Scotiabank reports solid second quarter earnings of $872 million with record revenues



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

    -   Earnings per share (diluted) of $0.81, compared to $0.97
    -   Net income of $872 million, versus $980 million
    -   Return on equity of 17.6%, compared to 21.4%
    -   Productivity ratio of 51.4%, versus 54.8%
    -   Quarterly dividend maintained at 49 cents per common share

    Year-to-date performance versus our 2009 financial and operational
    objectives was as follows:

    1.  Target: Earn a return on equity (ROE)(1) of 16 to 20%. For the six
        months, Scotiabank earned an ROE of 17.2%.

    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 10%.

    3.  Target: Maintain a productivity ratio(1) of less than 58%.
        Scotiabank's ratio was 54.9% for the six months.

    4.  Target: Maintain strong capital ratios. At 9.6%, Scotiabank's Tier 1
        capital ratio remains strong.

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

    TORONTO, May 28 /CNW/ - Scotiabank today announced its second quarter net
income of $872 million, down $108 million or 11% compared with the same period
last year. Quarter over quarter, net income increased $30 million or 4%.
    Diluted earnings per share (EPS) were $0.81 compared to $0.97 in the same
period last year and $0.80 last quarter. Return on equity was 17.6% in the
second quarter compared to 21.4% last year and 16.9% last quarter. A dividend
of 49 cents per common share was announced.
    "We are pleased to report record revenue with strong top-line growth of
12% compared to the same period last year and 7% from the previous quarter.
Solid underlying performances in Canadian and International Banking and a
record quarter from Scotia Capital allowed us to earn through higher credit
provisions and a challenging economic environment, compared to last year,"
Rick Waugh, President and CEO, said. "These results support rankings from
independent third parties that place Scotiabank among the strongest and most
stable banks in the world.
    "Overall, net interest income grew as Scotiabank benefitted from a more
stable interest margin in Canadian Banking and widening margins in Scotia
Capital and International Banking. As a result, the Bank is well positioned to
capitalize on previous asset growth across all three business lines, as
reflected by this quarter's year-over-year and quarter-over-quarter increases
in revenue.
    "As expected, earnings were impacted by rising provisions for credit
losses across all business lines due to the current economic environment,
including an increase in our general allowance and a sectoral allowance for
auto exposures. We are well prepared for this stage of the credit cycle, and
our loan portfolios are performing within planned risk tolerances. We will
continue to prudently manage exposures across industries and geographies.
    "Our strategy of diversifying across three growth platforms and
geographies continues to deliver solid revenue growth in a challenging
environment.
    "Canadian Banking recorded solid year-over-year growth in net interest
income due to an increase in average assets - including mortgages, personal
loans and credit card volumes. The business line also saw strong growth of 10%
or $8 billion in personal deposits.
    "International Banking's results benefitted from solid underlying growth
in retail and commercial loans across the division, wider margins, continuing
contributions from acquisitions and the positive impact of foreign currency
translation.
    "Scotia Capital had a record quarter due to widening loan spreads and
increased customer activity in corporate and investment banking, strong
trading results - including in our fixed income and foreign exchange
businesses - record results in ScotiaMoccatta, our world-class precious metals
business, and a reduction in expenses.
    "Our capital strength and continued profitability provides sustainable
support for our dividend, which we are maintaining at 49 cents per common
share, and gives the Bank considerable flexibility to pursue growth across all
our business lines.
    "Although the unpredictable impact of the global economy and ongoing
uncertainty in financial markets will continue to put pressure on the Bank's
results this year, we are confident that we have taken appropriate action to
respond to current challenges.
    "With the solid results achieved during the first half of the year, the
Bank is maintaining the objectives established at the beginning of the year."

