Scotiabank reports strong third quarter results Third quarter
highlights compared to the same period a year ago: TORONTO, Aug. 31
/PRNewswire-FirstCall/ -- Scotiabank reported strong earnings in
the third quarter of 2004 with net income of $733 million, an
increase of 17.2% from the third quarter of 2003, spurred by solid
contributions from the Bank's three major business lines. Earnings
per share (diluted) were $0.71, up 18.3% from $0.60 in the third
quarter of 2003. "Scotiabank continued to benefit this quarter from
its strategy of diversifying across three strong growth platforms,"
said Rick Waugh, President and CEO. "As well, credit quality
continued to improve. The provision for credit losses is at its
lowest quarterly level in more than five years. "In Canada,
exceptional growth in mortgages and strong gains in other retail
lending assets have allowed us to earn through tighter margins in
the current low interest rate environment. "Our international
division continues to post strong results in all regions, driven by
business growth and acquisitions in Latin America and the
Caribbean, and lower credit losses in Asia. "At Scotia Capital, an
improvement in credit quality and a focus on cross-selling of
non-credit products resulted in a year-over-year increase in net
income and an improvement in ROE compared to recent years. "The
Bank's capital position remains very strong, with a tangible common
equity ratio that is the highest of the major Canadian banks. This
capital strength gives us tremendous flexibility and will enable us
to continue to increase returns to our shareholders, just as we've
done over the past four years in doubling our dividend." For the
nine-month period ended July 31, 2004, net income was a record
$2,223 million, compared to $1,817 million in the same period last
year, an increase of 22.4%. Earnings per share (diluted) were $2.13
versus $1.71, up 24.6%, and return on equity was 20.2% compared to
17.2%.
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Year-to-date performance versus our 2004 targets was as follows: 1.
TARGET: Earn a return on equity (ROE) of 16% to 19%. In the first
nine months, Scotiabank earned a ROE of 20.2%. 2. TARGET: Generate
growth in earnings per common share of 10% to 15% per year. Our
year-over-year growth in earnings per share was 24.6%. 3. TARGET:
Maintain a productivity ratio of less than 58%. Scotiabank's
performance was 55.3%, one of the best in the financial sector. 4.
TARGET: Maintain strong capital ratios. At 11.3%, Scotiabank's Tier
1 capital ratio remains among the highest of the Canadian banks and
strong by international standards.
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Financial Highlights As at and for the three For the nine months
ended months ended
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July 31 April 30 July 31 July 31 July 31 (Unaudited) 2004 2004 2003
2004 2003
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Operating results ($ millions) Net interest income (TEB(1)) 1,534
1,558 1,630 4,640 4,844 Total revenue (TEB(1)) 2,569 2,807 2,639
7,964 7,852 Provision for credit losses 50 130 200 350 773
Non-interest expenses 1,472 1,523 1,453 4,401 4,237 Provision for
income taxes (TEB(1)) 264 313 291 828 812 Net income 733 786 626
2,223 1,817 Net income available to common shareholders 727 780 616
2,191 1,756
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Operating performance Basic earnings per share(2) ($) 0.72 0.77
0.61 2.17 1.74 Diluted earnings per share(2) ($) 0.71 0.75 0.60
2.13 1.71 Return on equity (%) 19.4 21.8 17.7 20.2 17.2
Productivity ratio (%) (TEB(1)) 57.3 54.3 55.1 55.3 54.0 Net
interest margin on total average assets (%) (TEB(1)) 2.15 2.21 2.28
2.18 2.23
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Balance sheet information ($ millions) Cash and securities 85,030
81,273 78,886 Loans and acceptances 182,248 179,887 179,577 Total
assets 286,890 283,634 282,160 Deposits 201,133 197,641 190,284
Preferred shares 550 550 800 Common shareholders' equity 14,981
14,857 13,933 Assets under administration 162,121 162,274 161,165
Assets under management 21,151 20,929 20,204
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Capital measures Tier 1 capital ratio (%) 11.3 11.2 10.6 Total
capital ratio (%) 13.7 13.6 13.1 Tangible common equity to
risk-weighted assets(3) (%) 9.5 9.4 8.7 Risk-weighted assets ($
millions) 155,516 155,679 157,191
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Credit quality Net impaired loans after general allowance(4) ($
millions) (227) (104) 317 General allowance for credit losses ($
millions) 1,425 1,475 1,475 Net impaired loans as a % of loans and
acceptances(4) (0.12) (0.06) 0.18 Specific provision for credit
losses as a % of average loans and acceptances 0.22 0.30 0.43 0.30
0.55
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Common share information Share price(2) ($) High 36.88 37.45 32.19
37.45 32.19 Low 32.90 33.38 27.52 31.08 22.28 Close 36.60 35.15
30.24 Shares outstanding(2) (millions) Average (basic) 1,008 1,011
1,010 1,010 1,009 Average (diluted) 1,024 1,028 1,027 1,026 1,025
End of period 1,008 1,009 1,012 Dividends per share(2) ($) 0.30
0.25 0.22 0.80 0.62 Dividend yield (%) 3.4 2.8 2.9 3.1 3.0 Dividend
payout ratio(5) (%) 41.6 32.4 36.1 36.9 35.7 Market capitalization
($ millions) 36,899 35,452 30,605 Book value per common share(2)
($) 14.86 14.73 13.76 Market value to book value multiple 2.5 2.4
2.2 Price to earnings multiple (trailing 4 quarters) 13.0 13.0 13.2
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Other information Employees 44,253 44,294 43,869 Branches and
offices 1,865 1,869 1,844
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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) Amounts have been retroactively adjusted to reflect the stock
dividend paid April 28, 2004, of one common share for each issued
and outstanding common share. The stock dividend had the same
effect as a two-for-one stock split. (3) Represents common
shareholders' equity and non-controlling interest in the common
equity of subsidiaries, less goodwill and intangible assets, as a
percentage of risk-weighted assets. (4) Net impaired loans are
impaired loans less the allowance for credit losses, including the
general allowance. (5) Represents common dividends for the period
as a percentage of the net income available to common shareholders
for the period. Message to Stakeholders Across the Scotiabank
Group, our strategy is to build stronger relationships with
existing customers, acquire new customers, effectively allocate
capital and human resources, and leverage our core strengths -
customer satisfaction, people, diversification, expense and risk
management, and execution. Overall, we believe that we continue to
grow, largely because of diversified and sustainable earnings
generated by our three strong growth platforms - Domestic Banking,
Scotia Capital and International Banking. Domestic Banking Our
focus in Domestic Banking is to build volume and acquire customers
by leveraging the winning products and services we have in place.
