Scotiabank's record earnings trend continues First quarter
highlights compared to the same period a year ago: - Net income of
$704 million, up 18.4% from $595 million - Earnings per share
(diluted) of $1.33, up 19.8% from $1.11 - Return on equity of
19.4%, an increase from 16.6% - Tier 1 capital ratio of 10.9%, up
from 10.0% TORONTO, March 2 /PRNewswire-FirstCall/ -- Scotiabank's
record earnings trend continued in the first quarter of 2004 with
net income of $704 million - an increase of $109 million, or 18.4%,
over the same period last year. Earnings per share (diluted) were
$1.33 - up 22 cents per share, or 19.8%, from the first quarter of
2003. Return on equity was very strong at 19.4%. "Our first quarter
results continue to reflect the diversity and strength of our
businesses," said Rick Waugh, President and CEO. "This led to the
Bank exceeding the higher performance targets established for 2004.
"Our earnings contribute to our industry-leading capital ratios,
which remain a source of strength and flexibility for Scotiabank.
"These results are a tribute to the entire Scotiabank team. Our
employees continue to deliver customer service excellence. Based on
our record first quarter, we remain confident that we will be able
to achieve ourperformance targets for 2004. "On behalf of the
Scotiabank team, I would like to pay special tribute to Peter
Godsoe, who will be stepping down as Chairman today. Through his
leadership, the Bank has consistently delivered superior results to
shareholders and has grown to be a leading Canadian-based
international financial services company. We intend to build on
this record of achievement."
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Performance versus our 2004 targets was as follows:
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1. TARGET: Earn a return on equity (ROE) of 16% to 19%. In Q1,
Scotiabank earned an ROE of 19.4%. 2. TARGET: Generate growth in
earnings per common share of 10% to 15% per year. In Q1, our
year-over-year growth in earnings per share was 19.8%. 3. TARGET:
Maintain a productivity ratio of less than 58%. Scotiabank's
performance in Q1 was 54.3% and continued to lead the industry. 4.
TARGET: Maintain strong capital ratios. At 10.9%, Scotiabank's Tier
1 capital ratio remained very good by any standard.
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Financial Highlights As at and for the three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) 2004 2003 2003
-------------------------------------------------------------------------
Operating results ($ millions) Net interest income (TEB(1)) 1,548
1,584 1,611 Total revenue (TEB(1)) 2,588 2,591 2,645 Provision for
credit losses 170 120 325 Non-interest expenses 1,406 1,494 1,355
Provision for income taxes (TEB(1)) 251 250 296 Net income 704 660
595 Net income available to common shareholders 684 650 568
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Operating performance Basic earnings per share ($) 1.35 1.28 1.12
Diluted earnings per share ($) 1.33 1.26 1.11 Return on equity (%)
19.4 18.6 16.6 Productivity ratio (%) (TEB(1)) 54.3 57.7 51.2 Net
interest margin on total average assets (%) (TEB(1)) 2.18 2.22 2.17
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Balance sheet information ($ millions) Cash and securities 81,578
83,773 74,540 Loans and acceptances 175,680 178,478 188,043 Total
assets 281,451 285,892 289,588 Deposits 191,800 192,672 192,658
Preferred shares 550 800 1,050 Common shareholders' equity 14,209
13,814 13,655 Assets underadministration 167,714 161,974 154,899
Assets under management 20,497 19,964 20,701
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Capital measures Tier 1 capital ratio(%) 10.9 10.8 10.0 Total
capital ratio (%) 13.4 13.2 12.8 Tangible common equity to
risk-weighted assets(2) (%) 9.2 8.9 8.5 Risk-weighted assets($
millions) 153,479 154,523 163,231
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Credit quality Net impaired loans after general allowance(3) ($
millions) 12 47 559 General allowance for credit losses ($
millions) 1,475 1,475 1,475 Net impaired loans as a % of loans and
acceptances(3) 0.01 0.03 0.30 Specific provision for credit losses
as a % of average loans and acceptances 0.38 0.27 0.67
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Common share information Share price ($) High 68.48 67.39 54.75 Low
62.15 58.37 44.55 Close 67.50 65.47 50.70 Shares outstanding
(thousands) Average (basic) 505,392 505,865 504,503 Average
(diluted) 513,704 514,170 512,251 End of period 505,575(4) 505,353
503,666 Dividends per share ($) 0.50 0.44 0.40 Dividend yield (%)
3.1 2.8 3.2 Dividend payout ratio (%) 37.0 34.2 35.6 Market
capitalization ($ millions) 34,126 33,085 25,536 Book value
percommon share ($) 28.10 27.34 27.11 Market value to book value
multiple 2.4 2.4 1.9 Price to earnings multiple (trailing 4
quarters) 13.5 13.8 11.4
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Other information Employees 44,304 43,986 44,500 Branches and
offices 1,875 1,850 1,848
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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 the common equity ofsubsidiaries, less goodwill and intangible
assets, as a percentage of risk-weighted assets. (3) Net impaired
loans are impaired loans less the allowance for credit losses,
including the general allowance. (4) Refer to Share Capital further
below. Management's Discussion and Analysis Review of Operating
Performance A major factor affecting both the results of operations
and financial position was the strong year-over-year appreciation
of the Canadian dollar against most currencies in which the Bank
conducts business - including a 19% rise against the U.S. dollar.
The Bank has taken action to mitigate the impact on net income of
further volatility of U.S./Canadian exchange rates. Total revenue
Total revenue (on a taxable equivalent basis) was $2,588 million in
the first quarter, $57 million lower than the same period a year
ago and $3 million below last quarter. Excluding the effect of
foreign currency translation, total revenue grew by $182 million
year over year and$40 million quarter over quarter. The
year-over-year revenue increase arose from continued strength in
Domestic Banking and in the Caribbean and Mexico. As well, there
were higher gains on the sale of investment securities. Net
interest income Net interest income (on a taxable equivalent basis)
was $1,548 million this quarter, a reduction of 4% from the same
quarter last year. However, excluding foreign currency translation,
net interest income rose by $80 million or 5%. Compared to the
preceding quarter, net interest income declined $36 million, or $7
million excluding foreign currency translation. Canadian currency
interest profit was $42 million higher than last year, mainly
stemming from solid business growth. This primarily arose from
higher residential mortgages, personal loans, current accounts and
high-yield savings deposits. The positive impact of these items was
partially offset by a compression in the net interest margin
compared to last year. Compared to last quarter, Canadian currency
interest profit rose by $14 million. This quarter was positively
affected by the adoption of a new accounting guideline for hedging
relationships, which requires asset-liability management
derivatives that do not qualify for hedge accounting to
bemarked-to-market (refer to details of new accounting policies in
Note 1). This benefit was offset by a reduction in foreign currency
interest profit resulting from the same accounting policy change.
