Sean McGuckin Speech - April 9, 2013

Address by Sean McGuckin
Executive Vice President & Chief Financial Officer
Scotiabank

To the 181st Annual General Meeting of Shareholders

Halifax, Nova Scotia

April 9, 2013

Presentation

• Thank you Mr. Chairman, and good morning everyone.
• It is my pleasure to be here in Halifax, and to have the opportunity to speak to you about our fiscal 2012 results.

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

• We are pleased to announce that in 2012, Scotiabank continued to deliver sustainable profitability and growth, with very strong contributions from all our business lines. We met or exceeded all financial and operational objectives.
• For the third consecutive year, Scotiabank generated record earnings. Net income was almost $6.5 billion, an increase of 21% from last year.
• Earnings per share were $5.22 for the year, including a 61 cent gain from the sale of real estate assets.
• Excluding these gains in 2012, and the acquisition gains in the prior year, earnings per share increased 8% year-over-year.
• Return on equity remained strong at 19.7%.
• Our focus on generating high quality, sustainable, and diversified growth, resulted in top line revenue growth of 14%, to almost $20 billion in revenues this year.
• We completed the ING DIRECT acquisition early in the first quarter of 2013, and the transition is progressing well. ING DIRECT has $30 billion in customer deposits and is an important addition, as it provides an independent brand, and a self-directed service channel to nearly 2 million customers. This acquisition now firmly positions Scotiabank as the third largest retail bank operating in Canada, based on market share of personal deposits and lending in Canada.
• Turning to credit, the environment continued to be stable this year, and the Bank’s credit portfolios continue to perform well and within our expected ranges and risk appetite, even under modelled stress scenarios.
• In 2012, a high level of internal capital generation, along with share issuance in support of our acquisitions, resulted in improved capital ratios, which are all above pre-crisis levels and remain strong.
• Scotiabank was also recognized as the first Canadian Bank to be named Global Bank of the Year by The Banker magazine, a Financial Times publication. We were also named Bank of the Year in the Americas, and Bank of the Year in Canada – a very proud moment for all Scotiabankers.

• We believe diversification creates stability and lowers risk. We ensure that we have diversification of our business lines by products, customers and geographies. This diversification has consistently proven to be very beneficial through the recent uncertain, global economic conditions.
• The bank has four business lines, Canadian Banking, International Banking, Global Wealth Management, and Global Banking and Markets. Our medium term target is for each business line to contribute between 20 to 30 percent of the Bank’s earnings.
• And finally, although we have a presence in high growth international markets, we are anchored with a strong Canadian base. Our earnings are generated about half in Canada, and half internationally. Sustainable and Profitable Revenue Growth (Slide 5)
• We have delivered record results in 8 of the last 10 years, which is a clear indicator that our primary focus on achieving sustainable and profitable revenue growth is working very well. The record revenue in 2012 was well balanced, and achieved in part by the progress we have made in key growth areas. Our higher growth Latin America and Asia platforms, our global wealth and insurance businesses, and our focus on deposits and payments will continue to drive revenue growth for the Bank.
• As well, we expect to continue to grow our global wholesale banking revenues, by increasing both our client base, and product offerings.
• While our primary focus is maximizing returns through organic growth, as we deploy our internally generated capital to support sustainable, and profitable revenue growth, acquisitions will continue to be part of our business strategy and complement our organic growth.
• Over the last 5 years, our revenue growth has averaged 8% per year.

• Now, looking closer at our 4 business lines, starting with Canadian Banking.
• Canadian Banking is our domestic personal, commercial and small business segment. It generated $1.9 billion of net income in 2012, which translates into 16% year-over-year growth, the strongest growth among our Canadian bank peers. Canadian Banking contributed 31% of Scotiabank’s fiscal 2012 earnings.
• This strong performance in Canadian Banking was driven by very good asset and deposit growth, disciplined expense control, and lower loan loss provisions. Our loan loss ratio, at 23 basis points, was the best among our peers.
• As mentioned earlier, we closed on our acquisition of ING Direct Canada, the largest acquisition in our history, just after our fiscal year end. This acquisition added $30 billion in very stable customer deposits, as well as high quality assets. The key to the success of this transaction will be the growth of these deposits, which we will achieve by maintaining the customer value proposition of a low cost, self-directed platform that allows a premium valued savings rate.

• Now turning to our International Banking division.
• International Banking’s core Personal & Commercial businesses represent a very strong platform for future growth in the developing markets. This business will continue to benefit from the higher growth rates, and young, under-banked demographics in many of the geographies where we operate.
• 2012 was a good year for International Banking. Net income grew 11% and the segment contributed 27% of Scotiabank’s consolidated earnings.
• We had strong revenue growth in our Latin America and Asia segments.
• We expanded our footprint with our 51% investment in Banco Colpatria, the 6th largest financial group in Colombia.
• We will continue to focus on organic growth in 2013 as our top priority, and as in the past, only look to acquisitions that would advance or complement our strategy.

