Second quarter highlights: TORONTO, May 27 /PRNewswire-FirstCall/ -- Scotiabank today announced second quarter net income of $980 million, down 6% compared with the same period last year, but up $145 million or 18% over last quarter. Diluted earnings per share (EPS) were $0.97 compared to $1.03 in the same period last year and $0.82 last quarter. Return on equity remained strong at 21.4%. "Scotiabank's performance was solid during a challenging quarter for global financial markets," said Scotiabank President and CEO Rick Waugh. "Compared to the same period one year ago, we achieved higher net interest income, and Domestic Banking, Scotia Capital and International Banking experienced strong asset growth. As well, this quarter's results benefited from the positive contributions of recent acquisitions. However, these gains were offset by the negative impact of foreign currency translation, higher provisions for credit losses, weaker capital market revenues and an increase in expenses incurred on revenue growth initiatives. "Our Domestic Banking platform is performing very well in a competitive market. The division experienced strong growth in assets, with market share gains in residential mortgages, total deposits and mutual funds. "The combination of organic growth and contributions from acquisitions fuelled a solid year-over-year increase in earnings in International Banking. These results were achieved notwithstanding the negative impact of foreign currency translation due to the rapid rise of the Canadian dollar in 2007. We continue to see assets increasing in all regions with solid contributions from our most recent acquisition in Chile and on-going growth from Peru and the Caribbean and Central America. "Scotia Capital's results showed strength during a turbulent period, with record results in ScotiaMoccatta, strong loan growth, and widening spreads. However, trading results were below the high levels a year ago, but rebounded from the first quarter. "In a period when many financial institutions experienced significant problems in global and domestic capital markets, our strong risk management and moderate exposures resulted in minimal writedowns. Our loan portfolios performed very well with Scotia Capital showing net recoveries, and loan losses being well contained in other business lines. "We continue to prudently manage our capital position to ensure that it is adequate to support strategic acquisitions and ongoing business development opportunities. "Despite difficult markets, we are on track to achieve three of our four key financial and operational targets: ROE, productivity and maintaining strong capital ratios. This is a reflection of the relative strength of our businesses and strategies. However, the challenging global financial markets continue to impact earnings and, as a result, it is unlikely that we will meet our EPS growth objective set at the end of last year. At the same time, our rebound in earnings this quarter, the continued solid asset growth in all three business lines and improved funding costs, all point to a stronger second half in 2008. In view of these factors and our strong and improving capital position, we increased our quarterly dividend 2 cents to 49 cents per common share. This extends our track record of providing shareholders with consistent dividend growth." Year-to-date performance versus key 2008 financial and operational objectives was as follows: ------------------------------------------------------------------------- 1. Target: Earn a return on equity (ROE)(1) of 20 to 23%. For the six months Scotiabank earned an ROE of 20%. ------------------------------------------------------------------------- 2. Target: Generate growth in earnings per common share (diluted) of 7 to 12%. Our year-over-year growth in earnings per share was negative 12%. ------------------------------------------------------------------------- 3. Target: Maintain a productivity ratio(1) of less than 57%. Scotiabank's ratio was 55.6% for the six months. ------------------------------------------------------------------------- 4. Target: Maintain sound capital ratios. At 9.6%, Scotiabank's Tier 1 capital ratio remains strong by Canadian and International standards. (1) Refer to non-GAAP measures discussion below. Live audioWeb broadcast of the Bank's analysts' conference call. See below for details. As at and For the for the three months ended six months ended ------------------------------------------------------------------------- April 30 January 31 April 30 April 30 April 30 (Unaudited) 2008 2008 2007 2008 2007 ------------------------------------------------------------------------- Operating results ($ millions) Net interest income 1,873 1,814 1,794 3,687 3,570 Net interest income(TEB(1)) 1,973 1,932 1,903 3,905 3,784 Total revenue 3,172 2,839 3,102 6,011 6,211 Total revenue(TEB(1)) 3,272 2,957 3,211 6,229 6,425 Provision for credit losses 153 111 20 264 83 Non-interest expenses 1,794 1,669 1,726 3,463 3,450 Provision for income taxes 209 193 286 402 563 Provision for income taxes(TEB(1)) 309 311 395 620 777 Net income 980 835 1,039 1,815 2,059 Net income available to common shareholders 958 814 1,028 1,772 2,040 ------------------------------------------------------------------------- Operating performance Basic earnings per share($) 0.97 0.83 