Foreign currency interest profit of $598 million declined by 15%
year over year. Excluding the effect of foreign currency
translation, interest profit rose primarily due to growth in
Scotiabank's international operations, particularly in the
Caribbean and Mexico, and wider U.S. dollar funding margins. The
Bank's total interest margin was 2.18% in the first quarter, up
modestly from the first quarter last year, but down four basis
points from the fourth quarter. Other income Other income rose to
$1,040 million this quarter, up $6 million year over year and $33
million above last quarter. Excluding the impact of foreign
currency translation, the increases were more substantial, with
other income rising $102 million year over year and up $47 million
from the prior quarter. The increase over the first quarter of last
year was driven by stronger gains on the sale of investment
securities, compared to the unusually low level last year. There
was also a substantial improvement in retail brokerage revenues
from higher customer volumes. These gains werepartly offset by
lower securitization revenues following the maturity of several
issues and a decline in credit fees in corporate lending. The
increase over last quarter was mainly due to near-record trading
revenues, particularly in foreign exchange and securities trading,
and higher underwriting fees. Credit fees were lower, in line with
reduced corporate lending volumes. Non-interest expenses and
productivity Non-interest expenses were $1,406 million in the first
quarter, up 4% over the same quarter last year. Excluding the
effect of foreign currency translation, non-interest expenses rose
by 12% year over year. The largest component of this increase was
salaries and benefits, mainly because of higher stock-based
compensation, following a 33%rise in the Bank's stock price. There
was also growth in performance-based compensation in line with
stronger business results. Pension costs rose, primarily from the
higher present value of pension obligations due to a decline in
interest rates. Computer expenses rose year over year, reflecting
the Bank's outsourcing of cheque processing operations (now
reported in computer expenses rather than in several other
categories), and the relatively low level of computer expenses in
the first quarter last year. As well, mortgage acquisition expenses
rose due to higher volumes. Quarter over quarter, expenses fell
significantly by $88 million, mainly because of a decline in
computer and litigation expenses from the high levels incurred last
quarter. The Bank's productivity ratio - a measurement showing the
efficiency with which revenues are generated - continued to lead
the industry at 54.3%. Taxes The Bank's first quarter effective tax
rate was 19.4%. This quarter, there was a benefit of $24
millionfrom the revaluation of net future income tax assets, as a
result of the Ontario government's reversal of previously enacted
tax rate reductions. Excluding this, the effective tax rate was
22.0%, versus 25.4% last year. This decrease was due to higher
tax-exempt dividend income, utilization of tax loss carryforwards
in Scotiabank Inverlat, and a 1% decline in the overall Canadian
statutory tax rate. Non-controlling interest The deduction for
non-controlling interest in the income of subsidiaries was $57
million this quarter, $17 million less than the first quarter last
year, and $10 million below last quarter. The year-over-year
decrease was due mainly to the Bank's purchase of an additional 36%
of Scotiabank Inverlat on April 30, 2003. Partiallyoffsetting this
decrease were higher costs from the issuance of Scotiabank Trust
Securities in February last year (although, these costs were
largely mitigated by lower preferred share dividends). Risk
management The Bank's key risk management policies and practices
are unchanged from those outlined on pages 54 to 63 of the 2003
Annual Report. Credit risk The total provision for credit losses
was $170 million this quarter, a substantial improvement from $325
million in the same period a year ago,but up from $120 million in
the preceding quarter. Provisions for credit losses in the domestic
retail and commercial portfolios remained relatively stable
compared to the same quarter in 2003. However, credit losses in
commercial lending rose from last quarter, due primarily to
provisions taken against two accounts. Credit losses this quarter
in international operations were lower than the same period last
year, due primarily to higher provision reversals and recoveries.
Compared to the preceding quarter, credit losses also fell, because
of lower new provisions. In Scotia Capital, the provision for
credit losses declined $153 million from the same quarter last
year, but rose $49 million from the fourth quarter, which included
higher provision reversals. Strong capital markets continue to
create opportunities for the Bank to sell loans at favourable
prices and for borrowers to refinance. While we expect some
volatility in loan losses from quarter to quarter through 2004,
conditions in the capital markets and a continuing economic
recovery in North America should act to contain loan losses below
2003 levels. Total net impaired loans, after deducting the
allowance for credit losses (both specific and general), were $12
million, a significant improvement from $559 million in the first
quarter of 2003, and a moderate decrease from $47 million last
quarter. Market risk Value at Risk (VaR) is a key measure of market
risk in the Bank's trading activities. In the first quarter of
2004, the one-day VaR averaged $10.3 million. Most of the
year-over-year increase of $0.7 million was associated with
interest rate risk, though this was substantially offset by a
decrease in foreign exchange risk.
-------------------------------------------------------------------------
Jan. 31 Oct. 31 Jan. 31 Risk factor 2004 2003 2003 ($ millions)
Average Average Average
-------------------------------------------------------------------------
Interest rate $ 8.8 $ 6.7 $ 5.3 Equities 5.4 6.1 5.4 Foreign
exchange 1.4 1.4 4.8 Commodities 1.0 1.0 0.5 Diversification (6.3)
(6.4) (6.4)
-------------------------------------------------------------------------
All-Bank VaR $ 10.3 $ 8.8 $ 9.6
-------------------------------------------------------------------------
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Trading revenue was positive on more than 93% of the days in this
quarter, compared to 83% for the previous quarter. No single loss
day exceeded the one-day VaR. Liquidity risk The Bank manages
liquidity to ensure it has the ability to generate or obtain funds
to meet current and future financial obligations in a
cost-effective manner. This involves maintaining sufficient liquid
assets, other cash resources and diverse sources of funding.
Scotiabank obtains funding through a broad range of sources,
including retail and commercial deposits, wholesale funding and
capital. The Bank also raises term funding through asset
securitizations of personal and credit card loans, mortgages and
business loans. The Bank maintains large holdings of liquid assets
tosupport its operations. As at January 31, 2004, liquid assets
were $73 billion (October 31, 2003 - $75 billion), representing 26%
of total assets (October 31, 2003 - 26% of total assets). In the
course of its day-to-day activities, the Bank pledges assets to
secure an obligation, participate in a clearing or settlement
system, or to operate in a foreign jurisdiction. At January 31,
2004, total assets pledged or sold under repurchase agreements were
$40 billion, compared to $44 billion at October 31, 2003. The
majority of these assets relate to repurchase agreements, as well
as pledges for securities borrowing and lending activities. Balance
sheet As at January 31, 2004, total assets were $281 billion, down
$8 billion or 3% from one year ago. Excluding the effect of foreign
currency translation, assets grew by $8 billion. Domestic retail
lending operations continued to perform very well. Residential
mortgage lending rose by a substantial $5 billion, accompanied by
growth in personal revolving credit balances of $3 billion, as the
Bank's product offerings continued to deliver market share gains.
