Scotiabank earnings top $1 billion in solid third quarter



    
    Third quarter highlights;

    -   Earnings per share (diluted) of $0.98 compared to $1.02 last year and
        $0.97 last quarter
    -   Net income of $1.01 billion, versus $1.03 billion last year and
        $0.98 billion last quarter
    -   Return on equity of 21.0%, compared to 21.7% last year
    -   Productivity ratio of 54.3%, versus 53.0% last year
    

    TORONTO, Aug. 26 /CNW/ - Scotiabank today reported third quarter net
income of $1.01 billion compared with $1.03 billion the same period last year.
Quarter over quarter, net income was up 3% from $980 million, due primarily to
higher net interest income, increased customer-driven revenues and strong
trading results.
    Diluted earnings per share were $0.98 compared to $1.02 in the same
period a year ago and $0.97 last quarter. Return on equity remained strong at
21.0%.
    "Scotiabank's strategy of diversifying across business lines and
geographies has enabled the Bank to continue to perform well during a
challenging period for the global financial services industry," said President
and CEO Rick Waugh. "Total revenue grew 5% from the same period last year, as
assets increased a strong $54 billion or 13%, with contributions from all
three growth platforms - Domestic Banking, International Banking and Scotia
Capital. These gains were offset by higher provisions for credit losses in
some of our retail portfolios, lower capital markets revenues compared to
record levels for the same period last year and higher expenses to support
growth initiatives. Scotiabank continues to deliver an industry-leading
productivity ratio of 54.3%, reflecting our effective cost management
discipline. Our balance sheet remains strong and our capital ratios are
excellent.
    "Domestic Banking reported a record quarter, with total revenue
increasing by 9% compared to a year ago," Mr. Waugh said. "Mortgage growth was
recorded in all sales channels, leading to a gain in market share, while
personal deposits grew 12% to lead the industry in market-share growth. The
business line also benefited from higher wealth management revenues, including
a gain in mutual fund market share for the sixth consecutive quarter and
growth in commercial and small business lending.
    "Results in International Banking benefited from continued robust organic
loan growth, particularly in mortgages and credit cards, strong deposit gains
and the positive impact of acquisitions, partly offset by higher taxes and
increased provisions for credit losses.
    "Scotia Capital had a strong quarter, benefitting from its diversified
portfolio of businesses, with record revenues in Scotia Waterous and fixed
income, continued strong contributions from ScotiaMocatta and foreign exchange
operations and an increased contribution from its lending businesses. This was
partly offset by lower results in derivatives, which achieved record levels in
the same quarter last year.
    "The Bank's risk management culture is enabling us to effectively manage
through a difficult period in world capital markets.
    "Our capital position remains strong, allowing the Bank to continue to
pursue strategic acquisitions and ongoing business development opportunities.
    "The second half of 2008 is showing improvement compared to the first two
quarters of the fiscal year, with continued asset growth in all three business
lines and a rebound in capital markets activity. While we are on track to
achieve three of our four key financial and operational targets, with slower
global growth it is unlikely that we will meet our EPS growth objectives as
set at the end of last year."

    
    Year-to-date performance versus key 2008 financial and operational 
objectives was as follows:

    1.  Target: Earn a return on equity (ROE)(1) of 20 to 23%. For the nine
        months Scotiabank earned an ROE of 20.3%.

    2.  Target: Generate growth in earnings per common share (diluted) of
        7 to 12%. Our year-over-year growth in earnings per share was
        negative 9%.

    3.  Target: Maintain a productivity ratio of less than 57%. Scotiabank's
        ratio was 55.1% for the nine months.

    4.  Target: Maintain sound capital ratios. At 9.8%, Scotiabank's Tier 1
        capital ratio remains strong by Canadian and International standards.

    (1) Refer to non-GAAP measures discussion further below.



    FINANCIAL HIGHLIGHTS

                                             As at and               For the
                            for the three months ended     nine months ended
    -------------------------------------------------------------------------
                         July 31   April 30    July 31    July 31    July 31
    (Unaudited)             2008       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Operating results
     ($ millions)
    Net interest income    1,946      1,873      1,812      5,633      5,382
    Net interest income
     (TEB(1))              2,049      1,973      1,913      5,954      5,697
    Total revenue          3,374      3,172      3,201      9,385      9,412
    Total revenue
     (TEB(1))              3,477      3,272      3,302      9,706      9,727
    Provision for credit
     losses                  159        153         92        423        175
    Non-interest expenses  1,889      1,794      1,752      5,352      5,202
    Provision for income
     taxes                   287        209        296        689        859
    Provision for income
     taxes (TEB(1))          390        309        397      1,010      1,174
    Net income             1,010        980      1,032      2,825      3,091
    Net income available
     to common
     shareholders            978        958      1,016      2,750      3,056
    -------------------------------------------------------------------------
    Operating performance
    Basic earnings per
     share ($)              0.99       0.97       1.03       2.79       3.09
    Diluted earnings per
     share ($)              0.98       0.97       1.02       2.77       3.06
    Return on equity
     (%)(l)                 21.0       21.4       21.7       20.3       22.2
    Productivity ratio
     (%) (TEB(1))           54.3       54.8       53.0       55.1       53.5
    Net interest margin
     on total average
     assets (%) (TEB(1))    1.79       1.76       1.86       1.78       1.90
    -------------------------------------------------------------------------
    Balance sheet
     information
     ($ millions)
    Cash resources and
     securities          124,079    129,749    121,633
    Loans and
     acceptances         283,742    267,875    233,004
    Total assets         462,407    452,573    408,115
    Deposits             332,469    322,438    286,985
    Preferred shares       2,560      2,210      1,290
    Common shareholders'
     equity               18,801     18,213     18,377
    Assets under
     administration      207,433    202,266    198,786
    Assets under
     management           37,842     32,917     31,031
    -------------------------------------------------------------------------
    Capital measures(2)
    Tier 1 capital
     ratio (%)               9.8        9.6        9.7
    Total capital
     ratio (%)              11.5       11.7       10.6
    Tangible common
     equity to risk-
     weighted assets(1)
     (%)                     7.6        7.5        7.7
    Risk-weighted assets
     ($ millions)        225,801    218,878    219,771
    -------------------------------------------------------------------------
    Credit quality
    Net impaired loans(3)
     ($ millions)          1,009        845        584
    General allowance for
     credit losses
     ($ millions)          1,323      1,323      1,298
    Net impaired loans as
     a % of loans and
     acceptances(3)         0.36       0.32       0.25
    Specific provision
     for credit losses as
     a % of average loans
     and acceptances
     (annualized)           0.23       0.24       0.16       0.22       0.12
    -------------------------------------------------------------------------
    Common share
     information
    Share price ($)
      High                 52.51      50.00      54.67      54.00      54.73
      Low                  41.95      42.00      48.91      41.95      48.80
      Close                49.98      47.82      49.45
    Shares outstanding
     (millions)
      Average - Basic        989        986        988        986        990
      Average - Diluted      994        992        996        993        999
      End of period          990        987        982
    Dividends per share
     ($)                    0.49       0.47       0.45       1.43       1.29
    Dividend yield (%)       4.1        4.1        3.5        4.0        3.3
    Dividend payout
     ratio(4) (%)           49.6       48.4       43.7       51.3       41.8
    Market capitalization
     ($ millions)         49,475     47,194     48,578
    Book value per common
     share ($)             18.99      18.45      18.71
    Market value to book
     value multiple          2.6        2.6        2.6
    Price to earnings
     multiple (trailing
     4 quarters)            13.4       12.7       12.4
    -------------------------------------------------------------------------
    Other information
    Employees(5)          62,209     62,143     57,152
    Branches and
     offices(5)            2,557      2,529      2,289
    -------------------------------------------------------------------------

    (1) Non-GAAP measure. Further below refer to a discussion of these
        measures.
    (2) Effective November 1, 2007, regulatory capital ratios are determined
        in accordance with Basel II rules. Comparative amounts for prior
        periods were determined in accordance with Basel I rules.
    (3) Net impaired loans are impaired loans less the specific allowance for
        credit losses.
    (4) Represents common dividends for the period as a percentage of the net
        income available to common shareholders for the period.
    (5) Certain amounts for prior periods have been restated to include final
        numbers for all new acquisitions.



    MESSAGE TO STAKEHOLDERS

    Strategies for success
    

    Global financial markets remained turbulent during the third quarter of
2008. Despite these challenging conditions, Scotiabank's results continued to
improve. Once again, we achieved solid results by executing our strategy,
including our three key business priorities: sustainable revenue growth,
effective capital management and leadership development.
    We continued to use our capital to fund both strategic acquisitions and
ongoing business initiatives that support our growth objectives. During the
quarter, we announced a definitive agreement to purchase E(*)TRADE Canada from
its U.S.-based parent for US$442 million. This acquisition will double
Scotiabank's footprint in the Canadian online investing market and further
supports the growth of our wealth management business.
    We demonstrated our confidence in the Peruvian market and enhanced our
growth strategy through a number of recent acquisitions, including increasing
our stake in Scotiabank Peru from 78% to 98% by purchasing shares owned by the
Italian bank Intesa Sanpaolo S.p.A.
    We also established an agreement with HDFC Bank in India, which will
enable Scotiabank to reach out to people in India who are immigrating to
Canada and, at the same time, provide our customers in Canada with a referral
to one of the leading financial institutions in India.
    ScotiaMocatta, the precious metals arm of Scotia Capital, was granted
membership as a Foreign Financial Member of the Shanghai Gold Exchange (SGE),
China's leading precious metals exchange, which will allow us to trade gold,
silver and platinum through ScotiaMocatta's branch in Guangzhou, in southern
China.
    While market conditions remain challenging, we continue to be encouraged
by the solid results recorded by our three business lines, our risk management
discipline, and the ability of our great team of people. Through their
feedback to our annual employee survey, ViewPoint, Scotiabank employees around
the world told us they continue to value their employment experience. The 2008
Employee Satisfaction Index (ESI), which measures overall employee
satisfaction, came in at 86% and the Diversity Index (DI), which measures
employee perception of respect and management sensitivity to work/life
demands, is 88%.
    As we enter the final months of 2008, we are focused on continuing to
effectively execute our strategies and priorities in order to be
well-positioned for continued growth in 2009.

    
    2008 Objectives - Our Balanced Scorecard

    Financial

    -   Return on equity of 20-23%
    -   Diluted earnings per share growth of 7-12%
    -   Long-term shareholder value through increases in dividends and stock
        price appreciation

    Operational

    -   Productivity ratio of (less than)57%
    -   Sound ratings
    -   Strong practices in corporate governance and compliance processes
    -   Sound capital ratios

    Customer

    -   High levels of customer satisfaction and loyalty
    -   Deeper relationships with existing customers
    -   New customer acquisition

    People

    -   High levels of employee satisfaction and engagement
    -   Enhance diversity of workforce
    -   Commitment to corporate social responsibility and strong community
        involvement


    ACHIEVEMENTS

    Domestic Banking

    -   Scotiabank has reached an agreement to purchase E(*)TRADE Canada
        subject to regulatory approvals. With $4.7 billion in assets under
        administration and 190 employees, E(*)TRADE Canada is a top-ranked
        online brokerage, offering a variety of products and services to
        retail and institutional investors. The completion of this deal will
        double Scotiabank's footprint in the Canadian online investing market
        and demonstrates our commitment to grow our wealth management
        business and drive revenue growth.
    -   We launched "Bank The Rest(TM)", an innovative savings program to
        help customers increase their savings every time they use their
        ScotiaCard. Customers can now turn everyday debit purchases into
        savings when they choose to round up their total purchase amount to
        the nearest dollar or five dollars, and have the difference deposited
        automatically into their Scotiabank Money Master High Interest
        Savings account. This program is the first of its kind in Canada,
        giving Scotiabank a key competitive advantage.
    -   As part of the Bank's "Get Growing to a Million" campaign, which
        helps small business owners identify strategies to grow their
        businesses, we rolled out an innovative way to reach this market
        segment. Using a specially-equipped travelling RV, our small business
        team is in the middle of a five-month cross-country tour to more than
        70 communities across Canada. At each stop we communicate the unique
        tools and resources that we've built to help them take their
        businesses to the next level.

    International Banking

    -   We continue to build out our distribution footprint in order to
        expand our customer base in key markets. During the quarter we opened
        22 new branches, including 15 in Mexico. We also opened a
        representative office in Turkey.
    -   In Peru, a key Latin American market, we continue to expand into
        complementary businesses with the purchase of a 47.5% interest in
        Profuturo, a private Peruvian pension fund. Profuturo is the
        country's fourth largest private pension fund, with a 23% market
        share by number of customers and a 17% share of revenues. Scotiabank
        will be working in partnership with a group of Profuturo's existing
        local shareholders to manage the company.
    -   For the second consecutive year, Scotiabank Jamaica was awarded the
        MasterCard Worldwide Global Quality Gold Award for excellence in
        operational achievements. The award recognizes exceptional
        performance in operations quality.

    Scotia Capital

    -   ScotiaMocatta was granted membership in the Shanghai Gold Exchange,
        China's leading precious metals exchange. This is the first time that
        a branch of a foreign bank has been given membership.
    -   Scotia Capital acted as joint bookrunner on a US$1.3 billion multi-
        tranche offering of collateral trust bonds by National Rural
        Utilities Cooperative Finance Corporation. The transaction was the
        largest US dollar bond offering ever led by Scotia Capital.
    -   Scotia Waterous acted as exclusive financial advisor to Hupecol
        Caracara LLC, on its sale of Colombian oilfield assets for
        US$920 million to CEPSA Colombia S.A., a wholly owned subsidiary of
        Compania Espanola de Petroleos, S.A.
    -   Scotia Capital acted as exclusive financial advisor to Hecla Mining
        Co., on its US$750 million purchase of Rio Tinto's interest in the
        Greens Creek silver mine. Associated with the transaction, Scotia
        Capital also acted as sole lead arranger and administrative agent on
        US$380 million of credit facilities, and provided the interest rate
        hedging program.

    Employee highlights

    -   The results of our annual ViewPoint Employee Survey show that
        Scotiabank continues to be a global employer of choice, despite a
        very challenging business climate. This year, 82% of employees
        worldwide participated in the survey, and their feedback indicates
        that employee satisfaction remains high, as measured by the two key
        indices. The 2008 Employee Satisfaction Index (ESI), which measures
        the overall level of satisfaction, came in at 86% and the Diversity
        Index (DI), which measures employees' perceptions of respect and
        management sensitivity to work/life demands, was 88%.

    Community involvement

    -   Scotiabank was the premier sponsor of the 5th World Conference on
        Breast Cancer, held in Winnipeg in June. The conference takes place
        every three years to promote networking, public education and
        research on this important topic, which affects too many people
        around the world. During April and May, Canadian Scotiabank branches
        accepted donations for lapel pins to help defray expenses for some
        150 delegates who would otherwise have been unable to attend.
        Scotiabank matched the funds raised, dollar for dollar, for a total
        donation of more than $207,000. Sixty Winnipeg branch employees also
        served as conference volunteers.
    -   Scotiabank El Salvador continued its support of the Salud Escolar
        Integral project with Brock University by providing them with the
        $120,500 needed to continue their work this year. It is a program
        that works with a national university in El Salvador to teach
        physical education as an integral part of education in the
        Salvadorean school system and allows for the teaching of health,
        self-respect and non-violence.


    MANAGEMENT'S DISCUSSION & ANALYSIS

    -------------------------------------------------------------------------
    Forward-looking statements
    

    Our public communications often include oral or written forward-looking
statements. Statements of this type are included in this document, and may be
included in other filings with Canadian securities regulators or the U.S.
Securities and Exchange Commission, or in other communications. All such
statements are made pursuant to the "safe harbour" provisions of the United
States Private Securities Litigation Reform Act of 1995 and any applicable
Canadian securities legislation. Forward-looking statements may include
comments with respect to the Bank's objectives, strategies to achieve those
objectives, expected financial results (including those in the area of risk
management), and the outlook for the Bank's businesses and for the Canadian,
United States and global economies. Such statements are typically identified
by words or phrases such as "believe," "expect," "anticipate," "intent,"
"estimate," "plan," "may increase," "may fluctuate," and similar expressions
of future or conditional verbs, such as "will," "should," "would" and "could."
    By their very nature, forward-looking statements involve numerous
assumptions, inherent risks and uncertainties, both general and specific, and
the risk that predictions and other forward-looking statements will not prove
to be accurate. Do not unduly rely on forward-looking statements, as a number
of important factors, many of which are beyond our control, could cause actual
results to differ materially from the estimates and intentions expressed in
such forward-looking statements. These factors include, but are not limited
to: the economic and financial conditions in Canada and globally; fluctuations
in interest rates and currency values; liquidity; the effect of changes in
monetary policy; legislative and regulatory developments in Canada and
elsewhere, including changes in tax laws; operational and reputational risks;
the accuracy and completeness of information the Bank receives on customers
and counterparties; the timely development and introduction of new products
and services in receptive markets; the Bank's ability to expand existing
distribution channels and to develop and realize revenues from new
distribution channels; the Bank's ability to complete and integrate
acquisitions and its other growth strategies; changes in accounting policies
and methods the Bank uses to report its financial condition and the results of
its operations, including uncertainties associated with critical accounting
assumptions and estimates; the effect of applying future accounting changes;
global capital markets activity; the Bank's ability to attract and retain key
executives; reliance on third parties to provide components of the Bank's
business infrastructure; unexpected changes in consumer spending and saving
habits; technological developments; fraud by internal or external parties,
including the use of new technologies in unprecedented ways to defraud the
Bank or its customers; consolidation in the Canadian financial services
sector; competition, both from new entrants and established competitors;
judicial and regulatory proceedings; acts of God, such as earthquakes and
hurricanes; the possible impact of international conflicts and other
developments, including terrorist acts and war on terrorism; the effects of
disease or illness on local, national or international economies; disruptions
to public infrastructure, including transportation, communication, power and
water; and the Bank's anticipation of and success in managing the risks
implied by the foregoing. A substantial amount of the Bank's business involves
making loans or otherwise committing resources to specific companies,
industries or countries. Unforeseen events affecting such borrowers,
industries or countries could have a material adverse effect on the Bank's
financial results, businesses, financial condition or liquidity. These and
other factors may cause the Bank's actual performance to differ materially
from that contemplated by forward-looking statements. For more information,
see the discussion starting on page 56 of the Bank's 2007 Annual Report,
    The preceding list of important factors is not exhaustive. When relying
on forward-looking statements to make decisions with respect to the Bank and
its securities, investors and others should carefully consider the preceding
factors, other uncertainties and potential events. The Bank does not undertake
to update any forward-looking statements, whether written or oral, that may be
made from time to time by or on its behalf.
    The "Outlook" section in this document is based on the Bank's views and
the actual outcome is uncertain. Readers should consider the above-noted
factors when reviewing this section.
    -------------------------------------------------------------------------

    Additional information relating to the Bank, including the Bank's Annual
Information Form, can be located on the SEDAR website at www.sedar.com and on
the EDGAR section of the SEC's website at www.sec.gov


    Non-GAAP Measures

    The Bank uses a number of financial measures to assess its performance.
Some of these measures are not calculated in accordance with Generally
Accepted Accounting Principles (GAAP), are not defined by GAAP and do not have
standardized meanings that would ensure consistency and comparability between
companies using these measures. These non-GAAP measures are used in our
Management's Discussion and Analysis further below. They are defined below:

    Taxable equivalent basis

    The Bank analyzes net interest income and total revenues on a taxable
equivalent basis (TEB). This methodology grosses up tax-exempt income earned
on certain securities reported in net interest income to an equivalent
before-tax basis. A corresponding increase is made to the provision for income
taxes; hence, there is no impact on net income. Management believes that this
basis for measurement provides a uniform comparability of net interest income
arising from both taxable and non-taxable sources and facilitates a consistent
basis of measurement. While other banks also use TEB, their methodology may
not be comparable to the Bank's. The TEB gross-up to net interest income and
to the provision for income taxes in the current period is $103 million versus
$101 million in the same quarter last year and $100 million last quarter. For
the nine months, the TEB gross-up to net interest income and the provision for
income taxes was $321 million compared to $315 million for the same period
last year.
    For purposes of segmented reporting, a segment's net interest income and
provision for income taxes are grossed up by the taxable equivalent amount.
The elimination of the TEB gross up is recorded in the "Other" segment.

