Scotiabank reports first quarter earnings of $835 million



    First quarter financial measures compared to the same period a year ago:

    - Earnings per share (diluted) of $0.82, compared to $1.01
    - Net income of $835 million, versus $1,020 million
    - Return on equity of 18.3%, compared to 22.1%
    - Productivity ratio of 56.5%, versus 53.6%

    TORONTO, March 4 /CNW/ - Scotiabank recorded first quarter net income of
$835 million, down $185 million or 18% from the same period last year. Diluted
earnings per share (EPS) were $0.82 compared to $1.01 in the same period a
year earlier, down 19%. Return on equity was 18.3% compared to 22.1% last
year.
    "While we had anticipated the first quarter to be difficult, results were
weaker than expected," said Rick Waugh, President and CEO. "This was due
primarily to substantial volatility in global financial markets. Our exposure
to these stressed markets is modest and well diversified, but our portfolios
did experience some valuation writedowns.
    "We continued to experience solid core growth in our Domestic and
International Banking platforms, but our results in Scotia Capital were
negatively affected by the market volatility. In Domestic Banking, average
assets rose 14%, driven by growth and increased market share in mortgages,
personal deposits and mutual funds. International Banking also experienced
strong asset growth of seven per cent due to organic growth and our
acquisition in Chile, despite the negative impact of foreign currency
translation. Mexico's earnings contribution was lower this quarter, due
largely to increased loan loss provisions, unusually high taxes, as well as
the negative effect of the stronger Canadian dollar.
    "The unsettled capital markets affected certain of the Bank's portfolio
positions and also led to an increase in funding costs, thereby reducing the
Bank's interest margin compared to a year ago. The steep rise of the Canadian
dollar versus the U.S. dollar from 85 cents to par over the past year had the
impact of reducing our foreign currency earnings," Mr. Waugh said. "We also
took prudent actions to ensure our portfolios reflect current market
valuations.
    "Notwithstanding the current volatility, particularly in widening credit
spreads, capital markets are expected to improve somewhat in the second half
of the year. Funding costs have begun to improve, asset growth remains strong
in all three of our business lines, and increased attention to managing costs
supports our confidence going forward. As well, the pressure of the rapid rise
of the dollar in 2007 will have a much reduced impact in the second half of
the year, as we anticipate the Canadian dollar to stay within its current
range.
    "We are confident that we are taking action to meet the current
challenges head on and, hence, are maintaining the objectives that we
established at the beginning of the year."

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

    1. Target: Earn a return on equity (ROE)(1) of 20 to 23%. For the three
       months Scotiabank earned an ROE of 18.3%.

    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 19%.

    3. Target: Maintain a productivity ratio(1) of less than 57%.
       Scotiabank's ratio was 56.5% for the three months.

    4. Target: Maintain sound capital ratios. At 9.0%, 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 three months ended
    -------------------------------------------------------------------------
                                          January 31  October 31  January 31
    (Unaudited)                                 2008        2007        2007
    -------------------------------------------------------------------------
    Operating results ($ millions)
    Net interest income                        1,814       1,716       1,776
    Net interest income (TEB(1))               1,932       1,932       1,881
    Total revenue                              2,839       3,078       3,109
    Total revenue (TEB(1))                     2,957       3,294       3,214
    Provision for credit losses                  111          95          63
    Non-interest expenses                      1,669       1,792       1,724
    Provision for income taxes                   193         204         277
    Provision for income taxes (TEB(1))          311         420         382
    Net income                                   835         954       1,020
    Net income available to common
     shareholders                                814         938       1,012
    -------------------------------------------------------------------------
    Operating performance
    Basic earnings per share ($)                0.83        0.95        1.02
    Diluted earnings per share ($)              0.82        0.95        1.01
    Return on equity (%)(1)                     18.3        21.0        22.1
    Productivity ratio (%) (TEB(1))             56.5        54.4        53.6
    Net interest margin on
     total average assets (%) (TEB(1))          1.79        1.87        1.91
    -------------------------------------------------------------------------
    Balance sheet information ($ millions)
    Cash resources and securities            130,893     118,030     126,899
    Loans and acceptances                    260,501     238,685     222,690
    Total assets                             449,422     411,510     396,470
    Deposits                                 316,797     288,458     277,019
    Preferred shares                           1,865       1,635         945
    Common shareholders' equity               18,128      17,169      18,850
    Assets under administration              195,155     195,095     203,067
    Assets under management                   31,704      31,403      29,158
    -------------------------------------------------------------------------
    Capital measures(2)
    Tier 1 capital ratio (%)                     9.0         9.3        10.4
    Total capital ratio (%)                     10.2        10.5        11.7
    Tangible common equity
     to risk-weighted assets(1) (%)              7.2         7.2         8.4
    Risk-weighted assets ($ millions)        234,876     218,337     206,843
    -------------------------------------------------------------------------
    Credit quality
    Net impaired loans(3) ($ millions)           689         601         579
    General allowance for
     credit losses ($ millions)                1,298       1,298       1,323
    Net impaired loans as a %
     of loans and acceptances(3)                0.26        0.25        0.26
    Specific provision for credit
     losses as a % of average loans
     and acceptances (annualized)               0.18        0.16        0.12
    -------------------------------------------------------------------------
    Common share information
    Share price ($)
      High                                     54.00       53.49       53.39
      Low                                      43.10       46.70       48.80
      Close                                    48.19       53.48       50.76
    Shares outstanding (millions)
      Average - Basic                            985         983         991
      Average - Diluted                          992         991       1,001
      End of period                              985         984         993
    Dividends per share ($)                     0.47        0.45        0.42
    Dividend yield (%)                           3.9         3.6         3.3
    Dividend payout ratio(4) (%)                56.9        47.1        41.2
    Market capitalization ($ millions)        47,487      52,612      50,397
    Book value per common share($)             18.40       17.45       18.99
    Market value to book value multiple          2.6         3.1         2.7
    Price to earnings multiple
     (trailing 4 quarters)                      12.5        13.2        13.5
    -------------------------------------------------------------------------
    Other information
    Employees(5)                              62,002      58,113      54,889
    Branches and offices                       2,488       2,331       2,225
    -------------------------------------------------------------------------
    (1) Non-GAAP measure. Refer further below for 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

    The first quarter of 2008 was challenging for banks, including
Scotiabank. While Domestic Banking and International Banking experienced solid
core growth, results for Scotia Capital and for the Bank overall were
negatively affected by the turbulence in global financial markets,
particularly credit markets.
    We are meeting these challenges by continuing to invest in revenue
generating opportunities, emphasizing our traditional focus on controlling
expenses, and remaining focused on executing our strategy.
    Our overarching strategy is to continually build on our current business
model of three strong business lines. We are committed to growing each of our
businesses, while maintaining a high level of diversification. In executing
our strategy, our approach balances the interests of our shareholders,
customers, employees and communities; reflects our core strengths - including
risk and expense management; and concentrates on three key priorities: driving
sustainable revenue growth, effective capital management and leadership
development.
    Each of our businesses made demonstrable progress on these priorities
during the quarter, and we have highlighted several key achievements further
below. In particular, we continued to use our capital to fund opportunities
and acquisitions that will further our growth objectives. In this respect, we
closed two previously announced transactions - a $1.0 billion deal to acquire
99.5 per cent of Banco del Desarrollo, Chile's seventh-largest bank, and the
acquisition of a controlling interest in BBVA Crecer AFP, the Dominican
Republic's largest pension fund administrator in number of affiliates, and its
related insurance company, BBVA Seguros.
    We are proud that Scotiabank continues to be recognized as one of
Canada's top employers in The Globe and Mail Report on Business Magazine's
annual ranking. And we remained active supporters of the communities where we
live and work.
    Overall, we remain confident about the future and, with a strong focus on
executing our strategies, priorities, cost control and growing our three
business platforms, we are confident we are taking action to meet our 2008
objectives.

    
    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 relationship 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
    -  The Atlantic Customer Contact Centre in Halifax received the Call
       Center of the Year award in the Service Quality Measurement North
       America ratings, which benchmark more than 300 leading international
       contact centres on an annual basis.
    -  Scotiabank and The Western Union Company, a global leader in money
       transfer services, launched a national program to offer international
       money transfer services to Scotiabank customers. Our customers in
       diverse communities now have the ability to send money to family
       members, friends and business colleagues in more than 200 countries
       and territories around the world. This is a further step in our
       ongoing commitment to meet the unique needs of the multicultural
       communities in which we do business.
    -  The investment performance delivered by Scotia Cassels Investment
       Counsel remains among the best in Canada. For the three-year period
       through December 31, 2007, 79% of the actively managed, long-term
       mutual fund assets advised by Cassels were in the top two quartiles,
       as rated by Morningstar.

    International Banking
    -  Scotiabank has been recognized by Global Finance as the Best Trade
       Finance Bank in Canada for 2008. This is the second time Scotiabank
       has won this award for its wide range of trade-related services and
       excellent online systems for importers and exporters.
    -  We expanded our operations in Guatemala and the Dominican Republic
       with the purchase of select assets from Grupo Altas Cumbres (GAC) of
       Chile in February. The agreement also includes an option to purchase
       GAC's bank in Peru, Banco del Trabajo.
    -  During the quarter, we continued to expand our distribution network,
       opening 29 new locations in Mexico, four in Peru, and three branches
       and offices in other key international markets. We also announced the
       opening of a representative office in Moscow, Russia.
    -  Scotiabank Trinidad & Tobago and Scotiabank Turks & Caicos received
       the Bank of the Year award from The Banker magazine.

