First quarter highlights compared to the same period a year ago:
TORONTO, March 6 /PRNewswire-FirstCall/ -- Scotiabank reported
record first quarter net income of $1,020 million, exceeding $1
billion for the first time, with solid contributions from all three
business lines. Diluted earnings per share (EPS) was $1.01,
compared to $0.84 in the same period last year, an increase of 20%.
Return on equity (ROE) climbed to 23.0%, compared to 21.6% last
year. "Our strategy of diversifying across three business lines -
Domestic Banking, Scotia Capital and International Banking -
continues to deliver strong, sustainable growth," said Scotiabank
President and CEO Rick Waugh. "Our International results were
particularly robust, with widespread organic growth across the
business and contributions from recent acquisitions in Peru and
Costa Rica. Our Mexican operations continue to make a significant
contribution, with very strong growth in retail loans, credit cards
and mortgages. "Domestic Banking reported continued growth in
personal lending as average retail assets grew by 15%, due
primarily to strong mortgage growth, including from the Maple Trust
acquisition, and growth in personal revolving credit lines. There
was also strong growth in deposits," Mr. Waugh said. "In addition,
Wealth Management recorded solid growth in retail brokerage and
mutual fund revenues. "Results in Scotia Capital benefited from
increased lending volumes in Canada, the U.S. and Europe, a
continued favourable credit environment and record results in our
precious metals business, although overall trading revenues were
down compared to last year's record levels. "Scotiabank's capital
position remains very strong, allowing us to continue to increase
returns to shareholders while maintaining the flexibility to
consider a broad range of options for future growth. "With the
strong first quarter results, we are well positioned to achieve our
key performance objectives for 2007." Year-to-date performance
versus our 2007 financial and operational objectives was as
follows: 1. TARGET: Earn a return on equity (ROE)(1) of 20 to 23%.
For the three months, Scotiabank earned an ROE of 23.0%. 2. TARGET:
Generate growth in earnings per common share (diluted) of 7 to 12%.
Our year-over-year growth in earnings per share was 20%. 3. TARGET:
Maintain a productivity ratio(1) of less than 58%. Scotiabank's
ratio was 53.6 % for the three months. 4. TARGET: Maintain sound
capital ratios. At 10.4%, Scotiabank's Tier 1 capital ratio remains
strong by Canadian and international standards. (1) Refer to
non-GAAP measures discussion further below. FINANCIAL HIGHLIGHTS As
at and for the three months ended
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January 31 October 31 January 31 (Unaudited) 2007 2006 2006
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Operating results ($ millions) Net interest income 1,776 1,652
1,509 Net interest income(TEB(1)) 1,881 1,783 1,605 Total revenue
3,109 2,868 2,734 Total revenue(TEB(1)) 3,214 2,999 2,830 Provision
for credit losses 63 32 75 Non-interest expenses 1,724 1,708 1,562
Provision for income taxes 277 203 225 Provision for income
taxes(TEB(1)) 382 334 321 Net income 1,020 897 852 Net income
available to common shareholders 1,012 890 844
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Operating performance Basic earnings per share ($) 1.02 0.90 0.85
Diluted earnings per share ($) 1.01 0.89 0.84 Return on equity
(%)(1) 23.0 21.1 21.6 Productivity ratio(%) (TEB(1)) 53.6 56.9 55.2
Net interest margin on total average assets(%) (TEB(1)) 1.91 1.89
1.97
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Balance sheet information ($ millions) Cash resources and
securities 126,899 118,878 101,953 Loans and acceptances(2) 222,690
212,329 180,694 Total assets 396,470 379,006 324,951 Deposits
277,019 263,914 227,547 Preferred shares 945 600 600 Common
shareholders' equity 18,850 16,947 15,571(3) Assets under
administration 203,067 191,869 174,110 Assets under management
29,158 27,843 26,185
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Capital measures Tier 1 capital ratio (%) 10.4 10.2 10.8 Total
capital ratio (%) 11.7 11.7 12.7(3) Tangible common equity to
risk-weighted assets(1)(%) 8.4 8.3 9.0 Risk-weighted assets ($
millions) 206,843 197,010 168,948
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Credit quality Net impaired loans(4)($ millions) 579 570 659
General allowance for credit losses ($ millions) 1,323 1,307 1,330
Net impaired loans as a % of loans and acceptances(2)(4) 0.26 0.27
0.36 Specific provision for credit losses as a % of average loans
and acceptances (annualized)(2) 0.12 0.18 0.17
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Common share information Share price ($) High 53.39 49.50 49.80 Low
48.80 45.36 42.89 Close 50.76 49.30 46.25 Shares outstanding
(millions) Average - Basic 991 989 989 Average - Diluted 1,001
1,000 1,002 End of period 993 990 988 Dividends per share ($) 0.42
0.39 0.36 Dividend yield (%) 3.3 3.3 3.1 Dividend payout ratio(5)
(%) 41.2 43.3 42.2 Market capitalization ($ millions) 50,397 48,783
45,696 Book value per common share ($) 18.99 17.13 15.76(3) Market
value to book value multiple 2.7 2.9 2.9 Price to earnings multiple
(trailing 4 quarters) 13.5 13.7 14.2
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Other information Employees 53,937 53,251 47,166 Branches and
offices 2,225 2,191 1,968
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(1) Non-GAAP measure. Further below refer to for a discussion of
these measures. (2) Certain comparative amounts in this quarterly
report have been restated to conform with current period
presentation. (3) Balance sheet figures and related ratios have
been restated, where applicable, for the accounting standard
related to stock-based compensation adopted in 2006. Refer to Note
1 of the interim consolidated financial statements further below
for further details. (4) Net impaired loans are impaired loans less
the specific allowance for credit losses. (5) Represents common
dividends for the period as a percentage of the net income
available to common shareholders for the period. Strategies for
success
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This marks the first quarter of our Bank's 175th year of doing
business. Although the way we work and do business has changed
dramatically over the course of our history, what have remained
constant, and sustained our success, are our core values -
integrity, respect, commitment, insight and spirit - and our core
strengths - customer satisfaction, cost control, risk management,
diversification and our people. Our goal is to be the best
Canadian-based international financial services company. To achieve
this, our business lines and key support functions will be focusing
on three key priorities: sustainable revenue growth, effective
management of our capital and leadership. Profitable, sustainable
revenue growth is our top priority. Each business line is pursuing
a combination of organic growth initiatives and potential
acquisitions. We are taking innovative approaches to acquiring new
customers and deepening relationships. During the quarter, we
announced a unique partnership with Cineplex Entertainment to
launch SCENE, the first entertainment loyalty program in Canada,
which included naming rights to five major Cineplex locations
across the country. In addition, we're adding branches and
expanding our sales capacity. We also see leadership as critical to
the success of our long-term growth plans. Many strategies are
possible, but none will work if they are not properly executed -
and only people, well led and motivated, will accomplish this. A
key element of our leadership strategy has been our focus on the
advancement of women. During the quarter, the Bank received the
internationally prestigious 2007 Catalyst Award for achievements in
the Advancement of Women. This award recognizes the improvement in
our representation of women in our senior management team, from
18.9% in 2002 to an all-time high of 31% in 2006. These
achievements and many more, and the efforts of our employees around
the world, led our Bank to report record quarterly earnings that
exceeded $1 billion for the first time in our history. As we begin
our next 175 years, I believe that our balanced approach - focusing
on our goal and strategies and on the people that will execute them
- will ensure our continued success. 2007 Objectives - Our Balanced
Scorecard
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Financial - Return on equity of 20-23% - Diluted earnings per share
growth of 7-12% - Long-term shareholder value through increases in
dividends and stock price appreciation Operational - Productivity
ratio of less than 58% - Sound ratings - Strong practices in
corporate governance and compliance processes - Sound capital
ratios Customer - High levels of customer satisfaction and loyalty
- Deeper relationship with existing customers - New customer
acquisition People - High levels of employee satisfaction and
engagement - Enhance diversity of workforce - Commitment to
corporate social responsibility and strong community involvement
ACHIEVEMENTS Domestic Banking - Scotiabank announced a partnership
with Cineplex Entertainment to launch SCENE, Canada's first-ever
entertainment loyalty program. Members use their Scotiabank SCENE
debit card for purchases, and points earned are redeemed for free
movies and other entertainment- related rewards. Scotiabank has
also acquired naming rights to five significant Cineplex locations
across Canada. - To better serve our small business customers, an
enhanced training program and new financial planning tool were
launched. As well, we are leveraging key partnerships, including
the College of Family Physicians of Canada, with which we announced
a joint five-year, $1.5 million sponsorship program targeted at
student professionals. - Mutual fund assets grew by 8% to $17.5
billion this quarter. Our new investment sales platform was
implemented which, combined with increased marketing and sales
support, contributed to strong sales growth. Mutual fund sales were
$662 million this quarter compared to net redemptions of $287
million for the same period last year. - To attract customers in
high-growth markets, we added five new branches during the quarter.
