Consolidated Statement of Income For the For the three months ended
six months ended
-------------------------------------------------------------------------
(Unaudited) April 30 January 31 April 30 April 30 April 30 ($
millions) 2008 2008 2007 2008 2007
-------------------------------------------------------------------------
Interest income Loans $ 3,798 $ 3,825 $ 3,404 $ 7,623 $ 6,781
Securities 1,200 1,168 1,286 2,368 2,417 Securities purchased under
resale agreements 204 229 283 433 613 Deposits with banks 260 319
266 579 517
-------------------------------------------------------------------------
5,462 5,541 5,239 11,003 10,328
-------------------------------------------------------------------------
Interest expenses Deposits 2,948 3,078 2,600 6,026 5,126
Subordinated debentures 36 24 30 60 63 Capital instrument
liabilities 9 9 13 18 26 Other 596 616 802 1,212 1,543
-------------------------------------------------------------------------
3,589 3,727 3,445 7,316 6,758
-------------------------------------------------------------------------
Net interest income 1,873 1,814 1,794 3,687 3,570 Provision for
credit losses (Note 3) 153 111 20 264 83
-------------------------------------------------------------------------
Net interest income after provision for credit losses 1,720 1,703
1,774 3,423 3,487
-------------------------------------------------------------------------
Other income Card revenues 93 95 89 188 182 Deposit and payment
services 208 207 199 415 405 Mutual funds 78 78 73 156 141
Investment management, brokerage and trust services 189 186 195 375
383 Credit fees 140 133 129 273 261 Trading revenues 123 (44) 151
79 300 Investment banking 170 164 195 334 389 Net gain on
securities, other than trading 59 20 79 79 206 Other 239 186 198
425 374
-------------------------------------------------------------------------
1,299 1,025 1,308 2,324 2,641
-------------------------------------------------------------------------
Net interest and other income 3,019 2,728 3,082 5,747 6,128
-------------------------------------------------------------------------
Non-interest expenses Salaries and employee benefits 1,005 978
1,004 1,983 2,007 Premises and technology 359 327 329 686 656
Communications 80 75 75 155 148 Advertising and business
development 78 69 70 147 146 Professional 68 45 48 113 93 Business
and capital taxes 38 14 34 52 73 Other 166 161 166 327 327
-------------------------------------------------------------------------
1,794 1,669 1,726 3,463 3,450
-------------------------------------------------------------------------
Income before the undernoted 1,225 1,059 1,356 2,284 2,678
Provision for income taxes 209 193 286 402 563 Non-controlling
interest in net income of subsidiaries 36 31 31 67 56
-------------------------------------------------------------------------
Net income $ 980 $ 835 $ 1,039 $ 1,815 $ 2,059
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Preferred dividends paid 22 21 11 43 19
-------------------------------------------------------------------------
Net income available to common shareholders $ 958 $ 814 $ 1,028 $
1,772 $ 2,040
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of common shares outstanding (millions): Basic 986
985 992 985 992 Diluted 992 992 1,001 992 1,001
-------------------------------------------------------------------------
Earnings per common share (in dollars): Basic $ 0.97 $ 0.83 $ 1.04
$ 1.80 $ 2.06 Diluted $ 0.97 $ 0.82 $ 1.03 $ 1.79 $ 2.04
-------------------------------------------------------------------------
Dividends per common share (in dollars) $ 0.47 $ 0.47 $ 0.42 $ 0.94
$ 0.84
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform with
current period presentation. The accompanying notes are an integral
part of these interim consolidated financial statements.
Consolidated Balance Sheet As at
-------------------------------------------------------------------------
April 30 January 31 October 31 April 30 (Unaudited) ($ millions)
2008 2008 2007 2007
-------------------------------------------------------------------------
Assets Cash resources Cash and non-interest-bearing deposits with
banks $ 2,641 $ 2,816 $ 2,138 $ 2,532 Interest-bearing deposits
with banks 26,178 29,431 23,011 23,967 Precious metals 3,668 4,164
4,046 4,623
-------------------------------------------------------------------------
32,487 36,411 29,195 31,122
-------------------------------------------------------------------------
Securities Trading 62,138 60,702 59,685 71,547 Available-for-sale
34,322 32,992 28,426 28,474 Equity accounted investments 802 788
724 153
-------------------------------------------------------------------------
97,262 94,482 88,835 100,174
-------------------------------------------------------------------------
Securities purchased under resale agreements 15,323 20,362 22,542
25,867
-------------------------------------------------------------------------
Loans Residential mortgages 108,382 105,532 102,154 94,706 Personal
and credit cards 45,273 43,513 41,734 40,408 Business and
government 104,928 101,389 85,500 83,424
-------------------------------------------------------------------------
258,583 250,434 229,388 218,538 Allowance for credit losses (Note
3) 2,490 2,451 2,241 2,505
-------------------------------------------------------------------------
256,093 247,983 227,147 216,033
-------------------------------------------------------------------------
Other Customers' liability under acceptances 11,782 12,518 11,538
10,277 Derivative instruments 25,638 25,217 21,960 16,186 Land,
buildings and equipment 2,506 2,460 2,271 2,308 Goodwill 2,162
1,266 1,134 1,176 Other intangible assets 263 273 273 301 Other
assets 9,057 8,450 6,615 8,266
-------------------------------------------------------------------------
51,408 50,184 43,791 38,514
-------------------------------------------------------------------------
$452,573 $449,422 $411,510 $411,710
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and shareholders' equity Deposits Personal $109,994
$108,219 $100,823 $ 97,218 Business and government 176,878 175,772
161,229 157,919 Banks 35,566 32,806 26,406 36,466
-------------------------------------------------------------------------
322,438 316,797 288,458 291,603
-------------------------------------------------------------------------
Other Acceptances 11,782 12,518 11,538 10,277 Obligations related
to securities sold under repurchase agreements 27,446 32,967 28,137
29,577 Obligations related to securities sold short 15,028 13,570
16,039 21,521 Derivative instruments 24,010 25,046 24,689 14,167
Other liabilities 26,412 25,333 21,138 21,023 Non-controlling
interest in subsidiaries 588 548 497 496
-------------------------------------------------------------------------
105,266 109,982 102,038 97,061
-------------------------------------------------------------------------
Subordinated debentures (Note 4) 3,946 2,150 1,710 2,301
-------------------------------------------------------------------------
Capital instrument liabilities 500 500 500 750
-------------------------------------------------------------------------
Shareholders' equity Capital stock Preferred shares (Note 5) 2,210
1,865 1,635 1,290 Common shares and contributed surplus 3,643 3,614
3,566 3,539 Retained earnings 18,300 17,809 17,460 16,763
Accumulated other comprehensive income (loss) (Note 6) (3,730)
(3,295) (3,857) (1,597)
-------------------------------------------------------------------------
20,423 19,993 18,804 19,995
-------------------------------------------------------------------------
$452,573 $449,422 $411,510 $411,710
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform with
current period presentation. The accompanying notes are an integral
part of these interim consolidated financial statements.
