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NAB Full financials 11/11/01 5:06 PM Page 1 Table of contents Financial performance 2 Financial report 60 Description of business 3 Statement of financial performance 62 Introduction 3 Statement of financial position 63 Vision and strategy 3 Statement of cash flows 64 Business operating model 3 Notes to the financial statements 65 Business and Personal Financial Services 3 Directors’ declaration 165 Specialist and Emerging Businesses 5 Auditors’ report 166 National Shared Services 5 Shareholder information 167 Wholesale Financial Services 5 Forward-looking statements 183 Wealth Management 6 Form 20-F cross reference index 184 HomeSide 6 Principal establishments 185 Corporate Centre 7 Sale of Michigan National Corporation 7 Competition 7 Regulation of the financial services system 7 Privacy 8 Organisational structure 8 Description of property 8 Certain legal proceedings 8 Financial review Overview 9 Selected financial data 12 Net interest income 15 Other banking and financial services income 18 Mortgage servicing and origination revenue 19 Life insurance business 19 Personnel expenses 21 Occupancy expenses 21 General expenses 21 Significant operating expenses 21 Charge to provide for doubtful debts 22 Significant non-operating items 23 Net profit by segment 24 Assets and equity 30 Return on average equity 30 Shareholder value 31 Earnings and dividends per share 32 Liquidity and capital resources 32 Capital adequacy 33 Changes in financial condition 35 Total assets under management and administration 35 Gross loans and advances 36 Impaired assets, provisions and allowance for loan losses 37 Deposits and other borrowings 40 Risk management 41 People and Culture 45 European Economic and Monetary Union 46 Risk factors 46 Goods and services tax 47 Accounting developments 47 Corporate governance statement 48 Report of the directors 52 1 NAB Full financials 11/11/01 5:06 PM Page 2 Financial performance Profitability $b Profit and significant items 5 Profit before significant items • Net profit after significant items decreased 35.7 per cent to $2,083 4 million. The key significant items were: Significant Items 3 • net profit of $1,681 million from the sale of Michigan National 2 Corporation; and 1 • writedowns of mortgage servicing rights and goodwill totalling 0 $3,617 million (after tax) relating to HomeSide Lending, Inc. -1 • Net profit before significant items increased 19.1 per cent to $4,019 -2 million. -3 • International activities contributed $165 million of net loss after 1997 1998 1999 2000 2001 significant items, $1,771 million of net profit before significant items. Earnings Earnings (before significant items) ¢ and dividends per share • Cash earnings per share before significant items increased 10.1 per cent 300 to 236.6 cents. EPS 250 • Cash earnings per share after significant items decreased 46.2 per cent to DPS 110.7 cents. 200 • Return on equity decreased from 17.3 per cent to 9.0 per cent. Excluding 150 significant items, return on equity increased from 18.1 per cent to 18.4 per cent. 100 • Dividends were 135 cents per share, fully franked, compared with 123 50 cents per share last year. 0 • EVA(1) after significant items decreased 18.1 per cent to $1,129 million. 1997 1998 1999 2000 2001 EVA before significant items increased 3.8 per cent to $1,431 million. (1) EVA measures the economic profit earned in excess of the Group’s cost of capital. EVA is the registered trademark of Stern Stewart & Co. Growth and diversification $b Total assets under our control 1400 • Excluding the impact of the sale of Michigan National Corporation: 1200 • funds under management and administration increased 8.0 per cent to $64 billion; 1000 800 • assets under custody and administration increased 21.0 per cent to $345 billion; 600 • underlying growth of 11.1 per cent in total balance sheet assets in 400 local currency terms; 200 • movements in exchange rates increased total balance sheet assets 0 (in Australian dollar terms) by $14.9 billion; and 1997 1998 1999 2000 2001 • gross loans and advances increased 10.0 per cent in local currency Funds under Management & terms. Administration Assets under Custody & Administration Assets Serviced by Homeside Balance Sheet Assets 2 NAB Full financials 11/11/01 5:06 PM Page 3 Description of business Introduction Business operating model National Australia Bank Limited (herein referred to as the Company, or, The Group’s operating model is global in those areas where global economies together with its controlled entities as the Group) is an international financial in scale and scope are achievable, but regional where local tailoring and services group, providing a comprehensive and integrated range of financial differences are important. The operating model aligns with customers rather