Excluding the impact of foreign currency translation, International
Banking's loan balances also grew year over year, particularly in
the Caribbean and Mexico. Scotiabank Inverlat experienced 46%
growth in mortgages and personal lending, in part due to an
acquisition of a portfolio of retail auto loans. In Scotia Capital,
asset levels rose in trading operations, but continued to fall in
corporate lending from a combination of a planned reduction and the
high level of liquidity in the capital markets. Partially
offsetting asset growth in these areas were underlying decreases in
securities purchased under resale agreements and in investment
securities. Compared to the prior quarter, total assets declined by
$4 billion, mainly from reductions in corporate lending, securities
purchased under resale agreements and investment securities.
However, residential mortgages and retail lending in Canada
continued to grow strongly. As well, excluding foreign currency
translation, there was solid business growth in the Bank's
international operations. Total liabilities decreased $8 billion
from the same quarter of the prior year, but after adjusting for
foreign currency translation, they rose by $8 billion. Over the
past year, deposits in the Bank's popular Money Master account more
than doubled to reach $7 billion, and current account balances grew
by $3 billion. The surplus of market value over book value in the
Bank's investment securities portfolio continued to grow, reaching
$1,157 million at the end of the quarter. This was a significant
increase of $454 million from October 31, 2003. Included in the
surplus was an unrealized gain of $330 million relating to the
Bank's investment holding in Shinsei Bank in Japan. In February
2004, the Bank sold a portion of this investment in the initial
public offering for a realized pre-tax gain of approximately $125
million. Capital management The Bank further increased its very
strong capital position during the quarter. As at January 31, 2004,
the Tier 1 ratio was 10.9%, up significantly from 10.0% a year ago.
This ratio also rose by 10 basis points over the prior quarter,
notwithstanding the redemption of $250 million of Tier 1 preferred
shares. The tangible common equity ratio (which represents common
equity less goodwill and intangibles as a percentage of
risk-weighted assets) was 9.2%, an increase of 70 basis points from
last year, and above the ratios of other major Canadian banks.
Dividend The Board of Directors announced on March 2, 2004, a stock
dividend doubling the number of the Bank's outstanding common
shares and effectively achieving a two-for-one split of its common
shares. The stock dividend is payable on April 28, 2004 to common
shareholders of record at the close of business on April 6, 2004,
with each outstanding whole common share being entitled to one
additional common share. By doubling the number of common shares
outstanding, there will be a corresponding reduction in the market
price per share. The Board of Directors also approved a quarterly
dividend of 50 cents per common share to shareholders of record as
of April 6, 2004. The payment date for the cash dividend isApril
28, 2004, and is payable prior to the stock dividend. This cash
dividend would be the equivalent of 25 cents per share on a split
basis. Outlook We expect a more synchronized global economic
recovery among industrial nations during 2004 and 2005. The U.S.
will lead the revival among industrial nations by a substantial
margin. A global recovery is good news for Canada and Mexico, given
the importance of exports - especially to the United States - to
both countries. A broad-based recovery is also good for many of
Canada's commodities producers. At the same time, a number of
industries are facing transitional challenges, triggered by the
rapid appreciation of the Canadian dollar and the need to improve
productivity to compete effectively in the U.S. and other
international markets. Inflation is expected to remain well
controlled in North America, allowing central banks to keep
interest rates at historically low levels through 2004. Despite the
improving economic conditions in many of the Bank's markets, we
still face some challenges of margin pressure, foreign currency
volatility and asset growth in business lending. Notwithstanding,
we are confident that our overall strategies will enable us to
achieve our performance targets for the coming year.
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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 our
objectives, strategies, expected financial results (including those
in the area of risk management), and our outlook for our businesses
and for the Canadian, U.S. and global economies. Forward-looking
statements are typically identified by words or phrases such as
"believe," "expect," "anticipate," "intent," "estimate," "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 otherforward-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; the accuracy and completeness
of information the Bank receives on customers and counterparties;
the timely development and introduction of new products and
services; the Bank's ability to complete and integrate
acquisitions; 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
spendingand saving habits; technological developments;
consolidation in the Canadian financial services sector; changes in
tax laws; competition; 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; 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. 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, investors
and others should carefully consider the foregoing factors, other
uncertainties and potential events. The Bank does not undertake to
update any forward-lookingstatements, whether written or oral, that
may be made from time to time by or on behalf of the Bank.
-------------------------------------------------------------------------
Business Line Review Domestic Banking Business line income For the
three months ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) January 31 October 31 January 31 (Taxable
equivalent basis)(1) 2004 2003 2003
-------------------------------------------------------------------------
Net interest income $ 877 $ 878 $ 869 Provision for credit losses
(92) (48) (76) Other income 417 406 371 Non-interest expenses (764)
(844) (716) Provision for income taxes (139) (128) (154)
-------------------------------------------------------------------------
Net income $ 299 $ 264 $ 294
-------------------------------------------------------------------------
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Other measures For the three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) 2004 2003 2003
-------------------------------------------------------------------------
Return on equity(2) 32.4% 29.2% 32.7% Average assets ($ billions) $
107 $ 105 $ 98
-------------------------------------------------------------------------
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(1) Refer to footnote (2) further below. (2) Refer to footnote (4)
further below. Highlights Domestic Banking, which includes Wealth
Management, generated net income of $299 million in the first
quarter, an increase of 2% over last year's solid results. Domestic
Banking contributed 42% of the Bank's total net income this
quarter. Quarter over quarter, net income rose 13%, reflecting
significantly lower expenses, partly offset by an increase in
provisions for credit losses. Net interest income was slightly
above last year, as continued strong growth in both retail lending
and core deposits was mostly offset by a lower margin. Residential
mortgages and revolving credit remained the main contributors to
asset growth. As well, business deposits recorded a significant
increase. Other income rose $46 million or 12% year over year,
mainly from higher brokerage and related revenues, which continued
to rebound with higher customer volumes. There were smaller
increases in other categories, such as transaction-based and
electronic banking fees. Provisionsfor credit losses rose $16
million year over year, and $44 million compared to the prior
quarter, mainly in the commercial portfolio due primarily to
provisions taken against two accounts. Credit quality remained
solid in the retail portfolio. Operating expenses grew 7% from the
same quarter last year, largely as a result of normal growth in
salaries, higher performance and stock-based compensation and an
increase in pension costs. In addition, mortgage acquisition
expenses rose in line with volume growth. Operating expenses were
9% lower than the prior quarter, when higher litigation,
performance-based compensation and technology-related expenses were
incurred. Other highlights: - Scotiabank led the major banks in
year-over-year residentialmortgage market share gains, as our
innovative product lineup and industry-leading customer service,
along with a continuation of low interest rates, resulted in strong
growth from all distribution channels. - Based on the significant
success of The Ultimate(R) GIC product, Scotiabank is now offering
it within RSPs and RIFs. The Ultimate(R) GIC permits customers to
take advantage of higher long-term interest rates at the time of
purchase, and allows them to reinvest or withdraw a portion of the
GIC at each anniversary date. - Scotiabank's marketing programs
continue to be recognized with a variety of important industry
awards. We received four awards, including one gold, at the 2003
Canadian Marketing Association's Awards Gala. Scotiabank was the
only major bank to win an award. - Scotiabank continues to
successfully grow the recently launched ican Invest(TM) Program.