    Productivity ratio (TEB)

    Management uses the productivity ratio as a measure of the Bank's
efficiency. This ratio represents non-interest expenses as a percentage of
total revenue on a taxable equivalent basis.

    Net interest margin on total average assets (TEB)

    This ratio represents net interest income on a taxable equivalent basis
as a percentage of total average assets.

    Operating leverage

    The Bank defines operating leverage as the rate of growth in total
revenue on a taxable equivalent basis, less the rate of growth in expenses.

    Return on equity

    Return on equity is a profitability measure that presents the net income
available to common shareholders as a percentage of the capital deployed to
earn the income. The implementation of the new accounting standards for
financial instruments in the first quarter of 2007 resulted in certain
unrealized gains and losses being reflected in a new component of
shareholders' equity. The Bank calculates its return on equity using average
common shareholders' equity, including all components of shareholders' equity.

    Economic equity and Return on economic equity

    For internal reporting purposes, the Bank allocates capital to its
business segments using a methodology that considers credit, market,
operational and other risks inherent in each business segment. The amount
allocated is commonly referred to as economic equity. Return on equity for the
business segments is based on the economic equity allocated to the business
segments. The difference between the economic equity amount required to
support the business segments' operations and the Bank's total equity is
reported in the "Other" segment.

    Tangible common equity to risk-weighted assets

    Tangible common equity to risk-weighted assets is an important financial
measure for rating agencies and the investing community. Tangible common
equity is total shareholders' equity plus non-controlling interest in
subsidiaries, less preferred shares, unrealized gains/losses on
available-for-sale securities and cash flow hedges, goodwill and other
intangible assets (net of taxes). Tangible common equity is presented as a
percentage of risk-weighted assets.
    Regulatory capital ratios, such as Tier 1 and Total Capital ratios, have
standardized meanings as defined by the Office of the Superintendent of
Financial Institutions Canada (OSFI).

    
    Group Financial Performance and Financial Condition

    August 26, 2008
    

    Scotiabank's earnings gained momentum this quarter, with net income of
$1,010 million. Although down 2% or $22 million from the same period last
year, net income was up 3% or $30 million from last quarter.
    Compared to the same period last year, higher net interest income from
acquisitions and organic asset growth, and increased customer-driven revenues
were more than offset by increased provisions for credit losses, lower capital
markets revenues, higher expenses to support growth initiatives and the
negative impact of foreign currency translation.
    Quarter-over-quarter, net income was bolstered mainly by growth in net
interest income, stronger capital markets revenues, higher customer-driven
revenues and increased net gains on non-trading securities. These items were
partly offset by higher compensation-related expenses and the impact of a
higher effective tax rate.
    Net income for the nine months was $2,825 million, $266 million or 9%
lower than the same period last year. The higher net interest income from
strong asset growth, the positive net contribution of acquisitions and a lower
effective tax rate were more than offset by higher provisions for credit
losses, lower trading revenues and writedowns on certain structured credit
instruments recorded this year. Higher expenses and the negative impact of
foreign currency translation also contributed to the lower year-to-date net
income.

    Total revenue

    Total revenue (on a taxable equivalent basis) was $3,477 million this
quarter, up $175 million or 5% from the same period last year and $205 million
or 6% from last quarter. Year-over-year growth reflected higher net interest
income and growth in customer-driven revenues, along with the contributions
from recent acquisitions. These were partly offset by lower capital markets
revenues and the impact of foreign currency translation.
    The increase from last quarter was due primarily to increased net
interest income, resulting from asset growth in International and Domestic and
two additional days in the quarter, higher trading revenues and securities
gains and broad-based increases across customer-driven revenue categories.
    For the nine months, total revenue of $9,706 million was down $21 million
from the same period last year.

    Net interest income

    Net interest income (on a taxable equivalent basis) was $2,049 million,
up $136 million or 7% from the same quarter last year and $76 million or 4%
from last quarter.
    The increase from last year was driven by asset growth in all business
lines, particularly in retail and corporate loans, including strong
contributions from acquisitions. Partly offsetting these were compression in
the margin and the negative impact of foreign currency translation.
    The strong quarter-over-quarter growth in net interest income was due
primarily to continued asset growth, two additional days in the quarter and
the favourable impact of derivatives used for asset/liability management.
    Year-to-date net interest income grew to $5,954 million, an increase of
$257 million or 5% from the same period last year. The growth was driven by
solid organic asset growth and the contribution of recent acquisitions, partly
offset by the negative impact of foreign currency translation and compressed
margins, as a result of a relative increase in wholesale funding costs and
losses on derivatives used for asset/liability management.
    The Bank's interest margin was 1.79%, compared to 1.86% last year and
1.76% last quarter. Compared to the prior year, the reduction in the margin
was mainly due to the negative impact of fair value changes on derivatives
used for asset/liability management, a change in asset mix, including growth
in lower-yielding variable rate mortgages, and the relative increase in
wholesale funding costs. The margin was slightly up quarter over quarter due
to a decline in trading assets.

    Other income

    This quarter's other income was $1,428 million, $39 million or 3% higher
than the same period last year. This growth was broad-based across all
categories of customer-driven revenues due to increased customer activity and
including contributions from acquisitions. In addition there was higher
securitization income. These increases were partly offset by lower trading
revenues, compared to the particularly strong revenues realized last year,
lower net gains on non-trading securities and the negative impact of foreign
currency translation.
    Compared to the previous quarter, the increase of $129 million or 10% was
due primarily to broad-based growth in customer-driven transactions, strong
investment banking and trading revenues particularly in derivative trading,
and higher net gains on non-trading securities.
    For the nine-month period, other income was $3,752 million, a decline of
$278 million or 7% from the same period last year, due primarily to lower
trading revenues, writedowns on certain structured credit instruments recorded
this year, lower underwriting fees, and the negative impact of foreign
currency translation. Partly offsetting these items were increased
customer-driven revenues, and higher mutual fund and securitization income.

    Provision for credit losses

    The provision for credit losses was $159 million this quarter, up
$67 million from the same period last year and $6 million from last quarter.
The higher level this quarter compared to a year ago was due to higher
provisions in the retail portfolios in International Banking, as well as
provision increases in Scotia Capital and Domestic Banking. Further discussion
on credit risk is provided below.

    Non-interest expenses and productivity

    Non-interest expenses of $1,889 million this quarter rose $137 million or
8% from last year. The increase was attributable to ongoing business and
growth initiatives, including branch expansions in Canada, Mexico, Chile and
Peru, and the impact of recent acquisitions. In addition there was a
$28 million provision for contractual indemnities related to the Bank's
initial acquisition in Peru. Partly offsetting these increases were the
positive impact of foreign currency translation and lower performance-based
compensation, in line with the decline in trading revenues.
    Quarter over quarter, non-interest expenses were up $95 million or 5%.
The increase was due primarily to growth in salaries and benefits expenses and
the indemnity provision in Peru. The rise in salaries and benefits was
reflective of two additional days this quarter, increased performance-based
compensation from stronger trading and volume-related commissionable revenues
and higher stock-based compensation. Partly offsetting these items were lower
professional fees.
    For the nine-month period, non-interest expenses were $5,352 million, up
$150 million or 3% from $5,202 million reported last year. The growth was
primarily from acquisitions and ongoing growth initiatives and thus impacted
most categories. These items were partly offset by the positive impact of
foreign currency translation, lower stock-based compensation and lower
performance-based compensation due to lower trading revenues.
    The productivity ratio was 54.3% this quarter, compared to 53.0% reported
for the same period last year and 54.8% last quarter. The Bank's operating
leverage this quarter was negative 2.6% compared to the same period last year,
and positive 0.9% over the second quarter. The year-to-date operating leverage
was negative 3.1%, partly as a result of the writedowns on certain structured
credit instruments this year, and lower trading revenues compared to the
particularly strong revenues recorded last year.

    Taxes

    The effective tax rate for this quarter was 21.7% compared to 21.8% in
the same quarter last year and 17.0% last quarter. The decrease from a year
ago was marginal due primarily to a reduction in the statutory tax rate in
Canada offset by lower levels of income in lower tax rate jurisdictions. The
increase from the previous quarter was driven mainly by reduced tax-exempt
dividend income and lower levels of income in lower tax rate jurisdictions.
    The year-to-date effective tax rate was 19.1%, compared to 21.3% for the
same period last year.

    Risk management

    The Bank's risk management policies and practices are unchanged from
those outlined in pages 56 to 67 of the 2007 Annual Report.

    Credit risk

    The specific provision for credit losses was $159 million in the third
quarter, compared to $92 million in the same period last year and $153 million
in the previous quarter.
    The provision for credit losses was $99 million in the Domestic Banking
portfolios, up from $77 million in the same quarter last year. The increase
from last year was due to higher provisions in the commercial and retail
portfolios. The change in commercial provisions was related primarily to two
accounts and to increases in small business banking. The retail provisions
were mainly volume related due to Scotia Dealer Advantage, offset partially by
a reduction in provisions for other personal loans. Provisions for credit
losses declined $3 million from last quarter.
    International Banking's provision for credit losses was $56 million in
the third quarter, up $31 million compared to the same period last year, but
down $4 million from the prior quarter. The increase from the same quarter
last year was due mainly to retail asset growth, the acquisition in Chile,
higher commercial provisions in the Caribbean and Asia, and an increased
retail delinquency rate in Mexico. Higher retail provisions in Mexico and Peru
were partially offset by larger net commercial recoveries and reversals,
mostly in Mexico. The slight quarter-over-quarter decline in provisions was
primarily attributable to Mexico and Peru, where higher recoveries and
reversals of commercial provisions no longer required, were partially offset
by higher retail provisions.
    Scotia Capital's provision for credit losses was $4 million in the third
quarter, compared to net recoveries of $10 million in the third quarter of
last year and net recoveries of $9 million in the second quarter. The increase
from both the third quarter last year and the previous quarter was related
primarily to one new provision in the U.S.
    Total net impaired loans, after deducting the allowance for specific
credit losses, were $1,009 million as at July 31, 2008, an increase of
$164 million from last quarter, primarily in International and Scotia Capital.
The general allowance for credit losses was $1,323 million as at July 31,
2008, unchanged from last quarter.

    Market risk

    Value at Risk (VaR) is a key measure of market risk in the Bank's trading
activities. In the third quarter, the average one-day VaR was $15.8 million
compared to $15.6 million for the same quarter last year as increased interest
rate risk exposures were offset by reduced equity risk. Compared to the second
quarter, the average one-day VaR increased from $14.6 million to $15.8 million
due primarily to a reduction in the diversification benefit between risk
factors.

    
                                           Average for the three months ended
    -------------------------------------------------------------------------
    Risk factor                                July 31   April 30    July 31
    ($ millions)                                  2008       2008       2007
    -------------------------------------------------------------------------
    Interest rate                            $    13.0  $    12.8  $     9.0
    Equities                                       3.5        3.0        8.7
    Foreign exchange                               0.9        1.3        2.0
    Commodities                                    3.0        3.6        1.3
    Diversification                               (4.6)      (6.1)      (5.4)
    -------------------------------------------------------------------------
    All-Bank VaR                             $    15.8  $    14.6  $    15.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    There were 11 trading loss days in the third quarter, compared to 21 days
in the previous quarter, a reflection of a lower level of market volatility
during the quarter. The losses were well within the range predicted by VaR.

    Liquidity risk

    The Bank maintains large holdings of liquid assets to support its
operations. These assets generally can be sold or pledged to meet the Bank's
obligations. As at July 31, 2008, liquid assets were $107 billion or 23% of
total assets compared to $112 billion or 25% of total assets at April 30,
2008. The mix of these assets between securities and other liquid assets,
including cash and deposits with banks, was 68% and 32%, respectively
(April 30, 2008 - 70% and 30%, respectively).
    In the course of the Bank's day-to-day activities, securities and other
assets are pledged to secure an obligation, participate in clearing or
settlement systems, or operate in a foreign jurisdiction. Securities may also
be sold under repurchase agreements. As at July 31, 2008, total assets pledged
or sold under repurchase agreements were $69 billion, unchanged from April 30,
2008.

    Related party transactions

    There were no changes to the Bank's procedures and policies for related
party transactions from those outlined on pages 72 and 122 of the 2007 Annual
Report. All transactions with related parties continued to be at market terms
and conditions.

    Balance sheet

    The Bank's total assets at July 31, 2008, were $462 billion, up
$50 billion or 12% from October 31, 2007, including a $16 billion positive
impact from foreign currency translation and the acquisition of Banco del
Desarrollo. Growth was widespread across most asset categories, including
retail, commercial and corporate lending. Compared to the prior quarter,
assets grew by $9 billion.
    The Bank's loan portfolio grew $45 billion or 20% from October 31, 2007,
including $7 billion from foreign currency translation. On the retail lending
side, domestic residential mortgage growth was $15 billion, before
securi-tization of $3 billion. The International acquisition of Banco del
Desarrollo in Chile contributed $1 billion to the increase in mortgages.
Personal loans were up $7 billion, with all regions experiencing positive
growth.
    Business and government loans increased $26 billion from October 31,
2007, or $21 billion excluding the impact of foreign currency translation.
Loans in Scotia Capital were up $11 billion on the corporate lending side as
well as to support trading operations. In International Banking, business and
government loans increased $13 billion. The acquisition of Banco del
Desarrollo contributed $3 billion, and loans in Asia and the Caribbean grew
$5 billion and $2 billion, respectively.
    Securities increased by $2 billion from October 31, 2007.
Available-for-sale securities increased $6 billion, offset by a decrease in
trading securities of $4 billion. The decrease in trading securities was
primarily due to a reduction in the size of the equity securities portfolio.
As at July 31, 2008, the unrealized gains on available-for-sale securities
were $207 million (after related derivative and hedge amounts), down $348
million from last quarter, due mainly to sales of securities during the
quarter, decreases in the market value of equity securities and the reduction
in the value of certain debt securities, as credit spreads widened.
    Total liabilities were $441 billion as at July 31, 2008, an increase of
$48 billion or 12% from October 31, 2007, including a $17 billion impact from
foreign currency translation.
    Total deposits were up $44 billion from October 31, 2007, or 15%,
including $11 billion impact due to foreign currency translation and
$6 billion from the acquisition of Banco del Desarrollo. Personal deposits
increased $12 billion, including $2 billion growth in domestic personal GICs.
Non-retail deposits, including bank, business and government deposits were up
$32 billion, including the impact of foreign currency translation of
$10 billion. This increase was primarily to fund the Bank's strong asset
growth.
    Total shareholders' equity rose $2.6 billion from October 31, 2007. The
increase was due primarily to internal capital generation of $1.3 billion, the
issuance of $925 million non-cumulative preferred shares in the first nine
months, and a $146 million increase in accumulated other comprehensive income.
The increase in unrealized exchange gains relating to the Bank's foreign
operations due to the weakening of Canadian dollar was mostly offset by lower
unrealized losses on other components of comprehensive income.

    
    Capital management

    Implementation of the revised Basel framework
    

    The revised Basel Capital framework (Basel II) became effective for
Canadian banks on November 1, 2007. Basel II is designed to more closely align
regulatory capital requirements with the individual risk profile of banks by
introducing substantive changes to capital requirements for credit risk and an
explicit new capital charge for operational risk.
    Under Basel II, there are two main methods for computing credit risk: the
standardized approach, which uses prescribed risk weights; and internal
ratings-based approaches, which allow the use of a bank's internal models to
calculate some, or all, of the key inputs into the regulatory capital
calculation. Users of the Advanced Internal Ratings Based Approach (AIRB) are
required to have sophisticated risk management systems for the calculation of
credit risk regulatory capital and application of this approach could result
in less regulatory capital than the use of the alternative approaches. Once
banks demonstrate full compliance with the AIRB requirements, and OSFI has
approved its use, they may proceed to apply the AIRB approach in computing
capital requirements. However, in order to limit sudden declines in the
capital levels for the industry in aggregate, transitional capital floors were
introduced for the first two years after full implementation of AIRB. A
minimum capital floor of 90% of the Basel I calculation will apply in the
first year of full approval, and 80% in the second year. Since receiving
regulatory approval in the second quarter, the Bank applies the 90% floor.
    The Bank received approval, with conditions, from OSFI to use AIRB for
material Canadian, U.S. and European portfolios effective November 1, 2007.
The remaining significant credit portfolios are targeted for implementation of
AIRB in November 2010. In the interim period, the Bank will use the
standardized approach for these portfolios. As well, the Bank is using the
standardized approach to calculate the operational risk capital requirements.
The capital requirements for market risk are substantially unchanged for the
Bank.

