Return to common shareholders – which includes both dividends and appreciation in the market value of the Bank’s common shares – was 6.1% in 1998. This was lower than the excellent returns of 1996 and 1997, but was nonetheless among the better returns provided by a Canadian bank. Ownership of Scotiabank has provided shareholders with a compound average return of 21.7% a year over the past five years, and 21.4% a year over the past decade.

The Bank has had consistent growth in the dividends on its common shares, with the dividend rate having been increased in 33 of the past 35 years. In 1998, dividends per share increased to 80 cents, 8% higher than the 74 cents of the prior year. In addition, on December 2, 1998, the Board of Directors announced an increase in the quarterly dividend on common shares to 21 cents per share (84 cents annualized), effective in the first quarter of 1999.

(1) Amounts have been adjusted to reflect the two-for-one stock split on February 12, 1998.

A strategy that works

We are convinced that our bank has put in place the correct strategies to ensure success as we move toward the new millennium. Our guiding principles remain unchanged: executing more efficiently and more effectively than our competitors, concentrating on our core businesses, building on our strengths, and motivating and relying upon the employees of the Scotiabank Group. Above all, we will stay focused on the needs of our customers.

Diversity – in our products, services, customers, employees and locations – will remain an important component of our long-term business plans. This strategy allows us to explore new opportunities in the markets we serve and to withstand temporary setbacks in specific areas. It spreads risk broadly, and offers many opportunities for profitable expansion in the future.

Scotiabank has the most broadly based multinational network of any Canadian bank. We plan to seek additional opportunities in the international arena, especially in Asia and Latin America. Despite current economic difficulties in several international markets, we are confident that these regions will grow and prosper over the long term.

Domestically, we will keep building the infrastructure and business processes required to support our increasing focus on customer relationship management. A crucial element in our strategy is to continuously improve the way we work, so that efficiency and productivity climb steadily. For many years, our superior productivity record has been an important competitive advantage, translating into better returns for our shareholders and better service for our customers.

Key initiatives

In the Retail Bank, our customer service is acknowledged to be among the best in the industry. In its annual survey on customer service at financial institutions, released in October, Market Facts again named Scotiabank the top performing major bank for overall service quality.

During the coming year, we plan to improve our service further, through our branches, and by expanding our alternate delivery channels. We will continue to simplify, centralize and automate routine branch functions to give branch staff more time to dedicate to customers.

We are committed to giving our customers a growing variety of options to fulfil their banking needs. Many now prefer the convenience and speed of alternate delivery channels, such as ABMs, telephone and Internet banking, debit cards and smart cards, to conduct their everyday transactions. Our Internet banking service, Scotia OnLine, and its innovative Entrust security system, have won high praise from customers, and awards from both the Canadian Information Productivity Awards and Microbanker Inc., a publisher of banking technology newsletters.

However, personal service still lies at the heart of Scotiabanking. Extensive employee and customer research has revealed that our customers believe we deal with them on a more personal level – much more directly than our competitors.

A key priority for the coming year is to communicate this difference to existing and prospective customers throughout the Scotiabank Group worldwide. To position the Bank as a unique player in communities and markets across Canada and around the world, this image of Scotiabank – human, straightforward and knowledgeable – will be central to our activities.

Last year’s acquisition of National Trust added to our successful retail banking operations, and positioned us as one of the largest personal trust operations in Canada. This will be particularly important as we expand our wealth management capabilities. The addition of National Trust has improved our ability to serve Canadians – particularly in Ontario, where most of its branches are located – and resulted in Scotiabank becoming the country’s second-largest mortgage lender.

We are also working to enhance the service we provide to our commercial customers. By streamlining processes and developing our back-office support capabilities, we will strive to increase our market share of small and medium-sized enterprises.

RoyNat, one of two merchant banking arms, helps promising small and medium-sized companies grow by providing a broad range of financing options. Scotia Merchant Capital complements RoyNat, making sizable equity investments in larger companies that are poised for growth.

Wealth management

Wealth management has become an increasingly significant part of our business and, as the Canadian population ages, it will gain importance. To improve our present position and increase our share of the market, we are developing new ways to lever opportunities in this key area.