We believe that our Domestic platform - our strength in sales and
service, and our leading customer and employee satisfaction - gives
us the capacity to do this. In recent quarters, we had solid gains
in market share, with particular success in residential mortgages
and core deposits. Also, in an independent survey, we led Canada's
major banks for job satisfaction among account managers. Scotia
Capital In Scotia Capital, we have in place processes and
disciplines to continue to effectively manage our credit quality.
This has contributed in part to the recent decline in specific
provisions. We are also looking at new areas for growth, especially
non-lending sources of revenue, and places where we can begin to
offer certain products on a global basis. This allows us, in both
Canada and the U.S., to leverage our long-established client
relationships, which has led to much stronger returns on equity
compared to previous years. International Banking In International
Banking, we have confidence that there are significant growth
opportunities in many markets, due to the combination of
under-utilization of financial services, generally higher economic
growth rates and young populations. Our primary focus is on Mexico
- where we are increasing loans and deposits - and parts of the
Caribbean and Central America. We also believe India, China and
Malaysia offer good growth prospects over the long term. Economic
outlook This year's improved international economic performance and
rising commodity prices have bolstered Canadian prospects. Looking
ahead to 2005, worldwide growth is expected to moderate to a more
sustainable pace, with emerging inflationary pressures and a weaker
U.S. dollar contributing to a gradual rise in interest rates. The
prospect of continued economic growth, together with the
diversification and strength of our core businesses, will help the
Scotiabank Group maintain its record of strong results for all our
major stakeholders - our shareholders, customers, employees and the
communities we serve. Achievements Domestic Banking - For the
second consecutive year, Scotiabank led Canada's major banks for
job satisfaction among retail financial advisors, based on a recent
report card issued by Investment Executive, Canada's national
newspaper for financial service industry professionals. We
increased our rating in 10 categories and were rated first in 11 of
24 categories, including branch managers and strategic focus. - Our
competitive products and excellent customer service continue to
generate market share gains. In residential mortgages, a key
product, our market share rose significantly over last year,
leading all major competitors. As well, we have increased market
share in personal chequing and savings accounts, based on the
strength of the Money Master(R) High Interest Savings Account.
Since its introduction almost three years ago, our market share has
risen substantially. - Scotiabank launched an innovative new VISA
loyalty program, the ScotiaStar Network(TM). The program can be
added to any VISA card, and cardholders can earn rebates of up to
10% at participating retailers. Still growing, the program is
already accepted at more than 200 retailers with over 1,500
locations across the country. International Banking - In the
Caribbean and Central America (C&CA), customer usage of
self-service channels continues to increase, with more than 80,000
new active users year to date, as we launched Internet banking in
El Salvador and U.S. Virgin Islands. Our four contact centres in
the C&CA received more than 425,000 calls handled by our
automated Interactive Voice Response technology and 320,000 calls
that were handled by live agents. The contact centres also
completed more than 32,000 outbound sales-related calls this
quarter. - The small business re-engineering process that was
initiated in 2003 was expanded to a further eight countries in the
C&CA region, bringing the total to 13. The credit application
and adjudication process has been significantly streamlined, and
customer response has been very positive. To date, one third of all
C&CA small business clients have benefited from the new
process. - Scotiabank Inverlat continued to cement its leadership
in Mexican capital markets. It has acted as lead arranger in
several syndicated loan transactions, including a US$2.4 billion
syndication for Telmex, the largest loan syndication in Latin
American history. Inverlat retained its first-place ranking in
Mexican commercial paper and short-term debt issuance, and was
awarded a prestigious mandate to lead Pemex's first commercial
paper issue in Mexico. Scotia Capital - Scotia Capital won several
awards this quarter, including: Best Investment Bank in Canada
(Global Finance magazine), Best Debt House in Canada (Euromoney
magazine), and Best Corporate and Institutional Internet Bank in
Canada, for a second year in a row (Global Finance magazine). The
awards recognize our leadership in the industry, great team of
people and our clear strategy to be the best at helping clients
achieve financial success by providing relevant solutions to their
unique needs. - Scotia Capital acted as the exclusive financial
advisor to Allstream Inc. on its $1.7 billion sale to Manitoba
Telecom Services Inc. - In a continuing relationship with the
Yellow Pages Income Fund, Scotia Capital acted as the co-lead agent
and co-bookrunner for the inaugural $750 million medium-term note
issue in April. More recently, we were awarded the co-lead manager
and co-bookrunner roles in their treasury offering of $743 million
of trust units. Employees and Human Resources - Each June, the Bank
surveys employees' satisfaction with their working environment.
This year's results point to an increasingly satisfied team of
employees, which we believe is the key to satisfied customers.
Overall employee satisfaction was 82%, an increase of two points
over last year. Across the Scotiabank Group, the Bank had a very
high participation rate, with 87% of employees giving their input
from virtually every country in which we do business, including -
for the first time - those in Asia-Pacific. Community involvement -
Participation doubled, and funds raised increased by more than 75%
to $1.2 million in the second annual Rick Hansen Wheels in Motion,
presented by Scotiabank in June. Some 28,000 people wheeled, biked,
skated, ran and walked the 10 km course to aid people with spinal
cord injuries. Management's Discussion and Analysis Group Financial
Performance In the third quarter, the Bank reported good results in
all its main businesses, a continuation of the trend in the first
half of the year. Also contributing were lower provisions for
credit losses in the third quarter, which were at their lowest
quarterly level in over five years. As a result, net income for the
nine-month period was a record, with the Bank earning through the
adverse effect of the appreciation of the Canadian dollar. Total
revenue Total revenue (on a taxable equivalent basis) for the third
quarter was $2,569 million, compared to $2,639 million in the same
period last year, primarily due to lower Canadian dollar net
interest income and the negative effect of foreign currency
translation. Compared to the preceding quarter, total revenue fell
$238 million, mainly as higher gains were realized last quarter on
the sale of investment securities, including a $125 million gain on
the sale of a portion of the Bank's investment holding in Shinsei
Bank in Japan. For the nine-month period ended July 31, 2004, total
revenue grew to $7,964 million, up $112 million from the same
period last year, notwithstanding a significant $487 million
reduction caused by foreign currency translation. The largest
contributor to the growth was higher gains on the sale of
investment securities in 2004. Net interest income Net interest
income (on a taxable equivalent basis) for the third quarter was
$1,534 million, down $96 million or 6% from the same period of the
prior year. Excluding the effect of foreign currency translation,
net interest income fell by $58 million or 4%. Compared to the
prior quarter, net interest income decreased $24 million. Canadian
currency net interest income was $73 million below the level of the
same quarter last year. This was caused by lower net interest
income in trading activities, higher outstanding securitization
volumes and a decline in the net interest margin caused by the low
interest rate environment. Partly offsetting this was exceptional
growth in mortgages, accompanied by solid gains in other retail
lending assets. Compared to the prior quarter, Canadian currency
net interest income was unchanged. The adoption of a new Canadian
accounting standard for hedging in fiscal 2004 resulted in an
increase in Canadian currency net interest income in the third
quarter, which was largely offset by a related reduction in foreign
currency net interest income. Foreign currency net interest income
was below the level earned in the same quarter a year ago but,
excluding the effect of foreign currency translation, income grew
$15 million. This increase arose from stronger U.S. funding spreads
and higher income in the Caribbean, which was largely mitigated by
lower demand and more selective lending in corporate banking.