    Capital ratios

    The Bank continues to maintain a strong capital position. The Tier 1 and
the Total capital ratios as at July 31, 2008 under Basel II were 9.8% and
11.5%, respectively, compared to 9.6% and 11.7% at April 30, 2008.
    The Tier 1 ratio increased by 20 basis points, as internal capital
generation and the issue of $350 million non-cumulative preferred shares more
than offset the impact of an increase in risk-weighted assets from organic
asset growth. The total capital ratio declined by 20 basis points, due
primarily to the planned early redemption of $425 million of subordinated
debentures.
    The tangible common equity (TCE) ratio was 7.6% as at July 31, 2008,
compared to 7.5% at April 30, 2008.

    Financial instruments

    Given the nature of the Bank's main business activities, financial
instruments make up a substantial portion of the balance sheet and are
integral to the Bank's business. There are various measures that reflect the
level of risk associated with the Bank's portfolio of financial instruments.
Further discussion of some of these risk measures is included in the Risk
Management section above.
    The methods of determining the fair value of financial instruments are
detailed on pages 69 and 70 of the 2007 Annual Report. Management's judgment
on valuation inputs is necessary when observable market data is not available,
and management applies judgment in the selection of valuation models.
Uncertainty in these estimates and judgments can affect fair value and
financial results recorded.
    During this quarter, changes in the fair value of financial instruments
generally arose from existing economic, industry and market conditions.
    Total derivative notional amounts were $1,485 billion at July 31, 2008,
compared to $1,287 billion at October 31, 2007, with the change occurring
across most derivative categories. The percentage of those derivatives held
for trading and those held for non-trading or asset liability management was
generally unchanged. The credit equivalent amount, after taking into account
master netting arrangements and eligible financial collateral, was
$22 billion, compared to $21 billion last year end.

    Financial stability forum disclosures

    In April 2008, the Financial Stability Forum, based on the request of G7
Ministers and Central Bank Governors, released its report on recent conditions
in the credit market. Among others, a key recommendation of the report was to
enhance transparency by providing enhanced risk disclosures on financial
instruments which markets consider to be higher risk, including off-balance
sheet vehicles and structured products. Based on these recommendations, the
Bank has provided additional disclosures below in the Off-balance sheet
arrangements and Selected credit instruments sections.

    Off-balance sheet arrangements

    In the normal course of business, the Bank enters into contractual
arrangements that are not required to be consolidated in its financial
statements. These arrangements are primarily in three categories: Variable
Interest Entities (VIEs), securitizations, and guarantees and other
commitments. No material contractual obligations were entered into this
quarter by the Bank that are not in the ordinary course of business. Processes
for review and approval of these contractual arrangements are unchanged from
last year.

    Multi-seller conduits sponsored by the Bank

    The Bank sponsors three multi-seller conduits, two of which are
Canadian-based and one in the United States. The Bank earns commercial paper
issuance fees, program management fees and liquidity fees from these
multi-seller conduits which totaled $16 million in the third quarter ($15
million in the previous quarter).
    As further described below, the Bank's exposure to these off-balance
sheet conduits primarily consists of liquidity support, program-wide credit
enhancement and temporary holdings of commercial paper. The Bank monitors
these exposures to ensure it is not required to consolidate the assets and
liabilities of the conduit.

    Canada

    The Bank's primary exposure to the Canadian-based conduits is the
liquidity support provided, with total liquidity facilities of $5.2 billion as
at July 31, 2008 (April 30, 2008 - $6.0 billion). At quarter end, the Bank
held approximately 4% of the total commercial paper issued by these conduits.
The following table presents a summary of assets held by the Bank's two
Canadian multi-seller conduits as at July 31, 2008 and April 30, 2008 by
underlying exposure:

    
                                                   As at July 31, 2008
                                        -------------------------------------
                                            Funded     Unfunded        Total
    ($ millions)                            assets  commitments   exposure(1)
    -------------------------------------------------------------------------
    Auto loans/leases                    $   3,000    $     192    $   3,192
    Equipment loans                          1,063           64        1,127
    Trade receivables                          203           93          296
    Residential mortgages                       95            1           96
    Retirement savings plan loans              178            4          182
    Loans to closed-end mutual funds           164          160          324
    -------------------------------------------------------------------------
    Total(2)                             $   4,703    $     514    $   5,217
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                   As at April 30, 2008
                                        -------------------------------------
                                            Funded     Unfunded        Total
    ($ millions)                            assets  commitments   exposure(1)
    -------------------------------------------------------------------------
    Auto loans/leases                    $   3,629    $     329    $   3,958
    Equipment loans                          1,013           71        1,084
    Trade receivables                          207           89          296
    Residential mortgages                      102            2          104
    Retirement savings plan loans              204            4          208
    Loans to closed-end mutual funds           194          184          378
    -------------------------------------------------------------------------
    Total(2)                             $   5,349    $     679    $   6,028
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Exposure to the Bank is through global-style liquidity facilities and
        letters of guarantee.
    (2) These assets are substantially sourced from Canada.
    

    Substantially all of the conduits' assets have been structured to receive
credit enhancements from the sellers, including overcollateralization
protection and cash reserve accounts. Approximately 27% of the funded assets
are externally rated AA- or higher, and the balance of the funded assets have
an equivalent rating of AA- or higher based on the Bank's internal rating
program. There are no non-investment grade rated assets held in these
conduits. The funded assets have a weighted average repayment period of
approximately one year (April 30, 2008 - 1.1 years), with 71% maturing within
three years. There is no exposure to U.S. subprime mortgage risk within these
two conduits.

    United States

    The Bank's primary exposure to the U.S.-based conduit is the liquidity
support and program-wide credit enhancement provided, with total liquidity
facilities of $11.8 billion as at July 31, 2008 (April 30, 2008 -
$12.2 billion). Program-wide credit enhancement is provided to absorb a
portion of the losses on defaulted assets, if any, in excess of losses
absorbed by deal-specific credit enhancement. At quarter-end, the Bank did not
hold any commercial paper issued by this conduit.
    The following table presents a summary of assets held by the Bank's U.S.
multi-seller conduit as at July 31, 2008, and April 30, 2008, by underlying
exposure:

    
                                                   As at July 31, 2008
                                        -------------------------------------
                                            Funded     Unfunded        Total
    ($ millions)                            assets  commitments   exposure(1)
    -------------------------------------------------------------------------
    Credit card/consumer receivables     $     981    $     732    $   1,713
    Auto loans/leases                        2,849        1,016        3,865
    Trade receivables                        1,886        1,511        3,397
    Loans to closed-end mutual funds           663          578        1,241
    Diversified asset-backed securities        806           16          822
    CDOs/CLOs(2)                               338            -          338
    Corporate loans(3)                         316          103          419
    -------------------------------------------------------------------------
    Total(4)                             $   7,839    $   3,956    $  11,795
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                   As at April 30, 2008
                                        -------------------------------------
                                            Funded     Unfunded        Total
    ($ millions)                            assets  commitments   exposure(1)
    -------------------------------------------------------------------------
    Credit card/consumer receivables     $   1,012    $      675   $   1,687
    Auto loans/leases                        2,836         1,108       3,944
    Trade receivables                        1,552         1,585       3,137
    Loans to closed-end mutual funds           634           835       1,469
    Diversified asset-backed securities        805            16         821
    CDOs/CLOs(2)                               332             -         332
    Corporate loans(3)                         317           506         823
    -------------------------------------------------------------------------
    Total(4)                             $   7,488    $    4,725   $  12,213
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Exposure to the Bank is through program-wide credit enhancement and
        global-style liquidity facilities.
    (2) These assets have an external rating of AA or above.
    (3) These assets represent secured loans that are externally rated
        investment grade.
    (4) These assets are sourced from the U.S.
    

    Approximately 20% of the conduit's funded assets are externally rated A
or higher, and a further 70% of the funded assets have an equivalent rating of
A or higher based on the Bank's internal rating program. There are no
non-investment grade assets held in this conduit. The funded assets have a
weighted average repayment period of approximately 1.2 years (April 30, 2008 -
1.1 years), with 75% maturing within five years.
    The conduit has investments in two pools of diversified asset-backed
securities. These pools are guaranteed by monoline insurers and are rated
investment grade based on the Bank's internal rating program. The assets
underlying these securities are primarily retail loans, including U.S. home
equity, student loans and residential mortgage-backed securities. Exposure to
U.S. subprime mortgage risk within these securities was approximately
$24 million as at July 31, 2008 (April 30, 2008 - $24 million).
    Collateralized debt obligations (CDOs) and collateralized loan
obligations (CLOs) represent five investments averaging $68 million in
externally rated AAA notes issued by synthetic CDOs/CLOs. The credit
protection sold by the CDOs is on a referenced portfolio of corporate debt
which is externally rated investment grade. There is no direct or indirect
risk to U.S. subprime mortgages within these CDOs. The underlying referenced
corporate debt is well diversified with no single weighted average industry
exposure exceeding 16% of the portfolio.
    A significant portion of the conduit's assets have been structured to
receive credit enhancements from the sellers, including overcollateralization
protection or cash reserve accounts. Each asset purchased by the conduit has a
deal-specific liquidity facility provided by the Bank in the form of asset
purchase agreements, and is generally structured such that non-defaulted
assets would be purchased by the Bank at the conduit's original cost. In the
future, if any of these assets fall below investment grade levels, the Bank
would likely be required to purchase the assets at the conduit's original cost
under the terms of the asset purchase agreements.

    Liquidity facilities provided to non-Bank sponsored conduits

    For conduits not administered by the Bank, liquidity facilities totaled
$1.1 billion as at July 31, 2008 (April 30, 2008 - $1.4 billion), of which
$1.1 billion (April 30, 2008 - $1.3 billion) were for U.S. third-party
conduits and none (April 30, 2008 - $30 million) were for Canadian third-party
conduits. The assets of these non-Bank sponsored conduits, which are not
administered by the Bank, are almost entirely consumer auto-based securities.
Approximately 84% of these assets are externally rated AAA, with the balance
of the assets rated investment grade based on the Bank's internal rating
program. The majority of the liquidity facilities have an original committed
term of 364 days, renewable at the option of the Bank. The weighted average
life of the underlying assets of these conduits is approximately two years.
There is no exposure to U.S. subprime mortgage risk.

    Funding vehicles

    The Bank uses special purpose entities (SPEs) to facilitate
cost-efficient financing of its own operations. The Bank has two such SPEs:
Scotiabank Capital Trust and Scotiabank Subordinated Notes Trust that are VIEs
and are not consolidated on the Bank's balance sheet, as the Bank is not the
primary beneficiary. The Scotiabank Trust Securities and Scotiabank Trust
Subordinated Notes issued by the Trusts are not reported on the Consolidated
Balance Sheet but qualify as regulatory capital. The deposit notes issued by
the Bank to Scotiabank Capital Trust and Scotiabank Subordinated Notes Trust
are reported in Deposits and qualify as regulatory capital. Total deposits
recorded by the Bank as at July 31, 2008 from these trusts were $3.3 billion,
unchanged from the previous quarter. The Bank recorded interest expense of
$49 million on these deposits for the three months ended July 31, 2008,
compared to $49 million for the three months ended April 30, 2008.

    Other off-balance sheet arrangements

    The Bank may securitize residential mortgages as a means to diversify its
funding sources, as this represents a cost-effective means to fund the growth
in this portfolio. A further $ 1 billion in residential mortgages were
securitized this quarter, bringing the balance of outstanding mortgages
securitized to $11.4 billion as at July 31, 2008, compared to $11.6 billion as
at April 30, 2008.
    Guarantees and other indirect commitments increased 4% from October 31,
2007. Fees from guarantees and loan commitment arrangements recorded in other
income were $63 million for the three-month period ended July 31, 2008,
compared to $55 million for the same period a year ago.

    
    Selected credit instruments

    Mortgage-backed securities

    Non-trading portfolio
    

    Total mortgage-backed securities held as available-for-sale securities
represent approximately 1% of the Bank's total assets as at July 31, 2008. The
holdings as at July 31, 2008 and April 30, 2008, were as follows:

    
                                                        As at        As at
                                                       July 31,    April 30,
                                                         2008         2008
                                                     ------------------------
                                                       Carrying     Carrying
    ($ millions)                                        value        value
    -------------------------------------------------------------------------
    Canadian NHA mortgage-backed securities(1)        $   5,055    $   5,478
    Commercial mortgage-backed securities(2)                113          116
    Other residential mortgage-backed securities             48           12
    -------------------------------------------------------------------------
    Total                                             $   5,216    $   5,606
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Canada Mortgage and Housing Corporation provides a guarantee of
        timely payment to NHA mortgage-backed security investors.
    (2) The assets underlying the commercial mortgage-backed securities
        relate to non-Canadian properties.

    Exposure to U.S. subprime mortgages risk is nominal.

    Trading portfolio

    Total mortgage-backed securities held as trading securities represent less
than 0.1% of the Bank's total assets as at July 31, 2008. The holdings as at
July 31, 2008 and April 30, 2008, were as follows:

                                                        As at        As at
                                                       July 31,    April 30,
                                                         2008         2008
                                                     ------------------------
                                                       Carrying     Carrying
    ($ millions)                                        value        value
    -------------------------------------------------------------------------
    Canadian NHA mortgage-backed securities(1)        $     229    $     389
    Commercial mortgage-backed securities(2)                 42           44
    -------------------------------------------------------------------------
    Total                                             $     271    $     433
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Canada Mortgage and Housing Corporation provides a guarantee of
        timely payment to NHA mortgage-backed security investors.
    (2) The assets underlying the commercial mortgage-backed securities
        relate to Canadian properties.
    

    Montreal Accord Asset-Backed Commercial Paper (ABCP)

    The Bank holds $144 million of Montreal Accord ABCP as available-for-sale
securities, unchanged from the previous quarter. These securities are
currently subject to a restructuring which, if successful, will result in
converting these holdings into longer-dated securities. The Bank's ABCP
carrying value represents approximately 62% of par value. In valuing these
securities, the Bank considers the nature of the underlying assets, the impact
of current credit spreads on the value of similar structured asset type
exposure and other market factors. No net writedowns relating to ABCP were
recorded during this quarter or the prior quarter.
    As part of the proposed restructuring plan, the Bank will participate in
a margin funding facility, which is similar to an unfunded loan commitment.

    
    Collateralized debt obligations and collateralized loan obligations

    Non-trading portfolio
    

    The Bank has CDO and CLO investments in its non-trading portfolio which
are primarily classified as available-for-sale securities. CDOs and CLOs
generally achieve their structured credit exposure either synthetically
through the use of structured credit derivatives, or by investing and holding
corporate loans or bonds. These investments are carried at fair value on the
Bank's Consolidated Balance Sheet. Changes in the fair value of cash-based
CDOs/CLOs are reflected in Other Comprehensive Income, unless there has been
an other-than-temporary decline in fair value which is recorded in net income.
Changes in the fair value of synthetic CDOs/CLOs are reflected in net income.
Substantially all of the referenced assets of the Bank's CDO and CLO
investments are corporate exposures with no U.S. mortgage-backed securities.
These CDOs and CLOs are investment grade carrying a weighted average rating of
AA. More than 65% of these investment holdings are senior tranches with
subordination of 9% or more. Only 8% of the investments are in equity
tranches. The referenced corporate debt exposure in the CDOs and CLOs is well
diversified, with no single industry exceeding 11% of the referenced portfolio
on a weighted average basis.
    As at July 31, 2008, the fair value of the Bank's investments in CDOs was
$416 million (April 30, 2008 - $435 million). This portfolio is well
diversified, with an average individual CDO holding of $21 million. During the
current quarter, the Bank recorded a pre-tax loss of $24 million in net income
(April 30, 2008 - $51 million) and a pre-tax loss of $2 million in Other
Comprehensive Income (April 30, 2008 - $26 million), reflecting changes in the
fair value of the CDOs.
    As at July 31, 2008, the fair value of the Bank's investments in CLOs was
$780 million (April 30, 2008 - $789 million). This portfolio is well
diversified with an average individual CLO holding of $8 million. The
reduction in fair value of the CLOs recorded in Other Comprehensive Income
during the third quarter was $20 million pre-tax (April 30, 2008 -
$79 million).
    The cumulative unrealized loss recorded in Accumulated Other
Comprehensive Income for cash-based CDOs and CLOs was $183 million as at
July 31, 2008 (April 30, 2008 - $158 million). Although these investments have
experienced a slight decline in credit quality, the Bank has the ability and
intent to hold these securities until there is a recovery of fair value. As
such, these unrealized losses are considered temporary in nature.
    A significant portion of the above movements in fair value relating to
CDOs and CLOs reflects changes in asset prices arising from liquidity
challenges rather than a change in underlying credit quality.
    The main driver of the value of CDOs and CLOs is changes in credit
spreads. Based on positions held at July 31, 2008, a 10 basis point widening
of relevant credit spreads would result in a pre-tax decrease of approximately
$3 million in income and $5 million in Other Comprehensive Income.

    Trading portfolio

    The Bank also holds synthetic CDOs in its trading portfolio as a result
of structuring and managing transactions with clients and other financial
institutions. Total CDOs purchased and sold in the trading portfolio as at
July 31, 2008 and April 30, 2008, were as follows:

    
    Outstanding                                          As at July 31, 2008
                                                     ------------------------
                                                                    Positive/
                                                       Notional    (negative)
    ($ millions)                                         amount   fair value
    -------------------------------------------------------------------------
    CDOs - sold protection                            $   5,706    $  (1,295)
    CDOs - purchased protection                       $   5,515    $   1,110
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Outstanding                                         As at April 30, 2008
                                                     ------------------------
                                                                    Positive/
                                                       Notional    (negative)
    ($ millions)                                         amount   fair value
    -------------------------------------------------------------------------
    CDOs - sold protection                            $   5,887    $    (911)
    CDOs - purchased protection                       $   5,136    $     710
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    To hedge the net exposure, the Bank purchases from or sells CDOs to other
financial institutions, along with purchasing and/or selling index tranches or
single name credit default swaps (CDSs). The main driver of the value of CDOs
is changes in credit spreads. Based on positions held at July 31, 2008, a 10
basis point widening of relevant credit spreads in this portfolio would result
in a pre-tax decrease of approximately $3 million in income.
    More than 85% of these CDO exposures are rated investment grade
equivalent. Approximately 96% of the Bank's credit exposure to CDO swap
counterparties are to entities which are externally or internally rated the
equivalent of A- or better, while the balance is fully cash collateralized.
    The referenced assets underlying the trading book CDOs are substantially
all corporate exposures, with no mortgage-backed securities.

    Structured Investment Vehicles

    As at July 31, 2008, the fair value of the Bank's investments in
Structured Investment Vehicles (SIVs) was $11 million, unchanged from last
quarter. The Bank does not sponsor, manage or provide liquidity support to
SIVs.