This builds on the 15 new branches opened in 2006. We anticipate
opening an additional 28 new branches over the balance of the year.
As well, we continued to expand our sales capacity, adding 50
Financial Advisors in our branch network. This follows the hiring
of nearly 50 new Financial Advisors and 125 Personal Bankers in
2006. International Banking - International Banking won several
awards this quarter that recognize our leadership in the industry,
including a top three ranking among Boston Consulting Group's list
of top performers in the world. - Scotiabank de Puerto Rico
completed two major hotel financing projects in Puerto Rico, La
Concha Condo Hotel Tower and the Sheraton Puerto Rico Convention
Center Hotel, totaling US$120 million. In addition, we continued to
be a lead banker to the government of Puerto Rico with financing
for various government initiatives that reached over US$150
million. - We were awarded several mandates in the Caribbean: - Our
Commercial Banking group will arrange the senior secured first
priority credit facilities for Regal Forest Holdings' acquisition
of the Caribbean operations of U.K.-based Courts Plc. - Our
International Structured Finance group was awarded the mandate to
provide the Government of Jamaica with long-term financing to
support its infrastructure development, with a total budget of
US$50 million. - In partnership with our affiliate in the
Netherlands Antilles, we finalized US$50 million in financing for a
multi-phase mixed use resort development in Curacao. Scotia Capital
- Scotia Capital was involved in several of this quarter's major
merger and acquisition deals. We are acting as financial advisor to
Kinross Gold Corporation on their acquisition of Bema Gold
Corporation, which will create a $9 billion gold producer. Also,
Scotia Waterous is acting as a financial advisor to Royal Dutch
Shell on its offer to purchase the outstanding common shares of
Shell Canada Limited for $8.7 billion. - For the third year in a
row, Scotia Capital was ranked as the Best Foreign Exchange Bank in
Canada by Global Finance magazine. - Scotia Capital acted as joint
lead manager on a $850 million 30-year Maple Bond issue by the
European Investment Bank. This was the largest long-dated deal in
Canada in several years, and attracted an order book in excess of
$1 billion, significantly higher than the initial $300-$500 million
estimate. We were also awarded a portion of the related interest
rate swap. - Scotia Capital was the co-bookrunner in a $523 million
common share issue for Enbridge Inc. Employee highlights -
Scotiabank's accomplishments in furthering the advancement of women
were recognized with the 2007 Catalyst Award. Catalyst is a leading
independent, non-profit research and advisory organization, based
in New York, that works with businesses to build inclusive
environments and expand opportunities for women at work. The
Catalyst Award is presented annually to companies with innovative
and effective approaches undertaken by Canadian and American
organizations - with proven results - to address the recruitment,
development and advancement of women. Community involvement -
Scotiabank has partnered with the Heart and Stroke Foundation of
Ontario to provide more than 100 defibrillators to communities
across Ontario. The Bank announced on January 17 that it has made a
commitment to contribute $250,000 over the next three years. The
Heart and Stroke Foundation will match these funds, not only to
provide the life-saving machines, but also to provide the necessary
training programs. The Bank's donation is the first-ever,
large-scale corporate contribution to the Foundation's
resuscitation program. Since 1993, Scotiabank has supported the
Heart and Stroke Foundation contributing $1.1 million across the
country. MANAGEMENT'S DISCUSSION & ANALYSIS
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Forward-looking statements This document includes forward-looking
statements which are made pursuant to the "safe harbour" provisions
of the United States Private Securities Litigation Reform Act of
1995 and any applicable Canadian securities legislation. These
statements include comments with respect to the Bank's objectives,
strategies to achieve those objectives, expected financial results
(including those in the area of risk management), and the outlook
for the Bank's businesses and for the Canadian, United States and
global economies. Forward-looking statements are typically
identified by words or phrases such as "believe," "expect,"
"anticipate," "intent," "estimate," "plan," "may increase," "may
fluctuate," and similar expressions of future or conditional verbs
such as "will," "should," "would" and "could." By their very
nature, forward-looking statements involve numerous assumptions,
inherent risks and uncertainties, both general and specific, and
the risk that predictions and other forward-looking statements will
not prove to be accurate. The Bank cautions readers not to place
undue reliance on these statements, as a number of important
factors could cause actual results to differ materially from the
estimates and intentions expressed in such forward- looking
statements. These factors include, but are not limited to, the
economic and financial conditions in Canada and globally;
fluctuations in interest rates and currency values; liquidity; the
effect of changes in monetary policy; legislative and regulatory
developments in Canada and elsewhere; operational and reputational
risks; the accuracy and completeness of information the Bank
receives on customers and counterparties; the timely development
and introduction of new products and services in receptive markets;
the Bank's ability to expand existing distribution channels and to
develop and realize revenues from new distribution channels; the
Bank's ability to complete and integrate acquisitions and its other
growth strategies; changes in accounting policies and methods the
Bank uses to report its financial condition and the results of its
operations, including uncertainties associated with critical
accounting assumptions and estimates; the effect of applying future
accounting changes; global capital markets activity; the Bank's
ability to attract and retain key executives; reliance on third
parties to provide components of the Bank's business
infrastructure; unexpected changes in consumer spending and saving
habits; technological developments; consolidation in the Canadian
financial services sector; changes in tax laws; competition, both
from new entrants and established competitors; judicial and
regulatory proceedings; acts of God, such as earthquakes and
hurricanes; the possible impact of international conflicts and
other developments, including terrorist acts and war on terrorism;
the effects of disease or illness on local, national or
international economies; disruptions to public infrastructure,
including transportation, communication, power and water; and the
Bank's anticipation of and success in managing the risks implied by
the foregoing. 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. These and other factors may cause
the Bank's actual performance to differ materially from that
contemplated by forward-looking statements. For more information,
see the discussion starting on page 53 of the Bank's 2006 Annual
Report. The Bank cautions that the foregoing list of important
factors is not exhaustive. When relying on forward-looking
statements to make decisions with respect to the Bank and its
securities, investors and others should carefully consider the
foregoing factors, other uncertainties and potential events. The
Bank does not undertake to update any forward-looking statements,
whether written or oral, that may be made from time to time by or
on behalf of the Bank. The "Outlook" section in this document is
based on the Bank's views and the actual outcome is uncertain.
Readers should consider the above-noted factors when reviewing this
section.
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Additional information relating to the Bank, including the Bank's
Annual Information Form, can be located on the SEDAR website at
http://www.sedar.com/ and on the EDGAR section of the SEC's website
at http://www.sec.gov/. Non-GAAP Measures The Bank uses a number of
financial measures to assess its performance. Some of these
measures are not calculated in accordance with Generally Accepted
Accounting Principles (GAAP), are not defined by GAAP and do not
have standardized meanings that would ensure consistency and
comparability between companies using these measures. These
non-GAAP measures are used in our Management's Discussion and
Analysis, they are defined below: Taxable equivalent basis The Bank
analyzes net interest income and total revenues on a taxable
equivalent basis (TEB). This methodology grosses up tax-exempt
income earned on certain securities reported in net interest income
to an equivalent before tax basis. A corresponding increase is made
to the provision for income taxes, hence there is no impact on net
income. Management believes that this basis for measurement
provides a uniform comparability of net interest income arising
from both taxable and non-taxable sources and facilitates a
consistent basis of measurement. While other banks also use TEB,
their methodology may not be comparable to the Bank's. The TEB
gross-up to net interest income and to the provision for income
taxes in the current period is $105 million versus $96 million in
the same quarter last year and $131 million last quarter. For
purposes of segmented reporting, a segment's net interest income
and provision for income taxes is grossed up by the taxable
equivalent amount. The elimination of the TEB gross-up is recorded
in the 'Other' segment. Productivity ratio (TEB) Management uses
the productivity ratio as a measure of the Bank's efficiency. This
ratio represents non-interest expenses as a percentage of total
revenue on a taxable equivalent basis. Net interest margin on total
average assets (TEB) This ratio represents net interest income on a
taxable equivalent basis as a percentage of total average assets.