    
    FINANCIAL HIGHLIGHTS

                                             As at and               For the
                            for the three months ended      six months ended
    -------------------------------------------------------------------------
                        April 30 January 31   April 30   April 30   April 30
    (Unaudited)             2009       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Operating results
     ($ millions)
    Net interest income    2,087      1,966      1,873      4,053      3,687
    Net interest
     income(TEB(1))        2,164      2,036      1,973      4,200      3,905
    Total revenue          3,596      3,351      3,172      6,947      6,011
    Total revenue(TEB(1))  3,673      3,421      3,272      7,094      6,229
    Provision for credit
     losses                  489        281        153        770        264
    Non-interest expenses  1,886      2,010      1,794      3,896      3,463
    Provision for income
     taxes                   319        190        209        509        402
    Provision for income
     taxes(TEB(1))           396        260        309        656        620
    Net income               872        842        980      1,714      1,815
    Net income available
     to common
     shareholders            821        805        958      1,626      1,772
    -------------------------------------------------------------------------
    Operating performance
    Basic earnings per
     share($)               0.81       0.80       0.97       1.61       1.80
    Diluted earnings per
     share($)               0.81       0.80       0.97       1.61       1.79
    Return on equity(1)
     (%)                    17.6       16.9       21.4       17.2       20.0
    Productivity ratio(%)
     (TEB(1))               51.4       58.7       54.8       54.9       55.6
    Net interest margin
     on total average
     assets (%) (TEB(1))    1.71       1.53       1.76       1.61       1.78
    -------------------------------------------------------------------------
    Balance sheet
     information
     ($ millions)
    Cash resources and
     securities          146,060    131,380    129,749
    Loans and
     acceptances         296,740    304,278    267,875
    Total assets         513,567    509,829    452,573
    Deposits             346,860    346,570    322,438
    Preferred shares       3,710      3,710      2,210
    Common shareholders'
     equity               19,198     19,103     18,213
    Assets under
     administration      196,773    191,826    202,266
    Assets under
     management           35,449     34,264     32,917
    -------------------------------------------------------------------------
    Capital measures
    Tier 1 capital
     ratio (%)               9.6        9.5        9.6
    Total capital
     ratio (%)              11.8       11.4       11.7
    Tangible common
     equity to
     risk-weighted
     assets(1) (%)           7.7        7.8        7.5
    Risk-weighted assets
     ($ millions)        241,837    239,660    218,878
    -------------------------------------------------------------------------
    Credit quality
    Net impaired
     loans(2)
     ($ millions)          2,179      1,602        845
    General allowance
     for credit losses
     ($ millions)          1,350      1,323      1,323
    Sectoral allowance
     ($ millions)             60          -          -
    Net impaired loans
     as a % of loans
     and acceptances(2)     0.73       0.53       0.32
    Specific provision
     for credit losses
     as a % of average
     loans and
     acceptances
     (annualized)           0.56       0.37       0.24       0.46       0.21
    -------------------------------------------------------------------------
    Common share
     information
    Share price ($)
      High                 35.85      40.68      50.00      40.68      54.00
      Low                  23.99      27.35      42.00      23.99      42.00
      Close                33.94      29.67      47.82
    Shares outstanding
     (millions)
      Average - Basic      1,014      1,001        986      1,007        985
      Average - Diluted    1,016      1,003        992      1,010        992
      End of period        1,017      1,012        987
    Dividends per
     share($)               0.49       0.49       0.47       0.98       0.94
    Dividend yield (%)       6.6        5.8        4.1        6.1        3.9
    Market
     capitalization
     ($ millions)         34,518     30,039     47,194
    Book value per
     common share($)       18.88      18.87      18.45
    Market value to book
     value multiple          1.8        1.6        2.6
    Price to earnings
     multiple (trailing
     4 quarters)            11.8        9.8       12.7
    -------------------------------------------------------------------------
    Other information
    Employees             67,698     69,451     62,143
    Branches and offices   2,683      2,696      2,529
    -------------------------------------------------------------------------
    (1) Non-GAAP measure. Refer to further below for a discussion of these
        measures.
    (2) Net impaired loans are impaired loans less the specific allowance for
        credit losses.


    ACHIEVEMENTS

    Canadian Banking

    -   On March 10, Scotiabank introduced Scotia iTRADE, a new online
        investing offering that brings together the strength of E(*)TRADE,
        Canada's leading edge trading platform, and the solid value of Scotia
        Capital's research and analysis. This re-brand has been very
        successful, with new account growth up 17% versus the prior quarter.

