Sean McGuckin - April 3, 2012

An address by Sean McGuckin
Executive Vice-President and Chief Financial Officer
Scotiabank

Presentation to
the Scotiabank Annual General Meeting
Saskatoon, Saskatchewan

April 3, 2012

CHECK AGAINST DELIVERY

Thank you Mr. Chairman, and good morning everyone. It is my pleasure to be here in Saskatoon, and to have the opportunity to present our fiscal 2011 financial results to you.

Before I start, I would like to refer you to Slide #2 of this presentation, which contains Scotiabank’s caution, regarding forward-looking statements.

In 2011, we saw continued volatility and uncertainty in the world, in particular, sovereign debt concerns weighing upon an already fragile global economy, which is still recovering from the last crisis.

However, we are pleased to announce that Scotiabank has continued to deliver sustainable profitability and growth in 2011, notwithstanding the challenging macroeconomic environment.

Overall, it was a very good year for Scotiabank, as we reported record results, and met, or exceeded, all our financial objectives.

Scotiabank again achieved record earnings in 2011 – net income was almost $5.3 billion, an increase of 21% from last year. Earnings per share were $4.62, up 18% from 2010.

Our results benefited from record revenues. Top line revenue grew by 11% to almost $17.6 billion this year. We continue to generate high quality, sustainable and diversified revenues.

Our return on equity remained strong in 2011 at 18.8%, up from 18.3% the previous year.

And, importantly, our credit performance was, and continues to be, very strong. Loan loss provisions dropped 16% year-over-year, and all of our credit portfolios are performing well.

A high level of internal capital generation, along with share issuance in support of acquisitions, strengthened our capital ratios. We continue to benefit from high quality capital, and a very strong Tier 1 capital ratio.

Even with the macroeconomic challenges, all of our business lines contributed to the record results, which I will now discuss.

Canadian Banking had another record year, with all business segments generating solid performances. Net income was almost $1.9 billion in 2011, up 5% from 2010.

Total revenue increased primarily due to growth in other income, which increased 4%, due to higher card revenues, and transaction based fees in retail banking. The growth in other income is sustainable and client driven. There was also strong asset growth, though this was modestly offset by a lower margin.

Provisions for credit losses in 2011 declined $115 million from 2010.
Expenses rose 3%, reflecting increased investment in growth initiatives, higher compensation and benefit costs, and the full year impact of the harmonized sales tax.

In terms of business focus, Canadian Banking is continuing to increase its share of core customer deposits, build the payments business, and work collaboratively with Global Wealth Management to grow the Canadian wealth, and insurance businesses.

International Banking achieved net income of almost $1.5 billion, up 28% from the previous year.

Favourable contributions from acquisitions, strong underlying revenue growth, and lower loan losses more than offset the adverse impact of a stronger Canadian dollar.

In 2011, we continued to expand our international presence in select markets. We expanded our presence in Latin America, with acquisitions in Uruguay, Chile, and Brazil.

In 2012 thus far, we expanded into Colombia, through the acquisition of a 51% interest in Banco Colpatria. We have also announced plans to add to our presence in China, through our 19.99% investment in Bank of Guangzhou, which is expected to close later this year.

We continue to be recognized for our commitment to excellence, and customer satisfaction and loyalty. For example, we were selected as the best consumer internet bank in 20 Caribbean countries by Global Finance magazine, for the second year in a row.

Overall, the results show that International Banking is benefitting from its diversified global footprint, particularly in Latin America.

Looking forward, we remain optimistic about growing our business organically, and through selective acquisitions, that complement our international presence. Despite the current economic uncertainty around the globe, we are excited about the inherent growth prospects in our international banking footprint.

Global Wealth Management generated net income of $1.2 billion in 2011, or $958 million excluding an acquisition-related gain, from the DundeeWealth acquisition. These results reflect strong performances from the wealth management and insurance businesses.

In 2011, we completed the acquisition of DundeeWealth, a significant addition to our Global Wealth Management segment, making Scotiabank the second largest bank mutual fund provider in Canada. We continue to focus on capturing both revenue and cost synergies, and the integration is going well.

We also crossed a major milestone in 2011, surpassing $100 billion in assets under management.

Looking forward, Global Wealth Management expects to continue to successfully leverage, the bank’s global distribution network, and work closely with Canadian Banking, International Banking, and Global Banking & Markets, to drive additional referrals and cross-sell.