Return on equity Return on equity is a profitability measure that
presents the net income available to common shareholders as a
percentage of the capital deployed to earn the income. The
implementation of the new accounting standards for financial
instruments in the first quarter of 2007 resulted in certain
unrealized gains and losses being reflected in a new component of
shareholders' equity. These items do not have an impact on the
reported earnings in the period. As a result, the Bank calculates
its return on equity using average common shareholders' equity
excluding: - unrealized gains/losses on available-for-sale
securities, and - unrealized gains/losses on derivative instruments
designated as cash flow hedges. Economic equity and Return on
economic equity For internal reporting purposes, the Bank allocates
capital to its business segments using a methodology that considers
credit, market and operational risk inherent in each business
segment. The amount allocated is commonly referred to as economic
equity. Return on equity for the business segments is based on the
economic equity allocated to the business segments. The difference
between the economic equity amount required to support the business
segments' operations and the Bank's total equity is reported in the
'Other' segment. Tangible common equity to risk-weighted assets
Tangible common equity to risk-weighted assets is an important
financial measure for rating agencies and the investing community.
Tangible common equity is total shareholders' equity plus
non-controlling interest in subsidiaries, less preferred shares,
unrealized gains/losses on available-for- sale securities and cash
flow hedges, goodwill and other intangible assets. Tangible common
equity is presented as a percentage of risk-weighted assets.
Regulatory capital ratios, such as Tier 1 and Total capital ratios,
have standardized meanings as defined by the Superintendent of
Financial Institutions Canada. Group Financial Performance and
Financial Condition Scotiabank's net income reached a record $1,020
million in the first quarter, up $168 million or 20% from the same
period a year ago, with particularly strong results in
International Banking. This quarter was marked by continued low
levels of credit losses, and higher gains on sales of securities,
partially offset by lower trading revenues. Net income rose $123
million or 14% from the prior quarter, due mainly to continued
asset growth, higher gains on sales of securities and broad-based
growth in transaction-based fee revenues. Foreign currency
translation had a minimal impact on this quarter's results. During
the quarter, the Bank implemented the requirements of three new
Canadian accounting standards, namely Financial Instruments -
Recognition and Measurement, Hedges, and Comprehensive Income. The
impact of the changes on net income for this quarter, resulting
largely from the recording of hedge ineffectiveness, was a net
increase of $8 million after tax. The most significant impact on
the consolidated balance sheet was the recording of existing
investment securities at fair value, which resulted in an increase
of $1,161 million to securities as at January 31, 2007, with an
offsetting taxadjusted increase to shareholders' equity. The total
aftertax fair value adjustments for available-for-sale securities
and cash flow hedges recorded in accumulated other comprehensive
income in shareholders' equity as a result of the accounting
changes was $753 million. The changes and the effect of these
changes on the Bank's consolidated financial statements are more
fully described in Note 1 to the interim consolidated financial
statements. Total revenue Total revenue (on a taxable equivalent
basis) was $3,214 million this quarter, an increase of $384 million
or 14% from the first quarter last year. There was strong growth in
net interest income as well as broad-based increases in other
income categories, mainly from recent acquisitions. Partially
offsetting these increases were lower trading revenues compared to
the high levels recorded in the same period last year. Compared to
the fourth quarter, total revenue was up $215 million or 7%, from
increases in net interest income and most other income categories,
including higher gains on sales of securities. Net interest income
This quarter's net interest income (on a taxable equivalent basis)
was $1,881 million, an increase of $276 million or 17% over the
same period last year. Net interest income also grew $98 million or
6% from the prior quarter. The Bank's net interest margin was 1.91%
in the first quarter compared to 1.97% in the first quarter of last
year and 1.89% last quarter. Canadian currency net interest income
for the first quarter was $1,041 million, up $82 million or 9% from
the same period last year. This was driven by continued growth in
residential mortgages and other personal lending as average retail
assets grew by 15%, due partly to the acquisition of Maple Trust
Company. This growth was partly offset by a compression of the
interest margin from higher funding costs. The latter was caused by
the funding of retail asset growth with more expensive wholesale
deposits, higher interest rates, and a flat yield curve. Also
contributing to this increase were higher gains on nonqualifying
derivatives used for asset/liability management and an increase in
tax-exempt dividend income. Quarter over quarter, Canadian currency
net interest income grew $16 million or 2%, due mainly to higher
volumes of fixed rate mortgages. The Canadian currency interest
margin was down slightly from last quarter. Foreign currency net
interest income was $840 million this quarter, a substantial
increase of 30% or $194 million from the same period last year.
This growth reflected the Bank's recent acquisitions in Peru and
Costa Rica, which contributed a sizable portion of this increase,
and strong growth in retail assets in Mexico. As well, several
countries within the Caribbean and Central America experienced
higher levels of retail and commercial lending, led by Dominican
Republic, Jamaica, Bahamas and Trinidad & Tobago. In addition,
there were higher interest recoveries in the U.S. compared to the
same period last year. The quarter-over-quarter increase in foreign
currency net interest income was $82 million or 11%. This was due
largely to volume growth in Mexico and the Caribbean and Central
America, and higher interest recoveries. Other income Other income
was $1,333 million this quarter, up 9% or $108 million from $1,225
million in the first quarter last year. This increase was driven by
the contribution from recent acquisitions, larger gains on sales of
securities, growth in underwriting fees, and higher retail
brokerage fees from increased customer activity. In addition, there
was an increase in transaction-based fees, primarily deposit and
other retail and commercial banking fees. Offsetting these
increases was a reduction in trading revenues this quarter,
including lower foreign exchange, derivatives and trading
securities revenues. Quarter over quarter, other income grew $117
million or 10%, mainly from higher gains on sales of securities,
primarily in equities as the markets remained buoyant. There was
also growth in retail brokerage fees, card revenues, investment
banking and trading revenues. Provision for credit losses The
provision for credit losses was $63 million this quarter, down $12
million from the same period last year but $31 million above last
quarter. The fourth quarter was impacted by the reduction in the
general allowance of $60 million. Specific provisions in the first
quarter were $29 million lower than last quarter. Further
discussion on credit risk is provided below. Non-interest expenses
and productivity Non-interest expenses were $1,724 million this
quarter, $162 million or 10% higher than the same period last year.
The inclusion of the acquisitions completed in 2006 contributed
significantly to this growth in expenses. The remaining increase
was primarily in salaries and other employee benefits, along with
higher costs in premises, data processing and advertising and
promotion to support ongoing business and growth initiatives.
Compared to the fourth quarter, non-interest expenses were up a
modest $16 million or 1%. This increase was due primarily to higher
remuneration costs and higher performance-based compensation
related to the strong results for the quarter. The productivity
ratio, a measure of the Bank's efficiency, was 53.6%, an
improvement from 55.2% in the same quarter last year and 56.9% last
quarter. The Bank's operating leverage this quarter - the rate of
growth in total revenue on a taxable equivalent basis less the rate
of growth in expenses - was 3.2% year over year and 6.2% quarter
over quarter. These positive ratios reflected the strong revenue
growth reported this quarter, including the high levels of gains on
sales of securities. Taxes The effective tax rate for this quarter
was 21.0%, up slightly from 20.5% in the first quarter last year
and up from 18.0% in the fourth quarter. The increase over the
prior quarter was due primarily to lower income from tax- exempt
securities. Risk management The Bank's risk management policies and
practices are unchanged from those outlined in pages 53 to 63 of
the 2006 Annual Report. Credit risk Credit conditions remained
favourable in most of the Bank's lending markets. The total
provision for credit losses of $63 million this quarter was an
improvement from $75 million in the same period a year ago. Total
provisions were higher than the previous quarter, due entirely to a
$60 million reduction in the general allowance for credit losses in
the fourth quarter of 2006. Specific provisions were $29 million
lower due to net reversals in the Scotia Capital portfolio. Scotia
Capital had a reversal of $30 million in the first quarter,
compared to a net reversal of $16 million in the same quarter last
year and a $26 million provision for credit losses in the previous
quarter. The net reversal in the current quarter was due to the
successful resolution of a large impaired account in the U.S.
portfolio. There were no new provisions in the quarter. Credit
losses of $74 million in the Domestic portfolios were up from $64
million in the same quarter last year, and $58 million in the prior
quarter, primarily in the retail portfolios. Commercial provisions
rose slightly, but remained at very low levels. International
operations had a provision for credit losses of $19 million in the
first quarter, lower than the $27 million provision in the same
period last year, when a large provision was taken against an
impaired commercial account in Asia. The provision for credit
losses was up $11 million from the previous quarter, as that
quarter benefited from lower provisions in the Caribbean region.
