First quarter highlights compared to the same period a year ago:
TORONTO, March 3 /PRNewswire-FirstCall/ -- Scotiabank reported
record net income of $852 million in the first quarter of 2006, an
increase of $64 million or 8% over the same period last year.
Earnings per share (diluted) were $0.84, up $0.07 per share or 9%
from the first quarter of 2005. Return on equity was very strong at
21.6%. "Our strategy of diversifying across business platforms and
geography continues to deliver record income, with solid
contributions from all three business lines," said Rick Waugh,
President and CEO. "The Bank benefited from another strong
performance from International Banking, including our Mexican
operations, record trading revenues in Scotia Capital, and solid
growth in mortgage volumes in Domestic Banking. Credit quality
remained stable in all businesses. "Consistent with our long-term
strategy, we took steps during the first quarter to make effective
use of our capital with transactions that are a strategic fit for
our business platforms. International Banking announced an
important acquisition in Peru as part of our Latin American
strategy, Scotia Capital leveraged the Bank's industry-leading auto
financing expertise by making a significant purchase of highly
rated retail automotive receivables in the U.S. and Domestic
Banking executed on its strategy of adding new customers by
acquiring the Canadian operations of the National Bank of Greece.
"Scotiabank's capital position remains very strong, allowing us to
maintain the flexibility to consider a broad range of options for
future growth while continuing to increase returns to shareholders.
"We are confident that we can achieve our key performance
objectives for 2006." Year-to-date performance versus selected 2006
financial and operational objectives was as follows: 1. OBJECTIVE:
Earn a return on equity (ROE) of 18 to 22%. In the first quarter,
Scotiabank earned an ROE of 21.6%. 2. OBJECTIVE: Generate growth in
diluted earnings per common share of 5 to 10% per year. Our
year-over-year growth in diluted earnings per share was 9%. 3.
OBJECTIVE: Maintain a productivity ratio of less than 58%.
Scotiabank's performance was 55.2%. 4. OBJECTIVE: Maintain strong
capital ratios. At 10.8%, Scotiabank's Tier 1 capital ratio remains
among the highest of the Canadian banks and strong by international
standards. FINANCIAL HIGHLIGHTS As at and for the three months
ended
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January 31 October 31 January 31 (Unaudited) 2006 2005 2005
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Operating results ($ millions) Net interest income(TEB(1)) 1,605
1,581 1,503 Total revenue(TEB(1)) 2,830 2,735 2,614 Provision for
credit losses 75 36 74 Non-interest expenses 1,562 1,579 1,457
Provision for income taxes(TEB(1)) 321 289 278 Net income 852 811
788 Net income available to common shareholders 844 803 784
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Operating performance Basic earnings per share ($) 0.85 0.81 0.78
Diluted earnings per share ($) 0.84 0.80 0.77 Return on equity (%)
21.6 20.5 21.0 Productivity ratio(%) (TEB(1)) 55.2 57.8 55.7 Net
interest margin on total average assets(%) (TEB(1)) 1.97 1.97 2.00
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Balance sheet information ($ millions) Cash resources and
securities 101,953 93,964 89,118 Loans and acceptances 200,752
198,581 188,617 Total assets 324,951 314,025 300,547 Deposits
227,547 217,445 206,866 Preferred shares 600 600 300 Common
shareholders' equity 15,596 15,482 14,918 Assets under
administration 174,110 171,392 158,030 Assets under management
26,185 26,630 22,591
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Capital measures Tier 1 capital ratio (%) 10.8 11.1 11.2 Total
capital ratio (%) 12.8 13.2 13.5 Tangible common equity to
risk-weighted assets(2) (%) 9.0 9.3 9.5 Risk-weighted assets ($
millions) 168,948 162,799 155,498
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Credit quality Net impaired loans(3) ($ millions) 659 681 762
General allowance for credit losses ($ millions) 1,330 1,330 1,375
Net impaired loans as a % of loans and acceptances(3) 0.33 0.34
0.40 Specific provision for credit losses as a % of average loans
and acceptances (annualized) 0.15 0.16 0.16
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Common share information Share price ($) High 49.80 44.22 41.35 Low
42.89 40.31 36.41 Close 46.25 42.99 39.50 Shares outstanding
(millions) Average - Basic 989 995 1,006 Average - Diluted 1,002
1,008 1,021 End of period 988 990 998 Dividends per share ($) 0.36
0.34 0.32 Dividend yield (%) 3.1 3.2 3.3 Dividend payout ratio(4)
(%) 42.2 42.1 41.1 Market capitalization ($ millions) 45,696 42,568
39,425 Book value per common share ($) 15.78 15.64 14.95 Market
value to book value multiple 2.9 2.7 2.6 Price to earnings multiple
(trailing 4 quarters) 14.2 13.5 13.3
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Other information Employees 47,166 46,631 43,930 Branches and
offices 1,968 1,959 1,871
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Certain comparative amounts in this quarterly report have been
reclassified to conform with current period presentation. (1) The
adjustment that changes GAAP measures to taxable equivalent basis
(TEB) measures is discussed in footnotes (2) and (3) further below.
(2) Represents common shareholders' equity and non-controlling
interest in subsidiaries, less goodwill and other intangible
assets, as a percentage of risk-weighted assets. (3) Net impaired
loans are impaired loans less the specific allowance for credit
losses. (4) Represents common dividends for the period as a
percentage of the net income available to common shareholders for
the period. MESSAGE TO STAKEHOLDERS Strategies for success In all
three of our main business lines - Domestic Banking, International
Banking and Scotia Capital - we are focusing on three key
priorities: sustainable revenue growth, strategic acquisitions, and
effective capital management and allocation. During the quarter, we
continued to successfully execute our strategies to achieve our
objectives. We are driving sustainable revenue growth by retaining
and growing existing customer relationships and acquiring new
customers, by investing in new resources, technology and marketing,
including several major sponsorship initiatives. As part of our
strategy to acquire new customers, we are accelerating the
expansion of our branch networks in Canada and Mexico this year,
with 20 new branch openings planned for Canada and 50 in Mexico. In
addition, we acquired the National Bank of Greece (Canada), which
includes ten branches in Ontario and Quebec. We continue to make
effective use of our capital through strategic acquisitions. During
the quarter, we announced a $390 million investment in Peru as part
of our growth plan in Latin America. And we announced a significant
financing agreement with General Motors Acceptance Corporation
(GMAC), in which GMAC will sell up to US $20 billion in U.S. retail
automotive receivables to Scotia Capital over five years under a US
$6 billion revolving facility. As always, we remain focused on
meeting the needs of all our stakeholders, and our efforts to do so
continue to be acknowledged. We were proud to be recognized by
Latin Finance as Bank of the Year in Mexico, the Caribbean and
Jamaica. Scotia Capital was also named Best Foreign Exchange Bank
in Canada by Global Finance. We want to ensure that Scotiabank
remains a great place to work and to build rewarding careers.