The integration of Cassels Blaikie, Scotia Investment Management Limited and the investment division of Scotiatrust created Scotia Cassels Investment Counsel Limited in August l998, which manages assets of more than $15 billion. This fully consolidated investment counselling firm increases our ability to provide a broad range of personal investment services for Canadian and global investors, including estates and trust, fiduciary money management, pension and mutual funds. The wealth management services offered through ScotiaMcLeod and Scotiatrust complement those of Scotia Cassels.

Integrated wholesale operations

In 1998, we set in motion our plans to integrate our worldwide investment and corporate banking operations.

In recent years, our clients have come to expect and demand a highly co-ordinated approach to all their financing and investment needs. We believe this initiative will allow us to better fulfil their expectations by providing them with access to the full range of the Bank’s capabilities. It will also enable us to apply our respective expertise to provide superior value to both our clients and shareholders.

The integration, when completed next year, will enable us to deliver our product groups to clients in a more streamlined and focused fashion. Included in these services are corporate banking, global trading, merger and acquisition advice, equity sales and research, and securities underwriting.

Global opportunities

Our diverse operations in more than 50 countries on six continents generated almost half our total earnings in 1998. We continued to expand into new markets during the year, especially in Asia. We received approval to open a branch in Colombo, Sri Lanka, and became the first Canadian bank to open a full-service branch in Bangladesh, in the capital city of Dhaka. We also opened additional branches in countries where we have already established a presence. These new locations include Bangkok, Thailand; Bangalore, India; and Chongqing, China. As well, we have identified good potential for additional acquisitions in Latin America and Asia.

Overall, we continue to view our international banking activities against their potential for long-term success. The next few years may be tough for emerging markets, although they clearly offer excellent potential. Our challenge is to grow our global revenues and realize higher returns, while reducing corresponding risks. Having successfully operated internationally for more than a century, we remain convinced our strategy will continue to produce solid shareholder value.

Scotiabank people

At Scotiabank, we have retained our proud tradition of putting people first: our customers, as well as our employees and members of the communities we serve.

The Scotiabank Group is a team of more than 42,000 people who are dedicated to working together to ensure their Bank’s success year after year. Our people are a major factor behind the superior financial results that we achieve.

We continue to invest heavily in training and developing our staff. New courses offered during the year, both on CD-ROM and in workshops, have strengthened employees’ skills in diverse areas, such as effective management of people, sales and customer relationship building.

Financial sector reform

Our ability to remain competitive and enjoy continued growth is, to some extent, dependent on the financial sector policy framework under which we operate. If Scotiabank – and the Canadian banking sector in general – is to thrive and grow, both domestically and on the world stage, we require a new policy framework that reflects the realities of today’s rapidly changing markets.

We are in complete agreement with the federal government’s plans to review and thoroughly assess the financial sector, and set the future framework for the industry. At Scotiabank, we support the process of review that is taking place, and we are committed to playing a constructive role in the formation of revised financial sector policy. We will remain consistent advocates of a policy vision that is in the national interest, one that encourages more competition and more choice for Canadian consumers and businesses.

We strongly believe that Scotiabank will continue to grow and prosper, and that Canada’s financial sector policy will support strong, successful institutions, just as it has in the past. The key to the future is to remain focused on our overall strategy and the fundamental things we do that have made us successful: offering first-rate service to our customers and working together as an effective team.


Outlook

As we enter the final stretch before the new millennium, we face another year of challenges. Economic and financial market conditions remain unsettled in Asia and many parts of the world. Canadian financial markets have not been immune from the recurring bouts of global volatility and, despite the positive influence of our low interest rates and improved fiscal and competitive fundamentals, there is a good chance that the Canadian and U.S. economies will lose some momentum in 1999. We are confident that, despite these setbacks, the long-term outlook for Canada and the Bank’s major markets remains favourable.

We believe that the great strength of the Canadian banking system is another reason we do well at Scotiabank. This system, which has become part of the fabric of the country and its business community, benefits all Canadians and the country as a whole.

Within that system, our own traditional core strengths – risk management, expense management, our diverse businesses, customer satisfaction and our strong team of people – will allow us to succeed.

We have a great opportunity to build additional business, both at home and abroad. We are the bank that’s not too big to care – about our shareholders, about our customers, about our employees and about the communities we serve. We are putting people first.

Peter C. Godsoe Chairman of the Board and Chief Executive Officer	Bruce R. Birmingham President