building an even better bank with opportunities where we have, and can build, deeper relationships...
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Building an even better bank
2015 ANNUAL REPORT
SCOTIABANK IS CANADA’S
and a leading financial
services provider in North
America, Latin America,
the Caribbean and Central
America, and parts of Asia.
We are dedicated to helping
our 23 million customers
become better off through
a broad range of advice,
products and services,
including personal and
wealth management and
private banking, corporate
and investment banking,
and capital markets.
C O N T E N T S
Message from President and Chief Executive Officer Brian J. Porter
Executive Management Team
Message from Chairman of the Board Thomas C. O’Neill
Board of Directors
Management’s Discussion and Analysis
Consolidated Financial Statements
W H Y I N V E S T I N S C O T I A B A N K ?
Our unique, straightforward and successful bank model is based
on diversified and growing businesses, each providing sustainable
and profitable revenue growth. We have a track record of delivering
consistent earnings and dividend growth, proven execution capabilities
and we are well positioned for continued success.
RAISED DIVIDEND 48 OUT OF 50 YEARS
SOLID TRACK RECORD OF EARNINGS AND DIVIDEND GROWTH
Earnings per share Diluted, dollars per share
05 07 09 11 13 15
CAGR = 6%
Dividend growth Dollars per share
05 07 09 11 13 15
CAGR = 7.5%
STRONG RISK MANAGEMENT
STRONG CAPITAL POSITION
FOCUSED ON ATTRACTIVE PACIFIC ALLIANCE
SIGNIFICANT, THOUGHTFUL INVESTMENTS IN
• Maintain high degree of diversification
• Balance earnings from Canada/International
• Pursue selective acquisitions
• Deliver on our strategic agenda (see page 5)
NEED MORE REASONS? SEE MD&A EXECUTIVE SUMMARY ON PAGE 9
B R I A N J . P O R T E R P R E S I D E N T A N D C H I E F E X E C U T I V E O F F I C E R
C E O ’ S M E S S A G E T O S H A R E H O L D E R S
Dear Fellow Shareholders,
While the pace of change in the banking industry
continued to accelerate in 2015, Scotiabank responded
with a comprehensive set of efforts to build an even
better bank. Our strategic agenda is set, and will
position Scotiabank to continue to adapt and thrive
in an increasingly competitive and evolving industry.
Our solid results this year were delivered by a strong and growing foundation in Canada, diversified through our priority international markets of Mexico, Peru, Colombia and Chile. Our results reinforce the benefits of a well-diversified business model, where we have consciously chosen a prudent mix of geographies and businesses.
While we have seen modest improvement in some of the markets we operate in, market volatility, historically low interest rates and uneven global growth may in fact constitute the “new normal”.
We are adapting to these operating conditions with increased investments in technology, to transform and simplify the customer experience. These investments will also help to enhance our growth and reduce our structural costs.
I strongly believe that building an even better bank for the long term is the best way for us to enhance shareholder value. In that context, I am pleased to share some of the significant progress we’ve made.
Despite the volatile operating environment, your Bank delivered more than $24 billion of revenue and $7.2 billion of net income. Diluted Earnings per Share were $5.67, representing growth of 4.4%. In addition, return on equity was solid at 14.6% and we maintained strong capital levels with a Common Equity Tier 1 ratio of 10.3%. Earnings growth was driven by strength in our personal, commercial and wealth businesses in both Canada and internationally.
The Bank’s earnings growth and strong capital position allowed us to continue investing in our businesses. We have increased investments in technology, alongside continuing investments in organic growth initiatives, such as commercial banking, credit cards, payments and new deposit-type products. And we have done all of this within our risk appetite.
1 � 2 0 1 5 S C O T I A B A N K A N N U A L R E P O R T
L E V E R A G I N G S C O T I A B A N K ’ S I N T E R N A T I O N A L F O O T P R I N T
We also announced several acquisitions – such as the credit card business in Canada from JP Morgan, and Citibank’s retail & commercial banking operations in Peru, Panama and Costa Rica. Our acquisition of Cencosud’s credit card business in Chile, and these transactions will continue to help us build scale and offer customers more products and services.
We also maintained our longstanding track record of returning capital to you through dividends – with two quarterly dividend increases this year, up 6% from 2014.
Operating earnings from our Canadian Banking division, which includes our personal and commercial businesses, grew 10% in 2015. This performance was underpinned by prudent retail asset growth, strong deposit growth, and an eight basis point increase in margin. This improved margin reflects our conscious effort to deepen customer relationships and broaden our suite of products. The result is a more balanced asset mix and a better return on your capital.
Commercial lending results were also higher on solid asset growth of $4 billion or 13%. Wealth management also continued to deliver strong results in 2015.
Operating earnings from our International Banking division grew 10% in 2015. The division includes all of our personal and commercial businesses in Latin America, Central America and the Caribbean – as well as our investments in personal and commercial banking operations in Asia. Results here strengthened in the second half of the year due to strong asset growth, steady margins and stable credit losses; earnings also benefitted from a weaker Canadian dollar relative to international currencies. Our performance in the Pacific Alliance region was particularly strong, with asset growth of 12%. These businesses represent more than 60% of International Banking’s earnings and have the greatest growth potential; as a result, they are the bellwether for the division.
AVERAGE ASSETS BY GEOGRAPHY
ASIA/EUROPE/ OTHER INTERNATIONAL
U.S. 15% 17%
PAC I F IC ALLIANCE MEXICO, PERU, CHILE, COLOMBIA9%
2 � 2 0 1 5 S C O T I A B A N K A N N U A L R E P O R T
Our Global Banking and Markets division provides corporate loans, capital markets products, and investment banking solutions to customers across our entire global footprint. For the year, operating earnings declined by 8% from 2014. This decline resulted from several factors, including lower investment banking revenue – mainly due to challenging market conditions in the energy and mining sectors – margin compression in our lending business – which offset stronger loan growth – and a lower contribution from Asia. In the case of Asia, the repositioning of this business is mostly complete, and performance there is expected to improve in 2016.
The results in Global Banking and Markets are disappointing, and we are accountable for our performance and are committed to improving these results.
Much has been written recently about threats to the ‘traditional’ banking industry. There is no single game changer – no one company or technology is driving this. Rather, we are seeing a confluence of events that are creating some fundamental shifts in the competitive landscape. Of particular note, we see rapidly evolving customer expectations, innovative digital technologies and new service models – all of which are changing how customers are served.
The effect of these shifts is powerful, driving a fundamental transformation of the banking industry in customer-facing applications, end-to-end processes and cost structures. The digital transformation is being led by both financial technology players – known as “FinTech” – and established industry players. In the case of FinTech, there are some who seek to disrupt incumbent banks, while many others seek to actively partner with them. As a result, FinTech represents both threats and opportunities. We are investing in our own digital strategies and partnering with some FinTech players.
“ Scotiabank is a great bank,with a well-recognized global brand. We have an attractive
geographic footprint that is
valued by our stakeholders.”
Through both of these approaches, we expect to improve our customers’ experience and reduce our structural costs.
We are operating in a different environment than we were just a few years ago. It is clear that the financial services industry continues to evolve rapidly, and Scotiabank is embracing the change. Your Board and Management Team have been working diligently over the past year to adapt and evolve our enterprise-wide strategic agenda. This medium-term agenda clearly articulates those areas where we must be sharply focused going forward.
As an overall strategy, we continue to believe strongly in our divers