More than 30,000 customers are using the program to identify and
achieve their financial goals by setting money aside on a regular
basis and investing it in a selection of one-stop solutions, such
as the Scotia Selected(TM) Funds, a series of six mutual fund
portfolios comprising Scotiabank and Capital International mutual
funds. - We continue to see strong growth in fee-based brokerage
assets, which reached $6 billion, up 15% during the quarter. -
RoyNat Capital, our merchant banking subsidiary, opened two more
U.S. offices in Charlotte and Chicago, following early successes
with our office in Cleveland. Our U.S. offices service Canadian
companies seeking capital to finance expansion into the United
States, and provide long-term financing to mid-market U.S.
companies in our target industries. Scotia Capital Business line
income For the three months ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) January 31 October 31 January 31 (Taxable
equivalent basis)(1) 2004 2003 2003
-------------------------------------------------------------------------
Net interest income $ 254 $ 279 $319 Provision for credit losses
(71) (22) (224) Other income 332 295 349 Non-interest expenses
(241) (245) (229) Provision for income taxes (71) (86) (77)
-------------------------------------------------------------------------
Net income $ 203 $ 221 $ 138
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures For the three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) 2004 2003 2003
-------------------------------------------------------------------------
Return on equity(2)17.4% 18.5% 8.4% Average assets ($ billions) $
112 $ 112 $ 122
-------------------------------------------------------------------------
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(1) Refer to footnote (2) further below. (2) Refer to footnote (4)
further below. Highlights Scotia Capital reported earnings of $203
million in the first quarter, a significant increase of $65 million
from a year ago, but a decline of $18 million from last quarter.
ROE, at 17.4% for the quarter, was significantly ahead of the
previous year, but slightly lower than last quarter. The
improvement from last year was due largely to a significant
reduction in credit losses in the U.S. and Europe corporate lending
portfolios. The decrease from the previous quarter primarily
reflected the low level of credit losses in that period. Total
revenues fell 12% compared to a year ago because of foreign
currency translation and reductions in North American lending
volumes. Revenues from capital markets, precious metals, foreign
exchange trading and underwriting continued to be strong, resulting
in a 2% growth in total revenues from last quarter. The provision
for credit losses was $71 million, significantly lower than last
year, but $49 million above last quarter, which included the
benefit of several provision reversals due to loan sales and loans
returning to performing status. Strong capital markets continue to
create opportunities for the Bank to sell loans at favourable
prices and for borrowers to refinance. Overall, provisions for loan
losses for the year should be below 2003 levels. Total expenses
rose 5% from last year reflecting higher performance- related
compensation. However, they fell 2% from last quarter, primarily
due to lower severance costs and professional fees, partly offset
by higher performance-related compensation. Other highlights: -
Scotia Capital earned the No. 1 ranking in debt underwriting and
the No. 1 ranking in total debt and equity financings for 2003 in
Canada for Canadian companies, as reported by Bloomberg. - In 2003,
we were the No. 1 Canadian bank in the global syndicated lending
market (arranger/agent full credit volume basis), as reported by
Loan Pricing Corporation. - Scotia Capital's interest rate
derivatives team ranked No. 1 on the Quality Index, No. 1 for
Overall Market Share and No. 1 for Overall Market Penetration in a
third-party market survey of interest rate derivatives in Canada. -
Scotia Capital held a successful conference for analysts and
investors on January 22, as members of Scotia Capital's management
team, along with the Bank's head of credit risk management,
reviewed the key businesses. The conference was well received by
the investment community. - We were the co-lead underwriter of $800
million in bank debt facilities and the joint bookrunner of a
US$350 million, 10-year, high-yield bond offering, proceeds of
which funded Alimentation Couche-Tard Inc.'s $1.1 billion
cross-border acquisition of Circle K stores. - Scotia Capital was
the co-lead manager for Cineplex Galaxy's $194 million initial
public offering of income trust units, and the co-lead arranger and
administrative agent of the accompanying $170 million senior credit
facility. We were also appointed sole advisor and lead hedge
arranger for the client's interest rate hedging program. - Scotia
Capital was awarded the joint lead arranger and joint-bookrunner
role in the $500 million recapitalization of Weight Watchers'
existing senior credit facilities. - Scotia Capital was the
exclusive financial advisor for Dorel Industries Inc.'s US$310
million acquisition of Pacific Cycle LLC. In addition, we were a
significant participant in the senior bank syndicate for the
acquisition financing. International Banking Business line income
For the three months ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) January 31 October 31 January 31 (Taxable
equivalent basis)(1) 2004 2003 2003
-------------------------------------------------------------------------
Net interest income $ 448 $ 494 $ 527 Provision for credit losses
(7) (45) (28) Other income 174 192 193 Non-interest expenses (390)
(404) (411) Provision for income taxes (39) (47) (61)
Non-controlling interest in net income of subsidiaries (23) (34)
(53)
-------------------------------------------------------------------------
Net income $ 163 $ 156 $ 167
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures For the three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) 2004 2003 2003
-------------------------------------------------------------------------
Return on equity(2) 19.4% 19.1% 20.0% Average assets ($ billions) $
48 $ 49 $ 57
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Refer to footnote (2) further below. (2) Refer to footnote (4)
further below. Highlights International Banking reported net income
of $163 million this quarter, a modest decline of $4 million or3%
from last year. However, excluding the impact of the stronger
Canadian dollar, net income rose $40 million. Quarter over quarter,
earnings grew $7 million, notwithstanding the further strengthening
of the Canadian dollar. Scotiabank Inverlat's contribution
increased substantially over last year and last quarter as a result
of the continued strong growth in retail loans and deposits, and
utilization of tax loss carryforwards. In addition, the acquisition
of an additional 36% share of Inverlat in 2003 contributed to the
year-over-year increase. The results of the remaining operations in
Latin America were on par with last year, but fell from last
quarter as a result of provision reversals related to Argentina in
that period. There was good underlying growth in retail loans and
deposits in the Caribbean; however, due to the effect of foreign
currency translation, earnings fell 11% below last year. Net income
improved from last quarter as a result of a decline in credit
losses and lower expenses. In Asia, net income fell below both last
year and last quarter primarily due to the marked-to-market