That's why we were very pleased to be named one of Canada's 50 Best
Employers by The Globe and Mail Report on Business Magazine for the
second consecutive year. We also believe in being a socially
responsible company, and supporting the communities in which we do
business. For example, we continued our association with the Rick
Hansen Man in Motion Foundation by announcing a 10-year, $4 million
partnership to launch a new community-based program to raise
awareness of spinal cord injury. We remain confident that
Scotiabank is in a strong position to achieve continued success
throughout the remainder of 2006. 2006 Objectives Financial -
Return on equity of 18-22% - Diluted earnings per share growth of
5-10% - Long-term shareholder value through increases in dividends
and stock price appreciation Customer - High levels of customer
satisfaction and loyalty - Increase market share in primary markets
Operational - Productivity ratio of less than 58% - Sound ratings -
Best practices in corporate governance and compliance processes -
Sound capital ratios People - High levels of employee satisfaction
and engagement - Enhance workforce diversity - Commitment to
corporate social responsibility and strong community involvement
ACHIEVEMENTS Domestic Banking - At December 31, 2005, 65% of Scotia
Mutual Fund assets were in the top two quartiles for 3-year
performance. Two of the four Partners Portfolios achieved a "4
Star" rating by Morningstar Canada. Further, our in-house funds
managed by Scotia Cassels Investment Counsel provided solid returns
for clients. Nearly 90% of actively managed long-term funds were in
the top 2 quartiles for 3-year performance. - During the quarter,
we completed a full national rollout of Scotia Blueprint, a
proprietary financial planning tool designed to support our team of
accredited Financial Advisors. Blueprint reinforces the goal-based
planning process, and improves productivity by streamlining
existing desktop applications and pre-populating customer
information. The result is a comprehensive financial plan covering
the customer's investing, borrowing, day-to-day banking and
protection needs. - In January, we demonstrated our commitment to
building greater awareness of the Scotiabank brand in the Ottawa
area, with the launch of Scotiabank Place, home arena of the
National Hockey League's Ottawa Senators. International Banking -
We continued to execute our acquisition strategy, reaching
agreements to purchase two Peruvian banks, Banco Wiese Sudameris
and Banco Sudamericano. After the transaction is complete, we will
own 80% of the new combined bank, while Italy's Banca Intesa will
own the other 20%. The transaction is subject to regulatory
approvals and other conditions, and is expected to be finalized in
the second quarter. Taken together, our investment will total $390
million. - Grupo Financiero Scotiabank Inverlat has been rebranded
as Grupo Scotiabank in an effort to better leverage Scotiabank's
brand image in Mexico. As well, we introduced a new organizational
structure in Mexico's branches, including the re-engineering of
operating processes, to better serve our customers and increase
available sales time of branch staff. Over 50% of the network was
converted to the new operating model in 2005, with full
implementation expected to be complete by April 2006. We also
qualified for the Mexican Government Advancement of Women
certificate. The gender equity audit score was 95%, one of the
highest recorded by a participant company. - We continued to
aggressively execute competitive credit card strategies by
launching cards in four new markets: Belize, Cayman, St. Maarten
and Turks and Caicos. In addition, we partnered with Delta Airlines
to issue a co-branded Scotiabank Delta Sky Miles Visa card in
Puerto Rico. In Mexico, we renewed our contract with the Posadas
Group to issue the Scotiabank Fiesta Rewards card. We also
partnered with the National Football League to issue co-branded NFL
cards in Mexico. Scotia Capital - General Motors Acceptance
Corporation (GMAC) agreed to sell up to US $20 billion in U.S.
retail automotive receivables to Scotia Capital over five years,
under a US $6 billion revolving facility. The agreement expands a
long relationship between GMAC and Scotia Capital. - Scotia Capital
acted as financial advisor to Versacold Holdings Corp., a
subsidiary of Versacold Income Fund, on its purchase of P&O
Cold Logistics for $380 million. To finance the acquisition, we
also acted as sole bookrunner for a $140 million combined offering
of trust units and convertible debentures, as co-lead arranger and
administrative agent on $500 million of credit facilities, and as
the client's lead hedge advisor for the credit interest rate and
currency hedge program. - Scotia Capital acted as lead hedge
advisor for Corus Entertainment Inc. in association with the
refinancing of the company's $375 million of senior subordinated
notes, and was lead hedge advisor and syndication agent on $800
million in new senior bank facilities. Employee highlights - For
the second consecutive year, the Scotiabank Group was named one of
the 50 Best Employers in Canada by The Globe and Mail Report on
Business Magazine in an annual employment survey. Scotiabank, one
of only two financial institutions on the roster, placed 43rd on
the list, up from its 2005 ranking of 46th. Community involvement -
Scotiabank continued its association with the Rick Hansen Man in
Motion Foundation with the January 12 announcement of a 10-year, $4
million partnership. Through the Foundation's new Ambassador
Program, more than 200 people with spinal cord injuries will share
their stories of courage, hope and inspiration in communities
across Canada. 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. 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; 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 59 of the Bank's 2005 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/. Group Financial Performance and Financial
Condition A record first quarter sets the Bank on course to achieve
its key 2006 performance objectives. Net income rose 8% to $852
million this quarter, compared to $788 million in the first quarter
of last year and up 5% from $811 million last quarter. These
results reflect solid contributions from each of the Bank's three
business lines, including improved results from capital markets
activities and the Bank's Mexican banking operations. Foreign
currency translation did not have a significant impact on the first
quarter's results. Total revenue Total revenue, on a taxable
equivalent basis, climbed to $2,830 million, up 8%, from $2,614
million in the first quarter of last year. The growth was broad
based with increases in net interest income and other income,
particularly in trading revenues and activity-based fee income. The
acquisitions of Banco de Comercio in El Salvador and Waterous &
Co., in the latter part of 2005, contributed approximately 1% of
the year-over-year growth. Total revenue was $95 million or 3%
higher than last quarter due primarily to significantly higher
trading revenues, coupled with increases in net interest income and
transaction-based fee income. Net interest income Net interest
income, on a taxable equivalent basis, for this quarter rose $102
million or 7% to $1,605 million compared to the first quarter of
last year, and climbed $24 million or 2% from the fourth quarter.
The net interest margin was 1.97%, unchanged from the fourth
quarter but down slightly from 2.00% in the same quarter last year.
While there was a small year-over-year widening of the Canadian
currency margin, this was offset by a narrowing of the foreign
currency margin. Canadian currency net interest income was $958
million, up $72 million or 8% from last year and $13 million or 1%
from last quarter. The year-over-year increase was driven by strong
mortgage and other retail lending volume growth of 10%, and higher
dividend income this quarter. However, the flat yield curve
continued to apply pressure to the margin. Foreign currency net
interest income rose $30 million or 5% from the same quarter last
year and $11 million or 2% from last quarter. Mexico was the
primary contributor to the increase over last year, with good
volume growth in business loans and mortgages coupled with higher
margins. This was partially offset by lower average loan balances
and margins in corporate lending activities in the United States
and Europe. Other income Other income was $1,225 million this
quarter, a significant improvement of $114 million or 10% over the
first quarter of last year. Growth was broad-based, led by record
trading revenues, particularly in equities and derivatives, due to
favourable market conditions and strong client activity. As well,
there were higher net gains on the sale of investment securities,
and sizable increases in activity-based fee revenue, such as
deposit and payment services and retail brokerage fees. The latter
resulted from higher customer trading volumes reflecting the
buoyant equity market. Partially offsetting this revenue growth
were lower underwriting fees and reduced securitization revenues.