Our newly named Global Banking & Markets, formerly Scotia Capital, earned $1.2 billion in fiscal 2011. Our new branding for our wholesale business line, reflects the strong recognition by clients of Scotiabank’s creditworthiness, and trust in our service. Our new brand aligns well with our recognition in Canada, but particularly well with our international operations, and will continue to support our relationship-driven products and services.

Our results in 2011 were adversely impacted by challenging market conditions, mainly in the second half of the year, which reduced revenues.

Total revenues declined 7% from 2010, reflecting these difficult market conditions, mostly in our global fixed income business, within Global Capital Markets. However, our Global Corporate and Investment Banking business reported higher revenues in 2011, due to growth in investment banking, and lending revenues in Canada.

Expenses were higher in 2011, due to an increase in compensation costs and other business growth initiatives.

Partly offsetting these challenges, were stable provisions for credit losses of $29 million, versus a net recovery of $43 million last year.

Global Banking & Markets won numerous awards in 2011, both domestically and internationally. These awards illustrate the depth, and range of our products, services, and markets, and clearly demonstrate our success in executing our strategy.

Looking forward to 2012, market headwinds are expected to persist due to global uncertainty, but this impact should continue to be mitigated by Global Banking & Markets’ diversified platform. We have substantially completed our strategic growth initiatives, and Global Banking & Markets is focused on efficiently executing on its expanded global presence.

Now turning to our results for the first quarter of 2012.

In 2012, Canadian banks have adopted International Financial Reporting Standards, referred to as IFRS. The adoption of IFRS had an insignificant impact on the first quarter results. We have also restated last year’s comparatives for IFRS. The impact on the whole year 2011 results was also insignificant.

Q1 was a very strong quarter, with net income of more than $1.4 billion, which represents growth of 15% from the same period last year.

Earnings per share were $1.20 for the quarter, up 11% from last year. This included an 8 cent per share gain, related to the sale of a real estate asset in Calgary.

Return on equity remained strong at 19.8%.

Our industry-leading productivity ratio remained stable at 53.5%, and we continue to manage our expenses very prudently.

The strength of these results allowed us to increase the quarterly dividend by 6%, to 55 cents per common share.

On this slide, you can see the distribution of our first quarter earnings by business line.

This diversification of businesses is a key part of our strategy. We have also been diversifying within each business line, by expanding our product and service offerings, and entering new geographies. Our diversification strategy has been beneficial to the bank over the years, and we will continue to build upon this strategy going forward.

Our medium term target is to have each business line contribute 20-30% of consolidated earnings. In terms of business mix, we look to have approximately 75% of earnings come from personal, commercial and wealth businesses, and the remaining 25% from wholesale banking. Also, geographically, we expect to generate roughly half of our earnings in Canada, and the rest internationally.

Turning to capital on the next slide, you can see that our tangible common equity, and Tier 1 capital ratios remained strong at 8.5%, and 11.4% respectively, at the end of the first quarter of fiscal 2012.

Our capital ratios remain well above the regulatory minimum, and strong by international standards.

We will continue to prudently manage capital to support organic growth initiatives, make selective acquisitions, deal with evolving regulatory changes, and support dividend payments.

The next chart shows Scotiabank share price performance, versus the TSX Composite Index, and TSX Financials Index.

We take great pride in delivering strong returns to our shareholders.

Comparing Scotiabank’s total shareholder returns with our peers, you can see that we have delivered superior, long term returns to our shareholders.

We are particularly pleased with the consistency of our outperformance. Over virtually every time period – five years, ten years, fifteen years or twenty years – we have delivered industry leading, or near industry leading, shareholder returns.

Turning to the 2012 outlook, financial market volatility continues to be a headwind for global prospects, however, there are windows of opportunity available given our diversified footprint.

We expect organic asset growth, together with selective acquisitions, to drive growth in revenues, partially offset by lower margin.

Expense control remains a strength, and key focus for the Bank. We have an industry leading productivity ratio and expect to deliver positive operating leverage, while balancing select investments in new products and services.

Risk management continues to be a core competency, and remains a priority, especially in credit and market risk management.

Looking forward to the remainder of 2012, despite the economic uncertainty and challenging environment, we are optimistic about the prospects for our Bank.

With our strong start to the year, Scotiabank is well positioned to meet our stated financial objectives for the year:

• Earnings per share growth of 5-10 percent.
• Return on equity of 15-18 percent.
• A productivity ratio of less than 58 percent.
• And, maintaining strong capital ratios.

Thank you. I would now like to call upon our President, and Chief Executive Officer, to say a few words. Ladies and gentlemen, please welcome, Rick Waugh.