Consolidated Statement of Changes in Shareholders' Equity For the
six months ended
-------------------------------------------------------------------------
April 30 April 30 (Unaudited) ($ millions) 2008 2007
-------------------------------------------------------------------------
Preferred shares Balance at beginning of period $ 1,635 $ 600
Issued 575 690
-------------------------------------------------------------------------
Balance at end of period 2,210 1,290
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Common shares Balance at beginning of period 3,566 3,425 Issued 77
130 Purchased for cancellation - (16)
-------------------------------------------------------------------------
Balance at end of period 3,643 3,539
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings Balance at beginning of period 17,460 15,843
Cumulative effect of adopting new accounting policies - (61)(1)
-------------------------------------------------------------------------
17,460 15,782 Net income 1,815 2,059 Dividends: Preferred (43) (19)
Common (926) (833) Purchase of shares - (218) Other (6) (8)
-------------------------------------------------------------------------
Balance at end of period 18,300 16,763
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss) Balance at beginning
of period (3,857) (2,321) Cumulative effect of adopting new
accounting policies - 683(1) Other comprehensive income 127 41
-------------------------------------------------------------------------
Balance at end of period (3,730) (1,597)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total shareholders' equity at end of period $ 20,423 $ 19,995
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statement of Comprehensive Income For the For the
three months ended six months ended
-------------------------------------------------------------------------
April 30 April 30 April 30 April 30 (Unaudited) ($ millions) 2008
2007 2008 2007
-------------------------------------------------------------------------
Comprehensive income Net income $ 980 $ 1,039 $ 1,815 $ 2,059
-------------------------------------------------------------------------
Other comprehensive income (loss), net of income taxes (Note 6):
Net change in unrealized foreign currency translation losses (85)
(588) 800 (66) Net change in unrealized gains on available-for-sale
securities (210) 17 (270) 65 Net change in gains (losses) on
derivative instruments designated as cash flow hedges (140) 20
(403) 42
-------------------------------------------------------------------------
Other comprehensive income (loss) (435) (551) 127 41
-------------------------------------------------------------------------
Comprehensive income $ 545 $ 488 $ 1,942 $ 2,100
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform with
current period presentation. (1) Refer to Note 1 for discussion of
new accounting policies related to financial instruments adopted in
the first quarter of 2007. The accompanying notes are an integral
part of these interim consolidated financial statements. Condensed
Consolidated Statement of Cash Flows For the For the three months
ended six months ended
-------------------------------------------------------------------------
Sources (uses) of cash flows April 30 April 30 April 30 April 30
(Unaudited) ($ millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
Cash flows from operating activities Net income $ 980 $ 1,039 $
1,815 $ 2,059 Adjustments to determine net cash flows from (used
in) operating activities (23) 85 216 36 Net accrued interest
receivable and payable (11) (115) 233 3 Trading securities (1,200)
(8,139) (1,531) (9,331) Derivative assets 242 (4,618) (885) (4,437)
Derivative liabilities (1,666) 2,667 (3,408) 1,489 Other, net 648
(2,227) 1,502 (2,389)
-------------------------------------------------------------------------
(1,030) (11,308) (2,058) (12,570)
-------------------------------------------------------------------------
Cash flows from financing activities Deposits 4,007 21,175 21,337
28,582 Obligations related to securities sold under repurchase
agreements (5,841) 574 (1,612) (4,062) Obligations related to
securities sold short 1,430 3,699 (1,336) 8,349 Preferred shares
issued 345 345 575 690 Common shares issued 27 20 63 85 Common
shares redeemed/ purchased for cancellation - (234) - (234)
Subordinated debentures issued 1,800 - 2,194 - Cash dividends paid
(485) (428) (969) (852) Other, net (477) 1,834 949 2,757
-------------------------------------------------------------------------
806 26,985 21,201 35,315
-------------------------------------------------------------------------
Cash flows from investing activities Interest-bearing deposits with
banks 3,558 (4,665) (1,621) (6,202) Securities purchased under
resale agreements 5,150 (1,872) 7,687 (296) Loans, excluding
securitizations (8,823) (8,482) (22,333) (16,231) Loan
securitizations 1,142 595 1,692 1,443 Securities, other than
trading, net (869) (1,061) (2,904) (895) Land, buildings and
equipment, net of disposals (90) (44) (185) (164) Other, net(1)
(35) (37) (1,081) (119)
-------------------------------------------------------------------------
33 (15,566) (18,745) (22,464)
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 16
(87) 105 (29)
-------------------------------------------------------------------------
Net change in cash and cash equivalents (175) 24 503 252 Cash and
cash equivalents at beginning of period 2,816 2,508 2,138 2,280
-------------------------------------------------------------------------
Cash and cash equivalents at end of period(2) $ 2,641 $ 2,532 $
2,641 $ 2,532
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash disbursements made for: Interest $ 3,571 $ 3,452 $ 7,224 $
7,246 Income taxes $ 423 $ 333 $ 754 $ 616
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform with
current period presentation. (1) For the three and six months ended
April 30, 2008, comprises investments in subsidiaries, net of cash
and cash equivalents at the date of acquisition of $2 and $37,
respectively (April 30, 2007 - nil and $3, respectively), and net
of non-cash consideration of common shares issued from treasury of
nil and nil, respectively (April 30, 2007 - $11 and $15,
respectively). (2) Represents cash and non-interest-bearing
deposits with banks. The accompanying notes are an integral part of
these interim consolidated financial statements. Notes to the
Interim Consolidated Financial Statements (Unaudited) These interim
consolidated financial statements have been prepared in accordance
with Canadian Generally Accepted Accounting Principles (GAAP). They
should be read in conjunction with the consolidated financial
statements for the year ended October 31, 2007. The significant
accounting policies used in the preparation of these interim
consolidated financial statements are consistent with those used in
the Bank's year-end audited consolidated financial statements. 1.