Compared to the second quarter, foreign currency net interest
income declined $24 million, mainly from a quarter-over-quarter
change in the amounts recorded under the new hedging accounting
standard. In the third quarter, the Bank's total interest margin
was 2.15%, a decrease of 13 basis points from last year, and 6
basis points below last quarter. For the nine-month period, net
interest income (on a taxable equivalent basis) was $4,640 million,
down $204 million or 4% from last year. Excluding the effect of
foreign currency translation, net interest income rose $75 million
or 2%, notwithstanding a compression in the Canadian dollar
interest margin. Other income Other income was $1,035 million in
the third quarter, an increase of $26 million or 3% from the same
period of 2003. Excluding the effect of foreign currency
translation, other income rose $55 million or 5%. This improvement
resulted largely from higher gains realized on investment
securities, strong merger and acquisition fees, and a rise in
deposit and payment services revenues primarily in Canadian retail
operations. These increases were partially offset by reduced levels
of underwriting income, reflecting the recent softening in new
issue activity, as well as decreases in securitization and credit
fees. Compared to last quarter, other income fell 17%, due mainly
to reduced gains on investment securities. As well, there were
lower securitization revenues, reflecting the interest rate
environment, and retail brokerage fees fell because of a decline in
customer activity. For the nine-month period, other income rose to
$3,324 million, up $316 million from the same period last year.
Excluding the effect of foreign currency translation, other income
climbed $524 million or 17%, due mainly to higher gains on
investment securities, accompanied by solid growth in deposit and
payment services, and retail brokerage revenues. However, credit
fees fell as a result of lower customer demand. Non-interest
expenses and productivity In the third quarter of 2004,
non-interest expenses were $1,472 million, an increase of $19
million or 1% compared to the same period of 2003. Excluding the
effect of foreign currency translation, expenses rose $49 million,
or 3%. This modest growth resulted from higher pension costs and
other general business expenditures. Compared to the prior quarter,
expenses fell $51 million or 3%, mainly due to lower
performance-based compensation in line with reduced brokerage and
trading revenues, and good expense control. For the nine-month
period, non-interest expenses rose $164 million or 4%. Excluding
the effect of foreign currency translation, non-interest expenses
increased by $355 million or 8%, due to higher stock-based and
performance-based compensation, and staff benefits, as well as
growth in mortgage appraisal and acquisition fees. The Bank's
productivity ratio - a measure of the efficiency with which
revenues are generated - was 57.3% this quarter, compared to 55.1%
in the same period last year and 54.3% last quarter. On a
year-to-date basis, the productivity ratio was 55.3%, versus 54.0%
in the same period a year ago. Taxes The Bank's effective tax rate
for the third quarter was 20.0%, versus 23.7% in the same period a
year ago and 22.7% last quarter. These decreases mainly arose from
higher tax savings in the Bank's foreign operations. For the
nine-month period, the effective tax rate was 20.8%, compared to
22.9% in 2003. Non-controlling interest The deduction for the
non-controlling interest in the Bank's net income was $50 million
for the quarter, down $19 million from the same period a year ago,
and $5 million below last quarter. The year-over-year reduction was
mainly due to decreases in the non-controlling interest in
Scotiabank Inverlat, as the Bank increased its ownership to 97%
earlier in 2004. Preferred dividends The preferred dividends paid,
which are a deduction to determine the Bank's net income available
to common shareholders, were $6 million for the third quarter, down
from $10 million in the same period last year, but unchanged from
the previous quarter. For the nine-month period, preferred
dividends paid were $32 million, a reduction from $61 million in
the same period of the prior year. These decreases resulted from
the redemption of the Series 9 Non-cumulative Preferred Shares on
April 28, 2003, and the Series 11 Non-cumulative Preferred Shares
on January 28, 2004. 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 Credit quality
continued to improve in the quarter. The provision for credit
losses was $50 million in the third quarter, comprised of $100
million in specific provisions partly offset by a $50 million
reduction in the general allowance for credit losses. This
quarter's specific provisions were a significant improvement over
the $200 million in the same quarter last year, and $130 million
last quarter. In Domestic Banking, credit quality in the retail
portfolios remained strong, with low credit losses and stable
delinquency ratios. Specific provisions against the commercial
portfolio were relatively modest and have declined over the last
two quarters. Specific provisions for credit losses in
International Banking were only $2 million this quarter, due to
higher provision reversals and recoveries. In Scotia Capital,
specific provisions declined $104 million from the same quarter
last year, and were down slightly from the previous quarter.
Stronger economic conditions, increased corporate profitability and
our focus on managing this portfolio have resulted in continued
improvement in credit quality over the past year. The $50 million
reduction in the general allowance for credit losses during the
quarter resulted from the sustained improvement in credit
conditions and falling loan volumes in Scotia Capital. If recent
trends in credit quality continue, there may be further reductions
in the general allowance. Total net impaired loans, after deducting
the allowance for credit losses (both specific and general), were
negative $227 million as at July 31, 2004, a substantial
improvement of $544 million over the same period a year ago, and
$123 million from the preceding quarter. Market risk Value at Risk
(VaR) is a key measure of market risk in the Bank's trading
activities. In the third quarter of 2004, the average one-day VaR
rose to $10.2 million, from $9.0 million in the same quarter of
last year. This was primarily due to an increase in interest rate
risk, which was partially offset by a reduction in equity and
foreign exchange risk. Compared to last quarter, most of the change
also arose in the interest rate category. These VaR levels
represent a moderate level of market risk, given the size of the
Bank. Average for the three months ended
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Risk factor July 31 April 30 July 31 ($ millions) 2004 2004 2003
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Interest rate $ 10.1 $ 7.0 $ 5.2 Equities 3.4 4.5 6.5 Foreign
exchange 1.3 1.2 2.1 Commodities 0.7 1.0 0.8 Diversification (5.3)
(5.5) (5.6)
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All-Bank VaR $ 10.2 $ 8.2 $ 9.0
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Trading revenue was positive on more than 95% of the days in the
quarter, compared to 87% last quarter. No single day's loss
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 mortgages and
personal loans. The Bank maintains large holdings of liquid assets
to support its operations. As at July 31, 2004, liquid assets were
$77 billion (April 30, 2004 - $73 billion), representing 27% of
total assets (April 30, 2004 - 26%). 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. As at July 31, 2004, total
assets pledged or sold under repurchase agreements were $40
billion, unchanged from last quarter. The majority of these assets
relate to repurchase agreements, as well as pledges for securities
borrowing and lending activities. Balance sheet The Bank's total
assets were $287 billion as at July 31, 2004, an increase of $5
billion or 2% from July 31, 2003, and up $3 billion from last
quarter. The year-over-year growth in assets included strong gains
in retail lending, with residential mortgages up $8 billion, and
other personal loans and credit cards rising $4 billion, as well as
higher trading securities of $6 billion. These increases were
partially offset by $6 billion from the effect of foreign currency
translation, as well as a $5 billion reduction in corporate
lending. Compared to July 31, 2003, total liabilities increased $4
billion. In Canada, there was strong growth of $3 billion in
current accounts, along with continued expansion of personal
deposits, especially in the Bank's popular Money Master accounts,
which increased $4 billion during this period. This growth was
partially offset by the effect of foreign currency translation, as
well as decreases in trading derivatives and securities sold under
repurchase agreements. Common shareholders' equity was $15 billion
as at July 31, 2004, an increase of $1 billion over the past year.