adjustment relating to derivatives that no longer qualified for
hedge accounting beginning this quarter (refer to details of new
accounting policies in Note 1). Underlying earnings were stable
with moderate asset growth and minimal credit losses. Other
highlights: - Scotiabank Inverlat continued to show strong growth
in retail lending, with the highest market share in both
bank-financed automotive (31%) and residential mortgage (29%)
lending. As well, we launched a personal line of credit product
(ScotiaLine), which is new to the Mexican marketplace. - In Mexico,
Scotiabank Inverlat teamed up with First Data Corp. to launch
ScotiaPOS, a new merchant services alliance that will enhance
merchant processing services. Under the terms of the 10-year
agreement, First Data assumes management of Scotiabank Inverlat's
merchant credit card processing operations, as well as related
sales and marketing activities. - In the Caribbean and Central
America, we continue to expand our ABM network, a key part of our
delivery platform. We added more than 60 ABMs in Q1, bringing the
total number inthe region to 472. - The 2003 CID Gallup Consumer
Usage and Attitudes Study revealed that Scotiabank de Costa Rica is
the best-rated bank for quality of service for the second
consecutive year. Our high standard of customer service isthe
reason Scotiabank is ranked number one in the financial sector. -
In the Dominican Republic, we completed the integration of the
acquired Banco Intercontinental branches, with 33 branches upgraded
and rebranded as Scotiabank. As well, we issued new credit cards
for the 70,000 accounts acquired as part of this investment, making
us one of the largest card issuers in the country. - To improve
operating efficiency and increase sales capacity, we completed the
implementation of the ScotiaGlobe core banking system in the
Bahamas. The new system will be installed across the Caribbean by
the end of the year. Other(1) Business line income For the three
months ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) January 31 October 31 January 31 (Taxable
equivalent basis)(2) 2004 2003 2003
-------------------------------------------------------------------------
Net interest income(3) $ (99) $ (135) $ (172) Provision for credit
losses - (5) 3 Other income 117 114 121 Non-interest expenses (11)
(1) 1 Provision for income taxes(3) 66 79 64 Non-controlling
interest in net income of subsidiaries (34) (33) (21)
-------------------------------------------------------------------------
Net income $ 39 $ 19 $ (4)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures For the three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) 2004 2003 2003
-------------------------------------------------------------------------
Average assets ($ billions) $ 16 $ 17 $ 17
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Highlights Other segments reported a profit of $39 million for the
quarter, including $24 million from the revaluation of net future
income tax assets following the Ontario government's reversal of
previously enacted tax rate reductions. As well, in Group Treasury,
there were higher gains on the sale of investment securities, and
an increase in net interest income, reflecting the marked-to-market
adjustment for certain derivatives that no longer qualified as
hedges under the new accounting rules. Total Business line income
For the three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) ($ millions) 2004 2003
2003
-------------------------------------------------------------------------
Net interest income $ 1,480 $ 1,516 $ 1,543 Provision for credit
losses (170) (120) (325) Other income 1,040 1,007 1,034
Non-interest expenses (1,406) (1,494) (1,355) Provision for income
taxes (183) (182) (228) Non-controlling interest in net income of
subsidiaries (57) (67) (74)
-------------------------------------------------------------------------
Net income $ 704 $ 660 $ 595
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures For the three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) 2004 2003 2003
-------------------------------------------------------------------------
Return on equity(4) 19.4% 18.6% 16.6% Average assets ($ billions) $
283 $ 283 $ 294
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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
andcharged to the operating segments, and the impact of
securitizations. (2) The Bank, like many 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, 2004 ($68), October 31, 2003 ($68), and January 31, 2003 ($68),
to arrive at the amounts reported in the Consolidated Statement of
Income. (4) For management and internal reporting purposes, the
Bank allocates equity to its business lines using a methodology
that considers credit, market and operational risk inherent in each
business line. Return on equity is calculated based on the economic
equity allocated to the business line. Economic equity is not a
defined term under GAAP and, accordingly, the resulting return on
equity for each business line may not be comparable to those used
by other financial institutions. Geographic Highlights For the
three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) 2004 2003 2003
-------------------------------------------------------------------------
Net income ($ millions) Canada $ 470 $ 379 $ 431 United States 78
74 48 Other international 184 240 150 Corporate adjustments (28)
(33) (34)
-------------------------------------------------------------------------
$ 704 $ 660 $ 595
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average assets ($ billions) Canada $ 185 $ 181 $ 170 United States
25 27 40 Other international 70 72 80 Corporate adjustments 3 3 4
-------------------------------------------------------------------------
$ 283 $ 283 $ 294
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other Initiatives Electronic Banking - In November, Scotiabank
became the first Canadian financial institution to distribute new
EMV-compliant VISA chip cards in a pilot in Barrie, Ontario. EMV
chip technology provides numerous security enhancements and enables
card issuers to build customer-focused applications, such as
loyalty programs, right into the card. - Scotiabank has increased
accessibility and improved customer service through the use of
voice recognition technology. For example, customers can now reset
their password or add a new bill payment company to their profile
using this technology. Employees and Human Resources - Four of
Scotiabank's executive vice-presidents - Deborah Alexander, General
Counsel and Secretary; Alberta Cefis, Retail Lending Services;
Sylvia Chrominska, Human Resources; and Peggy Mulligan, Systems
& Operations - were named on November 27, to the top 100 list
of Canada's Most Powerful Women, developed by the Women's Executive
Network and the University of Western Ontario's Richard Ivey School
of Business. Thiswas the highest representation from any single
organization. Community Involvement - More than 1,000 Grade 9
students across Canada explored career options on November 4 during
Take Our Kids to Work Day. The national job shadowing program,
sponsored by the Learning Partnership and corporations, including
Scotiabank, brings parents, education and business together to give
students a firsthand look at the working world. At Scotiabank's
Toronto offices, visiting students learned about the wide range of
career options available through the Bank, ranging from graphic
artists to security experts, as well as the traditional
finance-related jobs. - Scotiabank President and CEO Rick Waugh
