investment advisory business of HSBC Securities (Canada) Inc., as well as certain assets related to the segregated fund and the insurance business of HSBC Insurance Agency (Canada) Inc. The purchase price amounted to $109 million and is subject to an adjustment based on the retention of investment advisors to be determined one year after the closing date. The net assets acquired include intangible assets in the form of client lists totalling approximately $3 million. The purchase price exceeded the fair value of the net assets acquired by $105 million. This excess amount was recorded in the Consolidated Statement of Financial Position as goodwill, $78 million of which is deductible for tax purposes. In addition, $1 million in direct acquisition costs was included in Operating expenses in the Consolidated Income Statement. These unaudited interim condensed consolidated financial statements include the results of the acquired business as of January 1, 2012. At this time, the purchase price allocation process has not yet been finalized. Cash Flows Due to the very nature of the Bank s business, most of its revenues and expenses are cash items. Moreover, certain activities, such as trading activities, generate significant cash flow movements that can impact several asset and liability items such as securities at fair value through profit or loss, securities sold short, or securities sold under repurchase agreements and securities loaned. For the first quarter of 2012, cash and cash equivalents increased $0.3 billion compared to a $1.2 billion increase in the same quarter of 2011. As at January 31, 2012, cash and cash equivalents totalled $2.7 billion versus $3.3 billion a year earlier. In the first quarter of 2012, operating activities generated cash inflows of $1.0 billion due to a $6.8 billion increase in deposits and a $3.4 billion increase in obligations related to securities sold short. These changes were offset by a $2.3 billion increase in securities at fair value through profit or loss, a $2.7 billion increase in securities purchased under reverse repurchase agreements and securities borrowed and a $2.2 billion increase in loans as well as by a $2.0 billion decrease in obligations related to securities sold under repurchase agreements and securities loaned. In the first quarter of 2011, operating activities had generated cash inflows of $0.5 billion due to a $2.8 billion decrease in securities purchased under reverse repurchase agreements and securities borrowed, a $3.1 billion increase in deposits, a $1.4 billion increase in obligations related to securities sold short, and a $4.6 billion increase in obligations related to securities sold under repurchase agreements and securities loaned. These changes were partly offset by a $9.6 billion increase in securities at fair value through profit or loss and a $1.9 billion increase in loans. Financing activities required $0.5 billion in cash for the first quarter of 2012, mainly due to a $0.5 billion repurchase of subordinated debentures. In the first quarter of 2011, financing activities had generated cash inflows of $0.4 billion, mainly due to a $0.5 billion change in liabilities related to transferred receivables. Investing activities required $0.3 billion in cash for the first quarter of 2012 due to a $0.3 billion increase in available-for-sale securities. In the first quarter of 2011, investing activities had generated cash inflows of $0.3 billion due to a $0.3 billion decrease in available-for-sale securities. Financial Position As at January 31, 2012, the Bank had total assets of $175.2 billion compared to $166.9 billion as at October 31, 2011. Loan and acceptance balances were up $2.3 billion, and cash, deposits with financial institutions, securities, and securities purchased under reverse repurchase agreements and securities borrowed increased by $5.6 billion since October 31, 2011, mainly due to an increase in securities at fair value through profit or loss and securities purchased under reverse repurchase agreements and securities borrowed. As at January 31, 2012, goodwill increased by $105 million since October 31, 2011 resulting from the acquisition of the full-service investment advisory business of HSBC Securities (Canada) Inc. At $92.4 billion, deposits rose $6.8 billion since October 31, 2011. Growth in other financing activities came mainly from obligations related to securities sold short, which totalled $21.5 billion as at January 31, 2012, up $3.4 billion since October 31, 2011 and mainly offset by the decrease in activities from obligations related to securities sold under repurchase agreements and securities loaned. As at January 31, 2012, the Bank s equity was $7.8 billion compared to $7.6 billion as at October 31, 2011. This increase was primarily due to the rise in retained earnings and the exercise of common share stock options. Shares and Stock Options as at January 31, 2012 Number of shares $ million First Preferred Shares Series 15 8,000,000 200 Series 16 8,000,000 200 Series 20 6,900,000 173 Series 21 3,410,861 85 Series 24 2,425,880 61 Series 26 1,724,835 43 30,461,576 762 Common shares 160,920,373 (1) 1,996 Stock options 9,083,276 (1) (1) As at February 24, 2012 there were 160,965,299 common shares and 9,064,099 stock options outstanding. 9

MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND OPERATING RESULTS (CONT.) The table below presents the main portfolios: Average Monthly Volumes (millions of Canadian dollars) January 2012 October 2011 January 2011 Loans and acceptances Consumer loans 22,386 21,874 19,738 Residential mortgages 29,332 28,446 25,886 Credit card receivables 1,907 1,904 1,913 SME loans 19,900 19,586 17,902 Corporate loans 7,251 6,860 5,909 80,776 78,670 71,348 Personal savings (balance) Deposits 36,937 35,695 34,596 Full-service brokerage 90,081 79,490 69,362 Mutual funds 13,987 13,659 13,653 Other 3,571 4,954 5,087 107,639 98,103 88,102 Business deposits 16,467 16,761 15,827 As at January 31, 2012, loan and acceptance volumes totalled $80.8 billion, up $2.1 billion or 3% since October 31, 2011. Consumer loans were up 2%, totalling $22.4 billion as at January 31, 2012, due primarily to home equity lines of credit. Traditional residential mortgages were also up by 3%, totalling $29.3 billion as at January 31, 2012. SME loans advanced 2% since October 31, 2011 to stand at $19.9 billion as at January 31, 2012. Corporate loans increased 6%, totalling $7.3 billion as at January 31, 2012. Loan and acceptance volumes increased $9.4 billion or 13% from a year ago. Both consumer loans and residential mortgage loans rose by 13% from a year ago. SME loans also contributed to the growth in loans and acceptances, rising $2.0 billion or 11% from a year ago. Corporate loans were up $1.4 billion from a year ago, reaching $7.3 billion as at January 31, 2012, whereas they amounted to $5.9 billion in the first quarter of 2011. At $36.9 billion as at January 31, 2012, personal deposits were up $1.2 billion or 3% since October 31, 2011, owing essentially to transactional deposits and to the CashPerformer account. Personal savings included in assets under administration/management were up 10% since the beginning of the year to $107.6 billion as at January 31, 2012. An amount of $10.1 billion of this increase is attributable to the acquisition of the full-service investment advisory business of HSBC Securities (Canada) Inc. Business deposits were down since October 31, 2011, amounting to $16.5 billion as at January 31, 2012. Personal deposits were up $2.3 billion or 7% from a year ago, while personal savings included in assets under administration/management increased by $19.5 billion or 22% due to the acquisitions of Wellington West Holdings Inc. and of the full-service investment advisory business of HSBC Securities (Canada) Inc. Business deposits, especially corporate deposits, were up, rising $0.7 billion or 4% from a year ago. Master Asset Vehicles As at January 31, 2012, the face value of the restructured notes of the master asset vehicle (MAV) conduits held by the Bank was $1,992 million ($2,015 million as at October 31, 2011), of which $1,658 million was designated as Securities at fair value through profit or loss under the fair value option, and an amount of $334 million was classified in Available-forsale securities ($1,675 million designated as Securities at fair value through profit or loss and $340 million classified in Available-for-sale securities as at October 31, 2011). The change in the face value of the restructured notes of the MAV conduits during the first quarter of 2012 is mainly due to the restructured notes taken back from clients who had credit facilities backed by these notes, reduced by capital repayments and certain disposals. The Bank has committed to contribute $910 million to a margin funding facility related to the MAV conduits in order to finance potential collateral calls. As at January 31, 2012 and October 31, 2011, no amount had been advanced by the Bank. Establishing Fair Value The carrying value of the restructured notes of the MAV conduits held by the Bank in an investment portfolio as at January 31, 2012, designated as Securities at fair value through profit or loss, was $1,133 million, and $78 million was classified in Available-for-sale securities ($1,150 million designated as Securities at fair value through profit or loss and $86 million classified in Available-for-sale securities as at October 31, 2011). The notes held in an investment portfolio with one or more embedded derivatives were designated as Securities at fair value through profit or loss under the fair value option, and the other notes were classified in Available-for-sale securities. The Bank took back restructured notes of the MAV conduits related to the credit facilities at a fair value of $5 million during the first quarter of 2012. In establishing the fair value of the restructured notes of the MAV conduits and ineligible assets, the Bank applied the same methodologies used as at October 31, 2011. For more detailed information, see Note 9 to the audited consolidated financial statements of the 2011 Annual Report. Since the carrying value of the restructured notes of the MAV conduits was within the range of the estimated fair value, no change was made to the carrying value as at January 31, 2012. Credit Facilities to Clients Holding Restructured Notes of the MAV Conduits As at January 31, 2012, credit facilities outstanding provided to clients holding restructured notes of the MAV conduits stood at $33 million ($51 million as at October 31, 2011) and the allowance for credit losses was $3 million ($10 million as at October 31, 2011). As at January 31, 2012, the credit facilities that are backed by restructured notes of the MAV conduits and those backed by ineligible asset tracking notes totalled $308 million and $4 million, respectively ($332 million and $8 million as at October 31, 2011). 10

MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND OPERATING RESULTS (CONT.) Off-Balance Sheet Arrangements In the normal course of business, the Bank is party to various financial arrangements that, under International Financial Reporting Standards (IFRS), are not required to be recorded in the Consolidated Statement of Financial Position or are recorded at amounts other than their notional or contractual values. These arrangements include, among others, assets under administration and under management, transactions with special purpose entities, derivative financial instruments, the issuance of guarantees, the margin funding facility of the MAV conduits, credit instruments, and financial assets received as collateral. A complete analysis of these types of arrangements, including their nature, business purpose and importance, with the exception of special purpose entities, is provided on pages 43 to 47 of the 2011 Annual Report. Special Purpose Entities The Bank uses special purpose entities to diversify its funding sources and manage its capital requirements by issuing innovative capital instruments. The Bank also uses one of these entities to offer services to clients, such as assisting them in securitizing their financial assets or providing them with investment opportunities. Under IFRS, a special purpose entity must be consolidated if the Bank controls the entity. Note 1 to the unaudited interim condensed consolidated financial statements describes the accounting policy and criteria used for consolidating special purpose entities. In accordance with IFRS, the Bank now consolidates the following two additional Special Purpose Entities: Canadian Credit Card Trust (CCCT) and NBC Capital Trust. Additional information on consolidated and nonconsolidated special purpose entities is provided in the Special Purpose Entities section on the following pages. The Bank participates in two Canada Mortgage and Housing Corporation (CMHC) securitization programs: the Mortgage-Backed Securities Program under the National Housing Act (Canada) (NHA) and Canada Mortgage Bond (CMB) program. Under the latter program, lenders transfer NHA securities to Canada Housing Trust (CHT), which finances the purchase through the issuance of mortgage bonds insured by CMHC. In accordance with IFRS, because the Bank retains substantially all of the risks and rewards of ownership of the mortgage loans transferred to the CHT, the derecognition criteria is no longer met and the Bank must present these securitized insured mortgage loans on its Consolidated Statement of Financial Position and recognize liabilities related to these receivables transferred to the CHT. Additional Financial Disclosure The Office of the Superintendent of Financial Institutions Canada (OSFI) has asked Canadian banks to apply certain recommendations published in April 2008 in the report of the Financial Stability Board. The recommendations were issued to enhance transparency and valuation with respect to certain exposures considered to be of higher risk, in particular special purpose entities, subprime and Alt-A exposures, synthetic collateralized debt obligations, residential and commercial mortgage-backed securities, and leveraged financing structures. The Bank does not market any specific mortgage financing program to subprime or Alt-A clients. Subprime loans are generally defined as loans granted to borrowers with a higher credit risk profile than prime borrowers, and the Bank does not grant this type of loan. Alt-A loans are granted to borrowers who cannot provide standard proof of income. The Bank s Alt-A loan volume was $527 million as at January 31, 2012 ($508 million as at October 31, 2011). The Bank does not have any significant direct position in residential and commercial mortgage-backed securities that are not insured by the Canadian Mortgage and Housing Corporation (CMHC). Credit derivative positions in collateralized debt obligations are provided in the following table. Credit Derivative Positions (notional amounts) (millions of Canadian dollars) Protection purchased As at January 31, 2012 Credit portfolio (1) Trading Protection sold Protection purchased Protection sold Credit default swaps Indices, single names and other 199 3,247 2,669 Tranches on indices 837 827 Collateralized debt obligations 20 20 Total return swaps 391 358 19 Protection purchased As at October 31, 2011 Credit portfolio (1) Trading Protection sold Protection purchased Protection sold Credit default swaps Indices, single names and other 67 35 3,052 2,761 Tranches on indices 861 901 Collateralized debt obligations 20 20 Total return swaps 346 352 12 (1) Protection sold is solely for the purpose of reducing protection purchased. Leveraged finance loans are defined by the Bank as loans granted to large corporate and financial sponsor-backed companies that are typically non-investment grade with much higher levels of debt relative to the industry in which they operate. Leveraged finance is commonly employed to achieve a specific objective, for example, to make an acquisition, complete a buy-out or repurchase shares. Leveraged finance risk exposure takes the form of both funded and unfunded commitments. As at January 31, 2012, total commitments for this type of loan stood at $935 million ($914 million as at October 31, 2011). For information on other exposures, see the Special Purpose Entities section on the following pages. 11

MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND OPERATING RESULTS (CONT.) Special Purpose Entities Special purpose entities (SPEs) are entities that are created to accomplish a narrow and well-defined objective. SPEs are assessed for consolidation in accordance with the accounting policy set out in Note 1 to the unaudited interim condensed consolidated financial statements. The Bank s maximum exposure to loss resulting from economic interests consists primarily of the investments in these entities, the fair value of the derivative contracts entered into with them, and the backstop liquidity and credit enhancement facilities granted to one of them. The following table presents the Bank s exposure to consolidated and non-consolidated SPEs. Investments and other assets Bank's exposure Undrawn liquidity, margin funding facilities and other As at January 31, 2012 As at October 31, 2011 Total special purpose entity assets Investments and other assets Bank's exposure Undrawn liquidity, margin funding facilities and other Total special purpose entity assets Non-consolidated special purpose entities Multi-seller asset-backed commercial paper conduit administered by the Bank (1) 183 2,112 2,300 7 2,347 2,358 National Bank hedge fund managed accounts (Innocap platform) (2) 176 N/A 766 194 N/A 797 Restructured notes of the MAV conduits (3) 1,211 910 1,236 910 Private capital funds and investments (4) 114 N/A 1,551 145 N/A 1,663 1,684 4,617 1,582 4,818 Consolidated special purpose entities Securitization entity for the Bank s credit card receivables (5) (6) 390 N/A 1,707 246 N/A 1,559 National Bank hedge fund managed accounts (Innocap platform) (2) (6) 574 N/A 651 562 N/A 635 Mutual funds (6) (7) 255 N/A 288 243 N/A 290 Covered bonds (8) 3,143 N/A 3,143 2,958 N/A 2,958 Building (9) 59 N/A 84 57 N/A 82 Private investments (10) 21 N/A 22 28 N/A 28 NBC Capital Trust (11) N/A 243 N/A 247 NBC Asset Trust (12) 1,325 N/A 1,369 1,302 N/A 1,383 5,767 7,507 5,396 7,182 7,451 12,124 6,978 12,000 N/A not applicable (1) The main underlying assets, located in Canada, are residential and commercial mortgages, car leases, car loans and other receivables. As at January 31, 2012, the notional committed amount of the global-style liquidity facility totalled $2,295 million ($2,354 million as at October 31, 2011), representing the total amount of commercial paper outstanding. The Bank also provides a series-wide credit enhancement facility that is limited to certain asset classes for a notional committed amount of $30 million ($30 million as at October 31, 2011). The maximum exposure to loss cannot exceed the amount of commercial paper outstanding. As at January 31, 2012, the Bank held $183 million in commercial paper ($7 million as at October 31, 2011) and, consequently, the maximum potential amount of future payments as at January 31, 2012 was limited to $2,112 million ($2,347 million as at October 31, 2011). (2) The underlying assets are various financial instruments (trading portfolio). The total assets of the Innocap platform are presented on a net asset basis. (3) See the Master Asset Vehicles section in Note 14 to these consolidated financial statements. The total amount outstanding of restructured notes of the MAV conduits totalled $27 billion as at January 31, 2012 ($28 billion as at October 31, 2011). (4) The underlying assets are private investments. The disclosed amount of total assets of the special purpose entities is the amount for the most recent available period. (5) The underlying assets are credit card receivables. (6) The Bank s exposure is net of third-party holdings. (7) The underlying assets are various financial instruments and are presented on a net asset basis. Certain mutual funds are in a trading portfolio. (8) The underlying assets are insured residential mortgage loans. The average maturity of the underlying assets is three years. See Note 28 to the 2011 audited consolidated financial statements. (9) The underlying asset is a building located in Canada. (10) The investments are presented on an equity basis. (11) The underlying asset is a deposit note from the Bank. See note 19 to these consolidated financial statements. (12) See Note 21 to the 2011 audited consolidated financial statements. The underlying assets are insured and uninsured residential mortgage loans of the Bank. As at January 31, 2012, insured loans amounted to $310 million ($230 million as at October 31, 2011). The average maturity of the underlying assets is three years. 12

MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND OPERATING RESULTS (CONT.) Non-Consolidated Special Purpose Entities Multi-seller conduit The Bank administers a multi-seller conduit that purchases financial assets from clients and finances those purchases by issuing asset-backed commercial paper. Clients use this multi-seller conduit to diversify their funding sources and reduce borrowing costs while continuing to service the financial assets and providing some amount of first-loss protection. Additional credit loss protection is provided through notes issued by the conduit, which are held by third parties. The Bank acts as a financial agent and provides administrative and transaction structuring services to this conduit. The Bank provides backstop liquidity and credit enhancement facilities under the commercial paper program. These facilities are presented and described in Note 28 to the 2011 audited consolidated financial statements. The Bank has concluded derivative contracts with this conduit, the fair value of which is presented on the Bank s Consolidated Statement of Financial Position. The Bank is not required to consolidate this conduit, as it does not control the conduit nor is it exposed to the majority of risks and rewards of the conduit. Master asset vehicles (MAV) The Bank holds economic interests in MAVs due to the holding of restructured notes of the MAV conduits and the margin funding facility provided. The Bank is not required to consolidate these MAVs as it does not have control and is not exposed to the majority of the risks and rewards inherent to these assets. Private capital funds and investments As part of its investment banking operations, the Bank invests in several limited liability partnerships and other incorporated entities. These investment companies in turn invest in operating companies with a view to reselling these investments at a profit over the medium or long term. The Bank does not intervene in the operations of these entities; its only role is that of an investor. The Bank is not required to consolidate these entities as it does not control them. Consolidated Special Purpose Entities Securitization entity for the Bank s credit card receivables The Bank has established the Canadian Credit Card Trust (CCCT) to securitize its credit card receivables. The Bank has used this entity for capital management and financing purposes. The Bank acts as an administrative agent and holds certificates issued by CCCT. From this portfolio of sold receivables, the Bank retains the excess spread, i.e., the residual interest income after all the expenses related to this structure have been paid, and thus provides first loss protection. The Bank controls this special purpose entity and thus consolidates it. National Bank hedge fund managed accounts (Innocap platform) Innocap Investment Management Inc. (Innocap), a company under joint control, offers hedge fund account programs for fund sponsors seeking a platform that gives them a high degree of transparency, and leading-edge tools to manage liquidity and control the assets and risk. The Bank can hold economic interests in certain of the platform s hedge funds and consolidates those it controls and in which it is exposed to the majority of the risks and rewards inherent to the funds. Covered bonds The Bank has issued covered bonds and created an entity to guarantee the payment of principal and interest due to bondholders. The Bank has sold insured residential mortgages to this entity and granted it a loan to facilitate the acquisition of these assets. The Bank controls this special purpose entity and thus consolidates it. Mutual funds and private investments The Bank invests in mutual funds and private investment funds and consolidates those over which it has control and in which it is exposed to the majority of the risks and rewards inherent to the funds. NBC Capital Trust The Bank has created NBC Capital Trust for its financing and capital management needs. The securities issued by this trust qualify as innovative capital instruments and are therefore eligible as Tier 1 capital. The gross proceeds from the securities issued by this trust have been used to acquire a deposit note from the Bank. The Bank also holds all of the trust s equity and has committed to lend it the liquidity it needs in the normal course of business. The Bank acts as the trust s administrative agent and manages its day-to-day operations. The Bank controls this trust and thus consolidates it. NBC Asset Trust The Bank created NBC Asset Trust for its financing and capital management needs. The securities issued by this trust qualify as innovative capital instruments and are therefore eligible as Tier 1 capital. The proceeds from the issuance of these securities were used by the trust to acquire the Bank s residential mortgage loans. The Bank continues to administer these loans and is committed to repurchase from the trust the capital balance and unpaid accrued interest on any loan that is 90 days past due. The Bank also holds the special voting securities of the trust. After the distribution has been paid to the holders of the trust capital securities, the Bank, as the sole holder of the special trust securities, is entitled to receive the balance of net residual funds. The Bank acts as the trust s administrative agent and controls this trust and thus consolidates it. 13