Higher retail loan losses in Mexico, in line with strong retail
lending growth, were partially offset this quarter by other
provisions no longer required. Total net impaired loans, after
deducting the allowance for specific credit losses, were $579
million as at January 31, 2007, a slight increase of $9 million
from last quarter. The general allowance for credit losses was
$1,323 million, an increase of $16 million arising from the recent
acquisition in Costa Rica. Market risk Value at Risk (VaR) is a key
measure of market risk in the Bank's trading activities. In the
first quarter, the average one-day VaR was $9.2 million compared to
$8.1 million for the same quarter last year. The change was the
result of increased interest rate exposure, offset by reduced
equity exposure. The average one-day VaR decreased from the
previous quarter due to reduced equity exposure. Average for the
three months ended
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Risk factor Jan. 31 Oct. 31 Jan. 31 ($ millions) 2007 2006 2006
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Interest rate $ 7.2 $ 7.4 $ 5.5 Equities 3.6 5.9 5.6 Foreign
exchange 1.9 0.8 1.8 Commodities 0.7 0.5 0.7 Diversification (4.2)
(4.5) (5.5)
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All-Bank VaR $ 9.2 $ 10.1 $ 8.1
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There was one trading loss day in the first quarter, compared to
three days in the previous quarter. The loss was well within the
range predicted by VaR. Liquidity risk The Bank maintains large
holdings of liquid assets to support its operations. These assets
generally can be sold or pledged to meet the Bank's obligations. As
at January 31, 2007, liquid assets were $104 billion or 26% of
total assets compared to $98 billion or 26% of total assets at
October 31, 2006. These assets are composed of securities, 74%, and
cash and deposits with banks, 26% (October 31, 2006 - 76% and 24%,
respectively). In the course of the Bank's day-to-day activities,
securities and other assets are pledged to secure an obligation,
participate in clearing or settlement systems, or operate in a
foreign jurisdiction. Securities may also be sold under repurchase
agreements. As at January 31, 2007, total assets pledged or sold
under repurchase agreements were $68 billion, compared to $66
billion at October 31, 2006. The quarter-over-quarter increase was
attributable to higher levels of pledges for securities borrowing,
partially offset by reduced levels of obligations related to
securities sold under repurchase agreements. Related party
transactions There were no changes to the Bank's procedures and
policies for related party transactions from those outlined on
pages 67 and 114 of the 2006 Annual Report. All transactions with
related parties continued to be at market terms and conditions.
Balance sheet The Bank's total assets at January 31, 2007, were
$396 billion, up $17 billion or 5% from October 31, 2006. This was
comprised of underlying growth of $10 billion, as well as a
positive foreign currency translation impact of $7 billion.
Increases were experienced across all lending categories as well as
in securities. Total securities increased by $5 billion from the
year end. Available-for-sale securities grew by $3 billion, of
which $1 billion was due to the change in accounting standards
relating to financial instruments. These standards resulted in
existing investment securities being classified as
available-for-sale and recorded at fair value on the Consolidated
Balance Sheet effective November 1, 2006. The impact of this change
was to increase these securities by $1 billion to record the
unrealized gains and losses, with the offsetting amount included in
accumulated other comprehensive income within shareholders' equity,
net of taxes. As at January 31, 2007 the unrealized gains on
available-for-sale securities were $1,161 million, compared to
$1,091 million at October 31, 2006, notwithstanding realized gains
of $127 million in the quarter. Excluding the fair value
adjustment, underlying available-for-sale securities grew by $2
billion, due to increases in the bond portfolio and the impact of
foreign currency translation. Trading securities were $2 billion
higher than last quarter, primarily to support customer-driven
activity and trading operations, as well as the impact of foreign
currency translation. The Bank's loan portfolio grew $9 billion or
5% from October 31, 2006. Domestic residential mortgages
contributed $3 billion of the increase, before securitizations of
$1 billion, driven by strong customer demand. Internationally,
mortgages were up $1 billion, with all regions experiencing solid
growth. Business and government loans increased $6 billion this
quarter, due in part to foreign currency translation. In
International Banking, these loans increased by $3 billion across
all locations, with the Caribbean and Central America growing by $1
billion. Total liabilities were $377 billion as at January 31,
2007, compared to $361 billion at October 31, 2006. Almost half of
the $16 billion increase was from foreign currency translation.
Personal deposits increased by $3 billion, with $1 billion growth
in the domestic GIC product. As well, International personal
deposits were up $1 billion. Business and government deposits rose
$8 billion, primarily to fund the Bank's strong asset growth in the
quarter. Obligations related to repurchase agreements decreased $4
billion in the quarter, due to a change in funding mix. Total
shareholders' equity rose $2 billion in the quarter. The increase
was due primarily to the strong quarterly earnings, unrealized
foreign currency translation gains from the weaker Canadian dollar
and the change in accounting standards for financial instruments,
which resulted in after-tax fair value adjustments of $753 million
relating to available-for-sale securities and cash flow hedges
being recorded in accumulated other comprehensive income in
shareholders' equity as at January 31, 2007. Capital management The
Bank's capital ratios remain strong and position the Bank to take
advantage of strategic growth opportunities as they arise. The Tier
1 ratio was 10.4% this quarter, up slightly from 10.2% last
quarter, due in part to higher levels of internally generated
capital and the issuance of $345 million non-cumulative preferred
shares in the first quarter. The tangible common equity ratio
continued to be strong. This ratio was 8.4% as at January 31, 2007,
up from 8.3% as at October 31, 2006. Financial instruments Given
the nature of the Bank's main business activities, financial
instruments make up a substantial portion of the balance sheet and
are integral to the Bank's business. There are various measures
that reflect the level of risk associated with the Bank's portfolio
of financial instruments. Further discussion of some of these risk
measures is included in the Risk Management section above.
Commencing November 1, 2006, the Bank adopted three new accounting
standards issued by the Canadian Institute of Chartered Accountants
(CICA), which are fully discussed in Note 1 to the interim
consolidated financial statements further below. The methods of
determining the fair value of financial instruments, as detailed on
page 65 of the 2006 Annual Report, are also applicable to financial
instruments not previously carried at fair value. Management's
judgment on valuation inputs is necessary when observable market
data is not available and management applies judgment in the
selection of valuation models. Uncertainty in these estimates and
judgments can affect fair value and financial results recorded.
During this quarter, changes in the fair value of financial
instruments generally arose from normal economic, industry and
market conditions. Total derivative notional amounts were $1,083
billion at January 31, 2007, compared to $1,045 billion at October
31, 2006, with most of the change in foreign exchange and precious
metal contracts, and credit derivatives. The percentage of those
derivatives held for trading and those held for non- trading or
asset liability management was generally unchanged. The credit
equivalent amount after taking into account master netting
arrangements was $16 billion, compared to $14 billion last year
end. Off-balance sheet arrangements In the normal course of
business, the Bank enters into contractual arrangements that are
not required to be consolidated in its financial statements. These
arrangements are primarily in three categories: Variable Interest
Entities (VIEs), securitizations, and guarantees and loan
commitments. No material contractual obligations were entered into
this quarter that were not in the ordinary course of business.