    Exposure to Alt-A

    In the U.S., loans are classified as Alt-A when they have higher risk
characteristics such as lower credit scores and/or higher loan-to-value
ratios. As at July 31, 2008, the Bank had insignificant direct and indirect
exposure to U.S. Alt-A loans and securities. In Canada, the Bank does not have
a mortgage program which it considers to be an equivalent of U.S. Alt-A.

    Exposure to monoline insurers

    The Bank has insignificant direct exposure to monoline insurers. The Bank
has indirect exposures of $2.8 billion (April 30, 2008 - $3.2 billion) in the
form of monoline guarantees which provide enhancement to public finance and
other transactions, where the Bank has provided credit facilities to either
the issuers of securities or facilities which hold such securities. The Bank's
public finance exposures of $1.8 billion (April 30, 2008 - $2.3 billion) are
primarily to U.S. municipalities and states. The securities related to these
facilities are primarily rated investment grade without the guarantee, and
represent risk the Bank would take without the availability of the guarantee.
More than 85% of these securities are rated A or above.
    Other indirect exposures to monoline insurers were $1.0 billion
(April 30, 2008 - $0.9 billion). These exposures are primarily comprised of
$0.8 billion (April 30, 2008 - $0.8 billion) of guarantees by the monolines on
diversified asset-backed securities held by the Bank's U.S. multi-seller
conduit (above). Without these guarantees, certain of the underlying assets of
the diversified asset-backed securities would not be rated investment grade.
    In the second quarter, the Bank replaced the credit default protection
previously provided by an insurance monoline with protection from another swap
counterparty which resulted in a small gain being recorded in Other
Income-Trading Revenues in that quarter.

    Leveraged loans

    The Bank may provide leveraged financing to non-investment grade
customers to facilitate their buyout, acquisition and restructuring
activities. The Bank's exposure to highly leveraged loans awaiting syndication
as at July 31, 2008 and April 30, 2008 was nominal.

    Automotive industry exposure

    The Bank's loan exposure to the North American and European automotive
industry is comprised of loans to automotive dealers, parts manufacturers,
automotive financing companies, and original equipment manufacturers.
Combined, the total loan exposure was $4.8 billion as at July 31, 2008,
unchanged from last quarter. Approximately 60% of these loan exposures are
rated investment grade either externally or based on the Bank's internal
rating program.

    Consumer auto-based securities

    The Bank holds $7.1 billion (April 30, 2008 - $7.3 billion) of consumer
auto-based securities which are classified as available-for-sale. These
securities are almost all loan-based securities, with only 3% of these
holdings representing leases. The loan-based securities arise from retail
instalment sales contracts ("loans") which are primarily acquired through a
US$6 billion revolving facility to purchase U.S. consumer auto loans from a
North American automotive finance company. This facility has a remaining
revolving period of approximately two years. This facility was recently
modified to allow the seller to sell to the Bank Canadian-based loans for a
limited period rather than U.S.-based loans. The facility is structured with
credit enhancement in the form of over collateralization provided at the time
of the loan purchases, resulting in no further reliance on the seller for
credit enhancement. The credit enhancement for each subsequent purchase under
the revolving credit facility is a multiple of the most recent pool loss data
for the seller's overall managed portfolio.
    The Bank conducts periodic stress tests on the loan-based securities.
Under different stress scenarios, the loss on this U.S. consumer auto
loan-backed securities portfolio is not expected to be material to the Bank's
financial performance. Approximately 80% of these securities are externally
rated AAA and have a weighted average life of approximately two years.
    These securities are carried at fair value with the change in fair value
recorded in Other Comprehensive Income. The Bank has recorded a pre-tax
cumulative unrealized loss of $33 million (April 30, 2008 - $38 million) in
Accumulated Other Comprehensive Income. While there has been some
deterioration in credit quality, the unrealized loss was primarily
attributable to wider credit spreads. As the Bank has the ability and intent
to hold these securities until there is a recovery of fair value, these
unrealized losses are considered temporary in nature.
    In addition, the Bank provides liquidity facilities to its own sponsored
multi-seller conduits and to non-bank sponsored conduits to support automotive
loan and lease assets held by those conduits. See previous sections on
Multi-seller conduits sponsored by the Bank (above) and Liquidity facilities
provided to non-Bank sponsored conduits (above).

    Common dividend

    The Board of Directors, at its meeting on August 26, 2008, approved a
quarterly dividend of 49 cents per common share. The quarterly dividend
applies to shareholders of record as of October 7, 2008. This dividend is
payable October 29, 2008.

    Outlook

    U.S. output growth edged slightly higher in the April-June period,
underpinned by significant monetary and fiscal stimulus as well as sizeable
export gains. However, a renewed loss of momentum is expected in the second
half of the year, as these factors are unlikely to be as supportive going
forward. Despite continued construction-related gains associated with the boom
in commodities and infrastructure projects, Canadian output growth also has
been lowered by the increasing weakness in manufactured exports destined for
the United States. China, India, Russia and a number of Latin American
countries remain the globe's growth leaders, though their prospects have been
reduced by the spreading slowdown internationally.
    The second half of 2008 is showing improvement compared to the first two
quarters of the fiscal year, with continued asset growth in all three business
lines and a rebound in capital markets activity. While the Bank is on track to
achieve three of its four key financial and operational targets, with slower
global growth, it is unlikely that the Bank will meet its earnings per share
growth objectives set at the end of last year.

    
    Business Segment Review

    Domestic Banking

                                               For the               For the
                                    three months ended     nine months ended
    -------------------------------------------------------------------------
    (Unaudited)
     ($ millions)
    (Taxable
     equivalent          July 31   April 30    July 31    July 31    July 31
     basis)(1)              2008       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Business segment
     income
    Net interest
     income            $   1,122  $   1,051  $   1,006  $   3,164  $   2,901
    Provision for
     credit losses            99        102         77        292        217
    Other income             564        537        537      1,620      1,585
    Non-interest
     expenses                914        890        892      2,693      2,632
    Provision for
     income taxes            210        174        179        541        512
    -------------------------------------------------------------------------
    Net income         $     463  $     422  $     395  $   1,258  $   1,125
    Preferred
     dividends paid            8          6          4         20          9
    -------------------------------------------------------------------------
    Net income
     available to
     common
     shareholders      $     455  $     416  $     391  $   1,238  $   1,116
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Return on
     equity(l)             38.5%      35.3%      31.8%      34.8%      31.6%
    Average assets
     ($ billions)      $     177  $     172  $     156  $     172  $     151
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer above for discussion of non-GAAP measures.
    

    Domestic Banking reported record net income available to common
shareholders of $455 million this quarter, up a substantial $64 million or 16%
from the third quarter last year. Compared to last quarter, net income
available to common shareholders increased $39 million or 9%. The segment
contributed 46% of the Bank's total quarterly net income available to common
shareholders. Return on equity was 38.5% versus 31.8% in the same period last
year.
    Average assets before securitization rose $21 billion or 14% from the
third quarter last year, due largely to growth of $15 billion or 15% in
residential mortgages. Mortgage growth was recorded in all sales channels, and
resulted in increased market share. Personal revolving credit and business
lending volumes also increased. Personal deposit growth of $9 billion or 12%
resulted in industry-leading year-over-year market share gains. Growth was
recorded in term deposits as well as chequing and savings accounts partially
attributable to the acquisition of Dundee Bank. Non-personal deposits rose 5%.
Compared to last quarter, average assets before securitization rose $5 billion
or 3% from growth in retail mortgages and commercial lending. Deposits
increased 2% from growth in chequing and savings accounts, as well as term
deposits.
    Total revenue was up $143 million or 9% from the same period last year,
due mainly to higher net interest income driven by strong volume growth.
Quarter over quarter, total revenues rose by $98 million or 6%, with increases
in both net interest income and other income.
    Net interest income of $1,122 million was up $116 million or 11% from the
same quarter last year, due to strong volume growth in both assets and
deposits. Average volume growth was reported for most products in retail,
small business and commercial banking. This growth was partially offset by a
decrease in the interest margin, resulting increased wholesale funding
requirements. Compared to last quarter, net interest income rose by 7% due to
two additional days in the quarter and a margin increase of 3 basis points due
mainly to lower funding costs, partially offset by a decrease in the spread
between prime and funding costs and higher funding requirements.
    Other income was $564 million this quarter, an increase of $27 million or
5% versus the same quarter last year, reflecting higher foreign exchange
commissions, transaction service revenues, card revenues and higher wealth
management revenues. The latter arose mainly as a result of higher mutual fund
fees reflecting growth in average assets and higher private client revenues,
partially offset by lower brokerage revenues due to a decline in new issues
and customer trading activity. Compared to last quarter, other income rose by
5% in a number of categories, partly due to seasonality.
    The provision for credit losses was $99 million in the Domestic Banking
portfolios, up from $77 million in the same quarter last year. The change from
last year was due to higher provisions in the commercial and retail
portfolios. The increase in commercial provisions was related primarily to two
accounts and to increases in small business banking. The retail provisions
were mainly volume related due to Scotia Dealer Advantage, offset partially by
a reduction in provisions for other personal loans. Provisions for credit
losses declined $3 million from last quarter.
    Non-interest expenses were up 2% from the third quarter last year due to
growth initiatives and the impact of acquisitions. Partly offsetting was lower
commission-based compensation. Non-interest expenses rose 3%
quarter-over-quarter, reflecting volume-related growth, increased stock-based
compensation, and higher salaries as a result of two more days this quarter.

    
    International Banking

                                               For the               For the
                                    three months ended     nine months ended
    -------------------------------------------------------------------------
    (Unaudited)
     ($ millions)
    (Taxable
     equivalent          July 31   April 30    July 31    July 31    July 31
     basis)(1)              2008       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Business segment
     income
    Net interest
     income            $     847  $     797  $     703  $   2,375  $   2,052
    Provision for
     credit losses            56         60         25        146         74
    Other income             389        356        250      1,054        847
    Non-interest
     expenses                698        615        558      1,881      1,697
    Provision for
     income taxes            118        107         65        347        152
    Non-controlling
     interest in net
     income of
     subsidiaries             29         36         29         96         85
    -------------------------------------------------------------------------
    Net income         $     335  $     335  $     276  $     959  $     891
    Preferred
     dividends paid           14          9          6         30         12
    -------------------------------------------------------------------------
    Net income
     available to
     common
     shareholders      $     321  $     326  $     270  $     929  $     879
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Return on equity(l)    15.8%      17.6%      16.1%      17.5%      18.8%
    Average assets
     ($ billions)      $      81  $      79  $      65  $      77  $      66
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer above for discussion of non-GAAP measures.
    

    International Banking's net income available to common shareholders in
the third quarter was $321 million, an increase of $51 million or 19% from
last year, notwithstanding the $17 million negative impact of foreign currency
translation. This increase reflected strong volume growth throughout the
division and the positive impact of acquisitions, partly offset by higher
taxes in Mexico and increased provisions for credit losses. Net income was
down $5 million or 2% from last quarter.
    The segment accounted for 33% of the Bank's net income available to
common shareholders and had a return on equity of 15.8%.
    Average asset volumes of $81 billion increased $16 billion or 25% from
last year, despite the 5% negative impact of foreign currency translation. The
underlying increase was a result of the acquisition in Chile, a 34% rise in
commercial loans, primarily in Asia, and robust growth in credit cards and
mortgages, up 35% and 25%, respectively. Organic growth in low-cost deposits
was also strong at 7%. Compared to last quarter, average assets increased $2
billion or 3%.
    Total revenues were $1,236 million this quarter, an increase of $283
million or 30% from the same period last year, including a $42 million
negative impact of foreign currency translation. Compared to last quarter,
revenues increased $83 million or 7%.
    Net interest income was $847 million this quarter, up $144 million or 21%
from the same period last year, notwithstanding the negative foreign currency
translation impact of $29 million. Compared to last quarter, net interest
income increased $50 million or 6%. These increases were driven by very strong
organic loan and deposit growth across the division, as well as the impact of
acquisitions.
    Other income increased $139 million or 55% year over year to $389
million, despite the $12 million negative impact of foreign currency
translation. This growth resulted from acquisitions, higher gains on
non-trading securities, including a $40 million gain from an IPO of the
Mexican Stock Exchange, and widespread transaction-driven growth. Compared to
last quarter, other income increased $33 million. The change was mainly due to
the IPO gain in Mexico, offset by the negative impact of the change in fair
value of certain non-trading securities and trading losses in Latin America.
The balance was from strong transaction-driven growth.
    The provision for credit losses was $56 million in the third quarter, up
$31 million compared to the same period last year, but down $4 million from
the prior quarter. The increase from the same quarter last year was due mainly
to retail asset growth, the acquisition in Chile, higher commercial provisions
in the Caribbean and Asia, and an increased retail delinquency rate in Mexico.
Higher retail provisions in Mexico and Peru were partially offset by larger
net commercial recoveries and reversals, mostly in Mexico. The slight
quarter-over-quarter decline in provisions was primarily attributable to
Mexico and Peru, where higher recoveries and reversals of commercial
provisions no longer required, were partially offset by higher retail
provisions.
    Non-interest expenses were $698 million this quarter, up 25% or $140
million from last year. This included a $17 million favourable impact of
foreign currency translation offset by a $49 million increase from
acquisitions. Higher compensation, premises, advertising, technology and
performance-based expenses were due to ongoing business growth initiatives and
the opening of 132 new branches. In addition, there were $28 million of
provisions under contractual indemnities related to our acquisition in Peru.
Compared to last quarter, expenses increased $83 million or 14%, due mainly to
the same items affecting the year-over-year change and to higher expense
recoveries in Latin America in the prior quarter.
    The effective tax rate this quarter was 24.6%, compared to 17.5% in the
same period last year and 22.1% last quarter. The increase from last year was
due to a higher effective tax rate in Mexico from non-deductible items and the
full utilization of tax loss carryforwards. The increase from last quarter was
due primarily to a slightly higher effective rate in Mexico, combined with
lower earnings in low-tax jurisdictions, mainly in Asia.


    
    Scotia Capital
                                               For the               For the
                                    three months ended     nine months ended
    -------------------------------------------------------------------------
    (Unaudited)
     ($ millions)
    (Taxable
     equivalent          July 31   April 30    July 31    July 31    July 31
     basis)(1)              2008       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Business segment
     income
    Net interest
     income            $     269  $     246  $     231  $     789  $     796
    Provision for
     credit losses             4         (9)       (10)       (15)       (91)
    Other income             383        292        413        806      1,134
    Non-interest
     expenses                254        243        267        688        788
    Provision for
     income taxes             97         49        107        179        337
    -------------------------------------------------------------------------
    Net income         $     297  $     255  $     280  $     743  $     896
    Preferred
     dividends paid            6          4          4         14          8
    -------------------------------------------------------------------------
    Net income
     available to
     common
     shareholders      $     291  $     251  $     276  $     729  $     888
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Return on
     equity(1)             34.1%      29.6%      27.7%      28.8%      30.5%
    Average assets
     ($ billions)      $     162  $     167  $     156  $     162  $     153
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to above for discussion of non-GAAP measures.
    

    Scotia Capital contributed strong net income available to common
shareholders of $291 million this quarter, an increase of $15 million or 5%
from the same period last year and up $40 million or 16% from last quarter.
The increase compared to the prior year reflected higher net interest income,
mainly from growth in corporate loans and wider lending margins. This was
somewhat offset by lower trading revenues, as the prior year included a record
level of derivatives revenues. The increase over last quarter is due to
stronger trading revenues, particularly in derivatives and fixed income, and
higher revenues in the investment banking and lending businesses. Return on
equity was very strong at 34.1%, ahead of last year and the prior quarter.
Scotia Capital contributed 30% of the Bank's net income available to common
shareholders.
    Total average assets increased 4% over last year to $162 billion. There
was an $8 billion or 25% increase in average corporate loans and acceptances
across all businesses. There was also a $5 billion increase in trading related
assets offset by a reduction in securities purchased under resale agreements.
The decrease of $5 billion or 3% from the last quarter reflects a reduction in
trading securities and securities purchased under resale agreements, offset by
growth in both trading and corporate loans.
    Total revenues of $652 million increased $8 million from the third
quarter last year. Increased revenues from our Canadian and U.S. lending
businesses more than offset a modest reduction in Global Capital Markets
revenues. A decrease in derivatives revenues compared to the record level in
the prior year was largely offset by strong growth in our other trading
businesses, including a record quarter for our fixed income business. The $114
million or 21% improvement from last quarter was due to significantly higher
trading revenues in Global Capital Markets, increases in net interest income
and investment banking revenues, and the loss on non-trading securities
incurred in the U.S. last quarter.
    Net interest income of $269 million increased 16% over the same period
last year, primarily due to strong corporate loan growth in all regions and
improved lending margins in Canada and the United States. Net interest income
increased 9% compared to last quarter.
    Scotia Capital's provision for credit losses was $4 million in the third
quarter, compared to net recoveries of $10 million in the third quarter of
last year and net recoveries of $9 million in the second quarter. The increase
from both the third quarter last year and the previous quarter was related
primarily to one new provision in the U.S.
    Other income was $383 million, a decrease of $30 million or 7% from last
year. Global Capital Markets decreased $37 million or 14%, as trading revenues
in derivatives declined from a record level in the prior year. This was
substantially offset by strong trading revenue growth in the foreign exchange,
precious metals, and fixed income trading businesses. Global Corporate and
Investment Banking increased 5% due to higher credit fees in Canada and the
U.S. Compared to last quarter, other income increased $91 million due
primarily to stronger trading revenues in Global Capital Markets and the loss
on non-trading securities in the U.S. in the second quarter. There were also
strong improvements in credit fees and investment banking revenues, including
record revenues in Scotia Waterous.
    Non-interest expenses were $254 million this quarter, a $13 million or 5%
decrease from the same period last year, due primarily to lower
performance-based compensation. Compared to last quarter, the increase in
non-interest expenses was driven by higher performance-based compensation,
somewhat offset by lower computer costs.