• The next slide illustrates the expected economic growth rates in key countries in which we operate.
• Despite some lingering global uncertainty, the economic outlook for growth in our key international geographies is considerably more attractive than the growth that is expected in Canada and the United States.
• We are excited about the prospects for growth in our International Banking division, which has been a key growth engine for Scotiabank, and will continue to be a tremendous source of strength, growth and diversification for the Bank.

• Now turning to our Global Wealth Management division, which encompasses our wealth and insurance businesses, here in Canada and internationally.
• The segment delivered strong results, driven by both organic growth and acquisitions. Net income of $1.1 billion, up 19%, was driven by good revenue growth of 12%. Our productivity ratio of 58% was the best among our Canadian Bank peers.
• In wealth management, the acquisition of DundeeWealth two years ago has given us the Canadian scale we had been seeking for some time. In 2012 we were ranked #2 in mutual fund sales in Canada among the Canadian banks.
• Our insurance businesses also had a good year. In Canada, we are making steady progress in increasing the cross-sell of insurance and rolling out new products, both creditor and direct insurance.
• Internationally, we continue to enjoy increases in sales of insurance as a result of our investment in new customer contact centres, particularly in Mexico. We also recently completed the acquisition of a 51% interest in Colfondos, a pension management company in Colombia.

• Global Banking & Markets, Scotiabank`s wholesale business, is anchored by the primarily investment grade corporate lending product, which we leverage to cross sell other products.
• The trading business is a client focused business, diversified across many product offerings.
• Global Banking & Markets had a strong year in 2012 and generated net income of almost $1.5 billion. This represented year-over-year growth of 18%.
• The consistent focus on expense management produced an industry-best productivity ratio of 42%, a wide margin over the next closest peer.
• Our approach in the wholesale banking business is to provide a broad range of products in select industries and geographies. Our key sectors include Energy, Mining and Infrastructure, which aligns well with our Canadian expertise.
• In 2012, we completed the acquisition of Howard Weil, a leading U.S.-based energy investment boutique, which is recognized as one of the top boutiques and regional firms in the energy industry.

• Here at Scotiabank, we have a strong cost and risk culture.
• Looking at expenses, Scotiabank has a track record of being a very efficient bank. We can see this when looking at the comparison of Scotiabank versus our peers, with respect to the productivity ratio.
• We are very cognizant that now, especially in an environment where volume and revenue growth may be tougher to achieve, we must continue to be focused on managing costs.
• Last year, we generated positive operating leverage – where revenues grow faster than expenses – and we expect to do so again this year.
• Risk management is also deeply engrained in our culture, and every Scotiabanker is expected to think and act as a risk manager.
• Our risk management framework is applied on an enterprise-wide basis and consists of three key elements: our risk governance framework, our risk appetite and our risk management techniques.
• Our strong risk management capabilities, coupled with our well-defined risk appetite has produced a favourable credit risk performance compared to our Canadian peers.

• Turning to capital on the next slide, you can see that the Bank continues to maintain a strong, high-quality capital position.
• Q1 of 2013 was the first quarter that Canadian banks were required to report capital ratios under Basel 3 requirements, on an “all-in” basis.
• The Common Equity Tier 1 capital ratio was 8.2% at the end of the first quarter of fiscal 2013. This was up from 7.7% at the end of fiscal 2012, when adjusting for the announced ING DIRECT acquisition.
• Our capital ratios are strong by international standards, and we will continue to prudently manage capital to support organic growth initiatives and selective acquisitions, which also supports sustainable growth in dividends.

• On this slide, you will see that Scotiabank has an excellent long-term track record of delivering consistent and sustainable earnings and dividend growth.
• Over the last 20 years, both earnings and dividends per share have grown at an average rate of over 10% per annum, even through a few economic downturns and credit cycles.
• We are also very proud of the fact that Scotiabank has paid dividends continuously for more than 175 years, and increased dividends in 47 out of the last 50 years.

• Scotiabank has also had a very high return on equity. Over the last 5 fiscal years, Scotiabank’s return on equity averaged 18.8%, or 18.1% excluding the real estate gains in 2012 and some one-time accounting gains in 2011.

• When you add it all up, we have been able to generate superior total shareholder returns for our shareholders over the medium, and long term.
• We are consistently at, or near the top, in total shareholder returns over the 5, 10, 15 or 20 year time horizon.

• Finally, this slide shows our stated financial objectives for 2013.
• We expect earnings per share growth of 5 to 10% for 2013, excluding the real estate gains we recorded in 2012.
• For return on equity, we again are targeting a range of 15 to 18%.
• And with our continued focus on expense management, we have now improved our productivity target by reducing it to less than 56%, versus our 2012 target of less than 58%.
• We will continue to grow our capital position and maintain strong capital ratios.
• We had a very good start to the year and we expect to continue to build on this positive momentum. We are well-positioned to meet our financial targets for 2013, and remain committed to delivering positive operating leverage through prudent expense management.

Thank you. This concludes my remarks. I will now pass it back to our Chairman.