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Presentation to the 173rd Annual Meeting of Shareholders
An address by Sabi Marwah
Senior Executive Vice-President and Chief Financial Officer
Scotiabank
March 1, 2005
Halifax, Nova Scotia
"Your Bank’s returns are not only among the strongest in Canada, they stand at or near the top globally as well, and not just among banks, but among the world’s largest financial institutions, which include brokerages and insurance companies."
Check Against Delivery
Thank you very much, Mr. Chairman, and good morning, ladies and gentlemen.
Today, I'll discuss the highlights of your Bank's financial performance for 2004 and then briefly report on the first quarter of 2005.
Once again, your Bank delivered record earnings in 2004, with net income coming in at more than $2.9 billion. This was up a very strong 18 per cent from 2003.
Furthermore, the consistency and annual growth over the past 10 years is unparalleled in Canadian banking. Our earnings have increased at a rate of over 14 per cent, compounded annually over this period.
We believe a major contributor to this consistency is the diversity of our earnings. Domestic Banking contributed 42 per cent to net income, Scotia Capital 31 per cent and International Banking, 27 per cent - three strong business lines.
There was earnings growth in all our business lines in 2004. Domestic Banking grew four per cent - in spite of a decline in the net margin - because of strong growth in residential mortgages and other retail lending volumes from increased retail lending market share.
Scotia Capital's net income rose 18 per cent year over year, due largely to a substantial decline in credit losses in our corporate lending portfolios, as well as record earnings in several areas, including precious metals, foreign exchange and investment banking.
International Banking also continued to perform well in 2004, with particularly strong performances in Mexico and in the Caribbean. Earnings were up 11 per cent year over year, despite the effect of the stronger Canadian dollar, which I'll expand on in a minute.
Overall, we exceeded the performance targets we set at the beginning of last year by a wide margin. Our return on equity (ROE) was 19.9 per cent for the year, ahead of the 16-to-19 per cent target range. Our earnings per share (EPS) growth was 20.5 per cent - well above our 10 to 15 per cent target range. And our productivity ratio was 56.0 per cent for the year - better than our goal to remain below 58 per cent. We also improved our credit quality, with lower specific provisions for credit losses and net impaired loans. Recognizing all these achievements, Standard & Poor's upgraded our senior long-term debt rating to AA-.
In 2004, the Canadian dollar appreciated by nine per cent against the U.S. dollar, 17 per cent against the Mexican peso and 21 per cent against the Jamaican dollar.
This translation affected virtually every revenue and expense line. Overall, revenues were reduced by $533 million and expenses by $227 million, for a net negative impact of $210 million, or 21 cents per share. But we earned through this to still deliver growth of 18 per cent over last year.
Turning to our productivity or efficiency ratio - which is a measure of what we spend to earn revenue - it was 56 per cent in 2004, up slightly over the prior year, but still the best among the Canadian banks by a solid margin.
Our credit quality continued to improve. The provision for credit losses has declined from a high of over $2 billion in 2002 to $390 million in 2004.
This dramatic change from just two years ago is largely due to Scotia Capital, where we have seen much lower loan losses, reflecting the steps we've taken to improve our credit risk management, as well as better credit conditions in the U.S., Canadian and European portfolios.
Capital strength remains a distinct advantage for Scotiabank.
At year end, our Tier 1 capital was 11.5 per cent, up 70 basis points from last year. And our tangible common equity ratio - an even more important measure, calculated by taking total common shareholders' equity and deducting goodwill and intangible assets and dividing by risk-weighted assets - was at 9.7 per cent. That was 80 basis points higher than a year ago and the strongest of the Canadian banks.
Our capital strength has allowed us to increase dividends on a consistent basis, without compromising our ability to react to new opportunities.
We had two dividend increases in 2004, resulting in a 31 per cent increase in dividends over the prior year. In fact, our dividends have doubled in the last four years and our compound annual growth over the past 10 years has been over 15 per cent.
This consistent approach to dividend increases is in keeping with our goal to make Scotiabank a great long-term investment, which in fact, it has been.
In the last 10 years, total returns to shareholders - which includes stock price appreciation and dividend reinvestment - have averaged nearly 23 per cent annually. We solidly beat the TSX Banks Total Return Index and the TSX Composite Return Index over the same time period.
But your Bank's returns are not only among the strongest in Canada, they stand at or near the top globally as well, and not just among banks, but among the world's largest financial institutions, which include brokerages and insurance companies.
Our stock price performance in local currency ranked first among large global financial institutions over the past five years, with a return of 162 per cent. Only one other Canadian bank was in the Top 5.
Similarly, our stock price performance over the past 10 years was 509 per cent, one behind the very top. No other Canadian bank ranked in the Top 5 over this period.
And we continued our strong performance in the first quarter of 2005. Our results were announced this morning and I'll just take a moment to give you the highlights.
Our net income came in at $788 million, an increase of 15 per cent from the same quarter last year. Earnings per share were 77 cents, also up 15 per cent. Return on equity was 21.0 per cent and Tier 1 capital remained very strong at 11.2 per cent.
Overall, Mr. Chairman, 2004 was an excellent year for Scotiabank shareholders and 2005 has started off very well.
Thank you.
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