    Scotia Capital
    -  Scotia Capital was named Best Foreign Exchange Bank in Canada for the
       fourth year in a row, by Global Finance magazine. The annual award
       recognizes the best foreign exchange banks and providers in 82
       countries and regions around the world.
    -  Scotia Waterous acted as exclusive financial advisor to Penn West
       Energy Trust on its merger with Canetic Resources Trust. The merger
       created the largest conventional oil and gas trust in North America
       with an enterprise value of more than $15 billion.
    -  Scotia Capital acted as financial advisor and placement agent on a
       $500 million equity private placement for a Bermuda-based start-up
       life reinsurance company, Aurigen Re Capital Limited. Scotia Capital
       brought together a truly international group of high-profile investors
       with significant expertise in the insurance industry.
    -  Scotia Capital's newly formed Global Energy Solutions team, working
       closely with Scotiabank's International Banking division, acted as
       lead hedge arranger and lead hedge advisor for the interest rate
       hedging program related to AES Changuinola S.A.'s construction of a
       new power plant in Panama. AES is one of the world's largest power
       companies. As well, Scotiabank committed US$50 million in credit
       facilities towards the project's financing.

    Employee highlights
    -  Scotiabank was named one of Canada's 50 Best Employers for 2008, for
       the fourth consecutive year, by The Globe and Mail Report on Business
       Magazine. The annual list is based on a national survey conducted by
       Hewitt Associates, a global human resources firm, and employee
       feedback is a critical component of the study. Scotiabank was the
       highest-placed bank, moving from 44th place last year to 19th, and
       this recognition helps position the Bank as an employer of choice.
    -  Scotiabank was also recognized as a Top 125 Training Organization in
       2008 for the sixth time and fifth consecutive year by Training
       magazine, with a ranking of 14th. The list recognizes exceptional
       learning and development programs incorporated by companies around the
       world, and is based on a variety of quantitative and qualitative
       measurements, including the sizes of the organization, annual revenue,
       number of employees, training budget, best practices, leadership
       development and new training initiatives.

    Community involvement
    -  Scotiabank donated to Tides Canada Foundation's Great Bear Rainforest
       Campaign. The donation supports an innovative, globally significant
       sustainability model to protect British Columbia's Great Bear
       Rainforest, and will contribute to a permanent conservation endowment
       fund that will also benefit First Nations communities.
    -  Scotiabank announced a contribution of $50,000 to the Canadian Red
       Cross Society's Mexico Flood Appeal to support victims of last fall's
       torrential rains, flooding and mudslides in the Tabasco region of
       Mexico. The Bank also accepted donations through its branch networks
       in Canada and Mexico, and established an employee-to-employee account
       for Canadian employees who want to support their Mexican colleagues
       who have been affected by the natural disaster.
    


    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 $118 million versus
$105 million in the same quarter last year and $216 million last quarter.
    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.

    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 and
operational risk 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 Superintendent of Financial
Institutions Canada.


    Group Financial Performance and Financial Condition

    Scotiabank's net income was $835 million in the first quarter, a
reduction of $185 million or 18% from the same period a year ago. Higher net
interest income from continued asset growth and lower non-interest expenses
were more than offset by lower trading revenues, and lower gains on
non-trading securities. As well, there was a negative impact of foreign
currency translation, a lower interest margin, a reduced contribution from
Mexico, and a higher provision for credit losses this quarter compared to the
low levels last year.
    Net income decreased $119 million or 13% from the fourth quarter, due
primarily to the after-tax gain of $163 million on the Visa reorganization
recognized last quarter, and lower gains on non-trading securities after
writedowns on certain structured credit instruments which exceeded writedowns
last quarter. Partially offsetting these items was an increase in net interest
income from strong asset growth and a reduction in non-interest expenses.

    Total revenue

    Total revenue (on a taxable equivalent basis) was $2,957 million this
quarter, a decrease of $257 million or 8% from the first quarter last year.
The decline was attributable to many factors, including lower trading
revenues, reduced gains on non-trading securities, changes in the fair value
of derivatives used for asset/liability management that do not qualify as
hedges, and the negative impact of foreign currency translation. These were
partly offset by growth in underlying net interest income, primarily from
strong organic asset growth and acquisitions.
    As a result of a substantial widening of credit spreads, particularly on
structured credit instruments, certain of the Bank's non-trading securities
experienced a decline in market value. The investments include collateralized
debt obligations (CDOs), collateralized loan obligations (CLOs), structured
investment vehicles (SIVs), and non-bank asset backed commercial paper (ABCP).
Notwithstanding the Bank's intention to hold these structured credit
instruments for the longer term, the Bank recorded pre-tax writedowns of
$158 million on these investments, including $44 million for non-bank ABCP. As
well, trading revenues included an $80 million loss recorded on a swap
exposure to a monoline insurer. The underlying reference assets of the swaps
are of high quality. Last quarter, the Bank incurred pre-tax losses of
$191 million on structured credit instruments.
    Compared to the fourth quarter, total revenue was down $337 million or
10%, due mainly to the pre-tax gain of $202 million recognized on the Visa
reorganization last quarter, lower gains on non-trading securities and lower
tax-exempt dividend income. These were partially offset by higher underlying
net interest income associated with increased asset volumes.

    Net interest income

    This quarter's net interest income (on a taxable equivalent basis) was
$1,932 million, an increase of $51 million or 3% over the same period last
year. The positive contribution from strong asset growth this past year was
partly offset by the negative impact of foreign currency translation. As well,
the decline in interest rates in the past quarter had a significant negative
impact on fair value of derivatives used for asset/liability management which
do not qualify for hedge accounting treatment.
    Compared to the previous quarter, net interest income (on a taxable
equivalent basis) was unchanged, due primarily to a reduction in tax-exempt
dividend income. Excluding this, net interest income rose a substantial
$98 million, due mainly to strong asset growth in the quarter and
contributions from acquisitions, partly offset by a lower margin.
    The Bank's net interest margin was 1.79% in the first quarter, compared
to 1.91% in the first quarter of last year and 1.87% last quarter. Compared to
the prior year, the reduction in the margin was due to higher wholesale
funding costs, as well as a change in asset mix, mainly from continued growth
in lower-yielding, but lower-risk, Canadian residential mortgages. The
quarter-over-quarter decrease was due mainly to lower tax-exempt dividend
income.

    Other income

    Other income was $1,025 million this quarter, a decline of $308 million
or 23% from the first quarter last year. This decrease was driven largely by
trading losses this quarter, in part due to an $80 million reserve on a swap
exposure to a monoline insurer, and weaker equity trading. As well, there were
lower net gains on non-trading securities and a decline in underwriting
revenues. The Bank had revenue growth in credit cards fees and mutual funds,
mainly from higher volumes.
    Quarter over quarter, other income was down $337 million or 25%. This was
due primarily to the gain on the Visa reorganization and gain on the sale of
Scotia Capital's bond index business recognized last quarter, along with lower
gains on non-trading securities this quarter. Partly offsetting these factors
were lower trading losses, higher credit fees and credit card revenues
recognized this quarter.

    Provision for credit losses

    The provision for credit losses was $111 million this quarter, up $48
million from the low levels in the same period last year and a $16 million
increase from last quarter. The increase from last year was attributable to
higher provisions in Domestic and International Banking, and lower net
recoveries in the Scotia Capital portfolio. Further discussion on credit risk
is provided below.

    Non-interest expenses and productivity

    Non-interest expenses were $1,669 million this quarter, $55 million or 3%
lower than the same period last year. This decrease was primarily from lower
performance-based compensation, due mainly to a decline in trading revenues, a
reduction in stock-based compensation expenses from a lower share price, and
the positive impact of foreign currency translation. There were also declines
in advertising expenditures and business taxes. Offsetting these were the
impact of acquisitions and increasing salaries due to growth initiatives.
    Compared to the fourth quarter, non-interest expenses were down $123
million or 7%. This reduction was across most expense categories, as expenses
are seasonally lower in the first quarter. Remuneration and benefit expenses
were up as higher salaries, stock-based compensation and benefit expenses were
only partially offset by lower performance-based compensation.
    The productivity ratio, a measure of the Bank's efficiency, was 56.5%,
compared to 53.6% in the same quarter last year and 54.4% last quarter. The
Bank's operating leverage this quarter - the rate of growth in total revenue
on a tax equivalent basis, less the rate of growth in expenses - was negative
4.9% compared to a year ago, driven primarily by the weaker trading results,
lower net gains on non-trading securities, and a reduced net interest margin.

    Taxes

    The effective tax rate for this quarter was 18.2%, down from 21.0% in the
first quarter last year, but an increase from 17.1% in the fourth quarter. The
decrease from a year ago was due primarily to a reduction in the statutory tax
rate in Canada and higher tax-exempt dividend income. Compared to the previous
quarter, there were lower tax savings from the Bank's foreign operations and
lower tax-exempt dividend income.

    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
    Credit conditions remained stable in most of the Bank's lending markets.
The provision for credit losses was $111 million in the first quarter,
compared to $63 million in the same period last year and $95 million in the
previous quarter.
    Scotia Capital had net recoveries of $10 million in the first quarter,
compared to net recoveries of $30 million in the first quarter of last year
and net recoveries of $10 million in the previous quarter. The net recovery in
the current quarter related primarily to provision reversals in the Canadian
and European portfolios, partly offset by a new provision.
    Credit losses of $91 million in the Domestic Banking portfolios were up
from $74 million in the same quarter last year and $78 million in the previous
quarter. Retail provisions were higher than the same period last year and the
prior quarter, in line with portfolio growth and increases reflecting the
acquisition of Travelers Leasing. Commercial provisions increased modestly
from very low levels over the same period last year and the previous quarter,
spread over a number of sectors and several small accounts.
    International Banking's provision for credit losses was $30 million in
the first quarter, compared to $19 million in the same period last year and
$27 million in the prior quarter. The increase in provision for credit losses
from the same period last year was due mainly to higher provisions in the
retail portfolios, offset partially by higher net recoveries in the commercial
portfolio. The increase in provision for credit losses compared to the
previous quarter was attributable primarily to higher provisions in the Mexico
retail portfolios. Retail provisions in Mexico a year ago and in the previous
quarter benefited from higher reversals for provisions that were no longer
required.
    Total net impaired loans, after deducting the allowance for specific
credit losses, were $689 million as at January 31, 2008, an increase of
$88 million from last quarter. The general allowance of $1,298 million was
unchanged from last quarter.
    The Bank has both direct and indirect exposures to monoline insurance
companies. The direct credit exposure is to three monolines by way of lending
and derivative facilities. Exposures to two of these monolines are not
significant. The Bank has purchased a CDO tranche from the other monoline; the
CDO tranche is referenced primarily to investment grade corporate and
sovereign names. The mark-to-market exposure to the Bank of this transaction
was $161 million as at January 31, 2008. In the first quarter, the Bank took a
reserve of $80 million against this exposure as a reduction to trading
revenues.
    The indirect exposure is in the form of 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 total of all such facilities is
US$4.4 billion. 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.