1.04 1.80 2.06 Diluted earnings per share($) 0.97 0.82 1.03 1.79 2.04 Return on equity (%)(1) 21.4 18.3 22.4 20.0 22.4 Productivity ratio(%) (TEB(1)) 54.8 56.5 53.8 55.6 53.7 Net interest margin on total average assets (%) (TEB(1)) 1.76 1.79 1.93 1.78 1.92 ------------------------------------------------------------------------- Balance sheet information ($ millions) Cash resources and securities 129,749 130,893 131,296 Loans and acceptances 267,875 260,501 226,310 Total assets 452,573 449,422 411,710 Deposits 322,438 316,797 291,603 Preferred shares 2,210 1,865 1,290 Common shareholders' equity 18,213 18,128 18,705 Assets under administration 202,266 195,155 208,426 Assets under management 32,917 31,704 30,448 ------------------------------------------------------------------------- Capital measures(2) Tier 1 capital ratio (%) 9.6 9.0 10.1 Total capital ratio (%) 11.7 10.2 11.4 Tangible common equity to risk- weighted assets (1) (%) 7.5 7.2 8.0 Risk-weighted assets ($ millions) 218,878 234,876 213,078 ------------------------------------------------------------------------- Credit quality Net impaired loans(3) ($ millions) 845 689 579 General allowance for credit losses ($ millions) 1,323 1,298 1,298 Net impaired loans as a % of loans and acceptances(3) 0.32 0.26 0.26 Specific provision for credit losses as a % of average loans and acceptances (annualized) 0.24 0.18 0.08 0.21 0.10 ------------------------------------------------------------------------- Common share information Share price ($) High 50.00 54.00 54.73 54.00 54.73 Low 42.00 43.10 49.34 42.00 48.80 Close 47.82 48.19 53.39 Shares outstanding (millions) Average - Basic 986 985 992 985 992 Average - Diluted 992 992 1,001 992 1,001 End of period 987 985 990 Dividends per share($) 0.47 0.47 0.42 0.94 0.84 Dividend yield (%) 4.1 3.9 3.2 3.9 3.2 Dividend payout ratio(4) (%) 48.4 56.9 40.6 52.3 40.9 Market capitalization ($ millions) 47,194 47,487 52,840 Book value per common share($) 18.45 18.40 18.90 Market value to book value multiple 2.6 2.6 2.8 Price to earnings multiple (trailing 4 quarters) 12.7 12.5 13.7 ------------------------------------------------------------------------- Other information Employees(5) 62,143 62,002 55,926 Branches and offices(5) 2,529 2,458 2,242 ------------------------------------------------------------------------- (1) Non-GAAP measure. Refer to below for a discussion of these measures. (2) Effective November 1, 2007, regulatory capital ratios are determined in accordance with Basel II rules. Comparative amounts for prior periods were determined in accordance with Basel I rules. (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. (5) Certain amounts for prior periods have been restated to include final numbers for all new acquisitions. Strategies for success The volatility in global financial markets carried forward into the second quarter. Our Bank met the challenges and results improved versus the first quarter - due to continued solid performances from most areas of our businesses. We remain confident that we will achieve most of our key financial and operational objectives, but it is unlikely that we will meet our earnings growth objective. We have the right growth strategy, focused on diversification by business and by geography, and the right priorities to ensure our long-term success: sustainable revenue growth, effective capital management and leadership. We continued to find new ways to generate and sustain revenue growth by helping our customers become better off financially. During the quarter, we introduced innovative new products and services, such as the Scotia Global Climate Change Fund - the first of its kind in Canada. We launched our "Bank the Rest" savings program, which helps customers increase their savings every time they use their ScotiaCard to make a point of sale purchase. We continued to use our capital prudently keeping our balance sheet strong yet being able to support overall asset growth and strategic acquisitions - such as our purchase of certain assets from Grupo Altas Cumbres of Chile. These assets include Banco de Antigua in Guatemala, and the business assets of Banco de Ahorro y Credito Altas Cumbres in the Dominican Republic, and Banco del Trabajo in Peru which was announced subsequent to quarter end. In terms of leadership, we have tremendous bench strength and continue to develop leaders by broadening their experience in different businesses and markets. We also enhanced our people development with the launch of an internal online resource site that provides Scotiabank's current and aspiring leaders with tools to support career development plans. Although the start of the year has been challenging, we achieved a rebound in earnings this quarter. This overall performance, combined with improved funding costs, continued solid asset growth in all three of our business lines, and our effective risk and cost management, points to a stronger second half in 2008. As well, we continue to believe in the ability of our great team of people to effectively execute our strategies and priorities over the balance of the year. (signed) Rick Waugh President and Chief Executive Officer 2008 Objectives -Our Balanced Scorecard ------------------------------------------------------------------------- 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