took part in a ceremonial blanket dance at Scotia Plaza on November
20, which raised more than $25,000 for the Native Canadian Centre
of Toronto and Mishkaowjiwan, the Native Centre Foundation. The
Bank donated $10,000 to the centre as part of the event. - In
November, Toronto Special Events received five major awards at the
International Festivals and Events Association Pinnacle Awards
competition, which recognize outstanding examples of special events
promotion. The 36th annual Cavalcade of Lights, presented by
Scotiabank, took the gold trophy for the Best Full Length TV
Program (Local) and a silver trophy for Best Photograph. Designs in
Ice, a three-day ice carving exhibition and competition, also
presented by Scotiabank, won the silver trophy for Single New
Sponsorship Program. - Dr. Carleen Allen, a recent graduate of the
University of the West Indies, won the inaugural Scotiabank Jamaica
Award for Pediatrics for outstanding performance in her final
examinations. Dr. Allen, who competed with more than 100 of her
classmates, received US$2,500. - Employees across Canada were
enthusiastic participants in their local United Way/Centraide
campaigns. The largest campaign was in the Greater Toronto Area,
where on January 8, President and CEO Rick Waugh presented a cheque
for $4.7 million to the United Way on behalf of the Bank and its
employees - the Bank's largest-ever donation to the charity. Later
that month, Scotiabank received the Employee Campaign of the Year
award at the United Way Spirit Awards. In Vancouver, the Bank was
once again the title sponsor of the Scotiabank and United Way
Spirit Awards breakfast, held January 21. Vancouver-area employees
also raised a record $330,000 for this year's campaign. Interim
Consolidated Financial Statements Consolidated Statement of Income
For the three months ended
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) ($ millions) 2004 2003
2003
-------------------------------------------------------------------------
Interest income Loans $ 2,300 $ 2,339 $ 2,622 Securities 684 654
734 Deposits with banks 98 100 122
-------------------------------------------------------------------------
3,082 3,093 3,478
-------------------------------------------------------------------------
Interest expense Deposits 1,235 1,211 1,411 Subordinated debentures
26 26 45 Other 341 340 479
-------------------------------------------------------------------------
1,602 1,577 1,935
-------------------------------------------------------------------------
Net interest income 1,480 1,516 1,543 Provision for credit losses
(Note 6) 170 120 325
-------------------------------------------------------------------------
Net interest income after provision for credit losses 1,310 1,396
1,218
-------------------------------------------------------------------------
Other income Card revenues 61 58 55 Deposit and payment services
155 148 150 Mutual funds 41 41 41 Investment management, brokerage
and trust services 125 122 111 Credit fees 146 158 174 Trading
revenues 152 107 157 Investment banking 161 165 169 Net gain on
investment securities 70 66 11 Securitization revenues 28 26 51
Other 101 116 115
-------------------------------------------------------------------------
1,040 1,007 1,034
-------------------------------------------------------------------------
Net interest and other income 2,350 2,403 2,252
-------------------------------------------------------------------------
Non-interest expenses Salaries and staff benefits 841 853 806
Premises and technology 281 305 274 Communications 59 61 64
Advertising and business development 47 55 47 Professional 29 40 30
Business and capital taxes 37 33 37 Other 112 147 97
-------------------------------------------------------------------------
1,406 1,494 1,355
-------------------------------------------------------------------------
Income before the undernoted 944 909 897 Provision for income taxes
183 182 228 Non-controlling interest in net income of subsidiaries
57 67 74
-------------------------------------------------------------------------
Net income $ 704 $ 660 $ 595
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Preferred dividends paid and other 20 10 27
-------------------------------------------------------------------------
Net income available to common shareholders $ 684 $ 650 $ 568
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of common shares outstanding (thousands): Basic
505,392 505,865 504,503 Diluted 513,704 514,170 512,251
-------------------------------------------------------------------------
Earnings per common share (in dollars): Basic $ 1.35 $ 1.28 $ 1.12
Diluted $ 1.33 $ 1.26 $ 1.11
-------------------------------------------------------------------------
Dividends per common share (in dollars) $ 0.50 $ 0.44 $ 0.40
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Balance Sheet As at
-------------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) ($ millions) 2004 2003
2003
-------------------------------------------------------------------------
Assets Cash resources Cash and non-interest-bearing deposits with
banks $ 1,361 $ 1,373 $ 1,431 Interest-bearing deposits with banks
15,363 17,111 14,051 Precious metals 2,127 2,097 2,264
-------------------------------------------------------------------------
18,851 20,581 17,746
-------------------------------------------------------------------------
Securities Investment 18,288 20,293 21,514 Trading 44,439 42,899
35,280
-------------------------------------------------------------------------
62,727 63,192 56,794
-------------------------------------------------------------------------
Loans Residential mortgages 62,583 61,646 56,902 Personal and
credit cards 27,046 26,277 23,788 Business and governments 63,155
64,313 75,321 Securities purchased under resale agreements 19,266
22,648 27,359
-------------------------------------------------------------------------
172,050 174,884 183,370 Allowance for credit losses (Note 6) 3,257
3,217 3,639
-------------------------------------------------------------------------
168,793 171,667 179,731
-------------------------------------------------------------------------
Other Customers' liability under acceptances 6,887 6,811 8,312
Land, buildings and equipment 1,863 1,944 2,070 Trading
derivatives' market valuation 15,547 15,308 17,735 Goodwill 280 270
292 Other intangible assets 276 284 297 Other assets 6,227 5,835
6,611
-------------------------------------------------------------------------
31,080 30,452 35,317
-------------------------------------------------------------------------
$ 281,451 $ 285,892 $ 289,588
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and shareholders' equity Deposits Personal $ 78,328 $
76,431 $ 76,551 Business and governments 89,463 93,541 89,946 Banks
24,009 22,700 26,161
-------------------------------------------------------------------------
191,800 192,672 192,658
-------------------------------------------------------------------------
Other Acceptances 6,887 6,811 8,312 Obligations related to
securities sold under repurchase agreements 24,144 28,686 27,232
Obligations related to securities sold short 9,911 9,219 9,198
Trading derivatives' market valuation 15,160 14,758 16,608 Other
liabilities 13,810 14,145 15,104 Non-controlling interest in
subsidiaries 2,316 2,326 1,919
-------------------------------------------------------------------------
72,228 75,945 78,373
-------------------------------------------------------------------------
Subordinated debentures 2,664 2,661 3,852
-------------------------------------------------------------------------