The increase in other income from last quarter was $71 million or
6%, due primarily to a significant increase in trading revenues
from favourable market conditions and higher customer-driven
activity and increases in other transaction-based fee income. These
increases were partially offset by lower underwriting fees.
Provision for credit losses The total provision for credit losses
was $75 million this quarter, in line with the same period last
year but up from $36 million last quarter. There was no change to
the general allowance this quarter, while last quarter's provision
included a reduction of $45 million in the general allowance for
credit losses. Specific provisions for credit losses remained
relatively unchanged year over year, but fell modestly by $6
million quarter over quarter. Scotia Capital continued to benefit
from net recoveries in the first quarter, as the credit environment
remained stable. Further discussion on credit risk is provided
below. Non-interest expenses and productivity Non-interest expenses
rose by $105 million or 7% to $1,562 million this quarter compared
to $1,457 million for the first quarter last year. The inclusion of
acquisitions made in 2005 contributed approximately 1% of this
increase. Compared to the fourth quarter, expenses decreased by $17
million or 1%. The productivity ratio, a measure of the Bank's
efficiency, was 55.2% this quarter, slightly better than 55.7% in
the first quarter last year and a solid improvement from 57.8% in
the fourth quarter. The year-over-year growth in non-interest
expenses was attributable mostly to increases in salaries and
benefits expenses, primarily from higher stock-based compensation
costs and pensions and other benefits. The higher stock-based
compensation was due mainly to a greater appreciation in the Bank's
share price, as well as the accelerated recognition of costs for
recent retirees. There were increases in premises and technology,
communications, advertising and business development to support
ongoing investments in business initiatives. Additionally, there
were higher appraisal and acquisition fees, in line with higher
mortgage and credit card sales. The growth in the other expense
category was due primarily to higher litigation costs and increases
in employee training. The decline in non-interest expenses from the
fourth quarter was due primarily to lower advertising and
development costs related to specific promotional initiatives in
Canada, Mexico and the Caribbean in the latter part of last year,
and reduced professional fees. These favourable reductions in
expenses were partly offset by higher remuneration expenses, mainly
in performance-driven compensation costs linked to the strong
trading results this quarter. As well, stock-based compensation
grew for the reasons noted above. Pensions and benefits were also
up from the previous quarter, partly from seasonally higher payroll
taxes. Taxes The effective tax rate for the first quarter was
20.5%, up slightly from 20.1% in the first quarter of last year and
in line with 20.4% in the preceding quarter. The effective tax rate
was up year over year, notwithstanding increased earnings from
subsidiaries in relatively lower tax jurisdictions, as there were
higher tax savings from certain structured transactions last year.
Risk management The Bank's risk management policies and practices
are unchanged from those outlined in pages 59 to 70 of the 2005
Annual Report. Credit risk The total provision for credit losses
was $75 million this quarter, compared to $74 million in the same
period a year ago. Total provisions were higher than the previous
quarter, due entirely to a $45 million reduction in the general
allowance for credit losses in the fourth quarter of 2005. Specific
provisions were, however, $6 million lower on a
quarter-over-quarter basis. Scotia Capital benefited from lower new
provisions this quarter along with continuing recoveries, resulting
in a net recovery of $16 million in the first quarter, compared to
a net recovery of $9 million in the same quarter last year and a $7
million net recovery in the previous quarter. In the domestic
retail and commercial portfolios, total provisions of $64 million
were slightly lower than both the same quarter last year and the
prior quarter, as provisions in the commercial portfolio declined.
The provision for credit losses of $27 million in international
operations was higher than both the $7 million in the same period
last year and the $16 million in the previous quarter. These
increases were due primarily to increases in retail and commercial
provisions in Mexico and an impaired commercial account in Asia.
Total net impaired loans, after deducting the allowance for
specific credit losses, were $659 million as at January 31, 2006,
an improvement of $22 million from last quarter. The forestry and
automotive sectors continue to be closely monitored. The Bank
actively manages its risks and level of exposure to these
industries. 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 decreased to $8.1 million compared to $8.4
million in the same quarter last year. This decline is primarily
the result of reduced foreign exchange exposure, partially offset
by an increase in interest rate and equity exposure. The one-day
VaR increased from $7.5 million in the previous quarter due to
increased foreign exchange and equity exposure. Average for the
three months ended
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Risk factor Jan. 31 Oct. 31 Jan. 31 ($ millions) 2006 2005 2005
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Interest rate $ 5.5 $ 6.4 $ 4.8 Equities 5.6 4.3 4.1 Foreign
exchange 1.8 0.7 5.4 Commodities 0.7 1.6 0.6 Diversification (5.5)
(5.5) (6.5)
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All-Bank VaR $ 8.1 $ 7.5 $ 8.4
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There were four loss days in the quarter, compared to one loss day
in the first quarter of last year and seven loss days in the
previous quarter. The losses were 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,
2006, liquid assets were $87 billion or 27% of total assets
compared to $82 billion or 26% of total assets at October 31, 2005.
These assets consist of securities, 73%, and cash and deposits with
banks, 27% (October 31, 2005 - 75% and 25%, 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, 2006, total assets pledged or sold under repurchase
agreements were $51 billion, compared to $48 billion at October 31,
2005. The quarter-over-quarter increase was attributable primarily
to higher levels of pledging for securities borrowing and lending
activities. Related party transactions There were no changes to the
Bank's procedures and policies for related party transactions from
those outlined on pages 75 and 116 of the 2005 Annual Report. All
transactions with related parties continued to be at market terms
and conditions. Balance sheet The Bank's total assets were $325
billion as at January 31, 2006, up $11 billion or 3% from October
31, 2005. Excluding the effect of foreign currency translation,
assets rose $15 billion or 5%. The Bank continued to realize growth
in its lending portfolio, with underlying loan balances up $3
billion or 2% since October 31, 2005. Domestic residential
mortgages led this growth with a $2 billion increase, excluding the
impact of securitization, as there was a continued strong domestic
housing market. Internationally, loans in Latin America and the
Caribbean climbed $1 billion. Commercial loans were up in Mexico
and the Dominican Republic, while there was good growth in retail
loans across most of the Caribbean and Latin America, in part due
to the success of recent promotional activities. The Bank's
securities portfolio increased $5 billion from October 31, 2005.
Investment securities were up $3 billion mainly from purchases of
asset-backed securities structured with a large corporate customer.
Trading securities were up $2 billion, largely in Scotia Capital,
primarily to hedge market risk related to trading activities with
customers. As at January 31, 2006, the surplus of the market value
over book value of the Bank's investment securities was $1,090
million, up $55 million from October 31, 2005, notwithstanding net
realized gains in the first quarter of 2006 of $94 million. Total
liabilities were $309 billion as at January 31, 2006, $11 billion
higher than October 31, 2005 or up $15 billion excluding the effect
of foreign currency translation. Personal deposits increased by $3
billion primarily from growth in domestic deposits of $2 billion,
largely in term deposits as customers took advantage of higher
interest rates offered on GIC products. Non-personal deposits grew
$10 billion, to fund asset growth. Capital management The Bank's
capital ratios remain strong and continue to be among the highest
of its Canadian peers. This position of strength allows the Bank to
take advantage of strategic growth opportunities as they arise. The
Tier 1 ratio was 10.8% this quarter, compared to 11.2% a year ago
and 11.1% last quarter. These declines arose primarily from growth
in risk- weighted assets. The tangible common equity (TCE) ratio,
which represents common equity less goodwill and other intangible
assets as a percentage of risk-weighted assets, continued to be the
strongest of the major Canadian banks. This ratio was 9.0% at
January 31, 2006, versus 9.5% in the first quarter last year and
9.3% at October 31, 2005. 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. Financial
instruments are generally carried at cost, except those held for
trading purposes, which are carried at their estimated fair value.