Changes in accounting policies There were no new accounting
policies adopted in the current fiscal year. Note 1 to the Bank's
2007 annual audited consolidated financial statements describes
accounting policy changes. 2. Sales of loans through
securitizations The Bank securitizes residential mortgages through
the creation of mortgage-backed securities. No credit losses are
expected, as the mortgages are insured. For the quarter ended April
30, 2008, the key weighted-average assumptions used to measure the
fair value at the dates of securitization were a prepayment rate of
20%, an excess spread of 1.5% and a discount rate of 3.5%. The
following table summarizes the Bank's sales: For the For the three
months ended six months ended
-------------------------------------------------------------------------
April 30 January 31 April 30 April 30 April 30 ($ millions) 2008
2008 2007 2008 2007
-------------------------------------------------------------------------
Net cash proceeds(1) $ 1,142 $ 550 $ 595 $ 1,692 $ 1,443 Retained
interest 37 16 17 53 49 Retained servicing liability (6) (4) (4)
(10) (11)
-------------------------------------------------------------------------
1,173 562 608 1,735 1,481 Residential mortgages securitized 1,142
555 605 1,697 1,466
-------------------------------------------------------------------------
Net gain (loss) on sale $ 31 $ 7 $ 3 $ 38 $ 15
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Excludes insured mortgages which were securitized and retained
by the Bank of $555 for the three months ended April 30, 2008
(January 31, 2008 - $1,351; April 30, 2007 - $182), and $1,906 for
the six months ended April 30, 2008 (April 30, 2007 - $708). As at
April 30, 2008, the outstanding balance of mortgage-backed
securities was $5,276, and these assets have been classified as
available-for- sale securities. 3. Impaired loans and allowance for
credit losses (a) Impaired loans As at
-------------------------------------------------------------------------
April 30 January 31 October 31 2008 2008 2007
-------------------------------------------------------------------------
Specific ($ millions) Gross allowance(1) Net Net Net
-------------------------------------------------------------------------
By loan type: Residential mortgages $ 419 $ 182 $ 237 $ 300 $ 203
Personal and credit cards 689 521 168 21 51 Business and government
904 464 440 368 347
-------------------------------------------------------------------------
Total $ 2,012 $ 1,167 $ 845 $ 689 $ 601
-------------------------------------------------------------------------
-------------------------------------------------------------------------
By geography: Canada $ 309 $ 280 $ 231 United States 4 10 4 Other
International 532 399 366
-------------------------------------------------------------------------
Total $ 845 $ 689 $ 601
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The specific allowance for impaired loans evaluated on an
individual basis totalled $464 (January 31, 2008 - $494; October
31, 2007 - $383). (b) Allowance for credit losses The following
table summarizes the change in the allowance for credit losses. For
the For the three months ended six months ended
-------------------------------------------------------------------------
April 30 January 31 April 30 April 30 April 30 ($ millions) 2008
2008 2007 2008 2007
-------------------------------------------------------------------------
Balance at beginning of period $ 2,462 $ 2,252 $ 2,631 $ 2,252 $
2,618 Write offs (190) (194) (136) (384) (304) Recoveries 51 51 64
102 98 Provision for credit losses 153 111 20(4) 264 83 Other,
including foreign exchange adjustment 22 242 (63) 264 21
-------------------------------------------------------------------------
Balance at the end of period(1)(2)(3) $ 2,498 $ 2,462 $ 2,516 $
2,498 $ 2,516
-------------------------------------------------------------------------
(1) As at April 30, 2008, includes $149 of specific allowance and
$25 of general allowances relating to acquisition of a new
subsidiary (January 31, 2008 - $177 and nil, respectively; April
30, 2007 - $27 and $16, respectively), which may change as the
valuation of the acquired loan assets is finalized. (2) As at April
30, 2008, $8 has been recorded in other liabilities (January 31,
2008 - $11; April 30, 2007 - $11). (3) As at April 30, 2008, the
general allowance for credit losses was $1,323 (January 31, 2008 -
$1,298; April 30, 2007 - $1,298). (4) Net of reduction in general
allowance of $25. 4. Subordinated debentures Subordinated
debentures totaling $300 million were issued on January 31, 2008,
and will mature on January 31, 2018. Interest is payable
semi-annually in arrears, commencing on July 31, 2008, at 5.30% per
annum until January 31, 2013. From January 31, 2013, until
maturity, interest is payable at an annual rate equal to the 90-day
Bankers' Acceptance Rate plus 1.90%, payable quarterly commencing
April 30, 2013. The subordinated debentures are redeemable by the
Bank at any time, subject to written approval of the Superintendent
of Financial Institutions Canada. The subordinated debentures
qualify as Tier 2B capital. Subordinated debentures totaling
(Yen)10 billion were issued on November 20, 2007, and will mature
on November 20, 2037. Interest is payable semi-annually in arrears,
commencing on May 20, 2008, at an annual rate of 3.015%. The
subordinated debentures are redeemable by the Bank on November 20,
2017, with the prior written approval of the Superintendent of
Financial Institutions Canada. The subordinated debentures qualify
as Tier 2B capital. Subordinated debentures totaling $1,700 million
were issued on March 27, 2008, and will mature on March 27, 2018.
Interest is payable semi-annually in arrears, commencing on
September 29, 2008, at 4.99% per annum up until March 27, 2013.
From March 27, 2013, until maturity, interest is payable at an
annual rate equal to the 90-day Bankers' Acceptance Rate plus
2.00%, payable quarterly in arrears commencing on June 27, 2013.
The subordinated notes are redeemable by the Bank at any time,
subject to written approval of the Superintendent of Financial
Institutions Canada. The subordinated debentures qualify as Tier 2B
capital. Subordinated debentures totalling (Yen)10 billion were
issued on April 9, 2008, and will mature on April 9, 2038. Interest
is payable semi-annually in arrears, commencing on October 9, 2008,
at an annual interest rate of 3.37%. The subordinated debentures
are redeemable by the Bank on April 9, 2018, with the prior written
approval of the Superintendent of Financial Institutions Canada.