    Market risk
    Value at Risk (VaR) is a key measure of market risk in the Bank's trading
activities. In the first quarter, the average one-day VaR was $16.6 million
compared to $9.2 million for the same quarter last year. The change was the
result of increased interest rate, commodity and equity risk exposure as well
as increased market volatility. In the first quarter, the average one-day VaR
was $16.6 million compared to $13.2 million in the previous quarter. The
increase was due to higher interest rate and commodity exposure, partially
offset by reduced equity and foreign exchange risk. The increase in the
interest rate VaR was due primarily to structured credit trading during the
quarter, as well as the impact of increased market volatility noted above. As
at January 31, 2008, VaR had increased to $19.3 million due to structured
credit trading.

    
                                          Average for the three months ended
    -------------------------------------------------------------------------
    Risk factor                           January 31  October 31  January 31
    ($ millions)                                2008        2007        2007
    -------------------------------------------------------------------------
    Interest rate                           $   13.8    $    9.2    $    7.2
    Equities                                     4.5         6.1         3.6
    Foreign exchange                             0.9         2.4         1.9
    Commodities                                  2.7         1.5         0.7
    Diversification                             (5.3)       (6.0)       (4.2)
    -------------------------------------------------------------------------
    All-Bank VaR                            $   16.6    $   13.2    $    9.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    There were 13 trading loss days in the first quarter, compared to nine
days in the previous 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 January 31, 2008, liquid assets were $114 billion or 25% of
total assets, compared to $103 billion or 25% of total assets as at October
31, 2007. These assets consist of securities, 67%, and cash and deposits with
banks, 33% (October 31, 2007 - 71% and 29%, 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 January 31, 2008, total assets
pledged or sold under repurchase agreements were $73 billion, compared to
$68 billion as at October 31, 2007. The quarter-over-quarter increase was
attributable to higher levels of pledges for securities sold under repurchase
agreements.

    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 as at January 31, 2008, were $449 billion, up
$38 billion or 9% from October 31, 2007, including an $11 billion impact from
foreign currency translation as the Canadian dollar spot rate declined. The
growth was widespread across most asset categories, including retail,
commercial and corporate lending.
    The Bank's loan portfolio grew $21 billion or 9% from October 31, 2007,
including $5 billion from foreign currency translation, primarily in
non-retail lending. On the retail lending side, domestic residential mortgage
growth was $1 billion, after securitization of $2 billion, driven largely by
the continued demand arising from the strong domestic housing market. The
International acquisition of Banco del Desarrollo in Chile contributed
$1 billion to the increase in mortgages this quarter. Personal loans were up
$2 billion from last quarter, with all regions experiencing positive growth.
    Business and government loans increased $16 billion this quarter, or
$12 billion excluding the impact of foreign currency translation. Loans in
Scotia Capital were up $6 billion, both on the corporate lending side as well
as to support trading operations. Domestic Banking experienced commercial
lending growth of $1 billion. In International Banking, business and
government loans increased $7 billion. The acquisition of Banco del Desarrollo
contributed $4 billion, and Asia and the Caribbean grew $2 billion and $1
billion, respectively.
    Interest-bearing deposits with banks grew $6 billion in the quarter, as
the Bank increased its liquid assets.
    Securities increased by $6 billion from the previous quarter.
Available-for-sale securities increased $5 billion, primarily in government
and corporate securities. Trading securities increased $1 billion, due almost
entirely to the impact of foreign currency translation. As at January 31,
2008, the unrealized gains on available-for-sale securities were $855 million
(after related derivative and hedge amounts), down $122 million from last
quarter, due mainly to gains realized during the quarter, the impact of
foreign currency translation, and a reduction in the value of certain debt
securities from widening credit spreads.
    The available-for-sale securities as at January 31, 2008, included
investments of $1,363 million in collateralized debt obligations
(CDOs)/collateralized loan obligations (CLOs), $144 million in third-party
Canadian asset-backed commercial paper (ABCP) and $23 million in structured
investment vehicles (SIVs). Exposure to U.S. sub-prime mortgage risk in these
securities is nominal.
    Total liabilities were $429 billion as at January 31, 2008, an increase
of $37 billion or 9% from October 31, 2007, or $26 billion before the
$11 billion impact of foreign currency translation. As well, there was an
increase in obligations related to repurchase agreements of $5 billion.
    Total deposits were up $28 billion or 10%, including $8 billion due to
foreign currency translation. Personal deposits increased $7 billion,
including $1 billion due to the acquisition of Banco del Desarrollo and
$1 billion organic growth in domestic personal GICs. Business and government
deposits were up $15 billion, including the impact of foreign currency
translation of $5 billion, primarily to fund the Bank's strong asset growth in
the quarter. Deposits by banks also increased $6 billion from the previous
quarter, led by the Pacific region with a growth of $5 billion, in part due to
foreign currency translation.
    Total shareholders' equity rose $1 billion in the quarter. The increase
was due primarily to strong internal capital generation of $351 million, the
issuance of $230 million non-cumulative preferred shares and $562 million in
accumulated other comprehensive income, due mainly to unrealized foreign
exchange gains relating to the Bank's foreign operations.

    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. The Advanced Internal Ratings Based Approach (AIRB) users 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, 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.
    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 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 Bank is
expected to recognize a reduction in capital requirements in the second
quarter of 2008.

    Capital ratios
    The Bank continues to maintain a solid capital position. The Tier 1 and
the Total capital ratios as at January 31, 2008 under Basel II were 9.0% and
10.2%, respectively, approximately 30 basis points lower than both ratios at
October 31, 2007. The decline in the ratios reflects strong growth in
risk-weighted assets across the business lines, which were only partially
offset by internally generated capital, as well as the issuance of $230
million of non-cumulative preferred shares and $394 million in subordinated
debentures. The implementation of Basel II had minimal impact on the change in
the capital ratios this quarter due to the approval conditions in place.
    The tangible common equity (TCE) ratio was 7.2% as at January 31, 2008,
and remained unchanged from October 31, 2007.

    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 to 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 normal economic, industry and market conditions.
    Total derivative notional amounts were $1,484 billion at January 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, was $27 billion, compared to
$22 billion last year end.

    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 that are not in the ordinary course of business. Processes for review
and approval of these contractual arrangements are unchanged from last year.
    During the quarter, the Bank did not enter into any significant new
arrangements with VIEs that are not consolidated by the Bank in its balance
sheet.
    The Bank provides liquidity facilities, as well as partial credit
enhancements in certain instances, to commercial paper conduits administered
by the Bank and by third parties. These facilities provide an alternate source
of financing in the event a conduit cannot issue commercial paper or, in some
cases, when certain specified conditions or performance measures are not met.
Liquidity facilities to commercial paper conduits totaled $21.6 billion as at
January 31, 2008, of which $19.9 billion were to off-balance sheet conduits
administered by the Bank. As at January 31, 2008, total commercial paper
outstanding for off-balance sheet conduits administered by the Bank was
$13.5 billion. At quarter end, the Bank held less than 3% of the combined
conduits' outstanding commercial paper. Exposure to U.S. sub-prime mortgage
risk is nominal.
    For conduits not administered by the Bank, liquidity facilities totaled
$1.7 billion, of which $1.6 billion were for U.S. third-party conduits and
$95 million were for Canadian third-party conduits. This was down from
$2.4 billion last quarter, mainly as a result of lower facilities to Canadian
third-party conduits.
    The Bank may securitize residential mortgages as a means to diversify its
funding sources, as it represents a cost-effective means to fund the growth in
this portfolio. A further $555 million in residential mortgages was
securitized this quarter, bringing the balance of outstanding mortgages
securitized to $11,165 million as at January 31, 2008, versus $11,631 million
at October 31, 2007.
    Guarantees and other indirect commitments increased 2% from October 31,
2007. Fees from guarantees and loan commitment arrangements recorded in other
income were $53 million for the three-month period ended January 31, 2008,
compared to $56 million for the same period a year ago.

    Common dividend

    The Board of Directors, at its meeting on March 3, 2008, approved a
quarterly dividend of 47 cents per common share. This quarterly dividend
applies to shareholders of record as of April 1, 2008, and is payable April
28, 2008.

    Outlook

    U.S. economic activity has weakened significantly as a result of the
financial fallout from the sub-prime mortgage crisis. Even with an aggressive
easing of monetary policy and substantial fiscal stimulus, the U.S.
performance will likely be very subdued over the balance of 2008. Many
emerging nations in Latin America and Asia will also experience softer overall
growth in the year ahead.
    Canadian economic activity has slowed moderately but will be cushioned by
recent monetary and fiscal stimulus, as well as the still buoyant demand for
energy and industrial commodities from emerging nations.
    The softer economic conditions, weaker first quarter results and the
continued uncertainty in capital markets, will pose a challenge to the Bank in
achieving its 2008 financial objectives. However, with funding costs beginning
to improve, strong volume growth in our business lines, and the Bank's
increased attention to managing costs, the outlook for the balance of the year
is expected to improve. In addition, the pressure of the rapid rise of the
Canadian dollar in 2007 will have a much reduced impact in the second half of
the year. As a result of the above factors, the Bank is maintaining the
financial objectives established at the beginning of the year and is confident
that action is being taken to achieve the objectives.