There was no change to the basis of calculating the fair value of
financial instruments from October 31, 2005, and no significant
changes in fair value of financial instruments that arose from
factors other than normal economic, industry and market conditions.
Total derivative notional amounts were $902 billion at January 31,
2006, compared to $991 billion the same time last year and $886
billion at October 31, 2005. The percentage of 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 netting arrangements was $13 billion, in
line with last year and the previous quarter. 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 are not
in the ordinary course of business. Processes for review and
approval of these contractual arrangements are unchanged from the
prior 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 continues to 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 $437 million in residential mortgages were
securitized in the current quarter, bringing the balance of
outstanding securitized mortgages to $7,799 million as at January
31, 2006, versus $7,801 million at October 31, 2005. Guarantees and
loan commitments were in line with the fourth quarter. Fees from
guarantees and loan commitment arrangements recorded in other
income were $56 million for the three-month period ended January
31, 2006, compared to $59 million for the same period a year ago.
Common dividend The Board of Directors, at its meeting on March 2,
2006, approved a quarterly dividend of 36 cents per common share
for shareholders of record as of April 4, 2006. This dividend is
payable April 26, 2006. Outlook Global economic activity retained
considerable momentum in the opening months of fiscal 2006, led by
China, India and other low-cost producing regions throughout Asia,
Eastern Europe and Latin America. The Canadian and Mexican
economies have been benefiting from buoyant commodity markets,
particularly for energy products, and solid U.S. demand. While U.S.
growth may moderate in the months ahead, markets should remain
buoyant for industrial and energy commodities. If interest rates
rise and the Canadian dollar continues to appreciate, overall
growth in Canada may moderate. The Bank's first quarter results
provided a strong start for 2006, although the high levels of
trading revenues may not be sustained at similar levels over the
remainder of the year. Nevertheless, continued economic growth
across regions in which Scotiabank operates, coupled with the
Bank's diversified growth platforms and attention to costs, points
to another year where the Bank expects to meet its key objectives.
Accounting Policies and Estimates The interim consolidated
financial statements have been prepared in accordance with Canadian
Generally Accepted Accounting Principles (GAAP). The significant
accounting policies used in the preparation of these interim
consolidated financial statements are consistent with those used in
the Bank's 2005 audited annual consolidated financial statements
(refer to Note 1 to the year-end statements). Details of
significant future changes in accounting standards affecting the
Bank are presented in Note 1 of the interim consolidated financial
statements. 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
2005 Annual Report. Business Line Review Domestic Banking For the
three months ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) January 31 October 31 January 31 (Taxable
equivalent basis)(1) 2006 2005 2005
-------------------------------------------------------------------------
Business line income Net interest income $ 909 $ 929 $ 890
Provision for credit losses 64 69 76 Other income 472 474 447
Non-interest expenses 833 870 784 Provision for income taxes 153
136 147
-------------------------------------------------------------------------
Net income $ 331 $ 328 $ 330 Preferred dividends paid 2 2 1
-------------------------------------------------------------------------
Net income available to common shareholders $ 329 $ 326 $ 329
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures Return on equity(2) 30.5% 30.1% 34.1% Average assets
($ billions) $ 130 $ 127 $ 120
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Refer to footnote (2) further below. (2) Refer to footnote (1)
in the Total table further below. Domestic Banking, which includes
Wealth Management, reported solid net income available to common
shareholders of $329 million this quarter, and accounted for 39% of
the Bank's net income. Domestic results were comparable to the same
period last year, and last quarter. Return on equity continued to
exceed 30%. Total revenues grew 3% and net interest income rose $19
million or 2% from the same quarter last year. Strong volume growth
was recorded in most products. Largely offsetting this, however,
was a lower interest margin, reflecting the flat yield curve
coupled with a higher cost of wholesale deposits used to fund a
portion of the asset growth. These factors also resulted in a
decline of 2% in net interest income quarter over quarter. Retail
assets grew by 10% compared to last year, led by a substantial
increase of $7 billion or 10% in residential mortgage balances
before securitization. During this quarter there was a shift in
customer preference to longer-term, fixed rate mortgages from
variable rate mortgages, reflecting the recent rise in short-term
interest rates. Personal revolving credit also showed strong
year-over-year growth of $2.4 billion or 13%. Personal deposits
grew 6%, due mainly to an increase in term deposit balances. As
well, small business deposits grew a strong 17%. The provision for
credit losses was $64 million this quarter, an improvement from $76
million recorded in the first quarter of last year and $69 million
in the fourth quarter. This decrease was due mainly to lower
provisions in the commercial portfolio. Other income was $472
million in the first quarter, an increase of $25 million or 6%
compared to the same period last year. All business segments showed
improved results. Notable growth was experienced in mutual fund
revenues, from higher average balances arising mainly from market
appreciation, and retail brokerage commissions from higher trading
activity. In addition, there were increases in card revenues and
transaction service fees. Non-interest expenses rose 6% from the
same quarter last year attributable mostly to higher remuneration
expenses including stock and performance-based compensation and
pension and other staff benefit costs. The higher stock-based
compensation was due mainly to a greater appreciation in the Bank's
share price, as well as the accelerated recognition of costs for
recent retirees. Partly offsetting this growth were lower
litigation expenses. Non-interest expenses fell 4% from the prior
quarter, mainly reflecting higher advertising costs in the fourth
quarter for large marketing programs and seasonal declines in other
categories. Partially offsetting the decline was higher stock-based
compensation for the reasons noted above. International Banking For
the three months ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) January 31 October 31 January 31 (Taxable
equivalent basis)(1) 2006 2005 2005
-------------------------------------------------------------------------
Business line income Net interest income $ 529 $ 506 $ 462
Provision for credit losses 27 16 7 Other income 215 202 180
Non-interest expenses 452 486 388 Provision for income taxes 10 10
23 Non-controlling interest in net income of subsidiaries 20 20 17
-------------------------------------------------------------------------
Net income $ 235 $ 176 $ 207 Preferred dividends paid 2 2 1
-------------------------------------------------------------------------
Net income available to common shareholders $ 233 $ 174 $ 206
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures Return on equity(2) 22.9% 17.5% 24.2% Average assets
($ billions) $ 52 $ 51 $ 48
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Refer to footnote (2) further below. (2) Refer to footnote (1)
in the Total table further below. International Banking's net
income available to common shareholders in the first quarter of
2006 was $233 million, an increase of $27 million or 13% from last
year and $59 million or 34% from last quarter. This quarter's
results represented 28% of the Bank's consolidated net income and
were bolstered by growth in Mexico and continued solid performances
in the Caribbean and Central America. Return on equity was 23%.