    -   Scotiabank has experienced strong growth in personal deposits year to
        date (April 09) with $4.6 billion growth, nearly $1 billion more than
        the same period last year.

    -   The Toronto Customer Contact Centre achieved the prestigious Platinum
        level Contact Center Employer of Choice(R) (CCEOC) designation for
        2009. It attained the highest score of any financial institution and
        we are the only bank in North America to currently hold this
        designation. The CCEOC designation has created a competitive
        advantage for attracting, retaining and motivating top talent.

    -   In March, Scotiabank introduced a new credit card supported by an
        extensive bank-wide marketing campaign. The new Scotia Momentum VISA
        card offers two per cent cash back on everyday purchases at gas
        stations, grocery stores and drug stores, and on recurring payments.
        This unique new program has been enthusiastically embraced by both
        our sales teams and our customers, with new card sales volumes
        meeting our marketing plan objectives, and exceeding those of
        previous Scotiabank credit card launches.

    -   The annual Cormex Research report found for the third straight year,
        Scotiabank dominated the industry for total media coverage from
        sponsorship and community support initiatives; our share of voice was
        45% among the top six banks.

    International Banking

    -   In February, we completed the acquisition of an additional 24%
        interest in Thanachart Bank in Thailand, bringing our ownership to
        49%.

    -   We launched ScotiaCredit as the brand for our consumer finance
        initiatives in Peru, combining our existing business and that
        acquired with Banco del Trabajo.

    -   In Jamaica we were acknowledged for 2009 as Best Emerging Market Bank
        by Global Finance and as Best Banking Group by World Finance.

    -   In Costa Rica we were awarded Best Emerging Market Bank by Global
        Finance for 2009.

    Scotia Capital

    -   The equity deal for Manulife Financial Corporation led by Scotia
        Capital in December 2008 received the prestigious award for Equity
        Deal of the Year in the Americas for 2008 by The Banker magazine.

    -   Global Finance named Scotia Capital the Best Investment Bank in
        Canada and the Best Bank in Infrastructure Globally, in 2008.

    -   Scotia Capital was the Lead Arranger of a $350 million credit
        facility supporting the acquisition of Aeropuertos Dominicanos Siglo
        XXI by Advent International Corporation. This landmark deal
        represents the largest syndicated bank loan executed in the Dominican
        Republic and was awarded Euromoney Latin Finance magazine's
        Acquisition Deal of the Year for 2008.

    -   Scotia Capital acted as Sole Lead Arranger and Sole Bookrunner for
        two credit facilities for Pembina Pipeline Corporation totaling $300
        million used to acquire a gas gathering/processing system. Scotia
        Capital was also the Sole Bookrunner on a $165 million treasury
        offering of trust units, as part of the acquisition.

    -   Scotia Capital acted as Lead Arranger, Sole Bookrunner and
        Administrative Agent on a 364-day Senior Secured Revolving Credit
        Facility valued at US$600 million for Aberdeen Asia-Pacific Income
        Fund Inc.
    

    Employee highlights

    Scotiabank has made it easier for employees to balance work, family and
other lifestyle commitments or choices with the launch of its enhanced
Flexible Work Options policy. Major changes to the policy, which was first
introduced in 1996, include the introduction of a phased retirement option,
which gives eligible employees the opportunity to move from full-time to
part-time employment as a structured prelude to retirement, while continuing
to earn full-time pension credits and maintain full-time coverage for selected
benefits.

    Community involvement

    Scotiabank recognized National Mental Health Week, May 4-10, by
announcing a significant donation to the Centre for Addiction and Mental
Health (CAMH), and by establishing a partnership with CAMH's Employment
Support and Development (ESD) program. Together, Scotiabank and CAMH will
assist people who have mental health and addiction histories to secure and
retain employment opportunities by offering counseling, skills training and
ongoing professional support.