This growth arose mainly from strong net income less the effect of
foreign currency translation recorded in shareholders' equity. In
the nine-month period since the Bank's October 31, 2003 year end,
total assets were up $1 billion. This increase was largely driven
by growth in retail lending and trading securities, partially
offset by declines in U.S. and European corporate loans, as well as
lower trading derivatives. As at July 31, 2004, the surplus of the
market value over book value of the Bank's investment securities
was $887 million, compared to $1,007 million last quarter end. This
decrease arose mainly from a lower market value for the Bank's
holdings in Shinsei Bank in Japan, along with the realization of
gains on the sale of investment securities in the quarter. Capital
management The Bank has a very strong level of capital, resulting
from consistent increases over the past several years. As at July
31, 2004, the Bank's Tier 1 ratio was 11.3%, a significant
improvement of 70 basis points over the same quarter last year, and
up 10 basis points from the prior quarter. These improvements arose
from strong earnings and modest decreases in risk-weighted assets.
The Bank's tangible common equity ratio (which represents common
equity less goodwill and intangibles as a percentage of
risk-weighted assets) was 9.5% at the end of the third quarter, up
80 basis points from last year, and 10 basis points higher than
last quarter. This ratio remains higher than that of the other
major Canadian banks. Common dividend The Bank paid a dividend of
30 cents per common share in the third quarter, which was 36%
higher than the same period a year ago and 20% above last quarter.
This reflects the Bank's ongoing commitment to dividend growth and
increasing shareholder returns. At its meeting on August 31, 2004,
the Board of Directors approved a quarterly dividend of 30 cents
per common share, payable on October 27, 2004, to shareholders of
record on October 5, 2004. Outlook We remain confident that our
three diversified business lines will enable us to deliver solid
earnings in a moderate economic growth environment. However, we
face continuing challenges from the appreciation of the Canadian
dollar, compression in interest margins, and lack of corporate loan
demand in the U.S. As well, the large securities gains realized to
date in 2004 will not be sustainable at these levels. That being
said, with record nine-month earnings to date, we fully expect to
meet our key targets that we have set for 2004. Business Line
Review Domestic Banking For the three For the nine months ended
months ended
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(Unaudited) ($ millions) (Taxable equivalent July 31 April 30 July
31 July 31 July 31 basis)(1) 2004 2004 2003 2004 2003
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Business line income Net interest income $ 886 $ 901 $ 866 $ 2,664
$ 2,596 Provision for credit losses (70) (81) (71) (243) (224)
Other income 414 424 399 1,255 1,122 Non-interest expenses (805)
(803) (778) (2,372) (2,232) Provision for income taxes (136) (148)
(144) (423) (432)
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Net income $ 289 $ 293 $ 272 $ 881 $ 830
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Other measures Return on equity(2) 31.4% 32.7% 30.8% 32.1% 31.5%
Average assets ($ billions) $ 113 $ 109 $ 102 $ 110 $ 100
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(1) Refer to footnote (2) further below. (2) Refer to footnote (4)
further below. Domestic Banking, which includes Wealth Management,
reported net income of $289 million in the third quarter, an
increase of $17 million or 6% over last year. Domestic Banking
accounted for 39% of the Bank's total net income this quarter, with
an ROE of 31%. Quarter over quarter, net income fell 1%. For the
nine-month period, net income grew $51 million or 6% to $881
million from the same period last year. Net interest income rose
modestly by 2% this quarter versus the same period last year, as
strong ongoing increases in retail lending, core retail deposits
and business deposits were mostly offset by a lower margin. Asset
growth was led by residential mortgages, where balances grew by
$9.6 billion from a year ago, including a record $3.6 billion this
quarter. Other income was up $15 million or 4% from the same
quarter a year ago, with broad-based growth, including higher
transaction-based fees, mutual fund fees and foreign exchange
revenues. Quarter over quarter, the decline in other income was
mainly due to lower retail brokerage revenues from a reduction in
customer trading volumes. Credit quality was strong in both the
retail and commercial portfolios. Non-interest expenses grew 3%
from the same quarter last year. This increase was due to
merit-based growth in salaries and higher pension costs. Also
contributing to the rise in expenses were higher mortgage
acquisition costs and growth in processing expenses, consistent
with volume growth. Quarter over quarter, expenses were relatively
unchanged as lower performance-based compensation was offset by
higher mortgage acquisition costs. Scotia Capital For the three For
the nine months ended months ended
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(Unaudited) ($ millions) (Taxable equivalent July 31 April 30 July
31 July 31 July 31 basis)(1) 2004 2004 2003 2004 2003
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Business line income Net interest income $ 230 $ 261 $ 315 $ 745 $
970 Provision for credit losses (28) (32) (132) (131) (527) Other
income 309 328 330 969 994 Non-interest expenses (249) (268) (262)
(758) (741) Provision for income taxes (66) (78) (58) (215) (196)
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Net income $ 196 $ 211 $ 193 $ 610 $ 500
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Other measures Return on equity(2) 19.3% 20.0% 14.2% 18.8% 11.3%
Average assets ($ billions) $ 108 $ 114 $ 116 $ 111 $ 120
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(1) Refer to footnote (2) further below. (2) Refer to footnote (4)
further below. Scotia Capital reported earnings of $196 million
this quarter, a modest increase from a year ago, but down $15
million or 7% from last quarter. However, ROE was a solid 19% in
the quarter, well ahead of the levels earned in recent years. For
the nine months ended July 31, 2004, net income was $610 million, a
significant increase of $110 million or 22% over last year,
primarily due to lower provisions for credit losses. Total revenues
in the third quarter of 2004 decreased 17% from last year,
primarily from the reduction in loan volumes and credit fees in
North America and Europe, as a result of more selective lending and
increased liquidity in the capital markets. Total revenues fell $50
million or 9% from the second quarter, primarily due to lower
trading revenues. While strong revenues were earned from
derivatives, foreign exchange trading and precious metals, they
fell short of the peaks achieved in recent quarters. In addition,
challenging market conditions depressed revenues from new equity
issues. However, revenues were bolstered in the quarter by merger
and acquisition fees, which were at their highest level in the past
several quarters. Provisions for credit losses were $28 million in
the third quarter, a significant decline of $104 million from last
year, reflecting an improvement in all corporate lending
portfolios, most notably in the U.S. There was also a modest
reduction in credit losses compared to last quarter. For the