Shareholders' equity Capital stock Preferred shares 550 800 1,050
Common shares and contributed surplus 3,115 3,141 3,024 Retained
earnings 12,144 11,747 10,691 Cumulative foreign currency
translation (1,050) (1,074) (60)
-------------------------------------------------------------------------
14,759 14,614 14,705
-------------------------------------------------------------------------
$ 281,451 $ 285,892 $ 289,588
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statement of Changes in Shareholders' Equity For the
three months ended
-------------------------------------------------------------------------
January 31 January 31 (Unaudited) ($ millions) 2004 2003
-------------------------------------------------------------------------
Preferred shares Bank: Balance at beginning of period $ 550 $ 1,025
Redeemed (250) (225)
-------------------------------------------------------------------------
Balance at end of period 300 800 Scotia Mortgage Investment
Corporation 250 250
-------------------------------------------------------------------------
Total 550 1,050
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Common shares and contributed surplus Common shares: Balance at
beginning of period 3,140 3,002 Issued 26 30 Purchased for
cancellation (4) (9)
-------------------------------------------------------------------------
Balance at end of period 3,162 3,023 Contributed surplus: Fair
value of stock options 1 1 Common shares purchased for trading
(Note 1) (48) -
-------------------------------------------------------------------------
Total 3,115 3,024
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings Balance at beginning of period 11,747 10,398 Net
income 704 595 Dividends: Preferred (10) (18) Common (253) (202)
Purchase of shares and premium on redemption (44) (77) Other - (5)
-------------------------------------------------------------------------
Balance at end of period 12,144 10,691
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cumulative foreign currency translation Balance at beginning of
period (1,074) 102 Net unrealized foreign exchange translation
gains/(losses)(1) 24 (162)
-------------------------------------------------------------------------
Balance at end of period (1,050) (60)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total shareholders' equity at end of period $ 14,759 $ 14,705
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Comprises unrealized foreign exchange translation
gains/(losses) on net investments in self-sustaining foreign
operations of $162 (January 31, 2003 - $(260)) and gains/(losses)
from related foreign exchange hedging activities of $(138) (January
31, 2003 - $98). Condensed Consolidated Statement of Cash Flows For
the three months ended
-------------------------------------------------------------------------
Sources and (uses) of cash flows January 31 January 31 (Unaudited)
($ millions) 2004 2003
-------------------------------------------------------------------------
Cash flows from operating activities Net income $ 704 $ 595
Adjustments to net income to determine cash flows 123 331 Net
accrued interest receivable and payable (41) 209 Trading securities
(1,465) (1,106) Trading derivatives' market valuation, net 161
(830) Other, net (104) (533)
-------------------------------------------------------------------------
(622) (1,334)
-------------------------------------------------------------------------
Cash flows from financing activities Deposits (2,281) (897)
Obligations related to securities sold under repurchase agreements
(4,573) (3,707) Obligations related tosecurities sold short 692 500
Capital stock issued 26 30 Capital stock redeemed/purchased for
cancellation or trading, net (346) (311) Cash dividendspaid (263)
(220) Other, net (296) 431
-------------------------------------------------------------------------
(7,041) (4,174)
-------------------------------------------------------------------------
Cash flows from investing activities Interest-bearing deposits with
banks 2,190 2,408 Loans, excluding securitizations 2,442 2,842 Loan
securitizations 967 749 Investment securities, net 2,281 (338)
Land, buildings and equipment, net of disposals (24) (20)
-------------------------------------------------------------------------
7,856 5,641
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 17
(30)
-------------------------------------------------------------------------
Net change in cash and cash equivalents 210 103 Cash and cash
equivalents at beginning of period 897 589
-------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,107 $ 692
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Represented by: Cash and non-interest-bearing deposits with banks $
1,361 $ 1,431 Cheques and other items in transit, net liability
(254) (739)
-------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,107 $ 692
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash disbursements made for: Interest $ 1,726 $ 1,964 Income taxes
$ 164 $ 123
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Notes to the Interim Consolidated Financial Statements (Unaudited):
These interim consolidated financial statements have been prepared
in accordance with Canadian generally accepted accounting
principles. They should be read in conjunction with the
consolidated financial statements for the year ended October 31,
2003, as set out in the 2003 Annual Report. The accounting policies
used in the preparation of these interim consolidated financial
statements are consistent withthose used in the Bank's year-end
audited consolidated financial statements, except as discussed in
Note 1. Certain comparative amounts have been reclassified to
conform with current period's presentation. 1. New accounting
policies: Hedging Effective November 1, 2003, the Bank adopted a
new accounting guideline for hedging relationships, issued by the
Canadian Institute of Chartered Accountants (CICA). This guideline
establishes certain qualifying conditionsfor the use of hedge
accounting, which are more stringent and formalized than prior
standards. Income and expenses on derivative instruments designated
and qualifying as hedges under this guideline are recognized in the
Consolidated Statement of Income in the same period as the related
hedged item. Asset-liability management (non-trading) derivatives
that do not qualify for hedge accounting are carried at fair value
on the Consolidated Balance Sheet, and subsequent changes in their
fair value are recorded in the Consolidated Statement of Income as
follows: interest rate-related contracts in net interest income;
options used in managing investment securities in net gain on
investment securities; and other derivative contracts in other
income - other. The Bank reassessed its hedging relationships as at
November 1, 2003, which on transition resulted in an associated
unrealized net loss of $44 million. This amount was deferred in
other assets in the Consolidated Balance Sheet, and is being
recognized in earnings as the original hedged items affect net
income. The adoption of this accounting guideline did not have a
material impact on the Bank's results of operations for the
quarter. Generally accepted accounting principles (GAAP) Effective
November 1, 2003, the Bank, as required, prospectively adopted a
new CICA standard for financial reporting. This standard formalizes
the Canadian GAAP framework and specifies that industry practice is
no longer recognized as a source of GAAP. The effect of adopting
this standard on these financial statements is set out below.