Processes for review and approval of these contractual arrangements
are unchanged from last year. During the quarter, the Bank did not
enter into any significant new arrangements with VIEs that are not
consolidated by the Bank in its balance sheet. The Bank may
securitize residential mortgages as a means to diversify its
funding sources, as it represents a cost-effective means to fund
the growth in this portfolio. A further $861 million in residential
mortgages were securitized this quarter, bringing the balance of
outstanding mortgages securitized to $11,785 million as at January
31, 2007, versus $11,913 million at October 31, 2006. Guarantees
and other indirect commitments increased 6% from October 31, 2006.
Pursuant to the new CICA accounting standards relating to financial
instruments, a liability is now recorded for the fair value of the
obligation assumed at the inception of certain guarantees. The Bank
has recorded an increase in other liabilities of $78 million and a
corresponding increase in other assets relating to the
implementation of the new accounting standards as they apply to
guarantees. Fees from guarantees and loan commitment arrangements
recorded in other income were $54 million for the three-month
period ended January 31, 2007, compared to $56 million for the same
period a year ago. Common dividend The Board of Directors, at its
meeting on March 5, 2007, approved a quarterly dividend of 42 cents
per common share. The quarterly dividend applies to shareholders of
record as of April 3, 2007. This dividend is payable April 26,
2007. Outlook The global economy entered 2007 with favourable
momentum, reinforced by healthy gains in international trade.
Lower-cost producers in China, India, Mexico and other Latin
American countries, continue to record particularly strong growth.
The pace of activity in Europe and Japan has improved. Forward
momentum in the U.S. economy is being supported by ongoing
increases in consumer spending. Canadian growth has been somewhat
softer, reflecting competitive adjustments in manufacturing,
although activity remains very buoyant in the resource-rich
regions. While economic conditions continue to provide a favourable
operating environment, the low levels of provisions for credit
losses and the high levels of securities gains are not expected to
be sustained through the balance of the year. Nevertheless, with
our record first quarter performance driven by the strong
broadbased revenue growth in all our business lines, the Bank is
well positioned to meet its whole year 2007 objectives. Business
Segment Review Domestic Banking For the three months ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) January 31 October 31 January 31 (Taxable
equivalent basis)(1) 2007 2006 2006
-------------------------------------------------------------------------
Business segment income Net interest income $ 953 $ 957 $ 909
Provision for credit losses 74 58 64 Other income 518 498 472
Non-interest expenses 870 912 833 Provision for income taxes 164
147 153
-------------------------------------------------------------------------
Net income $ 363 $ 338 $ 331 Preferred dividends paid 2 3 2
-------------------------------------------------------------------------
Net income available to common shareholders $ 361 $ 335 $ 329
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures Return on equity(1) 31.1% 27.3% 30.5% Average assets
($ billions) $ 146 $ 145 $ 130
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Refer above for discussion of non-GAAP measures. Domestic
Banking, which includes Wealth Management, reported solid net
income available to common shareholders of $361 million this
quarter, $32 million or 10% ahead of last year and $26 million, or
8% higher than last quarter. The segment contributed 36% of the
Bank's overall results. Return on equity was a strong 31.1%, up
from 30.5% last year and 27.3% last quarter. Average assets grew
13% compared to the same quarter last year, led by a substantial
increase of $13 billion or 17% in residential mortgages before
securitization, with Maple Trust contributing $6 billion. In
addition, personal revolving credit lines were up $1 billion or
11%. Personal deposits grew $5 billion or 7%, mainly in term
deposits. Business deposits also rose a strong 15%, mainly in
current accounts. Quarter over quarter, average assets were up 1%
and deposits increased 2%. Total revenues increased $90 million or
7% from the same quarter last year, mainly as a result of volume
growth and higher fee income. Total revenues rose $16 million or 1%
from the last quarter. Net interest income grew $44 million or 5%
from the same quarter last year to $953 million. Continued strong
asset growth was achieved across most products, particularly in
residential mortgages and revolving credit. There was also strong
growth in deposits, reflecting increases in term deposits and
current accounts, which lowered the overall cost of funding.
Notwithstanding these contributions, the interest margin declined
as a result of the higher cost of wholesale deposits used to fund
the strong asset growth and the greater percentage of the total
retail portfolio in narrower-spread products in response to
customer demand. Quarter over quarter, net interest income was
marginally lower. The provision for credit losses was $74 million,
up $10 million from the same period last year, mainly in the retail
portfolio which has experienced substantial growth. Year over year,
commercial provisions rose slightly but remained at very low
levels. Provisions for credit losses were up $16 million from the
prior quarter's low levels. Other income was $518 million in the
first quarter, an increase of $46 million or 10% compared to the
same period last year with strong performance in wealth management,
retail and small business. Notable growth was experienced in retail
brokerage revenues from increases in new issues and higher customer
trading activity. As well, there were greater mutual fund revenues
from higher average balances arising from strong net sales and
market appreciation. In addition, there were increases in
transaction service fees arising from both volume and price
changes, and growth in other retail fee- based income. Other income
was up 4% over last quarter and was broad based. Non-interest
expenses grew $37 million or 4% from the same quarter last year
attributable largely to acquisition and growth initiatives. In
addition, there were higher performance-based compensation costs,
in line with revenue growth. Partly offsetting this increase were
lower pension and benefits expenses due in part to higher returns
from increased pension asset levels. Non-interest expenses fell $42
million or 5% from the prior quarter, due mostly to seasonal
declines in expenses in the first quarter. Partially offsetting the
decline were higher advertising costs and performance-driven
compensation in line with revenue growth. International Banking For
the three months ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) January 31 October 31 January 31 (Taxable
equivalent basis)(1) 2007 2006 2006
-------------------------------------------------------------------------
Business segment income Net interest income $ 670 $ 628 $ 529
Provision for credit losses 19 8 27 Other income 297 267 215
Non-interest expenses 562 555 452 Provision for income taxes 43 34
10 Non-controlling interest in net income of subsidiaries 25 28 20
-------------------------------------------------------------------------
Net income $ 318 $ 270 $ 235 Preferred dividends paid 2 2 2
-------------------------------------------------------------------------
Net income available to common shareholders $ 316 $ 268 $ 233
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures Return on equity(1) 22.2% 21.1% 22.9% Average assets
($ billions) $ 65 $ 59 $ 52
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Refer above to discussion of non-GAAP measures. International
Banking's net income available to common shareholders in the first
quarter of 2007 was a record $316 million, a substantial increase
of $83 million or 36% from last year and $48 million or 18% above
last quarter. The increase was due to widespread organic growth
across the business, as well as the year-over-year contribution of
the acquisitions in Peru, Costa Rica, Dominican Republic and
Jamaica. International Banking accounted for 31% of the Bank's
total net income and had a return on equity of 22.2%. Average asset
volumes of $65 billion increased $13 billion or 26% from last year.
Excluding the $6 billion of asset growth from acquisitions, volumes
grew $7 billion or 14%, with Mexico contributing significantly,
particularly in retail assets. This increase resulted from organic
loan growth of 20%, driven by a 35% increase in credit cards, 22%
rise in mortgages and a 10% increase in commercial loans from
strong growth in Asia and the Caribbean and Central America.
Compared to last quarter, average assets increased $6 billion or
10%, of which $1 billion was attributable to the acquisition in
Costa Rica and $3 billion to organic loan growth. The latter was
driven by a 10% increase in commercial loans, primarily in Asia and
the Caribbean, a 10% rise in credit cards and 9% growth in
mortgages. Total revenues were $967 million this quarter, an
increase of $223 million or 30% from last year and $72 million or
8% from last quarter. The contributors to the year-over-year growth
were our acquisitions in Peru, the Caribbean and Central America,
as well as strong organic asset growth in Mexico, the Caribbean and
Asia. Net interest income was $670 million this quarter, up $141
million or 27% from last year, due to very strong loan growth
across the segment, as well as the impact of our acquisitions.
Compared to last quarter, net interest income grew $42 million or
7% driven by strong loan growth in Mexico, Asia and the Caribbean.