nine-month period, credit losses were $131 million, a significant
improvement from $527 million last year. Total non-interest
expenses fell 5% from last year and were 7% below the previous
quarter, primarily due to lower performance-based compensation, in
line with the decline in revenues. International Banking For the
three For the nine months ended months ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) (Taxable equivalent July 31 April 30 July
31 July 31 July 31 basis)(1) 2004 2004 2003 2004 2003
-------------------------------------------------------------------------
Business line income Net interest income $ 481 $ 513 $ 506 $ 1,442
$ 1,534 Provision for credit losses (2) (18) 3 (27) (28) Other
income 181 197 174 552 584 Non-interest expenses (390) (426) (402)
(1,206) (1,253) Provision for income taxes (35) (44) (71) (118)
(198) Non-controlling interest in net income of subsidiaries (17)
(22) (35) (62) (126)
-------------------------------------------------------------------------
Net income $ 218 $ 200 $ 175 $ 581 $ 513
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures Return on equity(2) 24.6% 24.2% 21.7% 22.8% 21.2%
Average assets ($ billions) $ 50 $ 49 $ 50 $ 49 $ 53
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Refer to footnote (2) further below. (2) Refer to footnote (4)
further below. International Banking reported net income of $218
million this quarter, a significant increase of $43 million or 24%
from last year, with higher contributions from all regions, namely
the Caribbean, Latin America and Asia. This was achieved
notwithstanding the negative effect of the appreciation of the
Canadian dollar against the Mexican peso and many Caribbean
currencies. Compared to the prior quarter, net income grew $18
million or 9%. For the nine months ended July 31, 2004, net income
was $581 million, up a substantial $68 million or 13% over the same
period last year. Scotiabank Inverlat's third quarter contribution
rose substantially over last year, following the increase in the
Bank's ownership level to 97% earlier in 2004, and the recognition
of benefits from Inverlat's tax loss carryforwards in the
consolidated results. As well, Inverlat's earnings rose from strong
business growth. Compared to last quarter, Inverlat's contribution
increased moderately continuing the steady growth of the past
several quarters. Net income from the remaining operations in Latin
America was below last year, as a result of lower gains on the sale
of emerging market securities. However, results rose slightly from
last quarter. Caribbean net income increased by 21% from last year,
earning through the negative effect of foreign currency translation
as the Canadian dollar appreciated against many Caribbean
currencies. The earnings growth was led by a greater contribution
from the Dominican Republic. In addition, there was continued
growth in retail loans and deposits across the region. Net income
was slightly higher than last quarter as a result of lower
expenses. In Asia, net income exceeded both last year and last
quarter, primarily due to lower credit losses. Other(1) For the
three For the nine months ended months ended
-------------------------------------------------------------------------
(Unaudited) ($ millions) (Taxable equivalent July 31 April 30 July
31 July 31 July 31 basis)(2) 2004 2004 2003 2004 2003
-------------------------------------------------------------------------
Business line income Net interest income(3) $ (131) $ (182) $ (132)
$ (412) $ (466) Provision for credit losses 50 1 - 51 6 Other
income 131 300 106 548 308 Non-interest expenses (28) (26) (11)
(65) (11) Provision for income taxes(3) 41 22 57 129 224
Non-controlling interest in net income of subsidiaries (33) (33)
(34) (100) (87)
-------------------------------------------------------------------------
Net income $ 30 $ 82 $ (14) $ 151 $ (26)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures Average assets ($ billions) $ 13 $ 14 $ 16 $ 14 $ 17
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other segments, which include Group Treasury, reported net income
of $30 million for the quarter, versus a loss of $14 million in the
same quarter last year. This improvement was largely due to the $50
million reduction in the general allowance for credit losses this
quarter. Compared to the prior quarter, net income fell $52
million, largely because last quarter included a $125 million ($81
million after tax) gain realized on the sale of a portion of the
Bank's investment holding in Shinsei Bank. Partly offsetting this
was the $50 million reduction in the general allowance this
quarter. Net interest income also improved quarter over quarter,
mainly from the mark-to-market adjustment for certain derivatives
that no longer qualified as hedges under the new accounting rules.
Total For the three For the nine months ended months ended
-------------------------------------------------------------------------
(Unaudited) July 31 April 30 July 31 July 31 July 31 ($ millions)
2004 2004 2003 2004 2003
-------------------------------------------------------------------------
Business line income Net interest income $ 1,466 $ 1,493 $ 1,555 $
4,439 $ 4,634 Provision for credit losses (50) (130) (200) (350)
(773) Other income 1,035 1,249 1,009 3,324 3,008 Non-interest
expenses (1,472) (1,523) (1,453) (4,401) (4,237) Provision for
income taxes (196) (248) (216) (627) (602) Non-controlling interest
in net income of subsidiaries (50) (55) (69) (162) (213)
-------------------------------------------------------------------------
Net income $ 733 $ 786 $ 626 $ 2,223 $ 1,817
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other measures Return on equity(4) 19.4% 21.8% 17.7% 20.2% 17.2%
Average assets ($ billions) $ 284 $ 286 $ 284 $ 284 $ 290
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes all other smaller operating segments and corporate
adjustments, such as the elimination of the tax-exempt income
gross-up reported in net interest income and provision for income
taxes, differences in the actual amount of costs incurred and
charged to the operating segments, and the impact of
securitizations. (2) The Bank, like some other banks, analyzes
revenues, net interest margin on total average assets and the
productivity ratio on a taxable equivalent basis (TEB). This
methodology grosses up tax-exempt income earned on certain
securities to an equivalent before-tax basis. In the presentation
of business line results, the corresponding offset is made in the
provision for income taxes. Management believes that this basis for
measurement provides a uniform comparability of net interest income
arising from both taxable and non-taxable sources and facilitates a
consistent basis of measurement. This use of TEB results in
measures that are different from comparable GAAP measures and may
not be the same as measures presented by other companies. (3)
Includes the elimination of the tax-exempt income gross-up reported
in net interest income and provision for income taxes for the three
months ended July 31, 2004 ($68), April 30, 2004 ($65), and July
31, 2003 ($75), and for the nine months ended July 31, 2004 ($201),
and July 31, 2003 ($210), to arrive at the amounts reported in the
Consolidated Statement of Income. (4) For management and internal
reporting purposes, the Bank allocates equity to its business lines
using a methodology that considers credit, market and operational
risk inherent in each business line. Return on equity is calculated
based on the economic equity allocated to the business line.