    
    Business Segment Review

    Domestic Banking
                                                  For the three months ended
    -------------------------------------------------------------------------
    (Unaudited) ($ millions)              January 31  October 31  January 31
    (Taxable equivalent basis)(1)               2008        2007        2007
    -------------------------------------------------------------------------
    Business segment income
    Net interest income                     $    991    $    954    $    953
    Provision for credit losses                   91          78          74
    Other income                                 519         663         518
    Non-interest expenses                        889         927         870
    Provision for income taxes                   157         173         164
    -------------------------------------------------------------------------
    Net income                              $    373    $    439    $    363
    Preferred dividends paid                       6           5           2
    -------------------------------------------------------------------------
    Net income available
     to common shareholders                 $    367    $    434    $    361
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Return on equity(1)                        30.6%       37.0%       31.1%
    Average assets ($ billions)             $    168    $    163    $    146
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer above for discussion of non-GAAP measures.
    

    Domestic Banking reported net income available to common shareholders of
$367 million this quarter, an increase of $6 million or 2% from the first
quarter of last year. Compared to the prior quarter, net income available to
common shareholders declined $66 million or 16%. However, excluding the gain
of $92 million (net of applicable taxes) from the global Visa restructuring
reported last quarter, net income available to common shareholders rose by
$25 million or 7%.
    The segment contributed 45% of the Bank's total quarterly net income.
Return on equity was 30.6% versus 31.1% last year.
    Average assets before securitization rose $22 billion or 14% from the
first quarter last year, due primarily to growth of $15 billion or 16% in
residential mortgages. Strong mortgage growth was recorded in all sales
channels, and resulted in market share gains. Personal revolving credit and
business lending volumes also increased. Personal deposit growth of $8 billion
or 10% led to industry-leading year-over-year market share gains. Growth was
recorded in term deposits as well as chequing and savings. The latter increase
was due mainly to the acquisition of Dundee Bank. Non-personal deposits rose
7% from growth in both non-personal term and current accounts. Compared to the
previous quarter, average assets before securitization rose $5 billion or 3%
led by growth in retail mortgages and commercial lending. Deposits increased
4% from growth in personal term and the impact of the Dundee Bank acquisition.
    Total revenue was up $39 million or 3% from the same period last year,
mainly because of strong volume growth. Excluding the Visa gain reported last
quarter, total revenues were largely unchanged as higher net interest income
was offset by a decline in other income.
    Net interest income of $991 million was up $38 million or 4% from the
first quarter of last year, driven by strong volume growth in both assets and
deposits. Average volume growth was reported for most products in retail,
small business and commercial banking. The impact of this growth was partially
offset by a decrease in the interest margin, caused by higher short-term
funding rates, increased wholesale funding requirements and the impact of
competitive markets on mortgage and GIC spreads. Compared to last quarter, net
interest income rose by 4%, due to an increase in the spread between prime and
funding costs. The margin increased by 2 basis points, following the recent
decline in interest rates.
    Other income was $519 million this quarter, in line with the same quarter
last year. Higher foreign exchange commissions and card revenues were
partially offset by net securities writedowns and a decline in Wealth
Management revenues. The latter declined mainly in full-service brokerage due
to slower markets, partly offset by higher fee-based revenues in mutual funds
and Private Client Group. Compared to the previous quarter, other income fell
by 22%, mainly due to gain on the Visa reorganization recognized last quarter
and net securities writedowns this quarter.
    The provision for credit losses was $91 million this quarter, up from
$74 million reported last year and $78 million last quarter. Retail provisions
increased mainly in line with portfolio growth. Auto lending provisions also
increased, reflecting the acquisition of Travelers Leasing. Commercial
provisions increased modestly from low levels last year and last quarter, and
were spread over a number of sectors and several small accounts.
    Non-interest expenses rose 2% from the first quarter last year, due in
part to the acquisition of Dundee Bank and Travelers Leasing, new branches and
sales staff introduced in 2007, and other growth initiatives. Expenses
declined 4% from last quarter, due to lower project-related spending and
seasonality. These decreases were partially offset by the impact of annual
salary increases and the acquisition of Dundee Bank.


    
    International Banking
                                                  For the three months ended
    -------------------------------------------------------------------------
    (Unaudited) ($ millions)              January 31  October 31  January 31
    (Taxable equivalent basis)(1)               2008        2007        2007
    -------------------------------------------------------------------------
    Business segment income
    Net interest income                     $    731    $    710    $    670
    Provision for credit losses                   30          27          19
    Other income                                 309         380         297
    Non-interest expenses                        568         582         562
    Provision for income taxes                   122          89          43
    Non-controlling interest
     in net income of subsidiaries                31          33          25
    -------------------------------------------------------------------------
    Net income                              $    289    $    359    $    318
    Preferred dividends paid                       7           6           2
    -------------------------------------------------------------------------
    Net income available
     to common shareholders                 $    282    $    353    $    316
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Return on equity(1)                        19.6%       21.3%       22.2%
    Average assets ($ billions)             $     70    $     65    $     65
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer above for discussion of non-GAAP measures.
    

    International Banking's net income available to common shareholders in
the first quarter was $282 million, a decrease of $34 million or 11% from last
year and $71 million or 20% from last quarter. Excluding the $71 million
after-tax gains on the global Visa reorganization, the results were in line
with the prior quarter. The year-over-year decline was due mainly to the
negative impact of foreign currency translation of $39 million; excluding
this, net income was up $5 million. The modest increases reflected strong
volume growth throughout the division; however, the positive impact of
acquisitions was reduced by higher provisions for retail loan losses and taxes
in Mexico, and the change in fair value of certain securities resulting from
widening credit spreads.
    The segment accounted for 35% of the Bank's total net income and had a
return on equity of 19.6%.
    Average asset volumes of $70 billion increased $5 billion or 7% from last
year, despite the 16% negative impact of foreign currency translation. The
underlying increase was a result of the acquisition in Chile, a 20% rise in
commercial loans, primarily in Asia, and robust growth in mortgages and credit
cards, up 24% and 30%, respectively. Organic growth in low-cost deposits was
also strong at 12%. Compared to last quarter, average assets increased $5
billion or 7%, due to the same factors.
    Total revenues were $1,040 million this quarter, an increase of
$73 million or 8% from the same period last year, including a $145 million
negative impact of foreign currency translation. Compared to last quarter,
revenues decreased $50 million, due primarily to the gains on the global Visa
reorganization last quarter.
    Net interest income was $731 million this quarter, up $61 million or 9%
from the same period last year and $21 million or 3% above last quarter,
including the negative foreign currency translation impact of $103 million and
$16 million, respectively. The increases were a result of very strong organic
loan growth across the division, as well as the impact of acquisitions. Net
interest margins were up from last year, but below last quarter, due primarily
to declines in Mexico and Peru.
    Other income increased $12 million or 4% year-over-year to $309 million,
despite the $42 million negative impact of foreign currency translation. This
growth resulted from acquisitions, higher gains on non-trading securities in
Latin America, and widespread transaction-driven growth, offset by the
negative impact of the change in fair value of certain non-trading securities.
Compared to last quarter, other income decreased $71 million, due to the
$91 million in Visa reorganization gains last quarter. The underlying growth
was a result of the same factors as the year-over-year growth.
    The provision for credit losses was $30 million in the first quarter, up
$11 million from the same period last year and $3 million from last quarter.
The increase was due to higher provisions in Mexico, the Caribbean, and
Central America, partly offset by lower provisions in Peru and Asia. Overall,
the division had a credit loss ratio of 27 basis points, in line with the
prior quarter.
    Non-interest expenses were $568 million this quarter, up 1% or $6 million
from last year. This included a $72 million favourable impact of foreign
currency translation and a $25 million increase from acquisitions. The
remaining increase was due to higher compensation expenses consistent with
business growth and new branch openings, and increased performance-based
compensation in Mexico. Compared to last quarter, expenses decreased
$14 million or 3%, due to expense recoveries in Latin America, and lower
advertising and premises expenses, partly offset by increased compensation and
benefit expenses.
    The effective tax rate this quarter was 27.6%, up from 11.1% in the same
period last year and 18.4% from last quarter. The increases were due to a
higher effective tax rate in Mexico as tax loss carryforwards were fully
utilized, and the estimated value of future benefits from other tax attributes
being reduced. In addition, there were lower earnings in low-tax jurisdictions
this quarter, primarily in Asia, with the prior quarter benefiting from the
lower rate of tax on the Visa gains.


    
    Scotia Capital
                                                  For the three months ended
    -------------------------------------------------------------------------
    (Unaudited) ($ millions)              January 31  October 31  January 31
    (Taxable equivalent basis)(1)               2008        2007        2007
    -------------------------------------------------------------------------
    Business segment income
    Net interest income                     $    274    $    364    $    269
    Provision for credit losses                  (10)        (10)        (30)
    Other income                                 131         156         361
    Non-interest expenses                        191         225         259
    Provision for income taxes                    33          76         105
    -------------------------------------------------------------------------
    Net income                              $    191    $    229    $    296
    Preferred dividends paid                       4           3           2
    -------------------------------------------------------------------------
    Net income available
     to common shareholders                 $    187    $    226    $    294
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Return on equity(1)                        22.6%       24.2%       30.7%
    Average assets ($ billions)             $    157    $    150    $    150
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer above for discussion of non-GAAP measures.
    