Interest margins were up slightly from last year, but fell modestly
from last quarter. The provision for credit losses was $19 million
in the first quarter, down 29% from the same period last year,
which included a large provision against an impaired commercial
account in Asia. Quarter over quarter, provisions increased $11
million, as last quarter benefited from lower provisions in the
Caribbean. Other income increased $82 million or 38% from last year
to $297 million. This was a result of acquisitions and strong
growth in Mexico and the Caribbean and Central America. Compared to
last quarter, other income increased $30 million or 11% due to our
acquisition in Costa Rica, as well as growth in Mexico and Peru.
Partially offsetting these increases was the gain on the sale of a
foreclosed asset in Asia in the fourth quarter of last year.
Non-interest expenses were $562 million this quarter, up 24% or
$110 million from last year and $7 million or 1% from last quarter.
The increase was due primarily to the impact of the acquisitions in
Peru and the Caribbean and Central America. Excluding acquisitions,
expenses increased 5% year over year but declined 2% from last
quarter. The year-over-year increase reflected the opening of 53
new branches in Mexico and other business growth initiatives,
partly offset by lower litigation expenses. The decrease from last
quarter was due mainly to a drop in performance-based compensation
in Mexico, reflecting finalization of year-end payouts. The
effective tax rate this quarter was 11%, up from 4% in the same
period last year, and marginally higher than the 10% last quarter.
The increase from last year was due primarily to growth in earnings
in higher tax jurisdictions. Scotia Capital For the three months
ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) January 31 October 31 January 31 (Taxable
equivalent basis)(1) 2007 2006 2006
-------------------------------------------------------------------------
Business segment income Net interest income $ 269 $ 251 $ 209
Provision for credit losses (30) 26 (16) Other income 361 324 411
Non-interest expenses 259 216 254 Provision for income taxes 105 97
122
-------------------------------------------------------------------------
Net income $ 296 $ 236 $ 260 Preferred dividends paid 2 1 2
-------------------------------------------------------------------------
Net income available to common shareholders $ 294 $ 235 $ 258
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures Return on equity(1) 30.7% 26.2% 32.3% Average assets
($ billions) $ 150 $ 140 $ 115
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Refer above to discussion of non-GAAP measures. Scotia Capital
earned record net income available to common shareholders of $294
million, $36 million or 14% ahead of the same period last year and
a significant $59 million, or 25% higher than last quarter. This
represented a contribution of 29% to the Bank's overall results
this quarter. Return on equity at 30.7% was slightly lower than the
strong results achieved in the first quarter last year and above
last quarter's 26.2%. Total average assets increased 31% to $150
billion compared to the same period last year. Securities in the
trading business were up $14 billion to support both client-driven
activity and trading opportunities. There was also an increase of
$5 billion from higher investments in U.S. retail automotive
asset-backed securities. Corporate loans and acceptances increased
by $8 billion or 33%, led by strong growth in Canada and the U.S.,
and solid increases in Europe. Total average assets were up $10
billion or 7% compared to the prior quarter, which reflected $6
billion growth in securities in our trading businesses and
widespread loan growth in all lending businesses. Total revenues of
$630 million were slightly higher than the same period last year.
Global Corporate and Investment Banking revenues grew due to
increased lending volumes and higher interest recoveries on
impaired loans. Global Capital Markets revenues were down relative
to the record results achieved last year in equity trading and
derivatives revenues. The foreign exchange business had continued
strong results, although slightly below last year, and the precious
metals business contributed record revenues. There was a strong $55
million or 10% increase in revenues compared to last quarter, due
to increased lending volumes, the impact of interest recoveries on
impaired loans, and higher equity trading revenues. Net interest
income of $269 million was up $60 million from the same period last
year due to increased loan volumes, higher interest recoveries from
impaired loans and growth in interest from trading operations,
somewhat offset by compressed interest margins. The $18 million
increase in net interest income from the last quarter reflects
higher loan volumes, and higher interest recoveries from impaired
loans, slightly offset by tighter interest margins and lower
interest from trading operations. This quarter, loan loss reversals
were $30 million compared to a net reversal of $16 million last
year and a net provision of $26 million last quarter. Net reversals
were realized primarily in the U.S. this quarter and the first
quarter of last year, while net provisions were recorded in both
the U.S. and Europe last quarter. There were no new provisions
during the quarter, as the benign credit environment continued.
Other income was $361 million this quarter, 12% lower than the same
period last year. Global Capital Markets' businesses were down 22%
from last year, reflecting decreases in derivatives and equity
trading from the record levels achieved in the first quarter last
year. Foreign exchange and precious metals businesses continued to
deliver strong results. Other income from Global Corporate and
Investment Banking increased 12%, primarily reflecting higher
investment banking revenues and securities gains in Europe.
Compared to last quarter, other income increased $37 million or 11%
due to higher equity trading and precious metals revenues and
securities gains, which were partially offset by lower advisory
fees. Non-interest expenses were $259 million, a modest 2% increase
from the same quarter last year, due primarily to higher
compensation and computer costs. Compared to last quarter, expenses
were up 20% reflecting signing bonuses to expand specialist
expertise and performance-related compensation, as last quarter
included adjustments for the finalization of 2006 payouts. The
effective tax rate this quarter was 26%, down from 32% in the same
period last year and 29% reported last quarter. The year-over-year
decline was due in part to greater tax-efficient financing
transactions. As well, lower taxes in the U.S. this quarter, driven
by the change in the mix of income, reduced the effective tax rate
in relation to both the same period last year and the prior
quarter. Other(1) For the three months ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) January 31 October 31 January 31 (Taxable
equivalent basis)(2) 2007 2006 2006
-------------------------------------------------------------------------
Business segment income Net interest income(3) $ (116) $ (184) $
(138) Provision for credit losses - (60) - Other income 157 127 127
Non-interest expenses 33 25 23 Provision for income taxes(3) (35)
(75) (60)
-------------------------------------------------------------------------
Net income $ 43 $ 53 $ 26 Preferred dividends paid 2 1 2
-------------------------------------------------------------------------
Net income available to common shareholders $ 41 $ 52 $ 24
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures Average assets ($ billions) $ 30 $ 30 $ 25
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes all other smaller operating segments and corporate
adjustments, such as the elimination of the tax-exempt income
gross- up reported in net interest income and provision for income
taxes, differences in the actual amount of costs incurred and
charged to the operating segments, and the impact of
securitizations. (2) Refer above for a discussion of non-GAAP
measures. (3) Includes the elimination of the tax-exempt income
gross-up reported in net interest income and provision for income
taxes for the three months ended January 31, 2007 ($105), October
31, 2006 ($131), and January 31, 2006 ($96), to arrive at the
amounts reported in the Consolidated Statement of Income. Net
income available to common shareholders was $41 million in the
first quarter, $17 million higher than the same quarter last year,
but down $11 million from last quarter. Total revenues this quarter
were $41 million, up $52 million from last year and $98 million
above the fourth quarter. Net interest income increased by $22
million from last year due mainly to favourable changes in the fair
value of non-trading derivatives. Quarter over quarter, net
interest income rose $68 million, from variances in the elimination
of the tax-exempt income, and favourable changes in the fair value
of non-trading derivatives. Other income increased by $30 million
both year over year and quarter over quarter, reflecting higher
gains on sales of securities realized this quarter. The provision
for credit losses of nil was unchanged from last year, but up from
the credit of $60 million reported in the fourth quarter, entirely
due to a reduction of the general allowance. Net interest income
and the provision for income taxes include the elimination of
tax-exempt income gross-up. This amount is included in the
operating segments, which are reported on a taxable equivalent
basis. The elimination was $105 million this quarter compared to
$96 million in the same quarter last year and $131 million last
quarter. This quarter's non-interest expenses of $33 million were
up $10 million from the same period last year and $8 million from
last quarter. These increases were made up of a number of small
fluctuations in expenses. The year-over-year change included higher
performance-based compensation and increases in professional fees.