Economic equity is not a defined term under GAAP and, accordingly,
the resulting return on equity for each business line may not be
comparable to those used by other financial institutions.
Geographic Highlights For the three For the nine months ended
months ended
-------------------------------------------------------------------------
July 31 April 30 July 31 July 31 July 31 (Unaudited) 2004 2004 2003
2004 2003
-------------------------------------------------------------------------
Net income ($ millions) Canada $ 421 $ 387 $ 375 $ 1,278 $ 1,192
United States 89 91 89 258 204 Other international 244 336 205 764
514 Corporate adjustments (21) (28) (43) (77) (93)
-------------------------------------------------------------------------
$ 733 $ 786 $ 626 $ 2,223 $ 1,817
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average assets ($ billions) Canada $ 190 $ 188 $ 177 $ 188 $ 174
United States 19 22 32 22 36 Other international 74 74 71 72 76
Corporate adjustments 1 2 4 2 4
-------------------------------------------------------------------------
$ 284 $ 286 $ 284 $ 284 $ 290
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Share Capital As at
-------------------------------------------------------------------------
July 31 (thousands of shares) 2004(1)
-------------------------------------------------------------------------
Preferred shares 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(2)
Series 2002-1 trust securities issued by Scotiabank Capital Trust
750(2) Series 2003-1 trust securities issued by Scotiabank Capital
Trust 750(2)
-------------------------------------------------------------------------
Common shares outstanding 1,008,181
-------------------------------------------------------------------------
Outstanding options granted under the Stock Option Plans to
purchase common shares 44,365(3)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) As at August 23, 2004, the number of outstanding common shares
and options were 1,008,271 and 44,269, respectively. The number of
other securities disclosed in this table were unchanged. (2)
Reported in non-controlling interest in subsidiaries in the
Consolidated Balance Sheet. (3) Included are 14,602 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 4 further below.
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 other forward-looking
statements will not prove to be accurate. The Bank cautions readers
not to place undue reliance on these statements, as a number of
important factors could cause actual results to differ materially
from the estimates and intentions expressed in such forward-
looking statements. These factors include, but are not limited to,
the economic and financial conditions in Canada and globally;
fluctuations in interest rates and currency values; liquidity; the
effect of changes in monetary policy; legislative and regulatory
developments in Canada and elsewhere; 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
spending and 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-looking statements, whether written or oral,
that may be made from time to time by or on behalf of the Bank.
Additional information relating to the Bank, including the Bank's
Annual Information Form, can be located on the SEDAR website at
http://www.sedar.com/, and on the EDGAR section of the SEC's
website at http://www.sec.gov/. Interim Consolidated Financial
Statements Consolidated Statement of Income For the three For the
nine months ended months ended
-------------------------------------------------------------------------
(Unaudited) July 31 April 30 July 31 July 31 July 31 ($ millions)
2004 2004 2003 2004 2003
-------------------------------------------------------------------------
Interest income Loans $ 2,248 $ 2,235 $ 2,473 $ 6,783 $ 7,606
Securities 657 674 718 2,015 2,205 Deposits with banks 116 107 111
321 342
-------------------------------------------------------------------------
3,021 3,016 3,302 9,119 10,153
-------------------------------------------------------------------------
Interest expense Deposits 1,196 1,101 1,294 3,532 4,011
Subordinated debentures 29 27 26 82 113 Other 330 395 427 1,066
1,395
-------------------------------------------------------------------------
1,555 1,523 1,747 4,680 5,519
-------------------------------------------------------------------------
Net interest income 1,466 1,493 1,555 4,439 4,634 Provision for
credit losses (Note 6) 50 130 200 350 773
-------------------------------------------------------------------------
Net interest income after provision for credit losses 1,416 1,363
1,355 4,089 3,861
-------------------------------------------------------------------------
Other income Card revenues 58 53 49 172 146 Deposit and payment
services 169 161 153 485 445 Mutual funds 43 43 41 127 120
Investment management, brokerage and trust services 123 143 116 391
333 Credit fees 150 144 181 440 526 Trading revenues 101 105 101
358 394 Investment banking 160 183 195 504 508 Net gain on
investment securities 106 247 28 423 93 Securitization revenues 17
40 43 85 114 Other 108 130 102 339 329
-------------------------------------------------------------------------
1,035 1,249 1,009 3,324 3,008
-------------------------------------------------------------------------
Net interest and other income 2,451 2,612 2,364 7,413 6,869
-------------------------------------------------------------------------
Non-interest expenses Salaries and staff benefits 875 907 877 2,623
2,508 Premises and technology 283 282 295 846 851 Communications 62
60 61 181 190 Advertising and business development 51 53 48 151 144
Professional 39 47 30 115 101 Business and capital taxes 37 36 38
110 111 Other 125 138 104 375 301 Loss on disposal of subsidiary
operations - - - - 31
-------------------------------------------------------------------------
1,472 1,523 1,453 4,401 4,237
-------------------------------------------------------------------------
Income before the undernoted 979 1,089 911 3,012 2,632 Provision
for income taxes 196 248 216 627 602 Non-controlling interest in
net income of subsidiaries 50 55 69 162 213
-------------------------------------------------------------------------
Net income $ 733 $ 786 $ 626 $ 2,223 $ 1,817
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Preferred dividends paid and other 6 6 10 32 61
-------------------------------------------------------------------------
Net income available to common shareholders $ 727 $ 780 $ 616 $
2,191 $ 1,756
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of common shares outstanding(1) (millions): Basic
1,008 1,011 1,010 1,010 1,009 Diluted 1,024 1,028 1,027 1,026 1,025
-------------------------------------------------------------------------
Earnings per common share(1) (in dollars): Basic $ 0.72 $ 0.77 $
0.61 $ 2.17 $ 1.74 Diluted $ 0.71 $ 0.75 $ 0.60 $ 2.13 $ 1.71
-------------------------------------------------------------------------
Dividends per common share(1) (in dollars) $ 0.30 $ 0.25 $ 0.22 $
0.80 $ 0.62
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Amounts have been retroactively adjusted to reflect the stock
dividend paid April 28, 2004, of one common share for each issued
and outstanding common share. The stock dividend had the same
effect as a two-for-one stock split. The accompanying notes are an
integral part of these interim consolidated financial statements.