Asset volumes increased $4 billion or 8% from last year of which $1
billion was due to the acquisition of Banco de Comercio in El
Salvador. The remaining $3 billion increase was primarily driven by
a 20% rise in retail loans, reflecting growth of 32% in credit
cards and 22% in mortgages. Total revenues were $744 million in the
first quarter, an increase of $102 million or 16% from last year
and $36 million or 5% above last quarter. The major contributor to
the year-over-year increase was broad-based growth in retail
lending in Mexico and the Caribbean and Central America region.
Banco de Comercio contributed approximately one quarter of the
improvement. The increase compared to the preceding quarter arose
from growth in all regions, with Mexican retail volumes and fees
being the largest contributor. Net interest income was $529 million
this quarter, a year-over-year increase of $67 million or 15%,
primarily from higher retail loans in the Caribbean and Central
America and Mexico, coupled with the inclusion of Banco de
Comercio. Net interest income was up $23 million or 5% from the
fourth quarter, largely as a result of higher loan volumes in
Mexico. The provision for credit losses was $27 million in the
first quarter, $20 million higher than last year, and $11 million
higher than last quarter. This quarter's provisions rose as a
result of increases in retail and commercial provisions in Mexico
and an impaired commercial account in Asia. Other income rose $35
million or 19% year over year and $13 million or 6% quarter over
quarter. The majority of the year-over-year growth was in Mexico,
with higher gains on sales of investment securities, as well as
strong increases in credit card and other retail revenues. Other
banking operations contributing to these increases were Bahamas and
Puerto Rico, along with the inclusion of Banco de Comercio. The
improvement from the fourth quarter was mainly from higher retail
fees in Mexico. Non-interest expenses were $452 million this
quarter, up $64 million or 17% from last year, but down $34 million
or 7% from last quarter. The year-over-year increase was a result
of the acquisition of Banco de Comercio, higher litigation costs
and business-related growth in most countries. The
quarter-over-quarter decline was primarily in Mexico, due partly to
lower marketing costs and a drop in performance-based compensation,
reflecting finalization of year-end payouts. Scotia Capital For the
three months ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) January 31 October 31 January 31 (Taxable
equivalent basis)(1) 2006 2005 2005
-------------------------------------------------------------------------
Business line income Net interest income $ 209 $ 201 $ 216
Provision for (reversal of) credit losses (16) (7) (9) Other income
411 338 337 Non-interest expenses 254 198 261 Provision for income
taxes 122 117 53
-------------------------------------------------------------------------
Net income $ 260 $ 231 $ 248 Preferred dividends paid 2 2 1
-------------------------------------------------------------------------
Net income available to common shareholders $ 258 $ 229 $ 247
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures Return on equity(2) 32.3% 27.4% 30.5% Average assets
($ billions) $ 115 $ 114 $ 108
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Refer to footnote (2) further below. (2) Refer to footnote (1)
in the Total table further below. Scotia Capital reported net
income available to common shareholders of $258 million, $11
million or 4% ahead of last year and a $29 million or 13% increase
from last quarter. This represented a contribution of 31% to the
Bank's overall net income. Return on equity at 32% was higher than
the strong results achieved each quarter last year and well ahead
of last quarter's 27%. Total asset levels increased $7 billion
compared to last year, mainly in securities which support trading
operations, coupled with the purchase of a U.S. retail automotive
receivables portfolio this quarter. Growth in corporate lending
assets of $1 billion in Canada was offset by reductions in the U.S.
and Europe. This quarter's performance was driven by strong revenue
growth of 12% over last year and 15% compared to last quarter,
reflecting record trading revenues. Global Capital Markets
delivered record revenues from derivatives, in part reflecting
higher customer activity, and equity trading, due to favourable
market conditions. As well, results were bolstered by continued
strong performances in foreign exchange and precious metals. Global
Corporate and Investment Banking revenues were higher than the same
period last year, which included losses from a business acquired
through a loan restructuring that was subsequently sold in 2005.
The positive revenue growth was mitigated by continuing competitive
pressure on interest margins. Scotia Capital benefited from lower
new provisions for credit losses this quarter and continued
recoveries, which resulted in a net recovery of $16 million in
credit losses this quarter, compared to a net recovery of $9
million last year and a net recovery of $7 million last quarter.
Net recoveries were realized primarily in the U.S. and, to a lesser
extent, in Canada and Europe. Impaired loans continued to decline,
reflecting the overall strength of the credit portfolio.
Non-interest expenses were $254 million, down 3% from last year but
up 28% from last quarter. The decline from last year was due to
lower performance-related compensation costs, mainly from
adjustments to the quarterly estimate. This was partially offset by
higher salaries and benefits. Quarter over quarter, expenses rose
due to higher performance-related compensation, in line with the
quarter's record trading revenues, partly offset by lower severance
and litigation costs. The provision for income taxes was $122
million this quarter compared to $53 million in the same quarter
last year and $117 million last quarter. The year-over-year
increase was due to higher tax savings related to certain
structured transactions last year. Other(1) For the three months
ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) January 31 October 31 January 31 (Taxable
equivalent basis)(2) 2006 2005 2005
-------------------------------------------------------------------------
Business line income Net interest income(3) $ (138) $ (130) $ (141)
Provision for (reversal of) credit losses - (42) - Other income 127
140 147 Non-interest expenses 23 25 24 Provision for income
taxes(3) (60) (49) (21)
-------------------------------------------------------------------------
Net income $ 26 $ 76 $ 3 Preferred dividends paid 2 2 1
-------------------------------------------------------------------------
Net income available to common shareholders $ 24 $ 74 $ 2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures Average assets ($ billions) $ 25 $ 25 $ 22
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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) The Bank, like some other banks, analyzes
revenues, net interest margin on total average assets and the
productivity ratio on a taxable equivalent basis (TEB). This
methodology grosses up tax-exempt income earned on certain
securities to an equivalent before-tax basis. In the presentation
of business line results, the corresponding offset is made in the
provision for income taxes. 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. This use of TEB results in
measures that are different from comparable GAAP measures and may
not be the same as measures presented by other companies. (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, 2006 ($96), October 31, 2005 ($75), and
January 31, 2005 ($76), to arrive at the amounts reported in the
Consolidated Statement of Income. Net income available to common
shareholders was $24 million, compared to $2 million last year, and
$74 million last quarter. The quarter-over-quarter decrease was due
primarily to the $45 million reversal of the general allowance for
credit losses in the fourth quarter. Revenues declined by $17
million year over year, and were down $21 million from last
quarter. Other income decreased by $20 million from the same
quarter last year and was $13 million below last quarter. The
year-over- year decline was due to lower net gains on bond
investments and securitization revenues, partially offset by higher
net gains on equity investments. The quarter-over-quarter change
was also due in part to lower securitization revenues. 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 $96 million in the first quarter,
compared to $76 million last year, and $75 million in the prior
quarter. The increase in the gross up was due to higher dividend
income this quarter. Total For the three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) ($ millions) 2006 2005
2005
-------------------------------------------------------------------------
Business line income Net interest income $ 1,509 $ 1,506 $ 1,427
Provision for credit losses 75 36 74 Other income 1,225 1,154 1,111
Non-interest expenses 1,562 1,579 1,457 Provision for income taxes
225 214 202 Non-controlling interest in net income of subsidiaries
20 20 17
-------------------------------------------------------------------------
Net income $ 852 $ 811 $ 788 Preferred dividends paid 8 8 4
-------------------------------------------------------------------------
Net income available to common shareholders $ 844 $ 803 $ 784
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures Return on equity(1) 21.6% 20.5% 21.0% Average assets
($ billions) $ 322 $ 317 $ 298
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For management and internal reporting purposes, the Bank
allocates equity to its business lines using a methodology that
considers credit, market and operational risk inherent in each
business line. Return on equity is calculated based on the economic
equity allocated to the business line. Economic equity is not a
defined term under GAAP and, accordingly, the resulting return on
equity for each business line may not be comparable to those used
by other financial institutions. Quarterly Financial Highlights For
the three months ended
-------------------------------------------------------------------------
Jan. Oct. July April Jan. Oct. July April 31 31 31 30 31 31 31 30
2006 2005 2005 2005 2005 2004 2004 2004
-------------------------------------------------------------------------
Total revenue ($ millions) $2,734 $2,660 $2,608 $2,594 $2,538
$2,384 $2,464 $2,705 Total revenue (TEB(1)) ($ millions) 2,830
2,735 2,689 2,688 2,614 2,457 2,532 2,770 Net income ($ millions)
852 811 784 826 788 705 731 784 Basic earnings per share ($) 0.85
0.81 0.78 0.82 0.78 0.70 0.72 0.77 Diluted earnings per share ($)
0.84 0.80 0.77 0.81 0.77 0.69 0.71 0.75
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The adjustment that changes GAAP measures to taxable equivalent
basis (TEB) measures is discussed in footnotes (2) and (3) above.