Total For the three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) ($ millions) 2007 2006
2006
-------------------------------------------------------------------------
Business segment income Net interest income $ 1,776 $ 1,652 $ 1,509
Provision for credit losses 63 32 75 Other income 1,333 1,216 1,225
Non-interest expenses 1,724 1,708 1,562 Provision for income taxes
277 203 225 Non-controlling interest in net income of subsidiaries
25 28 20
-------------------------------------------------------------------------
Net income $ 1,020 $ 897 $ 852 Preferred dividends paid 8 7 8
-------------------------------------------------------------------------
Net income available to common shareholders $ 1,012 $ 890 $ 844
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures Return on equity(1) 23.0% 21.1% 21.6% Average assets
($ billions) $ 391 $ 374 $ 322
-------------------------------------------------------------------------
(1) Refer above for a discussion of non-GAAP measures. Geographic
Highlights For the three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) 2007 2006 2006
-------------------------------------------------------------------------
Net income available to common shareholders ($ millions) Canada $
544 $ 538 $ 541 United States 163 27 57 Mexico 147 116 139 Other
international 212 181 124 Corporate adjustments (54) 28 (17)
-------------------------------------------------------------------------
$ 1,012 $ 890 $ 844
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average assets ($ billions) Canada $ 252 $ 243 $ 211 United States
33 33 28 Mexico 22 20 20 Other international 77 71 60 Corporate
adjustments 7 7 3
-------------------------------------------------------------------------
$ 391 $ 374 $ 322
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarterly Financial Highlights For the three months ended
-------------------------------------------------------------------------
Jan. Oct. July April Jan. Oct. July April 31 31 31 30 31 31 31 30
2007 2006 2006 2006 2006 2005 2005 2005
-------------------------------------------------------------------------
Total revenue ($ millions) $3,109 $2,868 $2,889 $2,717 $2,734
$2,660 $2,608 $2,594 Total revenue (TEB(1)) ($ millions) 3,214
2,999 2,989 2,830 2,830 2,735 2,689 2,688 Net income ($ millions)
1,020 897 936 894 852 811 784 826 Basic earnings per share ($) 1.02
0.90 0.94 0.90 0.85 0.81 0.78 0.82 Diluted earnings per share ($)
1.01 0.89 0.93 0.89 0.84 0.80 0.77 0.81
-------------------------------------------------------------------------
(1) Refer above for a discussion of non-GAAP measures. Share Data
As at January 31 (thousands of shares outstanding) 2007
-------------------------------------------------------------------------
Common shares 992,849(1)
-------------------------------------------------------------------------
Preferred shares Series 12 12,000(2) Preferred shares Series 13
12,000(3) Preferred shares Series 14 13,800(4)
-------------------------------------------------------------------------
Class A preferred shares issued by Scotia Mortgage Investment
Corporation 250(5)
-------------------------------------------------------------------------
Series 2000-1 trust securities issued by BNS Capital Trust 500(5)
Series 2002-1 trust securities issued by Scotiabank Capital Trust
750(6) Series 2003-1 trust securities issued by Scotiabank Capital
Trust 750(6) Series 2006-1 trust securities issued by Scotiabank
Capital Trust 750(6)
-------------------------------------------------------------------------
Outstanding options granted under the Stock Option Plans to
purchase common shares 30,478(1)(7)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) As at February 19, 2007, the number of outstanding common
shares and options were 992,869 and 30,446, respectively. The
number of other securities disclosed in this table were unchanged.
(2) These shares are entitled to non-cumulative preferential cash
dividends payable quarterly in an amount of $0.328125 per share.
(3) These shares are entitled to non-cumulative preferential cash
dividends payable quarterly in an amount of $0.30 per share. (4)
These shares are entitled to non-cumulative preferential cash
dividends payable quarterly in an amount of $0.28125 per share,
except for the initial dividend payable on April 26, 2007, which
will be payable in an amount of $0.28356 per share. (5) Reported in
capital instrument liabilities in the Consolidated Balance Sheet.
(6) Reported in deposits in the Consolidated Balance Sheet. (7)
Included are 16,662 stock options with tandem stock appreciation
right (SAR) features. Further details, including convertibility
features, are available in Notes 13, 14 and 15 of the October 31,
2006 consolidated financial statements presented in the 2006 Annual
Report, and Note 4 further below. Accounting Policies and Estimates
The interim consolidated financial statements have been prepared in
accordance with Canadian Generally Accepted Accounting Principles
(GAAP). See Note 1 to the 2006 annual consolidated financial
statements for more information about the significant accounting
principles used to prepare the financial statements. The Bank's
interim consolidated financial statements this quarter have been
affected by the implementation of three new CICA accounting
standards, namely Financial Instruments - Recognition and
Measurement, Hedges and Comprehensive Income. The changes and the
impact of these changes on the Bank's consolidated financial
statements are described in Note 1 to the interim consolidated
financial statements. Consistent with the requirements of the new
accounting standards, the Bank has not restated any prior period as
a result of adopting the accounting changes, other than the
presentation of unrealized foreign currency translation losses in
accumulated other comprehensive income (loss) within shareholders'
equity, but has recorded certain transitional amounts that
represent the cumulative effect of adjustments relating to prior
periods. The key assumptions and bases for estimates that
management has made under GAAP, and their impact on the amounts
reported in the interim consolidated financial statements and
notes, remain substantially unchanged from those described in our
2006 Annual Report. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Income For the three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) ($ millions) 2007(1)
2006 2006
-------------------------------------------------------------------------
Interest income Loans $ 3,377 $ 3,254 $ 2,575 Securities 1,131
1,116 897 Securities purchased under resale agreements 330 326 238
Deposits with banks 251 257 184
-------------------------------------------------------------------------
5,089 4,953 3,894
-------------------------------------------------------------------------
Interest expense Deposits 2,526 2,582 1,790 Subordinated debentures
33 32 35 Capital instrument liabilities 13 13 13 Other 741 674 547
-------------------------------------------------------------------------
3,313 3,301 2,385
-------------------------------------------------------------------------
Net interest income 1,776 1,652 1,509 Provision for credit losses
(Note 3) 63 32 75
-------------------------------------------------------------------------
Net interest income after provision for credit losses 1,713 1,620
1,434
-------------------------------------------------------------------------
Other income Card revenues 93 83 75 Deposit and payment services
206 196 189 Mutual funds 68 63 58 Investment management, brokerage
and trust services 188 171 161 Credit fees 132 127 131 Trading
revenues 149 138 243 Investment banking 194 175 155 Net gain on
available-for-sale securities(2) 127 64 94 Other 176 199 119
-------------------------------------------------------------------------
1,333 1,216 1,225
-------------------------------------------------------------------------
Net interest and other income 3,046 2,836 2,659
-------------------------------------------------------------------------
Non-interest expenses Salaries and employee benefits 1,003 966 934
Premises and technology 327 322 281 Communications 73 75 64
Advertising and business development 76 73 47 Professional 45 58 32
Business and capital taxes 39 36 37 Other 161 178 167
-------------------------------------------------------------------------
1,724 1,708 1,562
-------------------------------------------------------------------------
Income before the undernoted 1,322 1,128 1,097 Provision for income
taxes 277 203 225 Non-controlling interest in net income of
subsidiaries 25 28 20
-------------------------------------------------------------------------
Net income $ 1,020 $ 897 $ 852
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Preferred dividends paid 8 7 8
-------------------------------------------------------------------------
Net income available to common shareholders $ 1,012 $ 890 $ 844
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of common shares outstanding (millions): Basic 991
989 989 Diluted 1,001 1,000 1,002
-------------------------------------------------------------------------
Earnings per common share (in dollars): Basic $ 1.02 $ 0.90 $ 0.85
Diluted $ 1.01 $ 0.89 $ 0.84
-------------------------------------------------------------------------
Dividends per common share (in dollars) $ 0.42 $ 0.39 $ 0.36
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform with
current period presentation. (1) Refer to Note 1 for impact of new
accounting policies related to financial instruments adopted in the
first quarter of 2007. (2) Prior to November 1, 2006, the net gain
was related to securities classified as investment securities.
Refer to Note 1 for further details. The accompanying notes are an
integral part of these interim consolidated financial statements.