Consolidated Balance Sheet As at
-------------------------------------------------------------------------
July 31 April 30 October 31 July 31 (Unaudited) ($ millions) 2004
2004 2003 2003
-------------------------------------------------------------------------
Assets Cash resources Cash and non-interest-bearing deposits with
banks $ 1,411 $ 1,417 $ 1,373 $ 1,301 Interest-bearing deposits
with banks 16,840 16,668 17,111 15,776 Precious metals 2,275 2,627
2,097 2,188
-------------------------------------------------------------------------
20,526 20,712 20,581 19,265
-------------------------------------------------------------------------
Securities Investment 18,343 18,377 20,293 19,186 Trading 46,161
42,184 42,899 40,435
-------------------------------------------------------------------------
64,504 60,561 63,192 59,621
-------------------------------------------------------------------------
Loans Residential mortgages 66,955 63,829 61,646 59,189 Personal
and credit cards 29,475 28,432 26,277 25,325 Business and
governments 61,259 62,485 64,313 68,762 Securities purchased under
resale agreements 21,307 21,225 22,648 22,843
-------------------------------------------------------------------------
178,996 175,971 174,884 176,119 Allowance for credit losses (Note
6) 3,242 3,303 3,217 3,498
-------------------------------------------------------------------------
175,754 172,668 171,667 172,621
-------------------------------------------------------------------------
Other Customers' liability under acceptances 6,494 7,219 6,811
6,956 Land, buildings and equipment 1,872 1,872 1,944 2,019 Trading
derivatives' market valuation 11,163 13,745 15,308 14,639 Goodwill
271 280 270 348 Other intangible assets 246 253 284 282 Other
assets 6,060 6,324 5,835 6,409
-------------------------------------------------------------------------
26,106 29,693 30,452 30,653
-------------------------------------------------------------------------
$286,890 $283,634 $285,892 $282,160
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and shareholders' equity Deposits Personal $ 79,569 $
79,464 $ 76,431 $ 77,144 Business and governments 97,478 95,486
93,541 90,398 Banks 24,086 22,691 22,700 22,742
-------------------------------------------------------------------------
201,133 197,641 192,672 190,284
-------------------------------------------------------------------------
Other Acceptances 6,494 7,219 6,811 6,956 Obligations related to
securities sold under repurchase agreements 23,299 22,535 28,686
27,904 Obligations related to securities sold short 11,421 9,527
9,219 9,640 Trading derivatives' market valuation 10,972 12,645
14,758 14,144 Other liabilities 13,094 13,697 14,145 13,463
Non-controlling interest in subsidiaries 2,280 2,277 2,326 2,335
-------------------------------------------------------------------------
67,560 67,900 75,945 74,442
-------------------------------------------------------------------------
Subordinated debentures 2,666 2,686 2,661 2,701
-------------------------------------------------------------------------
Shareholders' equity Capital stock Preferred shares 550 550 800 800
Common shares and contributed surplus 3,204 3,187 3,141 3,131
Retained earnings 12,881 12,512 11,747 11,392 Cumulative foreign
currency translation (1,104) (842) (1,074) (590)
-------------------------------------------------------------------------
15,531 15,407 14,614 14,733
-------------------------------------------------------------------------
$286,890 $283,634 $285,892 $282,160
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these interim
consolidated financial statements. Consolidated Statement of
Changes in Shareholders' Equity For the nine months ended
-------------------------------------------------------------------------
July 31 July 31 (Unaudited) ($ millions) 2004 2003
-------------------------------------------------------------------------
Preferred shares Bank: Balance at beginning of period $ 550 $ 1,025
Redeemed (250) (475)
-------------------------------------------------------------------------
Balance at end of period 300 550 Scotia Mortgage Investment
Corporation 250 250
-------------------------------------------------------------------------
Total 550 800
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Common shares and contributed surplus Common shares: Balance at
beginning of period 3,140 3,002 Issued 88 145 Purchased for
cancellation (25) (17)
-------------------------------------------------------------------------
Balance at end of period 3,203 3,130 Contributed surplus: Fair
value of stock options 1 1
-------------------------------------------------------------------------
Total 3,204 3,131
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings Balance at beginning of period 11,747 10,398 Net
income 2,223 1,817 Dividends: Preferred (22) (42) Common (808)
(626) Purchase of shares and premium on redemption (259) (144)
Other - (11)
-------------------------------------------------------------------------
Balance at end of period 12,881 11,392
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cumulative foreign currency translation Balance at beginning of
period (1,074) 102 Net unrealized foreign exchange translation
gains/(losses)(1) (30) (692)
-------------------------------------------------------------------------
Balance at end of period (1,104) (590)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total shareholders' equity at end of period $ 15,531 $ 14,733
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Comprises unrealized foreign exchange translation
gains/(losses) on net investments in self-sustaining foreign
operations of $131 (July 31, 2003 - $(1,370)) and gains/(losses)
from related foreign exchange hedging activities of $(161) (July
31, 2003 - $678). The accompanying notes are an integral part of
these interim consolidated financial statements. Condensed
Consolidated Statement of Cash Flows For the three For the nine
months ended months ended
-------------------------------------------------------------------------
Sources and (uses) of cash flows July 31 July 31 July 31 July 31
(Unaudited) ($ millions) 2004 2003 2004 2003
-------------------------------------------------------------------------
Cash flows from operating activities Net income $ 733 $ 626 $ 2,223
$ 1,817 Adjustments to net income to determine cash flows (51) 292
9 971 Net accrued interest receivable and payable (37) 68 (223) 311
Trading securities (4,405) (2,323) (3,374) (6,973) Trading
derivatives' market valuation, net 875 (183) 364 (261) Other, net
560 (1,397) (524) (1,128)
-------------------------------------------------------------------------
(2,325) (2,917) (1,525) (5,263)
-------------------------------------------------------------------------
Cash flows from financing activities Deposits 5,979 3,315 7,514
4,123 Obligations related to securities sold under repurchase
agreements 1,166 (6,998) (5,233) (1,428) Obligations related to
securities sold short 1,966 498 2,205 1,002 Subordinated debenture
redemptions/repayments - (343) - (1,059) Capital stock issued 23 67
88 145 Capital stock redeemed/purchased for cancellation (62) -
(534) (636) Cash dividends paid (308) (233) (830) (668) Other, net
(512) (257) (360) (472)
-------------------------------------------------------------------------
8,252 (3,951) 2,850 1,007
-------------------------------------------------------------------------
Cash flows from investing activities Interest-bearing deposits with
banks (576) (531) 593 (350) Loans, excluding securitizations
(5,761) 6,149 (6,782) 2,631 Loan securitizations 859 701 2,735
1,828 Investment securities, net (268) 571 2,833 1,081 Land,
buildings and equipment, net of disposals (64) (21) (139) (77)
Other, net(1) - (6) (59) (471)
-------------------------------------------------------------------------
(5,810) 6,863 (819) 4,642
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (27)
(23) 8 (104)
-------------------------------------------------------------------------
Net change in cash and cash equivalents 90 (28) 514 282 Cash and
cash equivalents at beginning of period 1,321 899 897 589
-------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,411 $ 871 $ 1,411 $
871
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Represented by: Cash and non-interest-bearing deposits with banks $
1,411 $ 1,301 Cheques and other items in transit, net liability -
(430)
-------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,411 $ 871
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash disbursements made for: Interest $ 1,462 $ 1,727 $ 4,899 $
5,438 Income taxes $ 135 $ 24 $ 571 $ 311
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Represents investment in subsidiaries. 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, 2003. The accounting policies used in the preparation
of these interim consolidated financial statements are consistent
with those used in the Bank's year-end audited consolidated
financial statements, except as discussed in Note 1. Certain
comparative amounts have been reclassified to conform with the
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 conditions for 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. Generally
accepted accounting principles Effective November 1, 2003, the
Bank, as required, prospectively adopted a new CICA standard for
financial reporting. This standard (section 1100) formalizes the
Canadian GAAP framework and specifies that industry practice is no
longer recognized as a source of GAAP. The changes in accounting
policies as a result of adopting this standard did not have a
material impact on the Bank's results of operations and are 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. Common shares
The Bank's broker-dealer subsidiary, as permitted by Bank Act
regulations, trades in the Bank's shares. Prior to November 1,
2003, these shares were accounted for as trading securities.