    
    Other(1)
                                               For the               For the
                                    three months ended     nine months ended
    -------------------------------------------------------------------------
    (Unaudited)
     ($ millions)
    (Taxable
     equivalent          July 31   April 30    July 31    July 31    July 31
     basis)(2)              2008       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Business segment
     income
    Net interest
     income(3)         $    (292) $    (221) $    (128) $    (695) $    (367)
    Provision for
     credit losses             -          -          -          -        (25)
    Other income              92        114        189        272        464
    Non-interest
     expenses                 23         46         35         90         85
    Provision for
     income taxes(3)        (138)      (121)       (55)      (378)      (142)
    -------------------------------------------------------------------------
    Net income         $     (85) $     (32) $      81  $    (135) $     179
    Preferred
     dividends paid            4          3          2         11          6
    -------------------------------------------------------------------------
    Net income (loss)
     available to
     common
     shareholders      $     (89) $     (35) $      79  $    (146) $     173
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Average assets
     ($ billions)      $      37  $      37  $      32  $      36  $      32
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes all other smaller operating segments and corporate
        adjustments, such as the elimination of the tax-exempt income gross-
        up reported in net interest income and provision for income taxes,
        differences in the actual amount of costs incurred and charged to the
        operating segments, and the impact of securitizations.
    (2) Refer above for a discussion of non-GAAP measures.
    (3) Includes the elimination of the tax-exempt income gross-up reported
        in net interest income and provision for income taxes for the three
        months ended July 31, 2008 ($103), April 30, 2008 ($100), and
        July 31, 2007 ($101), and for the nine months ended July 31, 2008
        ($321), and July 31, 2007 ($315), to arrive at the amounts reported
        in the Consolidated Statement of Income.
    

    Net income available to shareholders was negative $89 million in the
third quarter, compared to positive $79 million in the same quarter last year
and negative $35 million in the prior quarter.
    Net interest income and the provision for income taxes include the
elimination of tax-exempt income gross up. This amount is included in the
operating segments, which are reported on a taxable equivalent basis. The
elimination was $103 million this quarter, compared to $101 million in the
same period last year and $100 million in the previous quarter.
    Net interest income was negative $292 million this quarter, $164 million
below the same quarter last year, and $71 million below last quarter.
Contributing to this decline was the increased cost of liquidity and hedging
the Bank's interest rate risk in the wholesale markets as a result of current
market conditions. The changes in the fair value of derivatives used for
asset/liability management were unfavourable year over year, but favourable
quarter over quarter.
    Other income of $92 million was $97 million lower than last year and
$22 million below last quarter. The decrease compared to last year and last
quarter was mainly attributable to lower gains on non-trading securities. The
decrease year over year was partly offset by higher securiti-zation revenues.
    Non-interest expenses were $23 million this quarter, a decrease of $12
million from last year and $23 million from last quarter. The
quarter-over-quarter decrease was largely due to higher legal costs in the
prior quarter.

    
    Total
                                               For the               For the
                                    three months ended     nine months ended
    -------------------------------------------------------------------------
    (Unaudited)          July 31   April 30    July 31    July 31    July 31
     ($ millions)           2008       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Business segment
     income
    Net interest
     income            $   1,946  $   1,873  $   1,812  $   5,633  $   5,382
    Provision for
     credit losses           159        153         92        423        175
    Other income           1,428      1,299      1,389      3,752      4,030
    Non-interest
     expenses              1,889      1,794      1,752      5,352      5,202
    Provision for
     income taxes            287        209        296        689        859
    Non-controlling
     interest in net
     income of
     subsidiaries             29         36         29         96         85
    -------------------------------------------------------------------------
    Net income         $   1,010  $     980  $   1,032  $   2,825  $   3,091
    Preferred
     dividends paid           32         22         16         75         35
    -------------------------------------------------------------------------
    Net income
     available to
     common
     shareholders      $     978  $     958  $   1,016  $   2,750  $   3,056
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Return on equity(l)    21.0%      21.4%    21.7%(2)     20.3%    22.2%(2)
    Average assets
     ($ billions)      $     457  $     455  $     409  $     447  $     402
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer above for a discussion of non-GAAP measures.
    (2) Certain comparative amounts in this quarterly report have been
        restated to conform with current period presentation.



    Geographic Highlights

                                               For the               For the
                                    three months ended     nine months ended
    -------------------------------------------------------------------------
                         July 31   April 30    July 31    July 31    July 31
    (Unaudited)             2008       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Net income
     available to
     common
     shareholders
    ($ millions)
    Canada             $     594  $     552  $     639  $   1,640  $   1,744
    United States             38         61         98        121        400
    Mexico                    94         75        112        232        383
    Other
     international           313        348        201        913        624
    Corporate
     adjustments             (61)       (78)       (34)      (156)       (95)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                       $     978  $     958  $   1,016  $   2,750  $   3,056
    -------------------------------------------------------------------------
    Average assets
     ($ billions)
    Canada             $     291  $     293  $     270  $     289  $     260
    United States             29         29         25         29         30
    Mexico                    20         20         21         20         21
    Other
     international           107        102         86         99         83
    Corporate
     adjustments              10         11          7         10          8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                       $     457  $     455  $     409  $     447  $     402
    -------------------------------------------------------------------------



    Quarterly Financial Highlights

                                           For the three months ended
    -------------------------------------------------------------------------
                       July  April    Jan.   Oct.  July  April    Jan.   Oct.
                         31     30     31     31     31     30     31     31
                       2008   2008   2008   2007   2007   2007   2007   2006
    -------------------------------------------------------------------------
    Total revenue
     ($ millions)    $3,374 $3,172 $2,839 $3,078 $3,201 $3,102 $3,109 $2,868
    Total revenue
     (TEB(1))
     ($ millions)     3,477  3,272  2,957  3,294  3,302  3,211  3,214  2,999
    Net income
     ($ millions)     1,010    980    835    954  1,032  1,039  1,020    897
    Basic earnings
     per share ($)     0.99   0.97   0.83   0.95   1.03   1.04   1.02   0.90
    Diluted earnings
     per share ($)     0.98   0.97   0.82   0.95   1.02   1.03   1.01   0.89
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer above for a discussion of non-GAAP measures.
    

    -------------------------------------------------------------------------
    Accounting Policies and Estimates

    The interim consolidated financial statements have been prepared in
accordance with Canadian Generally Accepted Accounting Principles (GAAP). See
Note 1 to the 2007 annual consolidated financial statements for more
information about the significant accounting principles used to prepare the
financial statements. There were no new significant accounting policies
adopted by the Bank during the third quarter of 2008.
    The key assumptions and bases for estimates that management has made
under GAAP, and their impact on the amounts reported in the interim
consolidated financial statements and notes, remain substantially unchanged
from those described in our 2007 Annual Report.

    
    Share Data

    -------------------------------------------------------------------------
                                                                       As at
                                                                     July 31
    (thousands of shares outstanding)                                   2008
    -------------------------------------------------------------------------
    Common shares                                                  989,892(1)
    -------------------------------------------------------------------------
    Preferred shares Series 12                                      12,000(2)
    Preferred shares Series 13                                      12,000(3)
    Preferred shares Series 14                                      13,800(4)
    Preferred shares Series 15                                      13,800(5)
    Preferred shares Series 16                                      13,800(6)
    Preferred shares Series 17                                       9,200(7)
    Preferred shares Series 18                                      13,800(8)
    Preferred shares Series 20                                      14,000(9)
    -------------------------------------------------------------------------
    Series 2000-1 trust securities issued by BNS Capital Trust        500(10)
    Series 2002-1 trust securities issued by Scotiabank Capital.
     Trust                                                            750(11)
    Series 2003-1 trust securities issued by Scotiabank Capital
     Trust                                                            750(11)
    Series 2006-1 trust securities issued by Scotiabank Capital
     Trust                                                            750(11)
    -------------------------------------------------------------------------
    Scotiabank Trust Subordinated Notes - Series A issued by
     Scotiabank Subordinated Notes Trust                            1,000(11)
    -------------------------------------------------------------------------
    Outstanding options granted under the Stock Option Plans to
     purchase common shares                                     24,599(1)(12)
    -------------------------------------------------------------------------
    (1)  As at August 15, 2008, the number of outstanding common shares and
         options were 989,923 and 24,422, respectively. The number of other
         securities disclosed in this table were unchanged.
    (2)  These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly in an amount of $0.328125 per share.
    (3)  These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly in an amount of $0.30 per share.
    (4)  These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly in an amount of $0.28125 per share.
    (5)  These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly in an amount of $0.28125 per share.
    (6)  These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly in an amount of $0.328125 per share
         except for the initial dividend paid on January 29, 2008, which was
         in an amount of $0.39195 per share.
    (7)  These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly in an amount of $0.35 per share except
         for the initial dividend paid on April 28, 2008, in an amount of
         $0.33753 per share.
    (8)  These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly. The initial dividend was paid on
         July 29, 2008, in an amount of $0.4315 per share. Dividends, if and
         when declared, during the initial five year period ending on
         April 25, 2013, will be payable in an amount of $0.3125 per share.
         Subsequent to the initial five year fixed rate period, and
         resetting every five years thereafter, the dividends will be
         determined by the sum of the five year Government of Canada yield
         plus 2.05%, multiplied by $25.00.
    (9)  These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly. The initial dividend was paid on
         July 29, 2008, in an amount of $0.1678 per share. Dividends, if and,
         when declared, during the initial five year period ending on
         October 25, 2013, will be payable in an amount of $0.3125 per share.
         Subsequent to the initial five year fixed rate period, and resetting
         every five years thereafter, the dividends will be determined by the
         sum of the five year Government of Canada yield plus 1.70%,
         multiplied by $25.00.
    (10) Reported in capital instrument liabilities in the Consolidated
         Balance Sheet.
    (11) Reported in deposits in the Consolidated Balance Sheet.
    (12) Included are 17,366 stock options with tandem stock appreciation
         right (SAR) features.

    Further details, including convertibility features, are available in Notes
13, 14 and 16 of the October 31, 2007, consolidated financial statements
presented in the 2007 Annual Report, and Note 5 of this report further below.


    Consolidated Statement of Income

                                               For the               For the
                                    three months ended     nine months ended
    -------------------------------------------------------------------------
    (Unaudited)          July 31   April 30    July 31    July 31    July 31
     ($ millions)           2008       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Interest income
    Loans              $   3,888  $   3,798  $   3,536  $  11,511  $  10,317
    Securities             1,193      1,200      1,192      3,561      3,609
    Securities
     purchased under
     resale agreements       170        204        325        603        938
    Deposits with banks      249        260        292        828        809
    -------------------------------------------------------------------------
                           5,500      5,462      5,345     16,503     15,673
    -------------------------------------------------------------------------
    Interest expenses
    Deposits               2,904      2,948      2,756      8,930      7,882
    Subordinated
     debentures               50         36         30        110         93
    Capital instrument
     liabilities              10          9         14         28         40
    Other                    590        596        733      1,802      2,276
    -------------------------------------------------------------------------
                           3,554      3,589      3,533     10,870     10,291
    -------------------------------------------------------------------------
    Net interest
     income                1,946      1,873      1,812      5,633      5,382
    Provision for
     credit losses
     (Note 3)                159        153         92        423        175
    -------------------------------------------------------------------------
    Net interest
     income after
     provision
     for credit
     losses                1,787      1,720      1,720      5,210      5,207
    -------------------------------------------------------------------------
    Other income
    Card revenues            102         93         92        290        274
    Deposit and payment
     services                225        208        208        640        613
    Mutual funds              83         78         77        239        218
    Investment
     management,
     brokerage and
     trust services          196        189        192        571        575
    Credit fees              164        140        143        437        404
    Trading revenues         150        123        217        229        517
    Investment banking       193        170        184        527        573
    Net gain on
     securities, other
     than trading             90         59        134        169        340
    Other                    225        239        142        650        516
    -------------------------------------------------------------------------
                           1,428      1,299      1,389      3,752      4,030
    -------------------------------------------------------------------------
    Net interest and
     other income          3,215      3,019      3,109      8,962      9,237
    -------------------------------------------------------------------------
    Non-interest expenses
    Salaries and
     employee benefits     1,068      1,005      1,013      3,051      3,020
    Premises and
     technology              368        359        335      1,054        991
    Communications            82         80         76        237        224
    Advertising and
     business
     development              77         78         71        224        217
    Professional              55         68         53        168        146
    Business and
     capital taxes            40         38         37         92        110
    Other                    199        166        167        526        494
    -------------------------------------------------------------------------
                           1,889      1,794      1,752      5,352      5,202
    -------------------------------------------------------------------------
    Income before the
     undernoted            1,326      1,225      1,357      3,610      4,035
    Provision for income
     taxes                   287        209        296        689        859
    Non-controlling
     interest in net
     income of
     subsidiaries             29         36         29         96         85
    -------------------------------------------------------------------------
    Net income         $   1,010  $     980  $   1,032  $   2,825  $   3,091
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Preferred dividends
     paid                     32         22         16         75         35
    -------------------------------------------------------------------------
    Net income
     available to
     common
     shareholders      $     978  $     958  $   1,016  $   2,750  $   3,056
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average number of
     common shares
     outstanding
     (millions):
      Basic                  989        986        988        986        990
      Diluted                994        992        996        993        999
    -------------------------------------------------------------------------
    Earnings per
     common share (in
     dollars):
      Basic            $    0.99  $    0.97  $    1.03  $    2.79  $    3.09
    Diluted            $    0.98  $    0.97  $    1.02  $    2.77  $    3.06
    -------------------------------------------------------------------------
    Dividends per
     common share (in
     dollars)          $    0.49  $    0.47  $    0.45  $    1.43  $    1.29
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Certain comparative amounts have been reclassified to conform with
    current period presentation.

    The accompanying notes are an integral part of these interim consolidated
    financial statements.



    Consolidated Balance Sheet
                                                     As at
    -------------------------------------------------------------------------
                                    July 31   April 30 October 31    July 31
    (Unaudited) ($ millions)           2008       2008       2007       2007
    -------------------------------------------------------------------------
    Assets
    Cash resources
    Cash and non-interest-bearing
     deposits with banks          $   2,914  $   2,641  $   2,138  $   2,370
    Interest-bearing deposits
     with banks                      25,701     26,178     23,011     23,048
    Precious metals                   4,281      3,668      4,046      3,358
    -------------------------------------------------------------------------
                                     32,896     32,487     29,195     28,776
    -------------------------------------------------------------------------
    Securities
    Trading                          56,016     62,138     59,685     63,797
    Available-for-sale               34,314     34,322     28,426     28,636
    Equity accounted investments        853        802        724        424
    -------------------------------------------------------------------------
                                     91,183     97,262     88,835     92,857
    -------------------------------------------------------------------------
    Securities purchased under
     resale agreements               17,774     15,323     22,542     26,834
    -------------------------------------------------------------------------
    Loans
    Residential mortgages           113,830    108,382    102,154     99,000
    Personal and credit cards        48,971     45,273     41,734     41,360
    Business and government         111,921    104,928     85,500     84,778
    -------------------------------------------------------------------------
                                    274,722    258,583    229,388    225,138
    Allowance for credit losses
     (Note 3)                         2,477      2,490      2,241      2,423
    -------------------------------------------------------------------------
                                    272,245    256,093    227,147    222,715
    -------------------------------------------------------------------------
    Other
    Customers' liability under
     acceptances                     11,497     11,782     11,538     10,289
    Derivative instruments           23,504     25,638     21,960     16,635
    Land, buildings and equipment     2,542      2,506      2,271      2,296
    Goodwill                          2,134      2,162      1,134      1,140
    Other intangible assets             287        263        273        287
    Other assets                      8,345      9,057      6,615      6,286
    -------------------------------------------------------------------------
                                     48,309     51,408     43,791     36,933
    -------------------------------------------------------------------------
                                  $ 462,407  $ 452,573  $ 411,510  $ 408,115
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities and shareholders' equity
    Deposits
    Personal                      $ 112,872  $ 109,994  $ 100,823  $  98,171
    Business and government         191,239    176,878    161,229    156,668
    Banks                            28,358     35,566     26,406     32,146
    -------------------------------------------------------------------------
                                    332,469    322,438    288,458    286,985
    -------------------------------------------------------------------------
    Other
    Acceptances                      11,497     11,782     11,538     10,289
    Obligations related to
     securities sold under
     repurchase agreements           29,116     27,446     28,137     31,223
    Obligations related to
     securities sold short           11,765     15,028     16,039     21,322
    Derivative instruments           22,981     24,010     24,689     15,352
    Other liabilities                28,725     26,412     21,138     20,248
    Non-controlling interest in
     subsidiaries                       455        588        497        505
    -------------------------------------------------------------------------
                                    104,539    105,266    102,038     98,939
    -------------------------------------------------------------------------
    Subordinated debentures
     (Note 4)                         3,538      3,946      1,710      1,774
    -------------------------------------------------------------------------
    Capital instrument liabilities      500        500        500        750
    -------------------------------------------------------------------------
    Shareholders' equity
    Capital stock
      Preferred shares (Note 5)       2,560      2,210      1,635      1,290
      Common shares and
       contributed surplus            3,728      3,643      3,566      3,521
    Retained earnings                18,784     18,300     17,460     16,967
    Accumulated other
     comprehensive income (loss)
     (Note 6)                        (3,711)    (3,730)    (3,857)    (2,111)
    -------------------------------------------------------------------------
                                     21,361     20,423     18,804     19,667
    -------------------------------------------------------------------------
                                  $ 462,407  $ 452,573  $ 411,510  $ 408,115
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Certain comparative amounts have been reclassified to conform with
    current period presentation.

    The accompanying notes are an integral part of these interim consolidated
    financial statements.


    Consolidated Statement of Changes in Shareholders' Equity

                                                   For the nine months ended
    -------------------------------------------------------------------------
                                                          July 31    July 31
    (Unaudited) ($ millions)                                 2008       2007
    -------------------------------------------------------------------------
    Preferred shares
    Balance at beginning of period                      $   1,635  $     600
    Issued                                                    925        690
    -------------------------------------------------------------------------
    Balance at end of period                                2,560      1,290
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Common shares and contributed surplus
    Balance at beginning of period                          3,566      3,425
    Issued                                                    163        139
    Purchased for cancellation                                 (1)       (43)
    -------------------------------------------------------------------------
    Balance at end of period                                3,728      3,521
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Retained earnings
    Balance at beginning of period                         17,460     15,843
    Cumulative effect of adopting new accounting policies       -     (61)(1)
    -------------------------------------------------------------------------
                                                           17,460     15,782
    Net income                                              2,825      3,091
    Dividends:
      Preferred                                               (75)       (35)
      Common                                               (1,411)    (1,278)
    Purchase of shares                                         (6)      (586)
    Other                                                      (9)        (7)
    -------------------------------------------------------------------------
    Balance at end of period                               18,784     16,967
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Accumulated other comprehensive income (loss)
    Balance at beginning of period                         (3,857)    (2,321)
    Cumulative effect of adopting new accounting policies       -      683(1)
    Other comprehensive income (loss)                         146       (473)
    -------------------------------------------------------------------------
    Balance at end of period                               (3,711)    (2,111)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total shareholders' equity at end of period         $  21,361  $  19,667
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statement of Comprehensive Income

                                               For the               For the
                                    three months ended     nine months ended
                                    July 31    July 31    July 31    July 31
    (Unaudited) ($ millions)           2008       2007       2008       2007
    -------------------------------------------------------------------------
    Comprehensive income
    Net income                    $   1,010  $   1,032  $   2,825  $   3,091
    -------------------------------------------------------------------------
    Other comprehensive income
     (loss), net of income taxes
     (Note 6) :
      Net change in unrealized
       foreign currency
       translation gains (losses)       193       (465)       993       (531)
      Net change in unrealized
       losses on
       available-for-sale
       securities                      (243)      (146)      (513)       (81)
      Net change in gains (losses)
       on derivative instruments
       designated as cash flow
       hedges                            69         97       (334)       139
    -------------------------------------------------------------------------
    Other comprehensive income
     (loss)                              19       (514)       146       (473)
    -------------------------------------------------------------------------
    Comprehensive income          $   1,029  $     518  $   2,971  $   2,618
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Certain comparative amounts have been reclassified to conform with
    current period presentation.