Share Data As at
-------------------------------------------------------------------------
January 31 (thousands of shares outstanding) 2006
-------------------------------------------------------------------------
Common shares 988,019(1)
-------------------------------------------------------------------------
Preferred shares Series 12 12,000(2) Preferred shares Series 13
12,000(3)
-------------------------------------------------------------------------
Class A preferred shares issued by Scotia Mortgage Investment
Corporation 250(4)
-------------------------------------------------------------------------
Series 2000-1 trust securities issued by BNS Capital Trust 500(4)
Series 2002-1 trust securities issued by Scotiabank Capital Trust
750(5) Series 2003-1 trust securities issued by Scotiabank Capital
Trust 750(5)
-------------------------------------------------------------------------
Outstanding options granted under the Stock Option Plans to
purchase common shares 37,886(1)(6)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) As at February 17, 2006, the number of outstanding common
shares and options were 988,063 and 37,812, 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 $0.30 per share. (4)
Reported in capital instrument liabilities in the Consolidated
Balance Sheet. (5) Reported in deposits in the Consolidated Balance
Sheet. (6) Included are 16,794 stock options with tandem stock
appreciation right (SAR) features. Further details, including
convertibility features, are available in Notes 13, 14 and 15 of
the October 31, 2005, consolidated financial statements presented
in the 2005 Annual Report, and Note 3 further below. INTERIM
CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Income
For the three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) ($ millions) 2006 2005
2005
-------------------------------------------------------------------------
Interest income Loans $ 2,813 $ 2,653 $ 2,399 Securities 897 801
699 Deposits with banks 184 186 136
-------------------------------------------------------------------------
3,894 3,640 3,234
-------------------------------------------------------------------------
Interest expense Deposits 1,790 1,541 1,330 Subordinated debentures
35 34 33 Capital instrument liabilities 13 13 13 Other 547 546 431
-------------------------------------------------------------------------
2,385 2,134 1,807
-------------------------------------------------------------------------
Net interest income 1,509 1,506 1,427 Provision for credit losses
(Note 5) 75 36 74
-------------------------------------------------------------------------
Net interest income after provision for credit losses 1,434 1,470
1,353
-------------------------------------------------------------------------
Other income Card revenues 75 67 62 Deposit and payment services
189 181 168 Mutual funds 58 52 44 Investment management, brokerage
and trust services 161 159 142 Credit fees 131 131 136 Trading
revenues 243 126 210 Investment banking 155 171 180 Net gain on
investment securities 94 109 62 Securitization revenues 13 19 19
Other 106 139 88
-------------------------------------------------------------------------
1,225 1,154 1,111
-------------------------------------------------------------------------
Net interest and other income 2,659 2,624 2,464
-------------------------------------------------------------------------
Non-interest expenses Salaries and employee benefits 934 861 870
Premises and technology 281 302 273 Communications 64 66 60
Advertising and business development 47 81 43 Professional 32 55 42
Business and capital taxes 37 30 37 Other 167 184 132
-------------------------------------------------------------------------
1,562 1,579 1,457
-------------------------------------------------------------------------
Income before the undernoted 1,097 1,045 1,007 Provision for income
taxes 225 214 202 Non-controlling interest in net income of
subsidiaries 20 20 17
-------------------------------------------------------------------------
Net income $ 852 $ 811 $ 788
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Preferred dividends paid 8 8 4
-------------------------------------------------------------------------
Net income available to common shareholders $ 844 $ 803 $ 784
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of common shares outstanding (millions): Basic 989
995 1,006 Diluted 1,002 1,008 1,021
-------------------------------------------------------------------------
Earnings per common share(1) (in dollars): Basic $ 0.85 $ 0.81 $
0.78 Diluted $ 0.84 $ 0.80 $ 0.77
-------------------------------------------------------------------------
Dividends per common share (in dollars) $ 0.36 $ 0.34 $ 0.32
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The calculation of earnings per share is based on full dollar
and share amounts. 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) 2006 2005
2005
-------------------------------------------------------------------------
Assets Cash resources Cash and non-interest-bearing deposits with
banks $ 2,244 $ 2,501 $ 1,961 Interest-bearing deposits with banks
18,125 15,182 15,817 Precious metals 3,571 2,822 2,207
-------------------------------------------------------------------------
23,940 20,505 19,985
-------------------------------------------------------------------------
Securities Investment 26,140 23,452 22,477 Trading 51,873 50,007
46,656
-------------------------------------------------------------------------
78,013 73,459 69,133
-------------------------------------------------------------------------
Loans Residential mortgages 77,042 75,520 70,070 Personal and
credit cards 35,331 34,695 33,855 Business and government 62,608
62,681 61,281 Securities purchased under resale agreements 20,058
20,578 19,769
-------------------------------------------------------------------------
195,039 193,474 184,975 Allowance for credit losses (Note 5) 2,434
2,469 2,641
-------------------------------------------------------------------------
192,605 191,005 182,334
-------------------------------------------------------------------------
Other Customers' liability under acceptances 8,147 7,576 6,283
Trading derivatives' market valuation 12,926 11,622 12,493 Land,
buildings and equipment 1,926 1,934 1,937 Goodwill 497 498 270
Other intangible assets 226 235 233 Other assets 6,671 7,191 7,879
-------------------------------------------------------------------------
30,393 29,056 29,095
-------------------------------------------------------------------------
$ 324,951 $ 314,025 $ 300,547
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and shareholders' equity Deposits Personal $ 86,289 $
83,953 $ 81,059 Business and government 113,652 109,389 101,466
Banks 27,606 24,103 24,341
-------------------------------------------------------------------------
227,547 217,445 206,866
-------------------------------------------------------------------------
Other Acceptances 8,147 7,576 6,283 Obligations related to
securities sold under repurchase agreements 24,902 26,032 24,846
Obligations related to securities sold short 10,513 11,250 7,453
Trading derivatives' market valuation 13,639 11,193 11,993 Other
liabilities 20,369 20,794 24,226 Non-controlling interest in
subsidiaries 310 306 287
-------------------------------------------------------------------------
77,880 77,151 75,088
-------------------------------------------------------------------------