Effective November 1, 2003, trades in the Bank's shares are
accounted for as capital transactions in shareholders' equity.
Mortgage prepayment fees Prior to November 1, 2003, 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 interest income unless only minor
modifications (based on a present value cash flow test) were made
to the mortgage, in which case they continue to be deferred and
amortized. The majority of these prepayment fees continue to be
deferred and amortized. Other The Bank continues to evaluate the
presentation of certain asset and liability balances on the
Consolidated Balance Sheet. 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 March 2004, the CICA issued a draft document
amending 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 Bank does not
expect 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. Segmented results of
operations Scotiabank is a diversified financial services
institution that provides a wide range of financial products and
services to retail, commercial and corporate customers around the
world. The Bank is organized into three main operating segments:
Domestic Banking, International Banking and Scotia Capital. Results
for these operating segments are presented in the Business line
income tables above. 4. Significant capital transactions 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. On April 28, 2004,
the Bank paid a stock dividend of one common share for each of its
issued and outstanding common shares to common shareholders of
record at the close of business on April 6, 2004. The effect is the
same as a two-for-one stock split of its common shares. Amounts
presented in this report relating to the number of common shares,
as well as all per share amounts, have been retroactively adjusted.
In the first quarter, the Bank initiated a new normal course issuer
bid. Following the payment of the stock dividend, the number of
shares authorized for purchase was adjusted to 50 million. This
represents approximately 5 per cent of the Bank's outstanding
common shares. The bid will terminate on the earlier of January 5,
2005, or the date the Bank completes its purchases. During the
quarter, the Bank purchased 1.7 million common shares at an average
cost of $35.45. For the nine months ended July 31, 2004, 7.9
million common shares were purchased at an average price of $34.63.
5. Sales of loans through securitizations The Bank securitizes
residential mortgages through the creation of mortgage-backed
securities. The net gain on sale of the mortgages resulting from
these securitizations is recognized in securitization revenues in
the Consolidated Statement of Income. No credit losses are expected
as the mortgages are insured. The following table summarizes the
Bank's sales. For the three For the nine months ended months ended
---------------------------------------------------------------------
July 31 April 30 July 31 July 31 July 31 ($ millions) 2004 2004
2003 2004 2003
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Net cash proceeds $ 859 $ 909 $ 701 $ 2,735 $ 1,828 Retained
interest 23 32 33 82 71 Retained servicing liability (6) (5) (4)
(18) (11)
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876 936 730 2,799 1,888 Residential mortgages securitized 871 908
704 2,754 1,846
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Net gain on sale $ 5 $ 28 $ 26 $ 45 $ 42
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---------------------------------------------------------------------
6. Allowance for credit losses The following table summarizes the
change in the allowance for credit losses. For the three For the
nine months ended months ended
---------------------------------------------------------------------
July 31 April 30 July 31 July 31 July 31 ($ millions) 2004 2004
2003 2004 2003
---------------------------------------------------------------------
Balance at beginning of period $ 3,317 $ 3,270 $ 3,995 $ 3,580 $
3,848 Presented with securities - - - (363)(1) - Write-offs (117)
(140) (258) (434) (580) Recoveries 46 33 40 119 119 Provision for
credit losses 50(3) 130 200 350(2)(3) 773 Other, including foreign
exchange adjustment (40) 24 (81) 4 (264)
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Balance at the end of period(2)(3) $ 3,256 $ 3,317 $ 3,896(4)
$3,256 $3,896(4)
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(1) Effective November 1, 2003, the country risk allowance related
to investment securities is no longer disclosed as part of the
allowance for credit losses, but continues to be deducted from
investment securities. (2) As at July 31, 2004, $14 (April 30, 2004
- $14; July 31, 2003 - $nil) has been recorded in other
liabilities. (3) As at July 31, 2004, the general allowance for
credit losses was $1,425 (April 30, 2004 - $1,475; July 31, 2003 -
$1,475). (4) Includes the country risk allowance related to
investment securities of $398, which was deducted from investment
securities. 7. Employee future benefits Employee future benefits
include pensions and other retirement benefits, post-employment
benefits and compensated absences. The following table summarizes
the expense for the Bank's principal plans(1). For the three For
the nine months ended months ended
---------------------------------------------------------------------
July 31 April 30 July 31 July 31 July 31 ($ millions) 2004 2004
2003 2004 2003
---------------------------------------------------------------------
Benefit expense Pension plans $ 21 $ 22 $ 6 $ 65 $ 18 Other benefit
plans 26 26 23 78 67
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$ 47 $ 48 $ 29 $ 143 $ 85
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---------------------------------------------------------------------
(1) Other minor plans operated by certain subsidiaries of the Bank
are not considered material and are not included in this note.
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,
August 31, 2004, at 3:00 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
1-800-814-3911 (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
August 31, 2004, to September 14, 2004, by calling (416) 640-1917
and entering the identification code 21080533 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: 1-800-564-6253
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)(1) 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 (1)
Effective as of the close of business on March 30, 2004, the Bank's
common shares are no longer listed on the London Stock Exchange and
the Official List of the UK Listing Authority. 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; Frank
Switzer, Public Affairs, (416) 866-7238
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