    (1) Refer to Note 1 for discussion of new accounting policies related to
        financial instruments adopted in the first quarter of 2007.

    The accompanying notes are an integral part of these interim consolidated
    financial statements.



    Condensed Consolidated Statement of Cash Flows

                                               For the               For the
                                    three months ended     nine months ended
    -------------------------------------------------------------------------
    Sources (uses) of cash flows    July 31    July 31    July 31    July 31
     (Unaudited) ($ millions)          2008       2007       2008       2007
    -------------------------------------------------------------------------
    Cash flows from operating
     activities
    Net income                    $   1,010  $   1,032  $   2,825  $   3,091
    Adjustments to determine net
     cash flows from (used in)
     operating activities               208         (7)       424         29
    Net accrued interest
     receivable and payable              14        (73)       247        (70)
    Trading securities                6,511      6,979      4,980     (2,352)
    Derivative assets                 2,477     (1,180)     1,592     (5,617)
    Derivative liabilities           (1,134)     1,621     (4,542)     3,110
    Other, net                        2,940      2,019      4,442       (370)
    -------------------------------------------------------------------------
                                     12,026     10,391      9,968     (2,179)
    -------------------------------------------------------------------------
    Cash flows from financing
     activities
    Deposits                          7,903        314     29,240     28,896
    Obligations related to
     securities sold under
     repurchase agreements            1,196      2,168       (416)    (1,894)
    Obligations related to
     securities sold short           (3,301)       109     (4,637)     8,458
    Preferred shares issued             350          -        925        690
    Common shares issued                 82          7        145         92
    Common shares
     redeemed/purchased for
     cancellation                        (7)      (395)        (7)      (629)
    Subordinated debentures
     issued                               -          -      2,194          -
    Subordinated debentures
     redeemed                          (425)      (500)      (425)      (500)
    Cash dividends paid                (517)      (461)    (1,486)    (1,313)
    Other, net                          309         57      1,258      2,814
    -------------------------------------------------------------------------
                                      5,590      1,299     26,791     36,614
    -------------------------------------------------------------------------
    Cash flows from investing
     activities
    Interest-bearing deposits
     with banks                         845        178       (776)    (6,024)
    Securities purchased under
     resale agreements               (2,229)    (1,291)     5,458     (1,587)
    Loans, excluding
     securitizations                (16,290)   (11,703)   (38,623)   (27,934)
    Loan securitizations                892      1,321      2,584      2,764
    Securities, other than
     trading, net                      (147)      (221)    (3,051)    (1,116)
    Land, buildings and
     equipment, net of disposals        (69)       (66)      (254)      (230)
    Other, net(l)                      (376)         -     (1,457)      (119)
    -------------------------------------------------------------------------
                                    (17,374)   (11,782)   (36,119)   (34,246)
    -------------------------------------------------------------------------
    Effect of exchange rate
     changes on cash and cash
     equivalents                         31        (70)       136        (99)
    -------------------------------------------------------------------------
    Net change in cash and cash
     equivalents                        273       (162)       776         90
    Cash and cash equivalents at
     beginning of period              2,641      2,532      2,138      2,280
    -------------------------------------------------------------------------
    Cash and cash equivalents at
     end of period(2)             $   2,914  $   2,370  $   2,914  $   2,370
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash disbursements made for:
      Interest                    $   3,627  $   3,614  $  10,851  $  10,860
      Income taxes                $     199  $     220  $     953  $     836
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Certain comparative amounts have been reclassified to conform with
    current period presentation.

    (1) For the three and nine months ended July 31, 2008, comprises
        investments in subsidiaries, net of cash and cash equivalents at the
        date of acquisition of nil and $37, respectively (July 31, 2007 - nil
        and $3, respectively), and net of non-cash consideration of common
        shares issued from treasury of nil and nil, respectively
        (July 31, 2007 - nil and $15, respectively).
    (2) Represents cash and non-interest-bearing deposits with banks.

    The accompanying notes are an integral part of these interim consolidated
    financial statements.

    Notes to the Interim Consolidated Financial Statements (Unaudited)

    These interim consolidated financial statements have been prepared in
accordance with Canadian Generally Accepted Accounting Principles (GAAP). They
should be read in conjunction with the consolidated financial statements for
the year ended October 31, 2007. The significant accounting policies used in
the preparation of these interim consolidated financial statements are
consistent with those used in the Bank's year-end audited consolidated
financial statements.

    1.  Changes in accounting policies

        There were no new significant accounting policies adopted in the
        current fiscal year. Note 1 to the Bank's 2007 annual audited
        consolidated financial statements describes accounting policy
        changes.

    2.  Sales of loans through securitizations

        The Bank securitizes residential mortgages through the creation of
        mortgage-backed securities. No credit losses are expected, as the
        mortgages are insured. For the quarter ended July 31, 2008, the key
        weighted-average assumptions used to measure the fair value at the
        dates of securitization were a prepayment rate of 20%, an excess
        spread of 1.5% and a discount rate of 3.9%. The following table
        summarizes the Bank's sales:

                                               For the               For the
                                    three months ended     nine months ended
    -------------------------------------------------------------------------
                         July 31   April 30    July 31    July 31    July 31
    ($ millions)            2008       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Net cash
     proceeds(1)        $    892   $  1,142   $  1,321   $  2,584   $  2,764
    Retained interest         32         37         28         85         77
    Retained servicing
     liability                (5)        (6)        (9)       (15)       (20)
    -------------------------------------------------------------------------
                             919      1,173      1,340      2,654      2,821
    Residential
     mortgages
     securitized             900      1,142      1,351      2,597      2,817
    -------------------------------------------------------------------------
    Net gain (loss) on
     sale               $     19   $     31   $    (11)  $     57   $      4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Excludes insured mortgages which were securitized and retained by the
        Bank of $157 for the three months ended July 31, 2008 (April 30, 2008
        - $555; July 31, 2007 - $1,008), and $2,063 for the nine months ended
        July 31, 2008 (July 31, 2007 - $1,716) As at July 31, 2008, the
        outstanding balance of mortgage-backed securities was $4,850, and
        these assets have been classified as available-for-sale securities.

    3.  Impaired loans and allowance for credit losses

    (a) Impaired loans
                                                           As at
    -------------------------------------------------------------------------
                                               July 31   April 30 October 31
                                                  2008       2008       2007
    -------------------------------------------------------------------------
                                   Specific
    ($ millions)           Gross  allowance(l)     Net        Net        Net
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    By loan type:
      Residential
       mortgages        $    542   $    162   $    380   $    237   $    203
      Personal and
       credit cards          618        551         67        168         51
      Business and
       government          1,003        441        562        440        347
    -------------------------------------------------------------------------
    Total               $  2,163   $  1,154   $  1,009   $    845   $    601
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    By geography:
      Canada                                  $    308   $    309   $    231
      United States                                 72          4          4
      Other Inter-
       national                                    629        532        366
    -------------------------------------------------------------------------
    Total                                     $  1,009   $    845   $    601
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The specific allowance for impaired loans evaluated on an individual
        basis totalled $441 (April 30, 2008 - $464; October 31, 2007 - $383).


    (b) Allowance for credit losses

        The following table summarizes the change in the allowance for credit
        losses.
                                               For the               For the
                                    three months ended     nine months ended
    -------------------------------------------------------------------------
                         July 31   April 30    July 31    July 31    July 31
    ($ millions)            2008       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Balance at
     beginning of
     period             $  2,498   $  2,462   $  2,516   $  2,252   $  2,618
    Write offs              (218)      (190)      (179)      (602)      (483)
    Recoveries                52         51         38        154        137
    Provision for
     credit losses(4)        159        153         92        423        175
    Other, including
     foreign exchange
     adjustment              (6)         22        (34)       258        (14)
    -------------------------------------------------------------------------
    Balance at the end
     of period(1)(2)(3) $  2,485   $  2,498   $  2,433   $  2,485   $  2,433
    -------------------------------------------------------------------------
    (1) As at July 31, 2008, includes $143 of specific allowance and $25 of
        general allowances relating to acquisition of a new subsidiary (April
        30, 2008 - $149 and $25, respectively; July 31, 2007 - $37 and $16,
        respectively), which may change as the valuation of the acquired loan
        assets is finalized.
    (2) As at July 31, 2008, $8 has been recorded in other liabilities (April
        30, 2008 - $8; July 31, 2007 - $10).
    (3) As at July 31, 2008, the general allowance for credit losses was
        $1,323 (April 30, 2008 - $1,323; July 31, 2007 - $1,298).
    (4) For the three and nine months ended July 31, 2008, net of reduction
        in general allowance of nil. (For the three and nine months ended
        July 31, 2007, net of reduction in general allowance of nil and $25,
        respectively.)

    4.  Subordinated debentures

        Subordinated debentures totaling $300 million were issued on
        January 31, 2008, and will mature on January 31, 2018. Interest is
        payable semi-annually in arrears, commencing on July 31, 2008, at
        5.30% per annum until January 31, 2013. From January 31, 2013, until
        maturity, interest is payable at an annual rate equal to the 90-day
        Bankers' Acceptance Rate plus 1.90%, payable quarterly commencing
        April 30, 2013. The subordinated debentures are redeemable by the
        Bank at any time, subject to written approval of the Superintendent
        of Financial Institutions Canada. The subordinated debentures qualify
        as Tier 2B capital.

        Subordinated debentures totaling (Yen)10 billion were issued on
        November 20, 2007, and will mature on November 20, 2037. Interest is
        payable semi-annually in arrears, commencing on May 20, 2008, at an
        annual rate of 3.015%. The subordinated debentures are redeemable by
        the Bank on November 20, 2017, with the prior written approval of the
        Superintendent of Financial Institutions Canada. The subordinated
        debentures qualify as Tier 2B capital.

        Subordinated debentures totaling $1,700 million were issued on
        March 27, 2008, and will mature on March 27, 2018. Interest is
        payable semi-annually in arrears, commencing on September 29, 2008,
        at 4.99% per annum up until March 27, 2013. From March 27, 2013,
        until maturity, interest is payable at an annual rate equal to the
        90-day Bankers' Acceptance Rate plus 2.00%, payable quarterly in
        arrears commencing on June 27, 2013. The subordinated notes are
        redeemable by the Bank at any time, subject to written approval of
        the Superintendent of Financial Institutions Canada. The subordinated
        debentures qualify as Tier 2B capital.

        Subordinated debentures totalling (Yen)10 billion were issued on
        April 9, 2008, and will mature on April 9, 2038. Interest is payable
        semi-annually in arrears, commencing on October 9, 2008, at an annual
        interest rate of 3.37%. The subordinated debentures are redeemable by
        the Bank on April 9, 2018, with the prior written approval of the
        Superintendent of Financial Institutions Canada. The subordinated
        debentures qualify as Tier 2B capital.

        On July 22, 2008, the Bank redeemed all of its $425 million 5.65%
        subordinated debentures due July 22, 2013 at par plus accrued
        interest to the redemption date.

    5.  Capital management

        The Bank has a capital management process in place to measure, deploy
        and monitor its available capital and assess its adequacy. This
        capital management process aims to achieve three major objectives:
        exceed regulatory thresholds and meet longer-term internal capital
        targets, maintain strong credit ratings and provide the Bank's
        shareholders with acceptable returns.

        Capital is managed in accordance with the Board-approved Capital
        Management Policy. Senior executive management develop the capital
        strategy and oversee the capital management processes of the Bank.
        The Bank's Finance, Group Treasury and Global Risk Management (GRM)
        groups are key in implementing the Bank's capital strategy and
        managing capital. Capital is managed using both regulatory capital
        measures and internal metrics.

        Although the Bank is subject to several capital regulations in the
        different business lines and countries in which the Bank operates,
        capital adequacy is managed on a consolidated Bank basis. The Bank
        also takes measures to ensure its subsidiaries meet or exceed local
        regulatory capital requirements. The primary regulator of its
        consolidated capital adequacy is the Office of the Superintendent of
        Financial Institutions Canada (OSFI). The capital adequacy
        regulations in Canada are largely consistent with international
        standards set by the Bank for International Settlements. A revised
        Basel Capital Framework (Basel II) was adopted by the Bank and other
        Canadian banks effective this fiscal year.

        Effective November 1, 2007, regulatory capital ratios are determined
        in accordance with the revised capital framework, based on the
        International Convergence of Capital Measurement and Capital
        Standards: A Revised Framework, commonly known as Basel II. Changes
        to the computation of regulatory capital from the previous framework
        (Basel I) are primarily the amount and categorization of prescribed
        inclusions and deductions from capital, such as the calculation of
        the eligible allowance deduction and the deduction for specified
        corporations (such as insurance entities and associated
        corporations), which is now split between two categories of capital.
        In addition, the computation of risk-weighted assets was revised to
        more closely align risk weight parameters with the individual risk
        profile of banks by introducing substantive changes to prescribed
        risk weights for credit risk exposures, including the use of
        internally derived credit risk parameters, and introducing an
        explicit new risk weight for operational risk. Capital requirements
        for market risk were generally unchanged.

        Once banks demonstrate full compliance with the AIRB requirements,
        and OSFI has approved its use, they may proceed to apply the AIRB
        approach in computing capital requirements. However, in order to
        limit sudden declines in the capital levels for the industry in
        aggregate, capital floors were introduced for the first two years
        after full implementation of AIRB. A capital floor of 90% of the
        Basel I calculation will apply in the first year of full approval and
        80% in the second year, if required. In the second quarter, the Bank
        received regulatory approval to move to the 90% floor.

        The Bank received approval, with conditions, from OSFI to use AIRB
        for material Canadian, U.S. and European portfolios effective
        November 1, 2007. The remaining credit portfolios are targeted to
        implement AIRB in November 2010. In the interim period, the Bank will
        use the standardized approach for these portfolios. As well, the Bank
        is using the standardized approach to calculate the operational risk
        capital requirements.

        Total regulatory capital is composed of tier 1 and tier 2 capital as
        follows:

                                                            As at
    -------------------------------------------------------------------------
                                               July 31   April 30 October 31
    (unaudited)($ millions)                       2008       2008     2007(1)
    -------------------------------------------------------------------------
    Shareholders' equity per Consolidated
     Balance Sheet                            $ 21,361   $ 20,423   $ 18,804
    Capital instrument liabilities - trust
     securities                                  2,750      2,750      2,750
    Non-controlling interest in subsidiaries       455        588        497
    Goodwill deduction                          (2,134)    (2,162)    (1,134)
    Components of accumulated other
     comprehensive income excluded from
     Tier 1 capital                                155        (19)      (692)
    Other capital deductions(2)                   (512)      (507)         -
    -------------------------------------------------------------------------
    Tier 1 capital                            $ 22,075   $ 21,073   $ 20,225
    -------------------------------------------------------------------------
    Qualifying subordinated debentures,
     net of amortization                         3,234      3,659      1,452
    Capital instrument liabilities - trust
     subordinated notes                          1,000      1,000      1,000
    Other net capital items(3)                    (265)      (144)       304
    -------------------------------------------------------------------------
    Tier 2 capital                            $  3,969   $  4,515   $  2,756
    -------------------------------------------------------------------------
    Total regulatory capital                  $ 26,044   $ 25,588   $ 22,981
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Effective November 1, 2007, regulatory capital is determined in
        accordance with Basel II The comparative amounts as at October 31,
        2007 were determined in accordance with Basel I.
    (2) Comprised primarily of 50% of investments in certain specified
        corporations acquired after January 1, 2007. Prior to November 1,
        2007, 100% of investments in certain specified corporations was
        deducted from Tier 2 capital; commencing November 1, 2007, those
        acquired after January 1, 2007, are now split 50:50 between Tier 1
        and Tier 2.
    (3) Comprised mainly of eligible allowance for credit losses and net
        after-tax unrealized gain on available-for-sale securities less
        prescribed deductions including investments in specified
        corporations.


        The two primary regulatory capital ratios used to assess capital
        adequacy are Tier 1 and Total capital ratios, which are determined by
        dividing those capital components by risk-weighted assets. Risk-
        weighted assets are computed by applying a combination of the Bank's
        internal credit risk parameters and OSFI prescribed risk weights to
        on-and off-balance sheet exposures.

        The regulatory minimum ratios prescribed by OSFI are 7% for Tier 1
        capital and 10% for total capital. The Bank exceeded these minimum
        ratios for all reported periods. OSFI has also prescribed an asset-
        to-capital leverage multiple; the Bank was in compliance with this
        threshold for all reported periods.

        Significant capital transactions

        Series 17 non-cumulative preferred shares totaling $230 million were
        issued on January 31, 2008, and are entitled to non-cumulative
        preferential cash dividends payable quarterly, if and when declared,
        in an amount per share of $0.35. The initial dividend, paid on April
        28, 2008, was $0.33753 per share. With regulatory approval, the
        shares may be redeemed by the Bank on or after April 26, 2013, at
        $26.00 per share, together with declared and unpaid dividends to the
        date then fixed for redemption, and thereafter at annually declining
        premiums until April 26, 2017, following which no redemption premium
        is payable. These preferred shares qualify as Tier 1 capital.