products and services across four continents and 15 countries. Globally, as at than along product lines to facilitate a relationship based customer advocacy September 30, 2001, the Group had: stance rather than a pure product sales philosophy. As a trusted financial adviser to its customers, the Group sources products and services on their • total balance sheet assets of $375 billion; behalf to best suit their financial needs and aspirations. By integrating • $64 billion in assets under management and administration; banking, investment and insurance offerings, the Group is well positioned to • $345 billion in assets under custody and administration; and meet those needs as they evolve. • more than 8.2 million banking customers and 2.8 million wealth management clients. The overall risk profile of the Group continues to be managed to ensure an acceptable risk reward balance for shareholders. Internal policies and control The Company is the largest financial services institution, by market systems are maintained in a manner that ensures all risks are monitored and capitalisation, listed on the Australian Stock Exchange Limited and in the July managed appropriately. 2001 edition of Fortune 500 was listed as the 20th largest financial services company in the world by profitability and 47th by revenues. The structure under which the Group operates is as follows: • Business and Personal Financial Services; As well as continuing to grow its core banking business, the Group has also • Specialist and Emerging Businesses; concentrated on developing wealth management activities within its various • National Shared Services. regional markets to improve the quality and sustainability of earnings. The • Wholesale Financial Services; Group is one of the largest managers of retail funds in Australia. • Wealth Management; and • HomeSide. Vision and strategy Business and Personal Financial Services, Specialist and Emerging Businesses General National Shared Services and Wholesale Financial Services, are hereinafter collectively referred to as ‘Banking and Other Financial Services’. The Group’s vision is to build a leading international financial services company. The Group aims to deliver maximum value to its shareholders and Business and Personal Financial Services seeks to maximise the efficiency with which their capital is utilised. To achieve this the Group constantly balances the needs of all stakeholders Business and Personal Financial Services is the retailing arm of the Group including staff, customers and the communities in which it operates. consisting of almost 29,000 staff, meeting the needs of 8.2 million customers This vision is being pursued through the following core strategies to: in Australia, New Zealand, Great Britain and Ireland. • drive performance and growth in businesses that rely on relationship Business and Personal Financial Services is organised around customer management and tailoring of financial services such as the small and segments, with products, services and the skills of staff matched to the needs medium business segments of the business market and the premium of a similar group of customers in each region. This reflects the Group’s core segment of the consumer market. The Group has strategic capabilities strategy of ‘driving performance and growth in businesses that rely on and positions in these segments. The focus will continue to be on relationship management and the tailoring of financial services’. The aim is to developing and transferring core skills and products between the key develop mutually beneficial, long-term relationships with customers markets in which the Group operates; worldwide. • accelerate the growth of selected businesses where capability, efficiency The segment-based businesses include Business Financial Services and service give the Group a competitive edge. These include Wholesale (comprising Major Client Group, Custom Business, Package Business and Financial Services, Wealth Management and Securities Services; Micro Business) and Personal Financial Services (comprising Private Banking, Premium Financial Services and Retail Financial Services). The segment- • transform the infrastructure and core processes of the organisation onto based businesses in each region are supported by specialist Direct Retailing an Internet protocol based platform to stake out positions in areas key to and Channel Management, Marketing Services and Product and Process the evolution of financial services; Management units. • create maximum shareholder value by adopting EVA shareholder value A brief discussion of the Group’s retailing activities in each of its regions principles and actively managing the Group’s portfolio of businesses; follows. For a detailed discussion of results by geographic

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