    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; significant market
volatility and interruptions; the failure of third parties to comply with
their obligations to us and our affiliates; the effect of changes in monetary
policy; legislative and regulatory developments in Canada and elsewhere,
including changes in tax laws; the effect of changes to our credit ratings;
operational and reputational risks; the risk that the Bank's risk management
models may not take into account all relevant factors; 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 62 of the Bank's 2008 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" sections in this document are based on the Bank's views and
the actual outcome is uncertain. Readers should consider the above-noted
factors when reviewing these sections.

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

    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.

    
    2009 Objectives - Our Balanced Scorecard

    Financial

    -   Return on equity of 16-20%
    -   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 58%
    -   Sound ratings
    -   Strong practices in corporate governance and compliance processes
    -   Maintain strong 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
    

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

    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
$77 million versus $100 million in the same quarter last year and $70 million
last quarter. For the six months, the TEB gross-up to net interest income and
the provision for income taxes was $147 million compared to $218 million for
the same period last year.
    For purposes of segmented reporting, a segment's net interest income and
provision for income taxes are grossed up by the taxable equivalent amount.
The elimination of the TEB gross up is recorded in the "Other" segment.

    Productivity ratio (TEB)

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

    Net interest margin on total average assets (TEB)

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

    Operating leverage

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

    Return on equity

    Return on equity is a profitability measure that presents the net income
available to common shareholders as a percentage of common shareholders'
equity. The Bank calculates its return on equity using average common
shareholders' equity, which includes common stock, retained earnings and
accumulated other comprehensive income.

    Economic equity and return on economic equity

    For internal reporting purposes, the Bank attributes capital to its
business segments based on their risk profile and uses a methodology that
considers credit, market, operational and other risks inherent in each
business segment. The amount of risk capital attributed is commonly referred
to as economic equity. Return on economic equity for the business segments is
based on the economic equity attributed.
    The Bank's economic capital methodologies and attribution models are
currently under review.

    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
acquisition-related intangible assets (net of taxes). Tangible common equity
is presented as a percentage of risk-weighted assets.
    Regulatory capital ratios, such as Tier 1 and Total Capital ratios, have
standardized meanings as defined by the Office of the Superintendent of
Financial Institutions Canada (OSFI).

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

    Group Financial Performance and Financial Condition

    Scotiabank's net income was $872 million in the second quarter, down $108
million or 11% from the same period a year ago, but up $30 million or 4% from
the first quarter.
    Compared to the same period last year, the Bank's results reflect higher
net interest and fee income from asset and customer account growth, strong
trading revenues and increased securitization revenue, as well as the positive
impact of foreign currency translation. These items were more than offset by
increases in provisions for credit losses, writedowns on securities other than
trading, liquidity costs and expenses, and the impact of a higher effective
income tax rate.
    Quarter over quarter, the increase in net income was due mainly to growth
in net interest income, stronger trading and securitization revenues, and a
reduction in non-interest expenses. These were mostly offset by higher
provisions for credit losses and the impact of a higher effective income tax
rate.
    Net income for the six months was $1,714 million, $101 million or 6%
lower than the same period last year. Higher net interest income from asset
growth, strong results from capital markets businesses, increased
securitization revenues and the positive impact of foreign currency
translation were more than offset by higher provisions for credit losses, and
writedowns on securities, increases in expenses and the impact of a higher
effective tax rate.

    Total revenue

    This quarter, total revenue (on a taxable equivalent basis) was a record
$3,673 million, up $401 million or 12% from the same quarter last year. The
increase was attributable to growth in net interest income, strong capital
markets revenues, higher securitization and transaction-based revenues, and
the positive impact of foreign currency translation. These were partly offset
by increased writedowns on securities other than trading and a decline in
wealth management revenues due to current market conditions.
    Compared with last quarter, total revenues rose $252 million or 7%, due
mainly to higher net interest income, increased trading and securitization
revenues, and lower writedowns on securities, partly offset by lower
investment banking revenues.
    For the six months, total revenue of $7,094 million was $865 million or
14% higher than the same period last year, due primarily to strong capital
markets revenues, increased securitization revenues and credit and
transaction-based fees, higher interest income and the positive impact of
foreign currency translation. These items were partly offset by higher
writedowns on securities and lower wealth management revenues due to current
market conditions.