        Series 18 non-cumulative 5-year rate reset preferred shares totaling
        $300 million and $45 million were issued on March 25, 2008, and
        March 27, 2008, respectively. Holders are entitled to receive fixed
        non-cumulative preferential cash dividends payable quarterly, if and
        when declared, in an amount of $0.3125 per share for the initial
        five-year fixed rate period ending on April 25, 2013. The initial
        dividend, in an amount of $0.4315 per share, was paid on July 29,
        2008. Subsequent to the initial five year fixed rate period, and
        resetting every five years thereafter, the dividends will be
        determined by the sum of the five-year Government of Canada yield
        plus 2.05%, multiplied by $25.00. Holders of Series 18 preferred
        shares have the option to convert their shares into an equal number
        of Series 19 non-cumulative floating rate preferred shares on April
        26, 2013, and on April 26 every five years thereafter. Series 19
        preferred shares are entitled to receive floating rate non-cumulative
        preferential cash dividends, if and when declared, in an amount per
        share equal to the sum of the T-Bill rate plus 2.05%, multiplied by
        $25.00. If the Bank determines that, after giving effect to any
        Election Notices received, there would be less than 1,000,000 Series
        18 preferred shares issued and outstanding on the applicable Series
        18 Conversion Date, all of the issued and outstanding Series 18
        preferred shares will automatically be converted on such Series 18
        Conversion Date into an equal number of Series 19 preferred shares.
        With prior written approval of the Superintendent of Financial
        Institutions Canada, Series 18 preferred shares and, if applicable,
        Series 19 preferred shares, are redeemable by the Bank. These shares
        are redeemable at $25.00 per share on April 26, 2013, and every five
        years thereafter. On all other dates beginning April 26, 2013, Series
        19 preferred shares are redeemable at $25.00 per share plus a
        redemption premium of $0.50 per share. These preferred shares qualify
        as Tier 1 capital.

        Series 20 non-cumulative five-year rate reset preferred shares
        totaling $350 million were issued on June 10, 2008. Holders are
        entitled to receive fixed non-cumulative preferential cash dividends
        payable quarterly, if and when declared, in an amount of $0.3125 per
        share for the initial five-year fixed rate period ending on October
        25, 2013. The initial dividend was paid on July 29, 2008, in the
        amount of $0.1678 per share. Subsequent to the initial five-year
        fixed rate period, and resetting every five years thereafter, the
        dividends will be determined by the sum of the five-year Government
        of Canada yield plus 1.70%, multiplied by $25.00. Holders of Series
        20 preferred shares have the option to convert their shares into an
        equal number of Series 21 non-cumulative floating rate preferred
        shares on October 26, 2013, and on October 26 every five years
        thereafter. Series 21 preferred shares are entitled to receive
        floating rate non-cumulative preferential cash dividends, if and when
        declared, in an amount per share equal to the sum of the T-Bill rate
        plus 1.70%, multiplied by $25.00. If the Bank determines that, after
        giving effect to any Election Notices received, there would be less
        than 1,000,000 Series 20 preferred shares issued and outstanding on
        the applicable Series 20 Conversion Date, all of the issued and
        outstanding Series 20 preferred shares will automatically be
        converted on such Series 20 Conversion Date into an equal number of
        Series 21 preferred shares. With prior written approval of the
        Superintendent of Financial Institutions Canada, Series 20 preferred
        shares and, if applicable, Series 21 preferred shares, are redeemable
        by the Bank. These shares are redeemable at $25.00 per share on
        October 26, 2013, and every 5 years thereafter. On all other dates
        beginning October 26, 2013, Series 21 preferred shares are redeemable
        at $25.00 per share plus a redemption premium of $0.50 per share.
        These preferred shares qualify as Tier 1 capital.

        In the first quarter of 2007, the Bank initiated a normal course
        issuer bid to purchase up to 20 million of the Bank's common shares.
        This represented approximately 2% of the Bank's common shares
        outstanding as at December 31, 2007. The bid terminated on January
        11, 2008. The Bank did not purchase any common shares pursuant to
        this bid during the first quarter.

        In the third quarter of 2008, the Bank initiated a new normal course
        issuer bid to purchase up to 20 million of the Bank's common shares.
        This represented approximately 2% of the Bank's common shares
        outstanding as at April 30, 2008. The bid will terminate on the
        earlier of January 11, 2009, or the date the Bank completes its
        purchases. During the third quarter, the Bank purchased 125,000
        common shares pursuant to this bid.

        The Bank issued 803,060 shares from Treasury in the third quarter as
        part of the Bank's Shareholder Dividend and Share Purchase Plan.
        These additional common shares were issued at an average price of
        $48.88 per share.

    6.  Accumulated other comprehensive income (loss)

        The components of accumulated other comprehensive income (loss) as at
        July 31, 2008, and other comprehensive income (loss) for the nine
        months then ended were as follows:

    Accumulated other comprehensive income (loss)

                                         As at and for the nine months ended
    -------------------------------------------------------------------------
                           Opening          Net       Ending      Opening
                           balance       change      balance      balance
    -------------------------------------------------------------------------
                        October 31                   July 31   October 31
                              2007                      2008         2006
    -------------------------------------------------------------------------
    ($ millions)
    Unrealized foreign
     currency
     translation gains
     (losses), net of
     hedging activities   $ (4,549)    $    993     $(3,556)(1)  $ (2,321)
    Unrealized gains
     (losses) on
     available-for-sale
     securities, net of
     hedging activities        639         (513)         126(2)         -
    Gains (losses) on
     derivative
     instruments
     designated as
     cash flow hedges           53         (334)       (281)(3)         -
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive
     income (loss)        $ (3,857)    $    146     $ (3,711)    $ (2,321)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                         As at and for the nine months ended
    -----------------------------------------------------------
                        Transition          Net       Ending
                            amount       change      balance
    -----------------------------------------------------------
                        November 1                   July 31
                              2006                      2007
    ($ millions)
    Unrealized foreign
     currency
     translation gains
     (losses), net of
     hedging activities   $      -     $   (531)    $(2,852)(l)
    Unrealized gains
     (losses) on
     available-for-sale
     securities, net of
     hedging activities        706          (81)         625(2)
    Gains (losses) on
     derivative
     instruments
     designated as
     cash flow hedges          (23)         139          116(3)
    -----------------------------------------------------------
    Accumulated other
     comprehensive
     income (loss)        $    683     $   (473)    $ (2,111)
    -----------------------------------------------------------
    -----------------------------------------------------------
    (1) Net of income tax expense of$546 (July 31, 2007 - nil).
    (2) Net of income tax expense of $81 (July 31, 2007 - $355). Also, the
        net unrealized gain as at July 31, 2008 includes unrealized losses of
        $574 (July 31, 2007 - $200) after tax on the available-for-sale
        securities.
    (3) Net of income tax benefit of $132 (July 31, 2007 - expense of $57).



    Other comprehensive income (loss)

    The following table summarizes the changes in the components of other
    comprehensive income (loss).

                                               For the               For the
                                    three months ended     nine months ended
    -------------------------------------------------------------------------
                                    July 31    July 31    July 31    July 31
    ($ millions)                       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Net change in unrealized
     foreign currency translation
     losses
    Net unrealized foreign
     currency translation gains
     (losses)(1)                   $    279   $   (742)  $  1,602   $   (859)
    Net gains (losses) on hedges
     of net investments in
     self-sustaining foreign
     operations(2)                      (86)       277       (609)       328
    -------------------------------------------------------------------------
                                        193       (465)       993       (531)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net change in unrealized gains
     on available-for-sale
     securities
    Net unrealized gains (losses)
     on available-for-sale
     securities(3)                     (213)      (118)      (356)        23
    Reclassification of net gains
     to net income(4)                   (30)       (28)      (157)      (104)
    -------------------------------------------------------------------------
                                       (243)      (146)      (513)       (81)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net change in gains (losses)
     on derivative instruments
     designated as cash flow
     hedges
    Net gains (losses) on
     derivative instruments
     designated as cash flow
     hedges(5)                          187       (129)       487          5
    Reclassification of net
     (gains) losses to net
     income(6)                         (118)       226       (821)       134
    -------------------------------------------------------------------------
                                         69         97       (334)       139
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Other comprehensive income
                                   $     19   $   (514)  $    146   $   (473)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) For the three and nine months ended July 31, 2008, net of income
        expense of nil (July 31, 2007 - nil).
    (2) For the three and nine months ended July 31, 2008, net of income tax
        benefit of $28 and expense of $119, respectively. (July 31, 2007 -
        nil and nil respectively).
    (3) For the three and nine months ended July 31, 2008, net of income tax
        benefit of $83 and $187, respectively (July 31, 2007 - benefit of $56
        and expense of $26, respectively).
    (4) For the three and nine months ended July 31, 2008, net of income tax
        expense of $22 and $70, respectively (July 31, 2007 - expense of $17
        and $54, respectively).
    (5) For the three and nine months ended July 31, 2008, net of income tax
        expense of $85 and $223, respectively (July 31, 2007 - benefit of $64
        and expense of $3, respectively).
    (6) For the three and nine months ended July 31, 2008, net of income tax
        expense of $54 and $380, respectively (July 31, 2007 - benefit of
        $113 and $67, respectively).


    7.  Financial instruments

        Financial risk management

        The Bank's principal business activities result in a balance sheet
        that consists primarily of financial instruments. In addition, the
        Bank uses derivative financial instruments for both trading and
        asset/liability management purposes. The principal financial risks
        that arise from transacting financial instruments include credit
        risk, liquidity risk and market risk. The Bank has a comprehensive
        risk management framework to monitor, evaluate and manage these
        risks. This risk management framework has four main components, as
        follows:

        -  extensive risk management policies define the Bank's risk
           appetite, set the limits and controls within which the Bank and
           its subsidiaries can operate, and reflect the requirements of
           regulatory authorities. These policies are approved by the Bank's
           Board of Directors, either directly or through the Executive and
           Risk Committee, (the Board);
        -  guidelines are developed to clarify risk limits and conditions
           under which the Bank's risk policies are implemented;
        -  processes are implemented to identify, evaluate, document, report
           and control risk. Standards define the breadth and quality of
           information required to make a decision; and
        -  compliance with risk policies, limits and guidelines is measured,
           monitored and reported to ensure consistency against defined
           goals.

        Credit risk

        Credit risk is the risk of loss resulting from the failure of a
        borrower or counterparty to honour its financial or contractual
        obligations to the Bank. The Bank's credit risk strategy and credit
        risk policy are developed by Global Risk Management (GRM) and are
        reviewed and approved by the Board on an annual basis. The credit
        risk strategy defines target markets and risk tolerances that are
        developed at an all-Bank level, and then further refined at the
        business line level. The objectives of the credit risk strategy are
        to ensure that, for the Bank, including the individual business
        lines:

        -  target markets and product offerings are well denned;
        -  the risk parameters for new underwritings and for the portfolios
           as a  whole are clearly specified; and
        -  transactions, including origination, syndication, loan sales and
           hedging, are managed in a manner to ensure the goals for the
           overall portfolio are met.

        The credit risk policy sets out, among other things, the credit risk
        rating systems and associated parameter estimates, the delegation of
        authority for granting credit, the calculation of the allowance for
        credit losses and the authorization of writeoffs. It forms an
        integral part of enterprise-wide policies and procedures that
        encompass governance, risk management and control structure.

        The Bank's credit risk rating systems are designed to support the
        determination of key credit risk parameter estimates which measure
        credit and transaction risk. For non-retail exposures, parameters are
        associated with each credit facility through the assignment of
        borrower and transaction ratings. Borrower risk is evaluated using
        methodologies that are specific to particular industry sectors and/or
        business lines. The risk associated with facilities of a given
        borrower is assessed by considering the facilities' structural and
        collateral-related elements. For retail portfolios, each exposure has
        been assigned to a particular pool (real estate secured, other retail
        - term lending, unsecured revolving), and within each pool to a risk
        grade. This process provides for a meaningful differentiation of
        risk, and allows for appropriate and consistent estimation of loss
        characteristics at the pool and risk grade levels.

        Credit quality of financial assets

        The Bank's non-retail portfolio is well diversified by industry, and
        there has not been a significant change in concentrations of credit
        risk since October 31, 2007.

        The Bank's retail portfolios consist of a number of relatively small
        loans to a large number of borrowers. The portfolios are distributed
        across Canada and a wide range of countries. As such, the portfolios
        inherently have a high degree of diversification.

        (a) Corporate and commercial

        Credit decisions are made based upon an assessment of the credit risk
        of the individual borrower or counterparty.

        Key factors considered in the assessment include: the borrower's
        management; the borrower's current and projected financial results
        and credit statistics; the industry in which the borrower operates;
        economic trends; and geopolitical risk. Banking units and GRM also
        review the credit quality of the credit portfolio across the
        organization on a regular basis to assess whether economic trends
        or specific events may affect the performance of the portfolio.

        As at July 31, 2008, a significant portion of the authorized
        corporate and commercial lending portfolio was internally rated at a
        rating that would generally equate to an investment grade rating by
        external rating agencies.

        (b) Retail

        The Bank's credit underwriting methodology and risk modeling in
        Canada is customer rather than product focused. Generally, decisions
        on consumer loans are based on risk ratings, which are generated
        using predictive scoring models. Individual credit requests are
        processed by proprietary adjudication software designed to calculate
        the maximum debt for which a customer qualifies.

        As at July 31, 2008, the amount of retail loans that were past due
        but not impaired was not significant.

        Derivative instruments

        To control credit risk associated with derivatives, the Bank uses the
        same credit risk management activities and procedures that are used
        in the lending business in assessing and adjudicating potential
        credit exposure. The Bank applies limits to each counterparty,
        measures exposure as the current fair value plus potential future
        exposure, and uses credit mitigation techniques, such as netting and
        collateralization. Investment grade counterparties account for a
        significant portion of the credit risk exposure arising from the
        Bank's derivative transactions as at July 31, 2008.

        Derivative instruments used by the Bank include credit derivatives in
        its investment and loan portfolios: credit protection is sold as an
        alternative to acquiring exposure to bond or loan assets, while
        credit protection is bought to manage or mitigate credit exposures.

        Collateral

        (a) Collateral held

        In the normal course of business, the Bank receives collateral on
        certain transactions to reduce its exposure to counterparty credit
        risk. The Bank is normally permitted to sell or repledge the
        collateral it receives under terms that are common and customary to
        standard derivative, securities borrowing and lending, and other
        lending activities.

        (b) Collateral pledged

        In the normal course of business, securities and other assets are
        pledged to secure an obligation, participate in clearing or
        settlement systems, or operate in a foreign jurisdiction. As at July
        31, 2008, total assets pledged were $43 billion (April 30, 2008 - $46
        billion; October 31, 2007 - $40 billion). Asset pledging transactions
        are conducted under terms that are common and customary to standard
        derivative, securities borrowing and lending, and other lending
        activities. Standard risk management controls are applied with
        respect to asset pledging.

        Liquidity risk

        Liquidity risk is the risk that the Bank is unable to meet its
        financial obligations in a timely manner at reasonable prices. The
        Bank's liquidity risk is subject to extensive risk management
        controls and is managed within the framework of policies and limits
        approved by the Board. The Board receives reports on risk exposures
        and performance against approved limits. The Liability Committee
        (LCO) provides senior management oversight of liquidity risk through
        its weekly meetings.

        The key elements of the Bank's liquidity risk management framework
        include:

        -  liquidity risk measurement and management limits, including limits
           on maximum net cash outflow by currency over specified short-term
           horizons;
        -  prudent diversification of its wholesale funding activities by
           using a number of different funding programs to access the global
           financial markets and manage its maturity profile, as appropriate;
        -  large holdings of liquid assets to support its operations, (see
           table below) which can generally be sold or pledged to meet the
           Bank's obligations;
        -  liquidity stress testing, including Bank-specific, Canada-
           systemic, and global-systemic scenarios; and
        -  liquidity contingency planning.


    Liquid assets
                                                                       As at
                                             --------------------------------
                                                                     July 31
                                                                        2008
    -------------------------------------------------------------------------
                                              Canadian    Foreign
    ($ millions)                                dollar   currency      Total
    -------------------------------------------------------------------------
    Cash and deposits with the Bank of
     Canada                                   $    743   $  4,931   $  5,674
    Deposits with other banks                    3,668     23,554     27,222
    Securities                                  50,925     22,488     73,413
    Call and short loans                             -        919        919
    -------------------------------------------------------------------------
                                              $ 55,336   $ 51,892   $107,228
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liquid assets as a % of total assets                                23.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


        Contractual maturities

        The table below shows the contractual maturities of certain of the
        Bank's financial liabilities as at July 31, 2008. The Bank's deposit
        liabilities shown below are those recorded in Canada and the United
        States, which amounted to $256 billion, representing 77% of the
        Bank's total deposits.

                                        Payable on a fixed date
                                     ------------------------------
                                                           Greater
                   Payable   Payable      Less    One to      than
                        on     after  than one      five      five
    ($ millions)    demand    notice      year     years     years     Total
    -------------------------------------------------------------------------
    Deposits      $ 18,927  $  7,298  $157,706  $ 61,972  $  9,710  $255,613
    Subordinated
     debentures          -         -       257         -     3,281     3,538
    Capital
     instrument
     liabilities         -         -         -         -       500       500
    -------------------------------------------------------------------------
    Total         $ 18,927  $  7,298  $157,963  $ 61,972  $ 13,491  $259,651
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        Deposits

        The Bank's foreign operations have liquidity management frameworks
        that are similar to the Bank's framework. Local deposits are managed
        from a liquidity risk perspective based on the local management
        frameworks and regulatory requirements.

        Commitments to extend credit

        In the normal course of business, the Bank enters into commitments to
        extend credit in the form of loans or other financings for specific
        amounts and maturities, subject to specific conditions. These
        commitments, which are not reflected on the Consolidated Balance
        Sheet, are subject to normal credit standards, financial controls and
        monitoring procedures. As at July 31, 2008, the majority of
        commitments to extend credit had a remaining term to maturity of less
        than one year.

        Derivative instruments

        The Bank is subject to liquidity risk relating to its use of
        derivatives to meet customer needs, generate revenues from trading
        activities, manage market and credit risks arising from its lending,
        funding and investment activities, and lower its cost of capital. As
        at July 31, 2008, more than half of the notional value of the Bank's
        derivative instruments mature within one year, while 85% mature
        within five years.

        Market risk

        Market risk arises from changes in market prices and rates (including
        interest rates, credit spreads, equity prices, foreign exchange rates
        and commodity prices), the correlations among them, and their levels
        of volatility. Market risk is subject to extensive risk management
        controls, and is managed within the framework of market risk policies
        and limits approved by the Board. The LCO and Market Risk Management
        and Policy Committee oversee the application of the framework set by
        the Board, and monitor the Bank's market risk exposures and the
        activities that give rise to these exposures.

        The Bank uses a variety of metrics and models to measure and control
        market risk exposures. The measurements used are selected based on an
        assessment of the nature of risks in a particular activity. The
        principal measurement techniques are Value at Risk (VaR), stress
        testing, sensitivity analysis and simulation modeling, and gap
        analysis. The Board reviews results from these metrics quarterly.
        Models are independently validated prior to implementation and are
        subject to formal periodic review.