The subordinated debentures qualify as Tier 2B capital. 5. Capital
management The Bank has a capital management process in place to
measure, deploy and monitor its available capital and assess its
adequacy. This capital management process aims to achieve three
major objectives: exceed regulatory thresholds and meet longer-term
internal capital targets, maintain strong credit ratings and
provide the Bank's shareholders with acceptable returns. Capital is
managed in accordance with the Board-approved Capital Management
Policy. Senior executive management develop the capital strategy
and oversee the capital management processes of the Bank. The
Bank's Finance, Group Treasury and Global Risk Management (GRM)
groups are key in implementing the Bank's capital strategy and
managing capital. Capital is managed using both regulatory capital
measures and internal metrics. Although the Bank is subject to
several capital regulations in the different business lines and
countries in which the Bank operates, capital adequacy is managed
on a consolidated Bank basis. The Bank also takes measures to
ensure its subsidiaries meet or exceed local regulatory capital
requirements. The primary regulator of its consolidated capital
adequacy is the Office of the Superintendent of Financial
Institutions Canada (OSFI). The capital adequacy regulations in
Canada are largely consistent with international standards set by
the Bank for International Settlements. A revised Basel Capital
Framework (Basel II) was adopted by the Bank and other Canadian
banks effective this fiscal year. Effective November 1, 2007,
regulatory capital ratios are determined in accordance with the
revised capital framework, based on the International Convergence
of Capital Measurement and Capital Standards: A Revised Framework,
commonly known as Basel II. Changes to the computation of
regulatory capital from the previous framework (Basel I) are
primarily the amount and categorization of prescribed inclusions
and deductions from capital, such as the calculation of the
eligible allowance deduction and the deduction for specified
corporations (such as insurance entities and associated
corporations), which is now split between two categories of
capital. In addition, the computation of risk-weighted assets was
revised to more closely align risk weight parameters with the
individual risk profile of banks by introducing substantive changes
to prescribed risk weights for credit risk exposures, including the
use of internally derived credit risk parameters, and introducing
an explicit new risk weight for operational risk. Capital
requirements for market risk were generally unchanged. Once banks
demonstrate full compliance with the AIRB requirements, and OSFI
has approved its use, they may proceed to apply the AIRB approach
in computing capital requirements. However, in order to limit
sudden declines in the capital levels for the industry in
aggregate, capital floors were introduced for the first two years
after full implementation of AIRB. A capital floor of 90% of the
Basel I calculation will apply in the first year of full approval
and 80% in the second year, if required. In the second quarter, the
Bank received regulatory approval to move to the 90% floor. The
Bank received approval, with conditions, from OSFI to use AIRB for
material Canadian, U.S. and European portfolios effective November
1, 2007. The remaining credit portfolios are targeted to implement
AIRB in November 2010. In the interim period, the Bank will use the
standardized approach for these portfolios. As well, the Bank is
using the standardized approach to calculate the operational risk
capital requirements. Total regulatory capital is composed of Tier
1 and Tier 2 capital as follows: As at
---------------------------------------------------------------------
April 30 January 31 October 31 (unaudited) ($ millions) 2008 2008
2007(1)
---------------------------------------------------------------------
Shareholders' equity per Consolidated Balance Sheet $ 20,423 $
19,993 $ 18,804 Add: Capital instrument liabilities - trust
securities 2,750 2,750 2,750 Non-controlling interest in
subsidiaries 588 548 497 Less: Goodwill (2,162) (1,266) (1,134)
Components of accumulated other comprehensive income excluded from
Tier 1 capital (19) (369) (692) Other capital deductions(2) (507)
(490) -
---------------------------------------------------------------------
Tier 1 capital $ 21,073 $ 21,166 $ 20,225
---------------------------------------------------------------------
Qualifying subordinated debentures, net of amortization 3,659 1,859
1,452 Capital instrument liabilities - trust subordinated notes
1,000 1,000 1,000 Other net capital items(3) (144) (151) 304
---------------------------------------------------------------------
Tier 2 capital $ 4,515 $ 2,708 $ 2,756
---------------------------------------------------------------------
Total regulatory capital $ 25,588 $ 23,874 $ 22,981
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Effective November 1, 2007, regulatory capital is determined in
accordance with Basel II. The comparative amounts as at October 31,
2007 were determined in accordance with Basel I. (2) Comprised
primarily of 50% of investments in certain specified corporations
acquired after January 1, 2007. Prior to November 1, 2007, 100% of
investments in certain specified corporations was deducted from
Tier 2 capital; commencing November 1, 2007, those acquired after
January 1, 2007, are now split 50:50 between Tier 1 and Tier 2. (3)
Comprised mainly of eligible allowance for credit losses and net
after-tax unrealized gain on available-for-sale securities less
prescribed deductions including investments in specified
corporations. The two primary regulatory capital ratios used to
assess capital adequacy are Tier 1 and Total capital ratios, which
are determined by dividing those capital components by
risk-weighted assets. Risk- weighted assets are computed by
applying a combination of the Bank's internal credit risk
parameters and OSFI prescribed risk weights to on-and off-balance
sheet exposures. The regulatory minimum ratios prescribed by OSFI
are 7% for Tier 1 capital and 10% for Total capital. The Bank
exceeded these minimum ratio thresholds as at April 30, 2008, and
January 31, 2008. OSFI has also prescribed an asset-to-capital
leverage maximum of 20:1. The Bank was in compliance with this
threshold as at April 30, 2008, and January 31, 2008. Significant
capital transactions In the first quarter of 2007, the Bank
initiated a normal course issuer bid to purchase up to 20 million
of the Bank's common shares. This represented approximately 2% of
the Bank's common shares outstanding as at December 31, 2007. The
bid terminated on January 11, 2008. The Bank did not purchase any
common shares pursuant to this bid during the first quarter. Series
17 non-cumulative preferred shares totaling $230 million were
issued on January 31, 2008, and are entitled to non-cumulative
preferential cash dividends payable quarterly, if and when
declared, in an amount per share of $0.35. The initial dividend,
paid on April 28, 2008, was $0.33753 per share. With regulatory
approval, the shares may be redeemed by the Bank on or after April
26, 2013, at $26.00 per share, together with declared and unpaid
dividends to the date then fixed for redemption, and thereafter at
annually declining premiums until April 26, 2017, following which
no redemption premium is payable. These preferred shares qualify as
Tier 1 capital. Series 18 non-cumulative 5-year rate reset
preferred shares totaling $300 million and $45 million were issued
on March 25, 2008, and March 27, 2008, respectively. Holders are
entitled to receive fixed non-cumulative preferential cash
dividends payable quarterly, if and when declared, in an amount of
$0.3125 per share for the initial five-year fixed rate period
ending on April 25, 2013. The initial dividend, if and when
declared, will be payable on July 29, 2008, and will be $0.4315 per
share. Subsequent to the initial five-year fixed rate period, and
resetting every five years thereafter, the dividends will be
determined by the sum of the 5-year Government of Canada yield and
2.05%, multiplied by $25.00. Holders of Series 18 preferred shares
have the option to convert their shares into an equal number of
Series 19 non-cumulative floating rate preferred shares on April
26, 2013, and on April 26 every five years thereafter. Series 19
preferred shares are entitled to receive floating rate
non-cumulative preferential cash dividends, if and when declared,
in an amount per share equal to the sum of the T-bill rate and
2.05%, multiplied by $25.00. If the Bank determines that, after
giving effect to any Election Notices received, there would be less
than 1,000,000 Series 18 preferred shares issued and outstanding on
the applicable Series 18 Conversion Date, all of the issued and
outstanding Series 18 preferred shares will automatically be
converted on such Series 18 Conversion Date into an equal number of
Series 19 preferred shares. With prior written approval of the
Superintendent of Financial Institutions Canada, Series 18
preferred shares and, if applicable, Series 19 preferred shares,
are redeemable by the Bank. These shares are redeemable at $25.00
per share on April 26, 2018, and every 5 years thereafter. On all
other dates beginning April 26, 2013, Series 19 preferred shares
are redeemable at $25.00 per share plus a redemption premium of
$0.50 per share. These preferred shares qualify as Tier 1 capital.