    Net interest income

    This quarter's net interest income (on a taxable equivalent basis) was
$2,164 million, up $191 million or 10% over the same quarter last year. The
increase was driven by asset growth, the positive impact of foreign currency
translation and the favourable change in fair value of financial instruments
used for asset/liability management purposes, partly offset by a compressed
margin and lower tax-exempt income.
    Net interest income (on a taxable equivalent basis) grew $128 million or
6% from the first quarter. The increase was attributable mainly to the
favourable change in fair value of financial instruments used for
asset/liability management, partly offset by the impact of the shorter second
quarter.
    For the six months, net interest income (on a taxable equivalent basis)
rose to $4,200 million, up $295 million or 8% from the same period last year,
driven by asset growth, the positive impact of fair value changes in financial
instruments used for asset/liability management purposes, and the favourable
impact of foreign currency translation, partly offset by a lower margin and
lower tax-exempt income.
    The Bank's net interest margin, at 1.71% in the second quarter, was down
from 1.76% in the same quarter of last year, but up from 1.53% in the first
quarter. Compared to the prior year, the reduction in the margin was due to
the significant decline in interest rates and the impact of assets repricing
faster than liabilities, the increased cost of liquidity, and growth in
non-earning assets. This was partly offset by the positive impact of fair
value changes of financial instruments used for asset/liability management and
the widening of corporate lending spreads. The quarter-over-quarter
improvement was due primarily to a favourable change in fair values of
financial instruments used for asset/liability management purposes. The
continuation of widening corporate lending spreads in Scotia Capital mostly
offset by the ongoing relatively higher costs of funding. Overall, the margins
remain compressed due to re-pricing mismatches between assets and liabilities
in a falling rate environment.

    Other income

    Other income was a record $1,509 million this quarter, up 16% or $210
million from $1,299 million in the same quarter last year. The primary drivers
of the increase were higher securitization revenues and strong trading
results. There were also higher credit fees, investment banking and other
transaction-based revenues, and a positive impact of foreign currency
translation. These items were partly offset by a higher level of writedowns on
securities and lower wealth management fees.
    Quarter-over-quarter, other income was up $124 million or 9%, due
primarily to higher securitization revenues, increased trading revenues, in
particular strong fixed income securities trading and lower derivatives
trading losses, lower writedowns on securities and higher credit fees, partly
offset by lower underwriting and mutual fund fees and lower realized gains on
securities.
    For the six months, other income was $2,894 million, an increase of $570
million or 25% from the same period last year. The results reflected a strong
contribution from capital markets revenues, higher securitization revenues to
take advantage of favourable funding terms, the positive impact of foreign
currency translation, and higher credit fees from strong debt origination
activities. There was also growth across most categories of transaction-based
revenues from increased customer activity. These items were partly offset by
increased writedowns on securities and weaker wealth management revenues
caused by current market conditions.

    Provision for credit losses

    The provision for credit losses was $489 million this quarter, an
increase of $336 million from the same period last year and $208 million above
last quarter. This quarter's provision is comprised of $402 million in
specific provisions, an increase of $27 million in the general allowance, and
a $60 million sectoral allowance established to reflect the deterioration in
the automotive industry sector. The higher level of provisions this quarter
compared to a year ago reflects increased provisions in all three business
lines. Further discussion on credit risk is provided below.

    Non-interest expenses and productivity

    Non-interest expenses were $1,886 million this quarter, $92 million or 5%
higher than the same period last year, partly from the unfavourable impact of
$44 million from foreign currency translation. Acquisitions accounted for an
additional $70 million of the increase in expenses. Underlying expenses were
down, mainly reflecting lower stock and performance-based compensation and
decreases in advertising and professional expenses. Partly offsetting these
factors was growth in salaries and premises costs that are reflective of
investments in new branches in Canada and Mexico during 2008.
    Non-interest expenses were $124 million lower than the first quarter.
This decrease was primarily attributable to lower stock and performance-based
compensation, primarily in Scotia Capital. The remaining decline in salaries
and benefits was primarily from three fewer days in the quarter and lower
staffing levels. There were also decreases in advertising and business
development, technology costs and business and capital taxes, reflecting
timing and an ongoing focus on expense management.
    Year to date, non-interest expenses were $433 million or 13% higher than
the same period last year. The negative impact of foreign currency translation
accounted for $103 million, while acquisitions contributed $164 million. The
remaining increases in salaries, premises and technology expenses reflected
the impact of prior-year branch expansion, business initiatives and
volume-related expenses.
    The productivity ratio, a measure of the Bank's efficiency, was 51.4%, an
improvement from 54.8% in the same quarter last year and 58.7% last quarter.
The Bank's operating leverage this quarter was 7.1% year over year. On a
year-to-date basis, operating leverage was 1.4%.