    Scotia Capital contributed net income available to common shareholders of
$187 million this quarter, a decrease of $107 million or 36% from the same
period last year and down $39 million or 17% from last quarter. The decreases,
compared both to last year and to the previous quarter, were due mainly to
lower trading revenues, partly offset by lower expenses. Return on equity, at
22.6%, was below the strong level last year, which was buoyed by solid trading
performance and interest and loan loss recoveries. Return on equity this
quarter was slightly lower than last quarter's performance. Scotia Capital
contributed 23% to the Bank's overall results.
    Total average assets increased 5% over last year to $157 billion. There
was an increase of $6 billion in trading securities and loans to support both
client-driven activities and trading opportunities. In addition, there was a
$4 billion or 12% increase in average corporate loans and acceptances across
all businesses, primarily from growth in investment grade loans. These
increases were partially offset by a net $3 billion reduction in securities
purchased under resale agreements and deposits with banks. The increase of
$7 billion or 5% from the last quarter reflects growth in both trading and
corporate lending assets, partially offset by reduced securities purchased
under resale agreements.
    Total revenues of $405 million decreased $225 million or 36% compared to
the first quarter last year. This was from a substantial decline in Global
Capital Markets revenues due to challenging market conditions in derivatives
and equity trading. This included $42 million in losses on structured credit
instruments and $80 million in losses on a swap exposure to a monoline
insurer. There was also a reduction in Global Corporate and Investment Banking
revenues due to lower interest recoveries from impaired loans and lower credit
and advisory fees. The $115 million or 22% decline from last quarter was due
primarily to lower tax-exempt dividend income and equity trading revenues and
lower securities gains in the United States and Europe.
    Net interest income of $274 million increased slightly over the same
period last year. A modest increase in interest from trading operations and
loan growth was partly offset by lower loan origination fees and lower
interest recoveries on impaired loans. The decrease from the previous quarter
was due primarily to lower tax-exempt dividend income.
    This quarter, net recoveries were $10 million compared to net recoveries
of $30 million in the same period last year and reversals of $10 million last
quarter. Net reversals were realized in Canada and Europe this quarter, and
predominantly in the United States in the comparative periods.
    Other income was $131 million, a significant decrease of $230 million or
64% from last year. Global Capital Markets decreased $200 million as trading
revenues in derivatives and equities declined substantially given challenging
market conditions. This included an $80 million writedown on a swap exposure
to a monoline insurer. However, precious metals and fixed income trading
continued to generate solid revenues, while foreign exchange had record
revenues. Global Corporate and Investment Banking declined 20% due to lower
credit and advisory fees and lower securities gains. Compared to last quarter,
other income declined 16% due primarily to lower securities gains. In Global
Capital Markets, record foreign exchange revenues and stronger fixed income
trading substantially offset the gain on the sale of the bond index business
recognized in the prior quarter.
    Non-interest expenses were $191 million this quarter, a $68 million or
26% decrease from the same period last year, due primarily to lower
performance-based compensation, signing bonuses and pension and benefits
costs. Compared to last quarter, lower performance-based compensation and
signing bonuses were somewhat offset by higher pension and benefits costs.


    
    Other(1)
                                                  For the three months ended
    -------------------------------------------------------------------------
    (Unaudited) ($ millions)              January 31  October 31  January 31
    (Taxable equivalent basis)(2)               2008        2007        2007
    -------------------------------------------------------------------------
    Business segment income
    Net interest income(3)                  $   (182)   $   (312)   $   (116)
    Other income                                  66         163         157
    Non-interest expenses 	                   21          58          33
    Provision for income taxes(3)               (119)       (134)        (35)
    -------------------------------------------------------------------------
    Net income                              $    (18)   $    (73)   $     43
    Preferred dividends paid                       4           2           2
    -------------------------------------------------------------------------
    Net income (loss) available
     to common shareholders                 $    (22)   $    (75)   $     41
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Average assets ($ billions)             $     34    $     31    $     30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 January 31, 2008 ($118), October 31, 2007 ($216), and
        January 31, 2007 ($105), to arrive at the amounts reported in the
        Consolidated Statement of Income.
    

    Net income available to common shareholders was a loss of $22 million in
the first quarter, an improvement of $53 million from last quarter, but
$63 million below the same quarter last year.
    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 $118 million in the first quarter, compared to $216 million
last quarter and $105 million in the same period last year.
    Net interest income increased $130 million quarter over quarter, due
mainly to the elimination of a lower tax-exempt gross up. Compared to last
year, net interest income decreased by $66 million as a result of change in
fair value of derivatives used for asset/liability management, and higher
tax-exempt gross up.
    Other income of $66 million was $97 million below last quarter and a
decrease of $91 million from last year. These declines primarily reflected
lower gains on non-trading securities including writedowns, partially offset
by higher securitization revenues.
    Non-interest expenses were $21 million this quarter, a decline of
$37 million from last quarter and $12 million below last year. The
quarter-over-quarter decrease was due largely to higher litigation expenses in
the prior quarter.


    
    Total
                                                  For the three months ended
    -------------------------------------------------------------------------
                                          January 31  October 31  January 31
    (Unaudited) ($ millions)                    2008        2007        2007
    -------------------------------------------------------------------------
    Business segment income
    Net interest income                     $  1,814    $  1,716    $  1,776
    Provision for credit losses                  111          95          63
    Other income                               1,025       1,362       1,333
    Non-interest expenses                      1,669       1,792       1,724
    Provision for income taxes                   193         204         277
    Non-controlling interest
     in net income of subsidiaries                31          33          25
    -------------------------------------------------------------------------
    Net income                              $    835    $    954    $  1,020
    Preferred dividends paid                      21          16           8
    -------------------------------------------------------------------------
    Net income available
     to common shareholders                 $    814    $    938    $  1,012
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Return on equity(1)                        18.3%       21.0%     22.1%(2)
    Average assets ($ billions)             $    429    $    409    $    391
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 three months ended
    -------------------------------------------------------------------------
                                          January 31  October 31  January 31
    (Unaudited)                                 2008        2007        2007
    -------------------------------------------------------------------------
    Net income available
     to common shareholders
    ($ millions)
    Canada                                  $    494    $    560    $    544
    United States                                 22          97         163
    Mexico                                        63         122         147
    Other international                          252         237         212
    Corporate adjustments                        (17)        (78)        (54)
    -------------------------------------------------------------------------
                                            $    814    $    938    $  1,012
    -------------------------------------------------------------------------
    Average assets ($ billions)
    Canada                                  $    285    $    278    $    252
    United States                                 29          27          33
    Mexico                                        20          20          22
    Other international                           86          77          77
    Corporate adjustments                          9           7           7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                            $    429    $    409    $    391
    -------------------------------------------------------------------------


    Quarterly Financial Highlights

                                   For the three months ended
    -------------------------------------------------------------------------
                        Jan.   Oct.  July  April    Jan.   Oct.  July  April
                         31     31     31     30     31     31     31     30
                       2008   2007   2007   2007   2007   2006   2006   2006
    -------------------------------------------------------------------------
    Total revenue
     ($ millions)    $2,839 $3,078 $3,201 $3,102 $3,109 $2,868 $2,889 $2,717
    Total revenue
     (TEB(1))
     ($ millions)     2,957  3,294  3,302  3,211  3,214  2,999  2,989  2,830
    Net income
     ($ millions)       835    954  1,032  1,039  1,020    897    936    894
    Basic earnings
     per share ($)     0.83   0.95   1.03   1.04   1.02   0.90   0.94   0.90
    Diluted earnings
     per share ($)     0.82   0.95   1.02   1.03   1.01   0.89   0.93   0.89
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer above for a discussion of non-GAAP measures.


    Share Data
                                                                       As at
    -------------------------------------------------------------------------
                                                                  January 31
    (thousands of shares outstanding)                                   2008
    -------------------------------------------------------------------------
    Common shares                                                  985,418(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)
    -------------------------------------------------------------------------
    Series 2000-1 trust securities issued by BNS Capital Trust         500(8)
    Series 2002-1 trust securities
     issued by Scotiabank Capital Trust                                750(9)
    Series 2003-1 trust securities
     issued by Scotiabank Capital Trust                                750(9)
    Series 2006-1 trust securities
     issued by Scotiabank Capital Trust                                750(9)
    -------------------------------------------------------------------------
    Scotiabank Trust Subordinated Notes
     - Series A issued by Scotiabank Subordinated Notes Trust        1,000(9)
    -------------------------------------------------------------------------
    Outstanding options granted under the
     Stock Option Plans to purchase common shares               28,461(1)(10)
    -------------------------------------------------------------------------

    (1)  As at February 19, 2008, the number of outstanding common shares and
         options were 985,518 and 28,360, 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, if and when declared, will be payable on
         April 28, 2008, which will be payable in an amount of $0.33753 per
         share.
    (8)  Reported in capital instrument liabilities in the Consolidated
         Balance Sheet.
    (9)  Reported in deposits in the Consolidated Balance Sheet.
    (10) Included are 17,712 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 further below.
    

    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 significant accounting policies adopted by
the Bank during the first 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.