6. Accumulated other comprehensive income (loss) The components of
accumulated other comprehensive income (loss) as at April 30, 2008,
and other comprehensive income (loss) for the six months then ended
were as follows: Accumulated other comprehensive income (loss) As
at and for the six months ended
-------------------------------------------------------------------------
Opening Net Ending balance change balance
-------------------------------------- October 31 April 30 ($
millions) 2007 2008
-------------------------------------------------------------------------
Unrealized foreign currency translation gains (losses), net of
hedging activities $ (4,549) $ 800 $(3,749)(1) Unrealized gains
(losses) on available- for-sale securities, net of hedging
activities 639 (270) 369(2) Gains (losses) on derivative
instruments designated as cash flow hedges 53 (403) (350)(3)
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss) $ (3,857) $ 127 $
(3,730)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at and for the six months ended
-------------------------------------------------------------------------
Opening Transition Net Ending balance amount change balance
--------------------------------------------------- October 31
November 1 April 30 ($ millions) 2006 2006 2007
-------------------------------------------------------------------------
Unrealized foreign currency translation gains (losses), net of
hedging activities $ (2,321) $ - $ (66) $(2,387)(1) Unrealized
gains (losses) on available- for-sale securities, net of hedging
activities - 706 65 771(2) Gains (losses) on derivative instruments
designated as cash flow hedges - (23) 42 19(3)
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss) $ (2,321) $ 683 $ 41
$ (1,597)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Net of income tax expense of $574 (April 30, 2007 - nil). (2)
Net of income tax expense of $186 (April 30, 2007 - $427). Also,
the net unrealized gain as at April 30, 2008 includes unrealized
losses of $417 (April 30, 2007 - $147) after tax on the
available-for-sale securities. (3) Net of income tax benefit of
$163 (April 30, 2007 - expense of $8). Other comprehensive income
(loss) The following table summarizes the changes in the components
of other comprehensive income (loss). For the For the three months
ended six months ended
---------------------------------------------------------------------
April 30 April 30 April 30 April 30 ($ millions) 2008 2007 2008
2007
---------------------------------------------------------------------
Net change in unrealized foreign currency translation losses Net
unrealized foreign currency translation gains (losses)(1) $ 182 $
(1,009) $ 1,323 $ (117) Net gains (losses) on hedges of net
investments in self-sustaining foreign operations(2) (267) 421
(523) 51
---------------------------------------------------------------------
(85) (588) 800 (66)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net change in unrealized gains on available-for- sale securities
Net unrealized gains (losses) on available- for-sale securities(3)
(151) 70 (143) 141 Reclassification of net gains to net income(4)
(59) (53) (127) (76)
---------------------------------------------------------------------
(210) 17 (270) 65
---------------------------------------------------------------------
---------------------------------------------------------------------
Net change in gains (losses) on derivative instruments designated
as cash flow hedges Net gains (losses) on derivative instruments
designated as cash flow hedges(5) 22 (113) 300 134 Reclassification
of net (gains) losses to net income(6) (162) 133 (703) (92)
---------------------------------------------------------------------
(140) 20 (403) 42
---------------------------------------------------------------------
---------------------------------------------------------------------
Other comprehensive income $ (435) $ (551) $ 127 $ 41
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) For the three and six months ended April 30, 2008, net of
income tax expense of nil (April 30, 2007 - nil). (2) For the three
and six months ended April 30, 2008, net of income tax expense of
$241 and $147, respectively. (April 30, 2007 - nil and nil,
respectively). (3) For the three and six months ended April 30,
2008, net of income tax benefit of $58 and $104, respectively
(April 30, 2007 - expense of $36 and $82, respectively). (4) For
the three and six months ended April 30, 2008, net of income tax
expense of $32 and $48, respectively (April 30, 2007 - $23 and $37,
respectively). (5) For the three and six months ended April 30,
2008, net of income tax expense of $12 and $138, respectively
(April 30, 2007 - benefit of $58 and expense of $67, respectively).
(6) For the three and six months ended April 30, 2008, net of
income tax expense of $75 and $326, respectively (April 30, 2007 -
benefit of $67 and expense of $46, respectively). 7. Financial
instruments Financial risk management The Bank's principal business
activities result in a balance sheet that consists primarily of
financial instruments. In addition, the Bank uses derivative
financial instruments for both trading and asset/liability
management purposes. The principal financial risks that arise from
transacting financial instruments include credit risk, liquidity
risk and market risk. The Bank has a comprehensive risk management
framework to monitor, evaluate and manage these risks. This risk
management framework has four main components, as follows: -
extensive risk management policies define the Bank's risk appetite,
set the limits and controls within which the Bank and its
subsidiaries can operate, and reflect the requirements of
regulatory authorities. These policies are approved by the Bank's
Board of Directors, either directly or through the Executive and
Risk Committee, (the Board); - guidelines are developed to clarify
risk limits and conditions under which the Bank's risk policies are
implemented; - processes are implemented to identify, evaluate,
document, report and control risk. Standards define the breadth and
quality of information required to make a decision; and -
compliance with risk policies, limits and guidelines is measured,
monitored and reported to ensure consistency against defined goals.
Credit risk Credit risk is the risk of loss resulting from the
failure of a borrower or counterparty to honour its financial or
contractual obligations to the Bank. The Bank's credit risk
strategy and credit risk policy are developed by Global Risk
Management (GRM) and are reviewed and approved by the Board on an
annual basis. The credit risk strategy defines target markets and
risk tolerances that are developed at an all-Bank level, and then
further refined at the business line level. The objectives of the
credit risk strategy are to ensure that, for the Bank, including
the individual business lines: - target markets and product
offerings are well defined; - the risk parameters for new
underwritings and for the portfolios as a whole are clearly
specified; and - transactions, including origination, syndication,
loan sales and hedging, are managed in a manner to ensure the goals
for the overall portfolio are met. The credit risk policy sets out,
among other things, the credit risk rating systems and associated
parameter estimates, the delegation of authority for granting
credit, the calculation of the allowance for credit losses and the
authorization of writeoffs. It forms an integral part of
enterprise-wide policies and procedures that encompass governance,
risk management and control structure. The Bank's credit risk
rating systems are designed to support the determination of key
credit risk parameter estimates which measure credit and
transaction risk. For non-retail exposures, parameters are
associated with each credit facility through the assignment of
borrower and transaction ratings. Borrower risk is evaluated using
methodologies that are specific to particular industry sectors
and/or business lines. The risk associated with facilities of a
given borrower is assessed by considering the facilities'
structural and collateral-related elements. For retail portfolios,
each exposure has been assigned to a particular pool (real estate
secured, other retail - term lending, unsecured revolving) and
within each pool to a risk grade. This process provides for a
meaningful differentiation of risk, and allows for appropriate and
consistent estimation of loss characteristics at the pool and risk
grade level. Credit quality of financial assets The Bank's
non-retail portfolio is well diversified by industry, and there has
not been a significant change in concentrations of credit risk
since October 31, 2007. The Bank's retail portfolios consist of a
number of relatively small loans to a large number of borrowers.