Subordinated debentures 2,578 2,597 2,625
-------------------------------------------------------------------------
Capital instrument liabilities 750 750 750
-------------------------------------------------------------------------
Shareholders' equity Capital stock Preferred shares 600 600 300
Common shares and contributed surplus 3,339 3,317 3,234 Retained
earnings 14,458 14,126 13,236 Cumulative foreign currency
translation (2,201) (1,961) (1,552)
-------------------------------------------------------------------------
16,196 16,082 15,218
-------------------------------------------------------------------------
$ 324,951 $ 314,025 $ 300,547
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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) 2006 2005
-------------------------------------------------------------------------
Preferred shares $ 600 $ 300
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Common shares and contributed surplus Common shares: Balance at
beginning of year 3,316 3,228 Issued 34 45 Purchased for
cancellation (12) (40)
-------------------------------------------------------------------------
Balance at end of period 3,338 3,233 Contributed surplus: Fair
value of stock options 1 1
-------------------------------------------------------------------------
Total 3,339 3,234
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings Balance at beginning of year 14,126 13,239 Net
income 852 788 Dividends: Preferred (8) (4) Common (356) (322)
Purchase of shares (156) (465)
-------------------------------------------------------------------------
Balance at end of period 14,458 13,236
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cumulative foreign currency translation Balance at beginning of
year (1,961) (1,783) Net unrealized foreign exchange translation
gains/(losses)(1) (240) 231
-------------------------------------------------------------------------
Balance at end of period (2,201) (1,552)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total shareholders' equity at end of period $ 16,196 $ 15,218
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Comprises unrealized foreign exchange translation
gains/(losses) on net investments in self-sustaining foreign
operations of $(444) (January 31, 2005 - $381) and gains/(losses)
from related foreign exchange hedging activities of $204 (January
31, 2005 - $(150)). The accompanying notes are an integral part of
these interim consolidated financial statements. Condensed
Consolidated Statement of Cash Flows For the three months ended
-------------------------------------------------------------------------
Sources and (uses) of cash flows January 31 January 31 (Unaudited)
($ millions) 2006 2005
-------------------------------------------------------------------------
Cash flows from operating activities Net income $ 852 $ 788
Adjustments to net income to determine cash flows (43) 10 Net
accrued interest receivable and payable (97) 18 Trading securities
(2,166) (3,158) Trading derivatives' market valuation, net 1,113
(340) Other, net (1,242) 1,028
-------------------------------------------------------------------------
(1,583) (1,654)
-------------------------------------------------------------------------
Cash flows from financing activities Deposits 12,892 8,120
Obligations related to securities sold under repurchase agreements
(824) 4,917 Obligations related to securities sold short (674)
(151) Capital stock issued 28 40 Capital stock redeemed/purchased
for cancellation (168) (505) Cash dividends paid (364) (326) Other,
net 443 205
-------------------------------------------------------------------------
11,333 12,300
-------------------------------------------------------------------------
Cash flows from investing activities Interest-bearing deposits with
banks (3,382) (2,460) Loans, excluding securitizations (4,057)
(7,568) Loan securitizations 434 589 Investment securities, net
(2,914) (1,144) Land, buildings and equipment, net of disposals
(48) (58)
-------------------------------------------------------------------------
(9,967) (10,641)
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (40)
35
-------------------------------------------------------------------------
Net change in cash and cash equivalents (257) 40 Cash and cash
equivalents at beginning of period 2,501 1,921
-------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,244 $ 1,961
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash disbursements made for: Interest $ 2,327 $ 1,792 Income taxes
$ 274 $ 239
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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, 2005. 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.
Certain comparative amounts have been reclassified to conform with
the current period's presentation. 1. Future accounting changes:
The following summarizes future accounting policy changes that will
be relevant to the Bank's consolidated financial statements.
Financial instruments The CICA has issued three new standards:
Financial Instruments - Recognition and Measurement, Hedges and
Comprehensive Income. These will be effective for the Bank on
November 1, 2006, and require the following: Financial Instruments
- Recognition and Measurement All financial assets and liabilities
will be carried at fair value in the Consolidated Balance Sheet,
except the following, which will be carried at amortized cost
unless designated as held for trading upon initial recognition:
loans and receivables, certain securities and non-trading financial
liabilities. Realized and unrealized gains and losses on financial
assets and liabilities that are held for trading will continue to
be recorded in the Consolidated Statement of Income. Unrealized
gains and losses on financial assets that are held as available for
sale will be recorded in other comprehensive income until realized,
when they will be recorded in the Consolidated Statement of Income.
All derivatives, including embedded derivatives that must be
separately accounted for, will be recorded at fair value in the
Consolidated Balance Sheet. Hedges In a fair value hedge, the
change in fair value of the hedging derivative will be offset in
the Consolidated Statement of Income against the change in the fair
value of the hedged item relating to the hedged risk. In a cash
flow hedge, the change in fair value of the derivative to the
extent effective will be recorded in other comprehensive income
until the asset or liability being hedged affects the Consolidated
Statement of Income, at which time the related change in fair value
of the derivative will also be recorded in the Consolidated
Statement of Income. Any hedge ineffectiveness will be recorded in
the Consolidated Statement of Income. Comprehensive Income
Unrealized gains and losses on financial assets that will be held
as available for sale, unrealized foreign currency translation
amounts arising from self-sustaining foreign operations, and
changes in the fair value of cash flow hedging instruments, will be
recorded in a Statement of Other Comprehensive Income until
recognized in the Consolidated Statement of Income. Other
comprehensive income will form part of shareholders' equity. The
transitional impact of these new standards is not yet determinable
as it is dependent on the Bank's outstanding positions, hedging
strategies and market volatility at the time of transition. 2.