    
    INTERIM CONSOLIDATED FINANCIAL STATEMENTS

    Consolidated Statement of Income
                                                  For the three months ended
    -------------------------------------------------------------------------
                                          January 31  October 31  January 31
    (Unaudited) ($ millions)                    2008        2007        2007
    -------------------------------------------------------------------------
    Interest income
    Loans                                   $  3,825    $  3,668    $  3,377
    Securities                                 1,168       1,071       1,131
    Securities purchased
     under resale agreements                     229         320         330
    Deposits with banks                          319         303         251
    -------------------------------------------------------------------------
                                               5,541       5,362       5,089
    -------------------------------------------------------------------------
    Interest expense
    Deposits                                   3,078       2,968       2,526
    Subordinated debentures                       24          23          33
    Capital instrument liabilities                 9          13          13
    Other                                        616         642         741
    -------------------------------------------------------------------------
                                               3,727       3,646       3,313
    -------------------------------------------------------------------------
    Net interest income                        1,814       1,716       1,776
    Provision for credit losses (Note 3)         111          95          63
    -------------------------------------------------------------------------
    Net interest income after
     provision for credit losses               1,703       1,621       1,713
    -------------------------------------------------------------------------
    Other income
    Card revenues                                 95          92          93
    Deposit and payment services                 207         204         206
    Mutual funds                                  78          78          68
    Investment management,
     brokerage and trust services                186         185         188
    Credit fees                                  133         126         132
    Trading revenues                             (44)        (67)        149
    Investment banking                           164         164         194
    Net gain on securities, other than trading    20         148         127
    Other                                        186         432         176
    -------------------------------------------------------------------------
                                               1,025       1,362       1,333
    -------------------------------------------------------------------------
    Net interest and other income              2,728       2,983       3,046
    -------------------------------------------------------------------------
    Non-interest expenses
    Salaries and employee benefits               978         963       1,003
    Premises and technology                      327         362         327
    Communications                                75          76          73
    Advertising and business development          69          94          76
    Professional                                  45          81          45
    Business and capital taxes                    14          33          39
    Other                                        161         183         161
    -------------------------------------------------------------------------
                                               1,669       1,792       1,724
    -------------------------------------------------------------------------
    Income before the undernoted               1,059       1,191       1,322
    Provision for income taxes                   193         204         277
    Non-controlling interest in
     net income of subsidiaries                   31          33          25
    -------------------------------------------------------------------------
    Net income                              $    835    $    954    $  1,020
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Preferred dividends paid                      21          16           8
    -------------------------------------------------------------------------
    Net income available
     to common shareholders                 $    814    $    938    $  1,012
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average number of common
     shares outstanding (millions):
      Basic                                      985         983         991
      Diluted                                    992         991       1,001
    -------------------------------------------------------------------------
    Earnings per common share (in dollars):
      Basic                                 $   0.83    $   0.95    $   1.02
      Diluted                               $   0.82    $   0.95    $   1.01
    -------------------------------------------------------------------------
    Dividends per common share (in dollars) $   0.47    $   0.45    $   0.42
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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
    -------------------------------------------------------------------------
                                          January 31  October 31  January 31
    (Unaudited) ($ millions)                    2008        2007        2007
    -------------------------------------------------------------------------
    Assets
    Cash resources
    Cash and non-interest-bearing
     deposits with banks                    $  2,816    $  2,138    $  2,508
    Interest-bearing deposits with banks      29,431      23,011      20,277
    Precious metals                            4,164       4,046       3,599
    -------------------------------------------------------------------------
                                              36,411      29,195      26,384
    -------------------------------------------------------------------------
    Securities
    Trading                                   60,702      59,685      64,307
    Available-for-sale                        32,992      28,426      36,037
    Equity accounted investments                 788         724         171
    -------------------------------------------------------------------------
                                              94,482      88,835     100,515
    -------------------------------------------------------------------------
    Securities purchased
     under resale agreements                  20,362      22,542      24,129
    -------------------------------------------------------------------------
    Loans
    Residential mortgages                    105,532     102,154      92,055
    Personal and credit cards                 43,513      41,734      39,757
    Business and government                  101,389      85,500      83,067
    -------------------------------------------------------------------------
                                             250,434     229,388     214,879
    Allowance for credit losses (Note 3)       2,451       2,241       2,620
    -------------------------------------------------------------------------
                                             247,983     227,147     212,259
    -------------------------------------------------------------------------
    Other
    Customers' liability under acceptances    12,518      11,538      10,431
    Derivative instruments                    25,217      21,960      12,529
    Land, buildings and equipment              2,460       2,271       2,344
    Goodwill                                   1,266       1,134       1,121
    Other intangible assets                      273         273         317
    Other assets                               8,450       6,615       6,441
    -------------------------------------------------------------------------
                                              50,184      43,791      33,183
    -------------------------------------------------------------------------
                                            $449,422    $411,510    $396,470
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities and shareholders' equity
    Deposits
    Personal                                $108,219    $100,823    $ 96,823
    Business and government                  175,772     161,229     148,995
    Banks                                     32,806      26,406      31,201
    -------------------------------------------------------------------------
                                             316,797     288,458     277,019
    -------------------------------------------------------------------------
    Other
    Acceptances                               12,518      11,538      10,431
    Obligations related to securities
     sold under repurchase agreements         32,967      28,137      29,612
    Obligations related
     to securities sold short                 13,570      16,039      18,201
    Derivative instruments                    25,046      24,689      12,106
    Other liabilities                         25,333      21,138      25,725
    Non-controlling interest in subsidiaries     548         497         491
    -------------------------------------------------------------------------
                                             109,982     102,038      96,566
    -------------------------------------------------------------------------
    Subordinated debentures (Note 4)           2,150       1,710       2,340
    -------------------------------------------------------------------------
    Capital instrument liabilities               500         500         750
    -------------------------------------------------------------------------
    Shareholders' equity
    Capital stock
      Preferred shares (Note 5)                1,865       1,635         945
      Common shares and contributed surplus    3,614       3,566       3,520
    Retained earnings                         17,809      17,460      16,376
    Accumulated other
     comprehensive income (loss) (Note 6)     (3,295)     (3,857)     (1,046)
    -------------------------------------------------------------------------
                                              19,993      18,804      19,795
    -------------------------------------------------------------------------
                                            $449,422    $411,510    $396,470
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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 three months ended
    -------------------------------------------------------------------------
                                                      January 31  January 31
    (Unaudited) ($ millions)                                2008        2007
    -------------------------------------------------------------------------
    Preferred shares
    Balance at beginning of period                      $  1,635    $    600
    Issued                                                   230         345
    -------------------------------------------------------------------------
    Balance at end of period                               1,865         945
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Common shares and contributed surplus
    Common shares
    Balance at beginning of period                         3,566       3,425
    Issued                                                    48          95
    -------------------------------------------------------------------------
    Balance at end of period                               3,614       3,520
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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                                               835       1,020
    Dividends:
      Preferred                                              (21)         (8)
      Common                                                (463)       (416)
    Other                                                     (2)         (2)
    -------------------------------------------------------------------------
    Balance at end of period                              17,809      16,376
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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                               562         592
    -------------------------------------------------------------------------
    Balance at end of period                              (3,295)     (1,046)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total shareholders' equity at end of period         $ 19,993    $ 19,795
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statement of Comprehensive Income

                                                  For the three months ended
    -------------------------------------------------------------------------
                                                      January 31  January 31
    (Unaudited) ($ millions)                                2008        2007
    -------------------------------------------------------------------------
    Comprehensive income
    Net income                                          $    835    $  1,020
    -------------------------------------------------------------------------
    Other comprehensive income (loss),
     net of income taxes (Note 6):
      Net change in unrealized
       foreign currency translation losses                   885         522
      Net change in unrealized gains
       on available-for-sale securities                      (60)         48
      Net change in gains (losses) on derivative
       instruments designated as cash flow hedges           (263)         22
    -------------------------------------------------------------------------
    Other comprehensive income                               562         592
    -------------------------------------------------------------------------
    Comprehensive income                                $  1,397    $  1,612
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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 three months ended
    -------------------------------------------------------------------------
    Sources (uses) of cash flows                      January 31  January 31
    (Unaudited) ($ millions)                                2008        2007
    -------------------------------------------------------------------------
    Cash flows from operating activities
    Net income                                          $    835    $  1,020
    Adjustments to determine net cash flows
     from (used in) operating activities                     239         (49)
    Net accrued interest receivable and payable              244         118
    Trading securities                                      (331)     (1,192)
    Derivative assets                                     (1,127)        181
    Derivative liabilities                                (1,742)     (1,178)
    Other, net                                               854        (162)
    -------------------------------------------------------------------------
                                                          (1,028)     (1,262)
    -------------------------------------------------------------------------
    Cash flows from financing activities
    Deposits                                              17,330       7,407
    Obligations related to securities
     sold under repurchase agreements                      4,229      (4,636)
    Obligations related to securities sold short          (2,766)      4,650
    Preferred shares issued                                  230         345
    Common shares issued                                      36          65
    Subordinated debentures issued                           394           -
    Cash dividends paid                                     (484)       (424)
    Other, net                                             1,426         923
    -------------------------------------------------------------------------
                                                          20,395       8,330
    -------------------------------------------------------------------------
    Cash flows from investing activities
    Interest-bearing deposits with banks                  (5,179)     (1,537)
    Securities purchased under resale agreements           2,537       1,576
    Loans, excluding securitizations                     (13,510)     (7,749)
    Loan securitizations                                     550         848
    Securities, other than trading, net                   (2,035)        166
    Land, buildings and equipment, net of disposals          (95)       (120)
    Other, net(1)                                         (1,046)        (82)
    -------------------------------------------------------------------------
                                                         (18,778)     (6,898)
    -------------------------------------------------------------------------
    Effect of exchange rate changes
     on cash and cash equivalents                             89          58
    -------------------------------------------------------------------------
    Net change in cash and cash equivalents                  678         228
    Cash and cash equivalents at beginning of period       2,138       2,280
    -------------------------------------------------------------------------
    Cash and cash equivalents at end of period(2)       $  2,816    $  2,508
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash disbursements made for:
      Interest                                          $  3,653    $  3,794
      Income taxes                                      $    331    $    283
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Certain comparative amounts have been reclassified to conform with
    current period presentation.

    (1) For the three months ended January 31, 2008, comprises investments
        in subsidiaries, net of cash and cash equivalents at the date of
        acquisition of $35 (January 31, 2007 - $3), and net of non-cash
        consideration of common shares issued from treasury of nil
        (January 31, 2007 - $4).
    (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 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 January 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 1.1% and a discount rate of 4.3%. The following table
        summarizes the Bank's sales.