The portfolios are distributed across Canada and a wide range of
countries. As such, the portfolios inherently have a high degree of
diversification. (a) Corporate and commercial Credit decisions are
made based upon an assessment of the credit risk of the individual
borrower or counterparty. Key factors considered in the assessment
include: the borrower's management; the borrower's current and
projected financial results and credit statistics; the industry in
which the borrower operates; economic trends; and geopolitical
risk. Banking units and GRM also review the credit quality of the
credit portfolio across the organization on a regular basis to
assess whether economic trends or specific events may affect the
performance of the portfolio. As at April 30, 2008, a significant
portion of the authorized corporate and commercial lending
portfolio was internally rated at a rating that would generally
equate to an investment grade rating by external rating agencies.
(b) Retail The Bank's credit underwriting methodology and risk
modeling in Canada is customer rather than product focused.
Generally, decisions on consumer loans are based on risk ratings,
which are generated using predictive scoring models. Individual
credit requests are processed by proprietary adjudication software
designed to calculate the maximum debt for which a customer
qualifies. As at April 30, 2008, the amount of retail loans that
were past due but not impaired was not significant. Derivative
instruments To control credit risk associated with derivatives, the
Bank uses the same credit risk management activities and procedures
that are used in the lending business in assessing and adjudicating
potential credit exposure. The Bank applies limits to each
counterparty, measures exposure as the current fair value plus
potential future exposure, and uses credit mitigation techniques,
such as netting and collateralization. Investment grade
counter-parties account for a significant portion of the credit
risk exposure arising from the Bank's derivative transactions as at
April 30, 2008. Derivative instruments used by the Bank include
credit derivatives in its investment and loan portfolios: credit
protection is sold as an alternative to acquire exposure to bond or
loan assets, while credit protection is bought to manage or
mitigate credit exposures. Collateral (a) Collateral held In the
normal course of business, the Bank receives collateral on certain
transactions to reduce its exposure to counterparty credit risk.
The Bank is normally permitted to sell or repledge the collateral
it receives under terms that are common and customary to standard
derivative, securities borrowing and lending, and other lending
activities. (b) Collateral pledged In the normal course of
business, securities and other assets are pledged to secure an
obligation, participate in clearing or settlement systems, or
operate in a foreign jurisdiction. As at April 30, 2008, total
assets pledged were $46 billion (January 31, 2008 -$40 billion;
October 31, 2007 - $40 billion). Asset pledging transactions are
conducted under terms that are common and customary to standard
derivative, securities borrowing and lending, and other lending
activities. Standard risk management controls are applied with
respect to asset pledging. Liquidity risk Liquidity risk is the
risk that the Bank is unable to meet its financial obligations in a
timely manner at reasonable prices. The Bank's liquidity risk is
subject to extensive risk management controls and is managed within
the framework of policies and limits approved by the Board. The
Board receives reports on risk exposures and performance against
approved limits. The Liability Committee (LCO) provides senior
management oversight of liquidity risk through its weekly meetings.
The key elements of the Bank's liquidity risk management framework
include: - liquidity risk measurement and management limits,
including limits on maximum net cash outflow by currency over
specified short-term horizons; - prudent diversification of its
wholesale funding activities by using a number of different funding
programs to access the global financial markets and manage its
maturity profile, as appropriate; - large holdings of liquid assets
to support its operations, (see table below) which can generally be
sold or pledged to meet the Bank's obligations; - liquidity stress
testing, including Bank-specific, Canada- systemic, and
global-systemic scenarios; and - liquidity contingency planning.
Liquid Assets -------------------------------- As at April 30 2008
---------------------------------------------------------------------
Canadian Foreign ($ millions) dollar currency Total
---------------------------------------------------------------------
Cash and deposits with the Bank of Canada $ 687 $ 4,248 $ 4,935
Deposits with other banks 5,436 22,116 27,552 Securities 52,452
25,912 78,364 Call and short loans - 1,025 1,025
---------------------------------------------------------------------
$ 58,575 $ 53,301 $111,876
---------------------------------------------------------------------
---------------------------------------------------------------------
Liquid assets as a % of total assets 24.7%
---------------------------------------------------------------------
---------------------------------------------------------------------
Contractual maturities The table below shows the contractual
maturities of certain of the Bank's financial liabilities as at
April 30, 2008. The Bank's deposit liabilities shown below are
those recorded in Canada and the United States, which amounted to
$241 billion, representing 75% of the Bank's total deposits.
Payable on a fixed date --------------------------- Greater Payable
Payable Less One to than on after than five five ($ millions)
demand notice one year years years Total
---------------------------------------------------------------------
Deposits $ 26,097 $ 42,127 $112,595 $ 52,850 $ 7,733 $241,402
Subordinated debentures - - 252 - 3,694 3,946 Capital instrument
liabilities - - - - 500 500
---------------------------------------------------------------------
Total $ 26,097 $ 42,127 $112,847 $ 52,850 $ 11,927 $245,848
---------------------------------------------------------------------
---------------------------------------------------------------------
Deposits The Bank's foreign operations have liquidity management
frameworks that are similar to the Bank's framework. Local deposits
are managed from a liquidity risk perspective based on the local
management frameworks and regulatory requirements. Commitments to
extend credit In the normal course of business, the Bank enters
into commitments to extend credit in the form of loans or other
financings for specific amounts and maturities, subject to specific
conditions. These commitments, which are not reflected on the
Consolidated Balance Sheet, are subject to normal credit standards,
financial controls and monitoring procedures. As at April 30, 2008,
the majority of commitments to extend credit had a remaining term
to maturity of less than one year. Derivative instruments The Bank
is subject to liquidity risk relating to its use of derivatives to
meet customer needs, generate revenues from trading activities,
manage market and credit risks arising from its lending, funding
and investment activities, and lower its cost of capital. As at
April 30, 2008, more than half of the notional value of the Bank's
derivative instruments mature within one year, while 86% mature
within five years. Market risk Market risk arises from changes in
market prices and rates (including interest rates, credit spreads,
equity prices, foreign exchange rates and commodity prices), the
correlations among them, and their levels of volatility. Market
risk is subject to extensive risk management controls, and is
managed within the framework of market risk policies and limits
approved by the Board. The LCO and Market Risk Management and
Policy Committee oversee the application of the framework set by
the Board, and monitor the Bank's market risk exposures and the
activities that give rise to these exposures. The Bank uses a
variety of metrics and models to measure and control market risk
exposures. The measurements used are selected based on an
assessment of the nature of risks in a particular activity. The
principal measurement techniques are Value at Risk (VaR), stress
testing, sensitivity analysis and simulation modeling, and gap
analysis. The Board reviews results from these metrics quarterly.