        VaR is a statistical measure that estimates the potential loss in
        value of the Bank's trading positions due to adverse market movements
        over a defined time horizon with a specified confidence level (see
        Trading portfolio risk management further below). The quality of the
        Bank's VaR is validated by regular back testing analysis, in which
        the VaR is compared to theoretical and actual profit and loss
        results. To complement VaR, the Bank also uses stress testing to
        examine the impact that abnormally large swings in market factors and
        periods of prolonged inactivity might have on trading portfolios. The
        stress testing program is designed to identify key risks and ensure
        that the Bank's capital can easily absorb potential losses from
        abnormal events. The Bank subjects its trading portfolios to more
        than 75 stress tests on a daily basis, and more than 250 stress tests
        on a monthly basis.

        Sensitivity analysis assesses the effect of changes in interest rates
        on current earnings and on the economic value of assets and
        liabilities. Simulation modeling under various scenarios is
        particularly important for managing risk in the deposit, lending and
        investment products the Bank offers to its retail customers. Gap
        analysis is used to assess the interest rate sensitivity of the
        Bank's retail, wholesale banking and international operations. Under
        gap analysis, interest rate-sensitive assets, liabilities and
        derivative instruments are assigned to defined time periods, on the
        earlier of contractual repricing or maturity dates based on expected
        repricing dates.

        Interest rate risk

        Interest rate risk, inclusive of credit spread risk, is the risk of
        loss due to the following: changes in the level, slope and curvature
        of the yield curve; the volatility of interest rates; mortgage
        prepayment rates; changes in the market price of credit; and the
        creditworthiness of a particular issuer. The Bank actively manages
        its interest rate exposures with the objective of enhancing net
        interest income within established risk tolerances. Interest rate
        risk arising from the Bank's funding and investment activities is
        managed in accordance with Board-approved policies and global limits,
        which are designed to control the risk to income and economic value
        of shareholders' equity. The income limit measures the effect of a
        specified shift in interest rates on the Bank's annual net income,
        while the economic value limit measures the impact of a specified
        change in interest rates on the present value of the Bank's net
        assets. Interest rate exposures in individual currencies are also
        controlled by gap limits.

        Based on the Bank's interest rate positions as at July 31, 2008, the
        following table shows the potential after-tax impact on the Bank's
        net income over the next 12 months and economic value of
        shareholders' equity of an immediate and sustained 100 basis point
        increase and decrease in interest rates across all currencies.

        Interest rate sensitivity
        ---------------------------------------------------------------------
                                                                    Economic
                                                                       value
        ($ millions)                                   Net income  of equity
        ---------------------------------------------------------------------
        100 bp increase                                  $     14   $   (153)
        ---------------------------------------------------------------------
        100 bp decrease                                  $    (75)  $    190
        ---------------------------------------------------------------------

        Foreign currency risk

        Foreign currency risk is the risk of loss due to changes in spot and
        forward rates, and the volatility of currency exchange rates. The
        Bank's exposure to its net investments in self-sustaining foreign
        operations is controlled by a Board-approved limit. This limit
        considers potential volatility to shareholders' equity as well as the
        potential impact on capital ratios from foreign exchange
        fluctuations. On a quarterly basis, the LCO reviews the Bank's
        exposures to these net investments. The Bank may fully or partially
        hedge this exposure by funding the investments in the same currency,
        or by using other financial instruments, including derivatives.

        The Bank is subject to foreign currency risk on the earnings of its
        foreign operations. To manage this risk, foreign currency revenues
        and expenses, which are primarily denominated in U.S. dollars, are
        projected over a number of future fiscal quarters. The LCO assesses
        economic data and forecasts to decide on the portion of the estimated
        future foreign currency revenues and expenses to hedge. Hedging
        instruments normally include foreign currency spot and forward
        contracts, as well as foreign currency options and swaps.

        As at July 31, 2008, a one per cent increase (decrease) in the
        Canadian dollar against all currencies in which the Bank operates
        decreases (increases) the Bank's before-tax annual earnings by
        approximately $37 million in the absence of hedging activity,
        primarily from exposure to U.S. dollars. A similar change in the
        Canadian dollar would increase (decrease) the unrealized foreign
        currency translation losses in the accumulated other comprehensive
        income section of shareholders' equity by approximately $162 million
        as at July 31, 2008, net of hedging.

        Equity risk

        Equity risk is the risk of loss due to adverse movements in equity
        prices. Equity price risk is often classified into two categories:
        general equity risk, which refers to the sensitivity of an instrument
        or portfolio's value to changes in the overall level of equity
        prices, and specific equity risk, which refers to that portion of an
        individual equity instrument's price volatility that is determined by
        entity-specific characteristics.

        The Bank is exposed to equity risk through its equity investment
        portfolios, which are controlled by Board-approved portfolio, VaR,
        and stress-test limits. Equity investments include common and
        preferred shares, as well as a diversified portfolio of third-party
        managed funds.

        The majority of the Bank's equity investment portfolios are managed
        by Group Treasury under the strategic direction of the LCO. Group
        Treasury delegates the management of a portion of equity and equity-
        related portfolios to Scotia Cassels Investment Counsel Limited and
        other external fund managers to take advantage of these fund
        managers' expertise in particular market niches and products.

        The fair value of available-for-sale equity securities was $3,221
        million as at July 31, 2008.

        Trading portfolio risk management

        The Bank's policies, processes and controls for trading activities
        are designed to achieve a balance between pursuing profitable trading
        opportunities and managing earnings volatility within a framework of
        sound and prudent practices. Trading activities are primarily
        customer focused, but also include a proprietary component.

        Market risk arising from the Bank's trading activities is managed in
        accordance with Board-approved policies and limits, including
        aggregate VaR and stress testing limits.

        Trading portfolios are marked to market in accordance with the Bank's
        valuation policies. Positions are marked to market daily and
        valuations are independently reviewed by back office or GRM units on
        a regular basis. These units also provide profit and loss reporting,
        as well as VaR and limit compliance reporting to business unit
        management and executive management for evaluation and action as
        appropriate. VaR is calculated daily using a 99% confidence level, a
        one-day holding period and historical simulations based on 300 days
        of market data. This means that, on average, the trading book may
        lose more than the VaR about once every 100 days.

        The table below shows the Bank's VaR by risk factor:

                                          One-day VaR by risk factor
        ---------------------------------------------------------------------
                                      As at     For the three months ended
                                    July 31,          July 31, 2008
        ($ millions)                   2008   Average        High        Low
        ---------------------------------------------------------------------
        Interest rate                  12.9       13.0       16.6       10.8
        Equities                        2.9        3.5        4.6        2.7
        Foreign exchange                1.0        0.9        1.8        0.6
        Commodities                     2.9        3.0        3.4        2.5
        Diversification                (4.3)      (4.6)       n/a        n/a
        ---------------------------------------------------------------------
        All-Bank VaR                   15.4       15.8       17.5       13.9
        ---------------------------------------------------------------------

        Hedges

        There are three main types of hedges for accounting purposes: (i)
        fair value hedges, (ii) cash flow hedges and (iii) net investment
        hedges.

        In a fair value hedge, the change in fair value of the hedging
        derivative is offset in the Consolidated Statement of Income by the
        change in fair value of the hedged item relating to the hedged risk.
        The Bank utilizes fair value hedges primarily to convert fixed rate
        financial assets and liabilities to floating rate. The main financial
        instruments designated in fair value hedging relationships include
        bond assets, loans, deposit liabilities and subordinated debentures.

        In a cash flow hedge, the change in fair value of the hedging
        derivative is recorded in other comprehensive income until the hedged
        item affects the Consolidated Statement of Income. The Bank utilizes
        cash flow hedges primarily to convert floating rate deposit
        liabilities to fixed rate. The reclassification from accumulated
        other comprehensive income to earnings over the next 12 months as a
        result of outstanding cash flow hedges is expected to be a net loss
        of approximately $122 million (after tax). As at July 31, 2008, the
        maximum length of cash flow hedges outstanding was less than
        10 years.

        In a net investment hedge, the change in fair value of the hedging
        instrument is recorded directly in other comprehensive income. These
        amounts are recognized in income when the corresponding cumulative
        translation adjustments from the self-sustaining foreign operation
        are recognized in income.

        Any hedge ineffectiveness is measured and recorded in current period
        income in the Consolidated Statement of Income. The Bank recorded a
        gain of $17 million during the three months ended July 31, 2008
        (July 31, 2007 - gain of $ 1 million), of which a gain of $6 million
        (July 31, 2007 - loss of $1 million) related to cash flow hedges, due
        to the ineffective portion of designated hedges. For the nine months
        ended July 31, 2008, the Bank recorded a gain of $14 million (July
        31, 2007 - gain of $7 million) of which a gain of $ 13 million
        (July 31, 2007 - gain of $3 million) related to cash flow hedges.
        When either a fair value or cash flow hedge is discontinued, any
        cumulative adjustment to either the hedged item or other
        comprehensive income is recognized in income over the remaining term
        of the original hedge, or when the hedged item is derecognized.

        Items designated as trading

        The Bank has elected to designate certain portfolios of assets and
        liabilities as trading which are carried at fair value with changes
        in fair values recorded in income.

        The Bank's trading operations transact credit derivatives for
        customers. The Bank may purchase the underlying loan(s) from another
        counterparty to economically hedge the derivative exposure. As a
        result, the Bank significantly reduces or eliminates an accounting
        mismatch between the two instruments. The fair value of these loans
        was $8.6 billion as at July 31, 2008 (April 30, 2008 - $7.5 billion;
        October 31, 2007 - $4.1 billion). The change in fair value that was
        recorded through trading income for the three and nine months ended
        July 31, 2008 was a loss of $5 million (July 31, 2007 - loss of
        $82 million) and a loss of $232 million (July 31, 2007 - gain of
        $122 million), respectively. These changes in fair value were
        substantially offset by the changes in the fair value of the related
        credit derivatives.

        The Bank's trading operations purchase loan assets in specifically
        authorized portfolios for which performance is evaluated on a fair
        value basis. The fair value of these loans was $64 million as at July
        31, 2008 (April 30, 2008 - $83 million; October 31, 2007 - $151
        million). The change in fair value that was recorded through trading
        income for the three and nine months ended July 31, 2008, was a loss
        of less than $1 million (July 31, 2007 - loss of $1 million) and a
        loss of $3 million (July 31, 2007 - gain of $8 million),
        respectively.

        The Bank has classified certain deposit note liabilities containing
        extension features as trading, in order to significantly reduce an
        accounting mismatch between these liabilities and fair value changes
        in related derivatives. The fair value of these liabilities was
        $404 million of as at July 31, 2008 (April 30, 2008 - $573 million;
        October 31, 2007 - $847 million). The change in fair value that was
        recorded through net interest income for the three and nine months
        ended July 31, 2008 was a gain of less than $1 million (July 31, 2007
        - gain of $14 million) and a loss of $13 million (July 31, 2007 -
        gain of $15 million), respectively. The change in fair value, which
        is mainly attributable to changes in interest rates, was
        substantially offset by the change in fair value of the related
        derivatives. At July 31, 2008, the Bank is contractually obligated to
        pay $401 million to the holders of the notes at maturity (April 30,
        2008 - $569 million; October 31, 2007 - $853 million).

    8.  Employee future benefits

        Employee future benefits include pensions and other post-retirement
        benefits, post-employment benefits and compensated absences. The
        following table summarizes the expenses for the Bank's principal
        plans(1):

                                               For the               For the
                                    three months ended     nine months ended
    -------------------------------------------------------------------------
                         July 31   April 30    July 31    July 31    July 31
    ($ millions)            2008       2008       2007       2008       2007
    -------------------------------------------------------------------------
    Benefit expenses
    Pension plans       $      -   $      1   $      5   $      2   $     21
    Other benefit plans       29         30         30         88         90
    -------------------------------------------------------------------------
                        $     29   $     31   $     35   $     90   $    111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Other plans operated by certain subsidiaries of the Bank are not
        considered material and are not included in this note.


    9.  Segmented results of operations

        Scotiabank is a diversified financial services institution that
        provides a wide range of financial products and services to retail,
        commercial and corporate customers around the world. The Bank is
        organized into three main operating segments: Domestic Banking,
        International Banking and Scotia Capital. Results for these operating
        segments are presented in the Business segment income tables above.

    10. Acquisitions

        On May 13, 2008, the Bank agreed with Intesa Sanpaolo S.p.A. to
        acquire its shares and other interests in Scotiabank Peru for
        approximately $230 million, which increases the Bank's ownership in
        Scotiabank Peru from 78% to 98%. This transaction was accounted for
        this quarter and resulted in an increase in goodwill of approximately
        $63 million. There is also a reduction in non-controlling interest in
        subsidiaries of $164 million. The purchase price allocation may be
        refined as the Bank completes its valuation of the assets acquired
        and liabilities assumed.

        In 2007, the Bank acquired an equity interest in Dundee Wealth Inc.
        Under the acquisition agreement the Bank had a right to acquire
        additional shares in the secondary market up to a 19.9% ownership
        interest. During the third quarter, the Bank exercised this right and
        acquired additional shares bringing its ownership to approximately
        19.4%. This investment is accounted for under the equity method.

        On July 14, 2008, the Bank announced its agreement with E(*)TRADE
        Financial Corporation to acquire 100% of E(*)TRADE Canada for US
        $442 million. The transaction is subject to regulatory approval and
        is expected to close during the fourth quarter.

        The Bank completed the acquisition of Chile's Banco del Desarrollo on
        November 26, 2007, through the acquisition of 99.5% of the
        outstanding shares for $1.0 billion Canadian dollar equivalent (CDE).
        Total assets at acquisition were approximately CDE $5.6 billion,
        mainly comprised of loans. The Bank will combine the operations of
        Banco del Desarrollo with its existing Scotiabank Sud Americano
        banking operations. Based on acquisition date fair values,
        approximately CDE $797 million has been allocated to the estimated
        value of goodwill acquired. The purchase price allocation may be
        refined as the Bank completes its valuation of the assets acquired
        and liabilities assumed.
    

    SHAREHOLDER & INVESTOR INFORMATION

    Direct deposit service

    Shareholders may have dividends deposited directly into accounts held at
financial institutions which are members of the Canadian Payments Association.
To arrange direct deposit service, please write to the transfer agent.

    Dividend and Share Purchase Plan

    Scotiabank's dividend reinvestment and share purchase plan allows common
and preferred shareholders to purchase additional common shares by reinvesting
their cash dividend without incurring brokerage or administrative fees.
    As well, eligible shareholders may invest up to $20,000 each fiscal year
to purchase additional common shares of the Bank. Debenture holders may apply
interest on fully registered Bank subordinated debentures to purchase
additional common shares. All administrative costs of the plan are paid by the
Bank.
    For more information on participation in the plan, please contact the
transfer agent.

    Dividend dates for 2008

    Record and payment dates for common and preferred shares, subject to
approval by the Board of Directors.

    
        Record Date          Payment Date
        January 2            January 29
        April 1              April 28
        July 2(*)            July 29
        October 7            October 29
    

    (*) July 4 (Preferred Shares Series 20)

    Annual Meeting date for fiscal 2008

    The Annual Meeting of Shareholders of the Bank for the fiscal year ending
October 31, 2008, will be held in Halifax, Nova Scotia, at 10:00 a.m., on
Tuesday, March 3, 2009.

    Duplicated communication

    If your shareholdings are registered under more than one name or address,
multiple mailings will result. To eliminate this duplication, please write to
the transfer agent to combine the accounts.

    Website

    For information relating to Scotiabank and its services, visit us at our
website: www.scotiabank.com.

    Conference call and Web broadcast

    The quarterly results conference call will take place on August 26, 2008,
at 2:00 p.m. EDT and is expected to last approximately one hour. Interested
parties are invited to access the call live, in listen-only mode, by
telephone, toll-free, at 1-800-733-7571 (please call five to 15 minutes in
advance). In addition, an audio webcast, with accompanying slide presentation,
may be accessed via the Investor Relations page of www.scotiabank.com.
Following discussion of the results by Scotiabank executives, there will be a
question and answer session. Listeners are invited to submit questions by
e-mail to investor.relations@scotiabank.com.
    A telephone replay of the conference call will be available from
August 26, 2008, to September 9, 2008, by calling (416) 640-1917 and entering
the identification code 21280123 followed by the number sign. The archived
audio webcast will be available on the Bank's website for three months.

    -------------------------------------------------------------------------

    
    Contact information

    Investors:

    Financial analysts, portfolio managers and other investors requiring
financial information, please contact Investor Relations, Finance Department:

        Scotiabank
        Scotia Plaza, 44 King Street West
        Toronto, Ontario, Canada M5H 1H1
        Telephone: (416) 866-5982
        Fax: (416)866-7867
        E-mail: investor.relations@scotiabank.com

    Media:

    For other information and for media enquiries, please contact the Public,
Corporate and Government Affairs Department at the above address.

        Telephone: (416) 866-3925
        Fax:(416)866-4988
        E-mail: corpaff@scotiabank.com

    Shareholders:

    For enquiries related to changes in share registration or address,
dividend information, lost share certificates, estate transfers, or to advise
of duplicate mailings, please contact the Bank's transfer agent:

        Computershare Trust Company of Canada
        100 University Avenue, 9th Floor
        Toronto, Ontario, Canada M5J 2Y1
        Telephone: 1-877-982-8767
        Fax:1-888-453-0330
        E-mail: service@computershare.com

        Co-Transfer Agent (U.S.A.)
        Computershare Trust Company N.A.
        350 Indiana Street
        Golden, Colorado 80401 U.S.A.
        Telephone: 1-800-962-4284

    For other shareholder enquiries, please contact the Finance Department:

        Scotiabank
        Scotia Plaza, 44 King Street West
        Toronto, Ontario, Canada M5H 1H1
        Telephone: (416) 866-4790
        Fax: (416)866-4048
        E-mail: corporate.secretary@scotiabank.com
    

    Rapport trimestriel disponible en français

    Le Rapport annuel et les états financiers de la Banque sont publiés en
français et en anglais et distribués aux actionnaires dans la version de leur
choix. Si vous préférez que la documentation vous concernant vous soit
adressée en français, veuillez en informer Relations publiques, Affaires de la
société et Affaires gouvernementales, La Banque de Nouvelle-Ecosse, Scotia
Plaza, 44, rue King Ouest,Toronto (Ontario), Canada M5H 1H1, en joignant, si
possible, l'étiquette d'adresse, afin que nous puissions prendre note du
changement.

    The Bank of Nova Scotia is incorporated in Canada with limited liability.

    %SEDAR: 00001289EF          %CIK: 0000009631




For further information:

For further information: Kevin Harraher, Vice-President, Investor
Relations, (416) 866-5982; Frank Switzer, Public Affairs, (416) 886-7238


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