                                              For the three months ended
        ---------------------------------------------------------------------
                                          January 31  October 31  January 31
        ($ millions)                            2008        2007        2007
        ---------------------------------------------------------------------
        Net cash proceeds(1)                $    550    $    992    $    848
        Retained interest                         16          21          32
        Retained servicing liability              (4)         (7)         (7)
        ---------------------------------------------------------------------
                                                 562       1,006         873
        Residential mortgages securitized        555       1,010         861
        ---------------------------------------------------------------------
        Net gain (loss) on sale             $      7    $     (4)   $     12
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Excludes insured mortgages which were securitized and retained by
            the Bank of $1,351 for the three months ended January 31, 2008
            (October 31, 2007 - $1,267; January 31, 2007 - $526). As at
            January 31, 2008, the outstanding balance of mortgage-backed
            securities was $5,523, and these assets have been classified as
            available-for-sale securities.

    3.  Impaired loans and allowance for credit losses
    (a) Impaired loans

                                                                As at
        ---------------------------------------------------------------------
                                                      January 31  October 31
                                                            2008        2007
        ---------------------------------------------------------------------
                                           Specific
        ($ millions)               Gross  allowance(1)       Net         Net
        ---------------------------------------------------------------------
        By loan type:
          Residential mortgages $    457    $    157    $    300    $    203
          Personal and
           credit cards              524         503          21          51
          Business and
           government                861         493         368         347
        ---------------------------------------------------------------------
        Total                   $  1,842    $  1,153    $    689    $    601
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        By geography:
          Canada                                        $    280    $    231
          United States                                       10           4
          Other International                                399         366
        ---------------------------------------------------------------------
        Total                                           $    689    $    601
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) The specific allowance for impaired loans evaluated on an
            individual basis totalled $494 (October 31, 2007 - $383).

    (b) Allowance for credit losses

        The following table summarizes the change in the allowance for
        credit losses.
                                              For the three months ended
        ---------------------------------------------------------------------
                                          January 31  October 31  January 31
        ($ millions)                            2008        2007        2007
        ---------------------------------------------------------------------
        Balance at beginning of period      $  2,252    $  2,433    $  2,618
        Write-offs                              (194)       (215)       (168)
        Recoveries                                51          49          34
        Provision for credit losses              111          95          63
        Other, including foreign
         exchange adjustment                     242        (110)         84
        ---------------------------------------------------------------------
        Balance at the end
         of period(1)(2)(3)                 $  2,462    $  2,252    $  2,631
        ---------------------------------------------------------------------
        (1) As at January 31, 2008, includes $177 of specific allowance
            relating to acquisitions of new subsidiaries (October 31, 2007 -
            $54; January 31, 2007 - $26), which may change as the valuation
            of the acquired loan assets is finalized.
        (2) As at January 31, 2008, $11 has been recorded in other
            liabilities (October 31, 2007 - $11; January 31, 2007 - $11).
        (3) As at January 31, 2008, the general allowance for credit losses
            was $1,298 (October 31, 2007 - $1,298; January 31, 2007 -
            $1,323).

    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.

    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.

        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
        ---------------------------------------------------------------------
                                                      January 31  October 31
        (unaudited) ($ millions)                          2008(1)     2007(1)
        ---------------------------------------------------------------------
        Shareholders' equity per
         Consolidated Balance Sheet                     $ 19,993    $ 18,804
        Add:  Capital instrument liabilities
               - trust securities                          2,750       2,750
              Non-controlling interest in subsidiaries       548         497
        Less: Goodwill                                    (1,266)     (1,134)
              Components of Accumulated other
               comprehensive income excluded
               from Tier 1 capital                          (369)       (692)
              Other capital deductions(2)                   (490)          -
        ---------------------------------------------------------------------
        Tier 1 capital                                  $ 21,166    $ 20,225
        ---------------------------------------------------------------------
        Qualifying subordinated debentures,
         net of amortization                               1,859       1,452
        Capital instrument liabilities - trust
         subordinated notes                                1,000       1,000
        Other net capital items(3)                          (151)        304
        ---------------------------------------------------------------------
        Tier 2 capital                                  $  2,708    $  2,756
        ---------------------------------------------------------------------
        Total regulatory capital                        $ 23,874    $ 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
        ratio thresholds as at January 31, 2008. OSFI has also prescribed an
        asset-to-capital leverage maximum of 20:1. The Bank was in compliance
        with this threshold as at January 31, 2008.

        Significant capital transactions

        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 quarter.

        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, if and when
        declared, will be payable on April 28, 2008, and will be $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.


    6.  Accumulated other comprehensive income (loss)

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

        Accumulated other comprehensive income (loss)

                                      As at and for the three months ended
        ---------------------------------------------------------------------
                                             Opening         Net      Ending
                                             balance      change     balance
        ---------------------------------------------------------------------
                                          October 31              January 31
        ($ millions)                            2007                    2008
        ---------------------------------------------------------------------
        Unrealized foreign
         currency translation
         gains (losses),
         net of hedging
         activities                       $   (4,549) $      885  $(3,664)(1)
        Unrealized gains
         (losses) on
         available-for-sale
         securities, net of
         hedging activities                      639          (60)     579(2)
        Gains (losses)
         on derivative
         instruments
         designated as
         cash flow hedges                         53         (263)   (210)(3)
        ---------------------------------------------------------------------
        Accumulated other
         comprehensive
          income (loss)                   $   (3,857) $      562  $   (3,295)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

                                      As at and for the three months ended
        ---------------------------------------------------------------------
                                 Opening  Transition         Net      Ending
                                 balance      amount      change     balance
        ---------------------------------------------------------------------
                              October 31  November 1              January 31
        ($ millions)                2006        2006                    2007
        ---------------------------------------------------------------------
        Unrealized foreign
         currency translation
         gains (losses),
         net of hedging
         activities           $   (2,321) $        -  $      522  $(1,799)(1)
        Unrealized gains
         (losses) on
         available-for-sale
         securities, net of
         hedging activities            -         706          48       754(2)
        Gains (losses)
         on derivative
         instruments
         designated as
         cash flow hedges              -         (23)         22       (1)(3)
        ---------------------------------------------------------------------
        Accumulated other
         comprehensive
          income (loss)       $   (2,321) $      683  $      592  $   (1,046)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Net of income tax expense of $333 (January 31, 2007 - nil).
        (2) Net of income tax expense of $276 (January 31, 2007 - $414).
            Also, the balance as at January 31, 2008 includes unrealized
            losses of $277 (January 31, 2007 - $150) after tax on the
            available-for-sale securities.
        (3) Net of income tax benefit of $100 (January 31, 2007 - $1).


        Other comprehensive income (loss)

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

                                                  For the three months ended
        ---------------------------------------------------------------------
                                                      January 31  January 31
        ($ millions)                                        2008        2007
        ---------------------------------------------------------------------
        Net change in unrealized foreign currency
         translation losses
        Net unrealized foreign currency
         translation gains(1)                           $  1,141    $    892
        Net losses on hedges of net investments in
         self-sustaining foreign operations(2)              (256)       (370)
        ---------------------------------------------------------------------
                                                             885         522
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Net change in unrealized gains on
         available-for-sale securities
        Net unrealized gains on available-for-sale
         securities(3)                                         8         124
        Reclassification of net gains to net income(4)       (68)        (76)
        ---------------------------------------------------------------------
                                                             (60)         48
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Net change in gains (losses) on derivative
         instruments designated as cash flow hedges
        Net gains on derivative instruments designated
         as cash flow hedges(5)                              278         247
        Reclassification of net gains to net income(6)      (541)       (225)
        ---------------------------------------------------------------------
                                                            (263)         22
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Other comprehensive income                      $    562    $    592
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (1) Net of income tax expense of nil (January 31, 2007 - nil).
        (2) Net of income tax benefit of $94 (January 31, 2007 - nil).
        (3) Net of income tax benefit of $46 (January 31, 2007 -
            expense of $73).
        (4) Net of income tax benefit of $16 (January 31, 2007 - $41).
        (5) Net of income tax expense of $126 (January 31, 2007 - $125).
        (6) Net of income tax benefit of $251 (January 31, 2007 - $113).


    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 Bank has a comprehensive
        risk management framework to monitor, evaluate and manage the
        principal risks assumed in conducting its activities. The risks that
        arise from transacting financial instruments include credit risk,
        liquidity risk, operational risk and market risk. The Bank manages
        these risks using extensive risk management policies and practices,
        including various Board-approved risk management limits and
        techniques.

        The Bank's risk management framework has four main components, as
        follows:

        -  Policies are defined for the Bank's risk tolerance and set the
           limits and controls within which the Bank and its subsidiaries can
           operate. These policies also reflect the requirements of
           regulatory authorities and are approved by the Bank's Board of
           Directors, either directly or through the Executive and Risk
           Committee.

        -  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.

        -  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 Board of Directors, either directly or
        through the Executive and Risk Committee, reviews and approves the
        Bank's credit risk strategy and credit risk policy 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 defined,

        -  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.

        Credit risk management policies are developed by Global Risk
        Management (GRM) and detail, among other things, the credit rating
        systems and associated parameter estimates, the delegation of
        authority for granting credit, calculating the allowance for credit
        losses and authorizing writeoffs. These form 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 level.

        Credit quality of financial assets

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

        (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
        current and projected financial results and credit statistics; the
        industry in which the borrower operates; economic trends;
        geopolitical risk; and the borrower's management. 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 January 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 January 31, 2008, the amount of retail loans that were past due
        but not impaired was not significant.

        Derivative instruments

        The Bank uses credit derivatives in its investment and loan
        portfolios. Credit protection is sold as an alternative to acquire
        exposure to bond or loan assets, while credit protection is bought to
        manage credit exposures.