Models are independently validated prior to implementation and are
subject to formal periodic review. VaR is a statistical measure
that estimates the potential loss in value of the Bank's trading
positions due to adverse market movements over a defined time
horizon with a specified confidence level (see Trading portfolio
risk management below). The quality of the Bank's VaR is validated
by regular back testing analysis, in which the VaR is compared to
theoretical and actual profit and loss results. To complement VaR,
the Bank also uses stress testing to examine the impact that
abnormally large swings in market factors and periods of prolonged
inactivity might have on trading portfolios. The stress testing
program is designed to identify key risks and ensure that the
Bank's capital can easily absorb potential losses from abnormal
events. The Bank subjects its trading portfolios to more than 75
stress tests on a daily basis, and more than 250 stress tests on a
monthly basis. Sensitivity analysis assesses the effect of changes
in interest rates on current earnings and on the economic value of
assets and liabilities. Simulation modeling under various scenarios
is particularly important for managing risk in the deposit, lending
and investment products the Bank offers to its retail customers.
Gap analysis is used to assess the interest rate sensitivity of the
Bank's retail, wholesale banking and international operations.
Under gap analysis, interest rate-sensitive assets, liabilities and
derivative instruments are assigned to defined time periods, on the
earlier of contractual repricing or maturity dates on the basis of
expected repricing dates. Interest rate risk Interest rate risk,
inclusive of credit spread risk, is the risk of loss due to the
following: changes in the level, slope and curvature of the yield
curve; the volatility of interest rates; mortgage prepayment rates;
changes in the market price of credit; and the creditworthiness of
a particular issuer. The Bank actively manages its interest rate
exposures with the objective of enhancing net interest income
within established risk tolerances. Interest rate risk arising from
the Bank's funding and investment activities is managed in
accordance with Board-approved policies and global limits, which
are designed to control the risk to income and economic value of
shareholders' equity. The income limit measures the effect of a
specified shift in interest rates on the Bank's annual net income,
while the economic value limit measures the impact of a specified
change in interest rates on the present value of the Bank's net
assets. Interest rate exposures in individual currencies are also
controlled by gap limits. Based on the Bank's interest rate
positions as at April 30, 2008, the following table shows the
potential after-tax impact on the Bank's net income over the next
twelve months and economic value of shareholders' equity of an
immediate and sustained 100 basis point increase and decrease in
interest rates across all currencies. Interest rate sensitivity
---------------------------------------------------------------------
Economic ($ millions) value of Net income equity
---------------------------------------------------------------------
100 bp increase $ 107 $ (259)
---------------------------------------------------------------------
100 bp decrease $ (99) $ 233
---------------------------------------------------------------------
Foreign currency risk Foreign currency risk is the risk of loss due
to changes in spot and forward rates, and the volatility of
currency exchange rates. The Bank's exposure to its net investments
in self-sustaining foreign operations is controlled by a
Board-approved limit. This limit considers potential volatility to
shareholders' equity as well as the potential impact on capital
ratios from foreign exchange fluctuations. On a quarterly basis,
the LCO reviews the Bank's exposures to these net investments. The
Bank may fully or partially hedge this exposure by funding the
investments in the same currency, or by using other financial
instruments, including derivatives. The Bank is subject to foreign
currency risk on the earnings of its foreign operations. To manage
this risk, foreign currency revenues and expenses, which are
primarily denominated in U.S. dollars, are projected over a number
of future fiscal quarters. The LCO assesses economic data and
forecasts to decide on the portion of the estimated future foreign
currency revenues and expenses to hedge. Hedging instruments
normally include foreign currency spot and forward contracts, as
well as foreign currency options and swaps. As at April 30, 2008, a
one per cent increase (decrease) in the Canadian dollar against all
currencies in which the Bank operates decreases (increases) the
Bank's before-tax annual earnings by approximately $34 million in
the absence of hedging activity, primarily from exposure to U.S.
dollars. A similar change in the Canadian dollar would increase
(decrease) the unrealized foreign currency translation losses in
the accumulated other comprehensive income section of shareholders'
equity by approximately $153 million as at April 30, 2008, net of
hedging. Equity risk Equity risk is the risk of loss due to adverse
movements in equity prices. Equity price risk is often classified
into two categories: general equity risk, which refers to the
sensitivity of an instrument or portfolio's value to changes in the
overall level of equity prices, and specific equity risk, which
refers to that portion of an individual equity instrument's price
volatility that is determined by entity-specific characteristics.
The Bank is exposed to equity risk through its equity investment
portfolios, which are controlled by Board-approved portfolio, VaR,
and stress-test limits. Equity investments include common and
preferred shares, as well as a diversified portfolio of third-party
managed funds. The majority of the Bank's equity investment
portfolios are managed by Group Treasury under the strategic
direction of the LCO. Group Treasury delegates the management of a
portion of equity and equity- related portfolios to Scotia Cassels
Investment Counsel Limited and other external fund managers to take
advantage of these fund managers' expertise in particular market
niches and products. The fair value of available-for-sale equity
securities was $3,231 million as at April 30, 2008. Trading
portfolio risk management The Bank's policies, processes and
controls for trading activities are designed to achieve a balance
between pursuing profitable trading opportunities and managing
earnings volatility within a framework of sound and prudent
practices. Trading activities are primarily customer focused, but
also include a proprietary component. Market risk arising from the
Bank's trading activities is managed in accordance with
Board-approved policies and limits, including aggregate VaR and
stress testing limits. Trading portfolios are marked to market in
accordance with the Bank's valuation policies. Positions are marked
to market daily and valuations are independently reviewed by back
office or GRM units on a regular basis. These units also provide
profit and loss reporting, as well as VaR and limit compliance
reporting to business unit management and executive management for
evaluation and action as appropriate. VaR is calculated daily using
a 99% confidence level, a one-day holding period and historical
simulations based on 300 days of market data. This means that, on
average, the trading book may lose more than the VaR about once
every 100 days. The table below shows the Bank's VaR by risk
factor: One-day VaR by risk factor
---------------------------------------------------------------------
As at For the three months ended April 30, April 30, 2008 ($
millions) 2008 Average High Low
---------------------------------------------------------------------
Interest rate 14.0 12.8 17.7 9.7 Equities 2.9 3.0 4.3 2.1 Foreign
exchange 1.5 1.3 2.1 0.4 Commodities 2.8 3.6 4.7 2.7
Diversification (4.7) (6.1) n/a n/a
---------------------------------------------------------------------
All-Bank VaR 16.5 14.6 19.9 10.8
---------------------------------------------------------------------
---------------------------------------------------------------------
Hedges There are three main types of hedges for accounting
purposes: (i) fair value hedges, (ii) cash flow hedges and (iii)
net investment hedges. In a fair value hedge, the change in fair
value of the hedging derivative is offset in the Consolidated
Statement of Income by the change in fair value of the hedged item
relating to the hedged risk. The Bank utilizes fair value hedges
primarily to convert fixed rate financial assets and liabilities to
floating rate. The main financial instruments designated in fair
value hedging relationships include bond assets, loans, deposit
liabilities and subordinated debentures. In a cash flow hedge, the
change in fair value of the hedging derivative is recorded in other
comprehensive income until the hedged item affects the Consolidated
Statement of Income. The Bank utilizes cash flow hedges primarily
to convert floating rate deposit liabilities to fixed rate. The
reclassification from accumulated other comprehensive income to
earnings over the next 12 months as a result of outstanding cash
flow hedges is expected to be a net loss of approximately $153
million (after tax). As at April 30, 2008, the maximum length of
cash flow hedges outstanding was less than seven years. In a net
investment hedge, the change in fair value of the hedging
instrument is recorded directly in other comprehensive income.