    Taxes

    The effective tax rate for this quarter was 26.1%, up from 17.0% in the
same quarter last year and 17.9% in the first quarter. The increase from a
year ago was due primarily to reduced levels of income in lower tax rate
jurisdictions, decreased tax-exempt income and future tax asset adjustments,
partly offset by a reduction in statutory tax rates in Canada. Compared to the
previous quarter, the increase was due primarily to reduced levels of income
in lower tax rate jurisdictions.
    The tax rate for the six months was 22.3% compared to 17.6% for the same
period last year, due primarily to lower tax-exempt income and proportionately
smaller contributions from lower tax rate jurisdictions, partly offset by a
reduction in statutory tax rates in Canada.

    Risk management

    The Bank's risk management policies and practices are unchanged from
those outlined in pages 62 to 76 of the 2008 Annual Report.

    Credit risk

    The specific provision for credit losses was $402 million this quarter,
compared to $153 million in the same period last year and $281 million in the
previous quarter.
    The specific provision for credit losses was $178 million in the Canadian
Banking portfolios, up from $102 million in the same quarter last year and
$155 million last quarter. Retail provisions increased year over year due
primarily to the indirect automotive portfolio, including Scotia Dealer
Advantage and Scotia Plan Loans. Provisions related to commercial and small
business banking were also up year over year. The increase from the previous
quarter was related primarily to commercial and small business banking.
    International Banking's specific provision for credit losses was $115
million in the second quarter, compared to $60 million in the same period last
year and $116 million last quarter. Retail provisions experienced an upward
trend, although new initiatives and resources have helped moderate the effect
of weakening global economic conditions. Increased provisions compared to the
same quarter last year were also reflective of acquisition-related retail
asset growth, mainly in Peru. These increases were offset by the reversal of a
$29 million in provisions no longer required for certain retail portfolios in
Mexico. Quarter over quarter, provisions were flat as increased retail
provisions and lower levels of reversals and recoveries in commercial
portfolios were offset by a decrease in commercial provisions, and reversal of
the retail provision no longer required.
    Scotia Capital's specific provision for credit losses was $109 million
this quarter, compared to net reversals of $9 million in the same period last
year and net provisions of $10 million in the prior quarter. The increase was
primarily related to one large U.S. account and to a few smaller accounts in
the U.S. and Canada.
    Total net impaired loans, after deducting the allowance for specific
credit losses, were $2,179 million as at April 30, 2009, an increase of $577
million from last quarter. The increase was distributed broadly across all
three business lines.
    The general allowance for credit losses was $1,350 million as at April
30, 2009, up $27 million from last quarter. In addition to the general
allowance, a new sectoral allowance of $60 million was established to reflect
the deterioration in the automotive industry. Of the $60 million sectoral
allowance established for the automotive industry sector, $50 million related
to Scotia Capital and the balance related to Canadian Banking.