Computer software development costs Effective November 1, 2003,
certain costs incurred for software development are capitalized and
amortized over the useful life of the software. Previously, these
costs were expensed as incurred. For the three months ended January
31, 2004, the amount capitalized, net of related amortization, was
$10 million. Common shares The Bank's broker-dealer subsidiary, as
permitted by Bank Act regulations, trades in the Bank's shares. In
prior periods, these were recorded in trading securities. Effective
November 1, 2003, trades in the Bank's shares are accounted for as
capital transactions in shareholders' equity. As at January 31,
2004, the Bank's broker-dealer subsidiary held$48 million of the
Bank's common shares, which were recorded as a reduction to the
Bank's issued share capital. Mortgage prepayment fees In prior
periods, mortgage prepayment fees were deferred by the Bank and
amortized over the remaining term of the original mortgage. As at
October 31, 2003, deferred mortgage prepayment fees of $75 million
were recorded in other liabilities. Effective November 1, 2003, the
Bank recognizes mortgage prepayment fees in income unless only
minor modifications (based on a present value cash flow test) were
made to the mortgage. During the quarter, deferred fees of $5
million relating to customers who had transferred their mortgage to
another financial institution were recognized in income. The Bank
continues to evaluate the remaining fees to determine whether they
should continue to be deferred and amortized, or recognized
immediately in income. Other The Bank continues to evaluate the
presentation of certain asset and liability balances on the
Consolidated Balance Sheet. The presentation of cheques and other
items in transit on a net basis and recording securities
transactions on settlement dates are the remaining items under
review. The impact of these changes is not expected to be material
to the consolidated financial statements. 2. Future accounting
changes: Consolidation of variable interest entities (VIEs) In
January 2004, the CICA announced its intention to update the VIE
accounting guideline, previously issued in June 2003, to harmonize
with the December 2003 revisions to the U.S. VIE accounting
standard. Under these revisions, the Bankdoes not expect to be
required to consolidate most of the mutual funds it sponsors, nor
its personal and corporate trust structures. Apart from this
change, the disclosure of the estimated financial statement impact
described in Note 2 to the consolidated financial statements for
the year ended October 31, 2003, continues to apply. As
implementation issues are addressed and revisions to the accounting
guideline are made, the estimated impact of this new guideline may
change. Liabilities and equity In January 2004, the CICA issued a
new pronouncement amending the accounting for certain financial
instruments, which have the characteristics of both a liability and
equity. This pronouncement requires certain contractual obligations
that can be settled at the issuer's option by issuing a variable
number of the issuer's own equity instruments to be presented as
liabilities rather than as equity. This change in accounting would
be applied retroactively, with restatement of comparative amounts,
and is effective for the Bank's interim financial statements
commencing November 1, 2004. The Bank expects that the $250 million
of preferred shares issued by Scotia Mortgage Investment
Corporation and $2.0 billion of Scotiabank Trust Securities will be
reclassified from shareholders' equity and non-controlling interest
in subsidiaries, respectively, to liabilities. This will not impact
the Bank's capital ratios, as the Superintendent of Financial
Institutions Canada has confirmed that these existing securities
will remain eligible as Tier 1 capital. 3. Sales of loans through
securitizations During the quarter, the Bank securitized
residential mortgages of $975 million (January 31, 2003 - $760
million) through the creation of mortgage-backed securities, and
received net cash proceeds of $967 million (January 31, 2003 - $749
million). A net gain on sale of $12 million (January 31, 2003 - $11
million) was recognized in securitization revenues in the
Consolidated Statement of Income. No credit losses are expected, as
the mortgages are insured. 4. 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. 5. Significant capital transactions In the first quarter,
the Bank initiated a new normal course issuer bid to purchase up to
25 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 ofJanuary 5, 2005, or the
date the Bank completes its purchases. During the quarter, the Bank
purchased 0.6 million common shares at an average cost of $63.34.
On January 28, 2004, the Bank redeemed $250 million Series 11
Non-cumulative Preferred Shares. These shares were redeemed at a
price of $26 per share, which included a premium of $1 per share.
6. Allowance for credit losses The following table summarizes the
change in the allowance for credit losses, segregated among
specific, country risk and general allowances. For the three months
ended
---------------------------------------------------------------------
Country Specific risk General January 31 January 31 ($ millions)
allowance allowance allowance 2004 2003
---------------------------------------------------------------------
Balance at beginning of period $ 1,719 $ 386 $ 1,475 $ 3,580 $
3,848 Presented with securities - (363) - (363) - Reclassified to
specific allowance 23 (23) - - - Write offs (177) - - (177) (77)
Recoveries 40 - - 40 49 Provision for credit losses 170 - - 170 325
Other, including foreign exchange adjustment 20 - - 20 (60)
---------------------------------------------------------------------
Balance at the end of period $ 1,795(1) $ - $ 1,475 $ 3,270(1) $
4,085
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Includes $13 (January 31, 2003 - nil) which has been recorded
in other liabilities. 7. Subsequent event On March 2, 2004, the
Bank's Board of Directors announced a stock dividend of one common
share for each of its issued and outstanding common shares. The
effect is the same as a two-for-one stock split of its common
shares. The record date for the stock dividend is April 6, 2004,
effective immediately after the record date of the cash dividend
declared of 50 cents per common share. The earnings and dividends
per common share figures will be restated in the Consolidated
Statement of Income after the record date, as follows: For the
three months ended
---------------------------------------------------------------------
January 31 October 31 January 31 (Unaudited) 2004 2003 2003
---------------------------------------------------------------------
Net income available to common shareholders ($ millions) $ 684 $
650 $ 568 Average number of common shares outstanding (thousands):
Basic 1,010,784 1,011,730 1,009,006 Diluted 1,027,409 1,028,340
1,024,502
---------------------------------------------------------------------
Earnings per common share (in dollars): Basic $ 0.68 $ 0.64 $ 0.56
Diluted $ 0.67 $ 0.63 $ 0.55
---------------------------------------------------------------------
Dividends per common share (in dollars) $ 0.25 $ 0.22 $ 0.20
---------------------------------------------------------------------
---------------------------------------------------------------------
Share Capital (thousands of shares) January 31, 2004
---------------------------------------------------------------------
Preferred shares outstanding: Series 12 12,000 Class A preferred
shares issued by Scotia Mortgage Investment Corporation 250
---------------------------------------------------------------------
Series 2000-1 trust securities issued by BNS Capital Trust 500(1)
Series 2002-1 trust securities issued by Scotiabank Capital Trust
750(1) Series 2003-1 trust securities issued by Scotiabank Capital
Trust 750(1)
---------------------------------------------------------------------
Common shares outstanding 505,575(2)
---------------------------------------------------------------------
Outstanding options granted under the Stock Option Plans to
purchase common shares 24,052(3)
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Reported in non-controlling interest in subsidiaries in the
Consolidated Balance Sheet. (2) Included are 715 shares held by the
Bank's broker-dealer (refer to Note 1 above, of this report). (3)
Included are 7,494 stock options with tandem SAR features. Further
details are available in Notes 13 and 14 of the October 31, 2003,
consolidated financial statements presented in the 2003 Annual
Report,and Note 5 above, of this report. 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 2004 Record and payment dates for common and
preferred shares, subject to approval by the Board of Directors.
Record Date Payment Date January 6 January 28 April 6 April 28 July
6 July 28 October 5 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
Tuesday, March 2, 2004, at 2:30 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 2, 2004, to March 16, 2004, by calling (416) 640-1917 and
entering the identification code 21034320 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 InvestorRelations, 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 and Corporate 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: 1-800-564-6253
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 Co-Transfer Agent
(United Kingdom) Computershare Investor Services PLC The Pavilions
Bridgwater Road Bedminster Down Bristol BS99 7NH United Kingdom
Telephone: +44 870 702 0003 Fax: +44 870 703 6101 For other
shareholder enquiries, please contact the Secretary's Department:
Scotiabank Scotia Plaza, 44 King Street West Toronto, Ontario,
Canada M5H 1H1 Telephone: (416) 866-4790 Fax: (416) 866-5090
E-mail: Rapport trimestriel disponible en version francaise Le
Rapport annuel et les etats financiers periodiques 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 le Service des relations publiques de la
Banque Scotia, 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 CONTACT: Sabi Marwah, Senior Executive
Vice-President and Chief Financial Officer, (416) 866-6808;Kevin
Harraher, Vice-President, Investor Relations, (416) 866-5982; David
Scott, Public Affairs, (416) 866-6203
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