Segmented results of operations Scotiabank is a diversified
financial services institution that provides a wide range of
financial products and services to retail, commercial and corporate
customers around the world. The Bank is organized into three main
operating segments: Domestic Banking, International Banking and
Scotia Capital. Results for these operating segments are presented
in the Business line income tables above. 3. Significant capital
transactions In the first quarter of 2006, the Bank initiated a new
normal course issuer bid to purchase up to 50 million of the Bank's
common shares. This represents approximately 5 per cent of the
Bank's outstanding common shares. The bid will terminate on the
earlier of January 5, 2007, or the date the Bank completes its
purchases. During the quarter, the Bank purchased 3.7 million
common shares at an average cost of $45.87. Subsequent to the
quarter end, on February 8, 2006, the Bank redeemed all of its $300
million 7.4% subordinated debentures that were due to mature in
2011. 4. Sales of loans through securitizations The Bank
securitizes residential mortgages through the creation of
mortgage-backed securities. The net gain on the sale of the
mortgages resulting from these securitizations is recognized in
securitization revenues in the Consolidated Statement of Income. No
credit losses are expected, as the mortgages are insured. The
following table summarizes the Bank's sales. For the three months
ended
---------------------------------------------------------------------
January 31 October 31 January 31 ($ millions) 2006 2005 2005
---------------------------------------------------------------------
Net cash proceeds(1) $ 434 $ 475 $ 589 Retained interest 11 16 14
Retained servicing liability (2) (3) (4)
---------------------------------------------------------------------
443 488 599 Residential mortgages securitized 437 479 588
---------------------------------------------------------------------
Net gain on sale $ 6 $ 9 $ 11
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(1) Excludes insured mortgages which were securitized and retained
by the Bank of $268 for the three months ended January 31, 2006
(October 31, 2005 - $496; January 31, 2005 - $525). These assets
are classified as investment securities and have an outstanding
balance of $1,437 as at January 31, 2006. 5. Allowance for credit
losses The following table summarizes the change in the allowance
for credit losses. For the three months ended
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January 31 October 31 January 31 ($ millions) 2006 2005 2005
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Balance at beginning of period $ 2,475 $ 2,572 $ 2,704 Write-offs
(131) (160) (149) Recoveries 39 68 36 Provision for credit losses
75 36 74 Other, including foreign exchange adjustment (13) (41)
(15)
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Balance at the end of period(1)(2) $ 2,445 $ 2,475 $ 2,650
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(1) As at January 31, 2006, $11 (October 31, 2005 - $6; January 31,
2005 - $9) has been recorded in other liabilities. (2) As at
January 31, 2006, the general allowance for credit losses was
$1,330 (October 31, 2005 - $1,330; January 31, 2005 - $1,375). 6.
Employee future benefits Employee future benefits include pensions
and other post-retirement benefits, post-employment benefits and
compensated absences. The following table summarizes the expenses
for the Bank's principal plans(1). For the three months ended
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January 31 October 31 January 31 ($ millions) 2006 2005 2005
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Benefit expenses Pension plans $ 24 $ 15 $ 21 Other benefit plans
31 24 27
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$ 55 $ 39 $ 48
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(1) Other plans operated by certain subsidiaries of the Bank are
not considered material and are not included in this note. 7.
Future acquisitions The Bank recently announced the acquisitions of
i) the Canadian operations of the National Bank of Greece, ii) two
Peruvian banks, Banco Wiese and Banco Sudamericano, with the
intention to merge the banks and own 80% of the combined entity,
and iii) the mortgage business of Maple Financial Group Inc., which
includes Maple Trust Company. The combined investment in these
acquisitions is approximately $700 million. These acquisitions are
expected to close in the second quarter of 2006, pending regulatory
approval. SHAREHOLDER & INVESTOR INFORMATION Direct deposit
service Shareholders may have dividends deposited directly into
accounts held at financial institutions which are members of the
Canadian Payments Association. To arrange direct deposit service,
please write to the Transfer Agent. Dividend and Share Purchase
Plan Scotiabank's dividend reinvestment and share purchase plan
allows common and preferred shareholders to purchase additional
common shares by reinvesting their cash dividend without incurring
brokerage or administrative fees. As well, eligible shareholders
may invest up to $20,000 each fiscal year to purchase additional
common shares of the Bank. Debenture holders may apply interest on
fully registered Bank subordinated debentures to purchase
additional common shares. All administrative costs of the plan are
paid by the Bank. For more information on participation in the
plan, please contact the Transfer Agent. Dividend dates for 2006
Record and payment dates for common and preferred shares, subject
to approval by the Board of Directors. Record Date Payment Date
January 3 January 27 April 4 April 26 July 4 July 27 October 3
October 27 Duplicated communication If your shareholdings are
registered under more than one name or address, multiple mailings
will result. To eliminate this duplication, please write to the
Transfer Agent to combine the accounts. Website For information
relating to Scotiabank and its services, visit us at our website:
http://www.scotiabank.com/. Conference call and Web broadcast The
quarterly results conference call will take place on March 3, 2006,
at 3:00 p.m. EST and is expected to last approximately one hour.
Interested parties are invited to access the call live, in
listen-only mode, by telephone, toll-free, at 1-800-814-3911
(please call five to 15 minutes in advance). In addition, an audio
webcast, with accompanying slide presentation, may be accessed via
the Investor Relations page of http://www.scotiabank.com/.
Following discussion of the results by Scotiabank executives, there
will be a question and answer session. Listeners are also invited
to submit questions by e-mail to . A telephone replay of the
conference call will be available from March 3, 2006, to March 17,
2006, by calling (416) 640-1917 and entering the identification
code 21174131 followed by the number sign. The archived audio
webcast will be available on the Bank's website for three months.
Contact information Investors: Financial analysts, portfolio
managers and other investors requiring financial information,
please contact Investor Relations, Finance Department: Scotiabank
Scotia Plaza, 44 King Street West Toronto, Ontario, Canada M5H 1H1
Telephone: (416) 866-5982 Fax: (416) 866-7867 E-mail: Media: For
other information and for media enquiries, please contact the
Public, Corporate and Government Affairs Department at the above
address. Telephone: (416) 866-3925 Fax: (416) 866-4988 E-mail:
Shareholders: For enquiries related to changes in share
registration or address, dividend information, lost share
certificates, estate transfers, or to advise of duplicate mailings,
please contact the Bank's Transfer Agent: Computershare Trust
Company of Canada 100 University Avenue, 9th Floor Toronto,
Ontario, Canada M5J 2Y1 Telephone: 1-877-982-8767 Fax:
1-888-453-0330 E-mail: Co-Transfer Agent (U.S.A.) Computershare
Trust Company, Inc. 350 Indiana Street Golden, Colorado 80401
U.S.A. Telephone: 1-800-962-4284 For other shareholder enquiries,
please contact the Finance Department: Scotiabank Scotia Plaza, 44
King Street West Toronto, Ontario, Canada M5H 1H1 Telephone: (416)
866-4790 Fax: (416) 866-4048 E-mail: Rapport trimestriel disponible
en francais Le Rapport annuel et les etats financiers de la Banque
sont publies en francais et en anglais et distribues aux
actionnaires dans la version de leur choix. Si vous preferez que la
documentation vous concernant vous soit adressee en francais,
veuillez en informer Relations publiques, Affaires de la societe et
Affaires gouvernementales, La Banque de Nouvelle-Ecosse, Scotia
Plaza, 44, rue King Ouest, Toronto (Ontario), Canada M5H 1H1, en
joignant, si possible, l'etiquette d'adresse, afin que nous
puissions prendre note du changement. The Bank of Nova Scotia is
incorporated in Canada with limited liability. DATASOURCE:
Scotiabank - Financial Releases CONTACT: Kevin Harraher,
Vice-President, Investor Relations, (416) 866-5982; Ann DeRabbie,
Public Affairs, (416) 866-3703
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