    Automotive industry exposure

    The Bank's direct (corporate and commercial) loan exposure to the North
American and European automotive industry comprised the following:

    
                                                                As at
    -------------------------------------------------------------------------
                                                         April 30 January 31
    ($ billions)                                             2009       2009
    -------------------------------------------------------------------------
    Original equipment manufacturers (OEMs)              $    0.2   $    0.6
    Financing and leasing                                     1.1        1.2
    Parts manufacturers                                       0.8        0.8
    Dealers                                                   2.9        3.0
    -------------------------------------------------------------------------
    Total                                                $    5.0   $    5.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    Approximately 33% of this exposure is rated investment grade, either
externally or based on the Bank's internal rating program, down from 54% the
previous quarter. Loans are typically senior in the capital structure of the
borrowers. The reduction in the percentage of investment grade exposure was
expected in part as the result of the repayment of one large OEM investment
grade account and portfolio migration. The year-to-date loss ratio on this
portfolio - specific loan losses as a percentage of average loan exposures -
was 22 basis points annualized.
    The Bank is actively managing its exposure to this sector. The Bank's
exposure is focused on large multi-dealer relationships and
parts-manufacturing customers with geographic and OEM diversity, and has
contained its exposure to North American OEMs. Regular stress tests are
performed on the Bank's non-retail automotive exposures covering a number of
different scenarios, including the default of the North American OEMs and its
impact on part suppliers, financing companies and dealers.
    The North American OEMs are moving towards a restructuring which
contemplates reduced future production and contraction of North American
operations. As a result of these events, the Bank established a $60 million
sectoral allowance against its North American non-retail automotive exposures
for incurred losses expected to be identified individually over the coming
quarters.

    Consumer auto-based securities

    The Bank holds $8.2 billion (October 31, 2008 - $7.8 billion) of consumer
auto-based securities which are classified as available-for-sale. These
securities are almost all loan-based securities, with only 5% of these
holdings representing leases. The loan-based securities arise from retail
instalment sales contracts (loans), which are primarily acquired through a
US$6 billion revolving facility to purchase U.S. and Canadian consumer auto
loans from a North American automotive finance company. This facility has a
remaining revolving period of approximately two years, and was modified last
year to allow the seller to sell Canadian-based loans to the Bank for a
limited period, rather than U.S.-based loans. The facility is structured with
credit enhancement in the form of over collateralization provided at the time
of the loan purchases, resulting in no further reliance on the seller for
credit enhancement. For each subsequent purchase under the revolving credit
facility, the credit enhancement is a multiple of the most recent pool loss
data for the seller's overall managed portfolio.
    The Bank conducts periodic stress tests on the loan-based securities.
Under different stress scenarios, the loss on this consumer auto loan-backed
securities portfolio is within the Bank's risk tolerance level. Approximately
88% of these securities are externally rated AAA and have a weighted average
life of approximately two years.
    These securities are carried at fair value, with the change in fair value
recorded in other comprehensive income. The Bank has recorded a pre-tax
cumulative unrealized loss of $328 million in accumulated other comprehensive
income (AOCI) (October 31, 2008 - $272 million). While there has been some
deterioration in credit quality, the unrealized loss was primarily
attributable to wider credit spreads. As the Bank has the ability and the
intent to hold these securities until there is a recovery in fair value, which
may be at maturity, these unrealized losses are considered temporary in
nature.

    Other

    In addition, the Bank provides liquidity facilities to its own sponsored
multi-seller conduits and to non-Bank sponsored conduits to support automotive
loan and lease assets held by those conduits. For details, see sections on
multi-seller conduits sponsored by the Bank (below) and liquidity facilities
provided to non-Bank sponsored conduits (below).

    Market risk

    Value at Risk (VaR) is a key measure of market risk in the Bank's trading
activities. In the second quarter, the average one-day VaR was $16.0 million
compared to $14.6 million for the same quarter last year. Increased market
volatility during the year resulted in an increase in interest rate, equity
and foreign exchange risk factor VaRs, partially offset by an increase in the
diversification between the factors. Compared to the previous quarter, the
average one-day VaR decreased from $21.7 million to $16.0 million due
primarily to reduced interest rate risk as well as lower equity and commodity
risk.