Consolidated Balance Sheet As at
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) ($ millions) 2007(1)
2006 2006
-------------------------------------------------------------------------
Assets Cash resources Cash and non-interest-bearing deposits with
banks $ 2,508 $ 2,280 $ 2,244 Interest-bearing deposits with banks
20,277 17,734 18,125 Precious metals 3,599 3,362 3,571
-------------------------------------------------------------------------
26,384 23,376 23,940
-------------------------------------------------------------------------
Securities Available-for-sale(2) 36,208 33,012 26,140 Trading
64,307 62,490 51,873
-------------------------------------------------------------------------
100,515 95,502 78,013
-------------------------------------------------------------------------
Securities purchased under resale agreements 24,129 25,705 20,058
-------------------------------------------------------------------------
Loans Residential mortgages 92,055 89,590 77,042 Personal and
credit cards 39,757 39,058 35,331 Business and government 83,067
76,733 62,608
-------------------------------------------------------------------------
214,879 205,381 174,981 Allowance for credit losses (Note 3) 2,620
2,607 2,434
-------------------------------------------------------------------------
212,259 202,774 172,547
-------------------------------------------------------------------------
Other Customers' liability under acceptances 10,431 9,555 8,147
Trading derivatives' market valuation 10,688 10,369 12,926 Land,
buildings and equipment 2,344 2,256 1,926 Goodwill 1,121 873 497
Other intangible assets 317 294 226 Other assets 8,282 8,302 6,671
-------------------------------------------------------------------------
33,183 31,649 30,393
-------------------------------------------------------------------------
$ 396,470 $ 379,006 $ 324,951
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and shareholders' equity Deposits Personal $ 96,823 $
93,450 $ 86,289 Business and government 148,995 141,072 113,652
Banks 31,201 29,392 27,606
-------------------------------------------------------------------------
277,019 263,914 227,547
-------------------------------------------------------------------------
Other Acceptances 10,431 9,555 8,147 Obligations related to
securities sold under repurchase agreements 29,612 33,470 24,902
Obligations related to securities sold short 18,201 13,396 10,513
Trading derivatives' market valuation 11,039 11,211 13,639 Other
liabilities 26,792 26,457 20,394(3) Non-controlling interest in
subsidiaries 491 435 310
-------------------------------------------------------------------------
96,566 94,524 77,905(3)
-------------------------------------------------------------------------
Subordinated debentures 2,340 2,271 2,578
-------------------------------------------------------------------------
Capital instrument liabilities 750 750 750
-------------------------------------------------------------------------
Shareholders' equity Capital stock Preferred shares 945 600 600
Common shares and contributed surplus 3,520 3,425 3,339 Retained
earnings 16,376 15,843 14,433(3) Accumulated other comprehensive
income (loss)(1) (1,046) (2,321) (2,201)
-------------------------------------------------------------------------
19,795 17,547 16,171(3)
-------------------------------------------------------------------------
$ 396,470 $ 379,006 $ 324,951
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform with
current period presentation. (1) Refer to Note 1 for impact of new
accounting policies related to financial instruments adopted in the
first quarter of 2007. (2) Prior to November 1, 2006, these
securities were classified as investment securities. Refer to Note
1 for further details. (3) Refer to Note 1 for the accounting
policy related to stock-based compensation adopted in 2006. The
accompanying notes are an integral part of these interim
consolidated financial statements. Consolidated Statement of
Changes in Shareholders' Equity For the three months ended
-------------------------------------------------------------------------
January 31 January 31 (Unaudited) ($ millions) 2007 2006
-------------------------------------------------------------------------
Preferred shares Balance at beginning of period $ 600 $ 600 Issued
345 -
-------------------------------------------------------------------------
Balance at end of period 945 600
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Common shares and contributed surplus Common shares: Balance at
beginning of period 3,425 3,316 Issued 95 34 Purchased for
cancellation - (12)
-------------------------------------------------------------------------
Balance at end of period 3,520 3,338 Contributed surplus: Fair
value of stock options - 1
-------------------------------------------------------------------------
Total 3,520 3,339
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings Balance at beginning of period 15,843 14,126
Cumulative effect of adopting new accounting policies (61)(1)
(25)(2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
15,782 14,101 Net income 1,020 852 Dividends: Preferred (8) (8)
Common (416) (356) Purchase of shares - (156) Other (2) -
-------------------------------------------------------------------------
Balance at end of period 16,376 14,433
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss)(1) Balance at
beginning of period (2,321) (1,961) Cumulative effect of adopting
new accounting policies 683 - Other comprehensive income (loss) 592
(240)
-------------------------------------------------------------------------
Balance at end of period (1,046) (2,201)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total shareholders' equity at end of period $ 19,795 $ 16,171
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statement of Comprehensive Income(1) For the three
months ended
-------------------------------------------------------------------------
January 31 January 31 (Unaudited) ($ millions) 2007 2006
-------------------------------------------------------------------------
Comprehensive income Net income $ 1,020 $ 852
-------------------------------------------------------------------------
Other comprehensive income (loss), net of income taxes: Net change
in unrealized foreign currency translation gains (losses) 522 (240)
Net change in unrealized gains on available- for-sale securities 48
- Net change in gains on derivative instruments designated as cash
flow hedges 22 -
-------------------------------------------------------------------------
Other comprehensive income (loss) 592 (240)
-------------------------------------------------------------------------
Comprehensive income $ 1,612 $ 612
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Refer to Note 1 for impact of new accounting policies related
to financial instruments adopted in the first quarter of 2007. (2)
Refer to Note 1 for the accounting policy related to stock-based
compensation adopted in 2006. The accompanying notes are an
integral part of these interim consolidated financial statements.
Condensed Consolidated Statement of Cash Flows For the three months
ended
-------------------------------------------------------------------------
Sources (uses) of cash flows January 31 January 31 (Unaudited) ($
millions) 2007 2006
-------------------------------------------------------------------------
Cash flows from operating activities Net income $ 1,020 $ 852
Adjustments to net income to determine cash flows (49) (43) Net
accrued interest receivable and payable 235 (97) Trading securities
(1,192) (2,166) Trading derivatives' market valuation, net (294)
1,113 Other, net (982) (1,242)
-------------------------------------------------------------------------
(1,262) (1,583)
-------------------------------------------------------------------------
Cash flows from financing activities Deposits 7,407 12,892
Obligations related to securities sold under repurchase agreements
(4,636) (824) Obligations related to securities sold short 4,650
(674) Preferred shares issued 345 - Common shares issued 65 28
Common shares redeemed/purchased for cancellation - (168) Cash
dividends paid (424) (364) Other, net 923 443
-------------------------------------------------------------------------
8,330 11,333
-------------------------------------------------------------------------
Cash flows from investing activities Interest-bearing deposits with
banks (1,537) (3,382) Securities purchased under resale agreements
1,576 219 Loans, excluding securitizations (7,749) (4,276) Loan
securitizations 848 434 Available-for-sale securities, net(1) 166
(2,914) Land, buildings and equipment, net of disposals (120) (48)
Other, net(2) (82) -
-------------------------------------------------------------------------
(6,898) (9,967)
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 58
(40)
-------------------------------------------------------------------------
Net change in cash and cash equivalents 228 (257) Cash and cash
equivalents at beginning of period 2,280 2,501
-------------------------------------------------------------------------
Cash and cash equivalents at end of period(3) $ 2,508 $ 2,244
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash disbursements made for: Interest $ 3,794 $ 2,327 Income taxes
$ 283 $ 274
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform with
current period presentation. (1) Prior to November 1, 2006, this
related to securities classified as investment securities. Refer to
note 1 for further details. (2) For the three months ended January
31, 2007, comprises investments in subsidiaries, net of cash and
cash equivalents at the date of acquisition of $3 (January 31, 2006
- nil), and net of non-cash consideration of common shares issued
from treasury of $4 (January 31, 2006 - nil). (3) Represents cash
and non-interest-bearing deposits with banks. The accompanying
notes are an integral part of these interim consolidated financial
statements. Notes to the Interim Consolidated Financial Statements
(Unaudited) These interim consolidated financial statements have
been prepared in accordance with Canadian Generally Accepted
Accounting Principles (GAAP). They should be read in conjunction
with the consolidated financial statements for the year ended
October 31, 2006. The significant accounting policies used in the
preparation of these interim consolidated financial statements are
consistent with those used in the Bank's year-end audited
consolidated financial statements, except as discussed in Note 1.
DATASOURCE: Scotiabank - Financial Releases CONTACT: Kevin
Harraher, Vice-President, Investor Relations, (416) 866-5982; Frank
Switzer, Director, Public Affairs, (416) 866-7238
Copyright