        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 amount arising from the Bank's
        derivative transactions.

        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 on securities borrowing and lending and
        derivative transactions, under terms that are common and customary to
        standard lending, and stock borrowing and 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
        January 31, 2008, total assets pledged were $40 billion (October 31,
        2007 - $40 billion). Asset pledging transactions are conducted under
        terms that are common and customary to standard lending, and stock
        borrowing and 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 managed within the framework of policies and
        limits approved by the Board of Directors. The Board receives reports
        on risk exposures and performance against approved limits. The
        Liability Committee (LCO) provides senior management oversight of
        liquidity risk and meets weekly to review the Bank's liquidity
        profile.

        The key elements of the Bank's liquidity risk framework include: (i)
        liquidity risk measurement and modeling, including limits on maximum
        net cash outflow by currency over specified short-term horizons; (ii)
        diversification of the Bank's funding sources; (iii) maintaining a
        pool of highly liquid, unencumbered assets that can be readily sold
        or pledged to secure borrowings; (iv) liquidity stress testing; and
        (v) liquidity contingency planning.

        Liquidity profile

        The Bank maintains large holdings of liquid assets to support its
        operations, as shown in the table below. These assets generally can
        be sold or pledged to meet the Bank's obligations.

        The Bank prudently diversifies 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.
        Risk management controls are applied with respect to funding and
        liquidity management.


        Liquid Assets                                                  As at
        ---------------------------------------------------------------------
                                                                  January 31
        ($ millions)                                                    2008
        ---------------------------------------------------------------------
        Canadian dollar liquid assets                               $    676
        Cash and deposits with the Bank of Canada                      4,983
        Deposits with other banks                                     52,856
        ---------------------------------------------------------------------
        Securities                                                  $ 58,515
        ---------------------------------------------------------------------
        Foreign currency liquid assets
        Cash and deposits with the Bank of Canada                   $  4,798
        Deposits with other banks                                     25,954
        Securities                                                    23,567
        Call and short loans                                           1,191
        ---------------------------------------------------------------------
                                                                    $ 55,510
        ---------------------------------------------------------------------
        Total liquid assets
        Cash and deposits with the Bank of Canada                   $  5,474
        Deposits with other banks                                     30,937
        Securities                                                    76,423
        Call and short loans                                           1,191
        ---------------------------------------------------------------------
        Liquid assets as a % of total assets                        $114,025
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                                                                        25.4%
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Contractual maturities

        The table below shows the contractual maturities of certain of the
        Bank's financial liabilities. The Bank's deposit liabilities shown
        below are those recorded in Canada and the United States which
        amounted to $241 billion, representing 76% of the Bank's total
        deposits.


                                           Payable on a fixed date
                                         ---------------------------
                                             Less      One  Greater
                        Payable  Payable     than       to     than
                             on    after      one     five     five
        ($ millions)     demand   notice     year    years    years    Total
        ---------------------------------------------------------------------
        Deposits       $ 26,710 $ 38,900 $120,885 $ 48,622 $  6,181 $241,298
        Subordinated
         debentures           -        -      256        -    1,894    2,150
        Capital
         instrument
         liabilities          -        -        -        -      500      500
        ---------------------------------------------------------------------
        Total          $ 26,710 $ 38,900 $121,141 $ 48,622 $  8,575 $243,948
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        Deposits

        The Bank's foreign operations have their own 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 January 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.
        More than half of the notional value of the Bank's derivative
        instruments mature within one year, while 87% 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. The Board of Directors reviews and approves market
        risk policies and limits annually. The LCO and Market Risk Management
        and Policy Committee (MRMPC) 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. 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. 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, other comprehensive income 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 basis of expected repricing dates.

        Interest rate risk

        Interest rate risk, inclusive of credit spread risk, is the risk of
        loss due to: 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 and comprehensive
        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.

        The following table shows the breakdown of the Canadian dollar and
        foreign currency interest rate gaps as at January 31, 2008:

        Interest rate gap
        ---------------------------------------------------------------------
        Interest rate                              Cumu-
         position(1)                              lative
                                Less     Three      less   Greater      Non-
        As at January           than        to      than      than  interest
         31, 2008              three    twelve       one       one      rate
        ($ millions)          months    months      year      year sensitive
        ---------------------------------------------------------------------
        Canadian dollars    $ 12,960  $ (9,989) $  2,971  $  5,034  $ (8,005)
        ---------------------------------------------------------------------
        Foreign currencies  $ (8,092) $  9,123  $  1,031  $ 15,941  $(16,972)
        ---------------------------------------------------------------------
        Total gap           $  4,868  $   (866) $  4,002  $ 20,975  $(24,977)
        ---------------------------------------------------------------------
        (1) The above figures reflect the inclusion of derivative
            instruments, as well as an estimate of prepayments on consumer
            and mortgage loans and cashable GICs.

        Based on the Bank's interest rate positions as at January 31, 2008,
        an immediate and sustained 100 basis point rise in interest rates
        across all currencies and maturities would increase after-tax net
        income by approximately $124 million over the next 12 months. A
        similar rise in interest rates would increase after-tax other
        comprehensive income by approximately $22 million and decrease
        economic value of shareholders' equity by approximately $548 million.

        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.

        In the absence of hedging activity, a one per cent increase
        (decrease) in the Canadian dollar against all the currencies in which
        the Bank operates, decreases (increases) the Bank's annual earnings
        by approximately $34 million before tax, 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 $145 million, net of hedging.

        Equity risk

        Equity risk is the risk of loss due to adverse movements in equity
        prices. Equity 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 issuer-specific risk.

        The Bank is exposed to equity risk through its equity investment
        portfolios, which are controlled by Board-approved limits. Equity
        investments include common and preferred shares, as well as a
        diversified portfolio of third-party managed funds. Equity securities
        are held for liquidity and/or longer-term capital appreciation, or
        attractive after-tax yields.

        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
        $3,223 million as at January 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 aggregate VaR and stress
        testing limits. 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. The Board reviews VaR and stress
        testing results quarterly.

        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
                                 January 31,          January 31, 2008
        ($ millions)                   2008    Average       High        Low
        ---------------------------------------------------------------------
        Interest rate                  16.7       13.8       18.5        9.8
        Equities                        2.8        4.5        7.4        2.5
        Foreign exchange                0.6        0.9        1.9        0.4
        Commodities                     3.4        2.7        3.6        1.9
        Diversification                (4.2)      (5.3)       n/a        n/a
        All-Bank VaR                   19.3       16.6       20.5       12.5
        ---------------------------------------------------------------------

        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 $99 million (after tax). As at January 31, 2008, the
        maximum length of cash flow hedges outstanding was less than seven
        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
        loss of $6 million during the quarter (October 31, 2007 - $18 million
        loss; January 31, 2007 - $12 million gain), of which a loss of
        $4 million (October 31, 2007 - $23 million loss; January 31, 2007 -
        $9 million gain) related to cash flow hedges, due to the ineffective
        portion of designated 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 $6.4 billion as at January 31, 2008 (October 31, 2007 -
        $4.1 billion; January 31, 2007 - $4.6 billion). The change in fair
        value that was recorded through trading income was a loss of
        $280 million for the three months ended January 31, 2008 (October 31,
        2007 - $112 million gain; January 31, 2007 - $110 million gain).
        These changes in fair value were entirely 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 $110 million as at
        January 31, 2008 (October 31, 2007 - $151 million; January 31, 2007 -
        $152 million). The change in fair value recorded through trading
        income was a loss of $3 million for the three months ended
        January 31, 2008 (October 31, 2007 - $3 million gain; January 31,
        2007 - $5 million gain).

        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
        $766 million as at January 31, 2008 (October 31, 2007 - $847 million;
        January 31, 2007 - $847 million). The change in fair value, which is
        substantially attributable to changes in interest rates, recorded
        through net interest income was a loss of $10 million for the three
        months ended January 31, 2008 (October 31, 2007 - $11 million loss;
        January 31, 2007 - $2 million gain). These changes in fair value were
        substantially offset by the change in fair value of the related
        derivatives. The Bank is contractually obligated to pay $764 million
        to the holders of the notes at maturity.

    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 three months ended
        ---------------------------------------------------------------------
                                          January 31  October 31  January 31
        ($ millions)                            2008        2007        2007
        ---------------------------------------------------------------------
        Benefit expenses
        Pension plans                       $      1    $     (4)   $      9
        Other benefit plans                       29          19          30
        ---------------------------------------------------------------------
                                            $     30    $     15    $     39
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (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

        The Bank completed the acquisition of Chile's Banco del Desarrollo on
        November 26, 2007, through the acquisition of 99.5 per cent of the
        outstanding shares for $1.0 billion. Total assets at acquisition were
        approximately $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. Given the recentness of
        the acquisition, the Bank has not completed its assessment and
        valuation of the assets acquired and liabilities assumed for Banco
        del Desarrollo. As a result, the amount of the purchase price in
        excess of the carrying value of the assets and liabilities has not
        been fully allocated to the acquired assets and liabilities assumed
        in the Consolidated Balance Sheet. The excess purchase price over the
        net book value of $804 million is recorded in Other Assets - Other in
        the consolidated balance sheet pending finalization of the purchase
        price allocation.

        The Bank completed an 18% equity investment in DundeeWealth Inc. for
        $348 million on September 28, 2007, with the right to acquire up to
        20% after November 1, 2008. The investment is a combination of voting
        and convertible non-voting shares issued out of treasury by
        DundeeWealth Inc. This investment is accounted for under the equity
        method of accounting. The Bank has not completed 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
    

    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 March 4, 2008,
at 9:00 a.m. EST 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 1-800-733-7560 (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 March 4,
2008, to March 18, 2008, by calling (416) 640-1917 and entering the
identification code 21262348 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; Ann DeRabbie, Public Affairs, (416) 933-1344


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890