These amounts are recognized in income when the corresponding
cumulative translation adjustments from the self-sustaining foreign
operation are recognized in income. Any hedge ineffectiveness is
measured and recorded in current period income in the Consolidated
Statement of Income. The Bank recorded a gain of $3 million during
the three months ended April 30, 2008 (April 30, 2007 - loss of $6
million), of which a gain of $11 million (April 30, 2007 - loss of
$5 million) related to cash flow hedges, due to the ineffective
portion of designated hedges. For the six months ended April 30,
2008, the Bank recorded a loss of $3 million (April 30, 2007 - gain
of $6 million) of which a gain of $7 million (April 30, 2007 - gain
of $4 million) related to cash flow hedges. When either a fair
value or cash flow hedge is discontinued, any cumulative adjustment
to either the hedged item or other comprehensive income is
recognized in income over the remaining term of the original hedge,
or when the hedged item is derecognized. Items designated as
trading The Bank has elected to designate certain portfolios of
assets and liabilities as trading which are carried at fair value
with changes in fair values recorded in income. The Bank's trading
operations transact credit derivatives for customers. The Bank may
purchase the underlying loan(s) from another counterparty to
economically hedge the derivative exposure. As a result, the Bank
significantly reduces or eliminates an accounting mismatch between
the two instruments. The fair value of these loans was $7.5 billion
as at April 30, 2008 (January 31, 2008 - $6.4 billion; October 31,
2007 - $4.1 billion). The change in fair value that was recorded
through trading income for the three and six months ended April 30,
2008 was a gain of $53 million (April 30, 2007 - gain of $94
million) and a loss of $227 million (April 30, 2007 - gain of $204
million), respectively. These changes in fair value were entirely
offset by the changes in the fair value of the related credit
derivatives. The Bank's trading operations purchase loan assets in
specifically authorized portfolios for which performance is
evaluated on a fair value basis. The fair value of these loans was
$83 million as at April 30, 2008 (January 31, 2008 - $110 million;
October 31, 2007 - $151 million). The change in fair value that was
recorded through trading income for the three and six months ended
April 30, 2008 was a gain of less than $1 million (April 30, 2007 -
gain of $4 million) and a loss of $3 million (April 30, 2007 -gain
of $9 million), respectively. The Bank has classified certain
deposit note liabilities containing extension features as trading,
in order to significantly reduce an accounting mismatch between
these liabilities and fair value changes in related derivatives.
The fair value of these liabilities was $573 million as at April
30, 2008 (January 31, 2008 - $766 million; October 31, 2007 - $847
million). The change in fair value that was recorded through net
interest income for the three and six months ended April 30, 2008
was a loss of $3 million (April 30, 2007 - loss of $1 million) and
a loss of $13 million (April 30, 2007 - gain of $1 million),
respectively. The change in fair value, which is mainly
attributable to changes in interest rates, was substantially offset
by the change in fair value of the related derivatives. At April
30, 2008, the Bank is contractually obligated to pay $569 million
to the holders of the notes at maturity (January 31, 2008 -$764
million; October 31, 2007 - $853 million). 8. Employee future
benefits Employee future benefits include pensions and other
post-retirement benefits, post-employment benefits and compensated
absences. The following table summarizes the expenses for the
Bank's principal plans(1): For the For the three months ended six
months ended
---------------------------------------------------------------------
April 30 January 31 April 30 April 30 April 30 ($ millions) 2008
2008 2007 2008 2007
---------------------------------------------------------------------
Benefit expenses Pension plans $ 1 $ 1 $ 7 $ 2 $ 16 Other benefit
plans 30 29 30 59 60
---------------------------------------------------------------------
$ 31 $ 30 $ 37 $ 61 $ 76
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Other plans operated by certain subsidiaries of the Bank are
not considered material and are not included in this note. 9.
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 segment income tables above. 10. Acquisitions The
Bank completed the acquisition of Chile's Banco del Desarrollo on
November 26, 2007, through the acquisition of 99.5 per cent of the
outstanding shares for $1.0 billion Canadian dollar equivalent
(CDE). Total assets at acquisition were approximately CDE $5.6
billion, mainly comprised of loans. The Bank will combine the
operations of Banco del Desarrollo with its existing Scotiabank Sud
Americano banking operations. Based on acquisition date fair
values, approximately CDE $797 million has been allocated to the
estimated value of goodwill acquired. The purchase price allocation
may be refined as the Bank completes its valuation of the assets
acquired and liabilities assumed. The Bank completed an 18% equity
investment in DundeeWealth Inc. for $348 million on September 28,
2007. The investment is a combination of voting and convertible
non-voting shares issued out of treasury by DundeeWealth Inc. The
Bank has the right to acquire additional shares in the secondary
market up to 19.9%. This investment is accounted for under the
equity method of accounting. 11. Subsequent events Capital
transaction On May 13, 2008, the Bank initiated a normal course
issuer bid to purchase up to 20 million of the Bank's common
shares. This represents approximately 2 per cent of the Bank's
common shares outstanding as at April 30, 2008. The bid will
terminate on the earlier of January 11, 2009, or the date on which
the Bank completes its purchases. Acquisition On May 13, 2008, the
Bank announced its agreement with Intesa Sanpaolo S.p.A. to acquire
its shares and other interests in Scotiabank Peru for approximately
$230 million, which will increase the Bank's current ownership of
78% in Scotiabank Peru to 98%. 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 2008 Record and payment dates for common and
preferred shares, subject to approval by the Board of Directors.
Record Date Payment Date January 2 January 29 April 1 April 28 July
2 July 29 October 7 October 29 Annual Meeting date for fiscal 2008
The Annual Meeting of Shareholders of the Bank for the fiscal year
ending October 31, 2008, will be held in Halifax, Nova Scotia, at
10:00 a.m., on Tuesday, March 3, 2009. 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 May 27, 2008, at 2:00 p.m. EDT 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 1-800-733-7571 (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 invited to submit questions by e- mail to . A
telephone replay of the conference call will be available from May
27, 2008, to June 12, 2008, by calling (416) 640-1917 and entering
the identification code 21271285 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 N.A. 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: PRNewswire - - 05/27/2008
Copyright