    
                                          Average for the three months ended
                                          -----------------------------------
                                              April 30 January 31   April 30
    Risk Factor ($ millions)                      2009       2009       2008
    -------------------------------------------------------------------------
    Interest rate                             $   15.9   $   19.7   $   12.8
    Equities                                       4.0        5.3        3.0
    Foreign exchange                               2.2        2.3        1.3
    Commodities                                    2.9        3.9        3.6
    Diversification                               (9.0)      (9.5)      (6.1)
    -------------------------------------------------------------------------
    All-Bank VaR                              $   16.0   $   21.7   $   14.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    There were nine trading loss days in the second quarter, compared to
eight 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 April 30, 2009, liquid assets were $122 billion or 24% of
total assets, compared to $108 billion or 21% of total assets as at January
31, 2009. These assets consist of securities, 71%, and cash and deposits with
banks, 29% (January 31, 2009 - 67% and 33%, 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 April 30, 2009, total assets
pledged or sold under repurchase agreements were $99 billion, compared to $91
billion as at January 31, 2009.
    The quarter-over-quarter increase was attributable to an increase in
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 82 and 134 of the 2008 Annual
Report. All transactions with related parties continued to be at market terms
and conditions.

    Balance sheet

    The Bank's total assets as at April 30, 2009 were $514 billion, up $6
billion from October 31, 2008, including a $2 billion negative impact from
foreign currency translation. Growth in securities was offset by reductions in
loans, cash resources, securities purchased under resale agreements and
derivative instrument assets.
    Total securities increased by $24 billion from October 31, 2008. Trading
securities and available-for-sale securities increased $13 billion and $9
billion, respectively, with both increases due primarily to higher holdings of
Canadian government debt securities. Equity accounted investments increased $2
billion due mainly to the purchase of a significant interest in CI Financial
Corp. (CI Financial).
    As at April 30, 2009, the unrealized loss on available-for-sale
securities was $1,508 million, a decrease of $65 million from last quarter.
This was due mainly to writedowns on some equity securities and improvements
in the market values of equities and Canadian and foreign government debt
securities, offset by further declines in the value of corporate debt
securities, including collateralized loan obligations.
    The Bank's loan portfolio decreased $4 billion from October 31, 2008,
including the negative impact of $1 billion from foreign currency translation.
On the retail lending side, residential mortgage growth in Canadian Banking of
$4 billion was offset by securitizations of $9 billion relating to the Bank's
participation in the Canadian government's CMB and insured Mortgage Purchase
Program. Personal loans were up $2 billion, primarily in Canada. Business and
government loans decreased by $1 billion.
    Total liabilities were $491 billion as at April 30, 2009, an increase of
$5 billion from October 31, 2008, including a $2 billion negative impact from
foreign currency translation. Increases in obligations related to securities
sold under repurchase agreements, obligations related to securities sold
short, and subordinated debentures were offset by a reduction in other
liabilities, primarily cash collateral received from customers.
    Personal deposits increased by $6 billion, due to growth in GICs and
high-interest savings accounts in Canada and in international locations,
particularly Peru. This growth was offset by reductions in deposits by
businesses, governments and banks.
    Total shareholders' equity increased $1.3 billion from October 31, 2008.
The increase was due primarily to internal capital generation of $630 million
and the issuance of $800 million common shares and $850 million preferred
shares, offset by an increase of $1 billion in accumulated other comprehensive
losses. The latter was due to higher unrealized losses on available-for-sale
securities and an increase in unrealized foreign exchange losses from the
strengthening of the Canadian dollar.

    Capital management

    Scotiabank is committed to maintaining a solid capital base to support
the risks associated with its diversified businesses. The Bank's capital
management framework includes a comprehensive internal capital adequacy
assessment process (ICAAP), aimed at ensuring that the Bank's capital is more
than adequate to meet current and future risks and achieve its strategic
objectives. Key components of the Bank's ICAAP include sound corporate
governance; establishing risk-based capital targets; managing and monitoring
capital, both currently and prospectively; and utilizing appropriate financial
metrics which relate risk to capital, including regulatory capital measures.
The Bank's capital management practices were unchanged from those outlined on
pages 38 to 42 of the 2008 Annual Report.

    Capital ratios

    The Bank continues to maintain a strong capital position. The Tier 1 and
Total capital ratios as at April 30, 2009, were 9.6% and 11.8%, respectively,
compared to 9.5% and 11.4% at January 31, 2009.
    The increase in Tier 1 capital ratio this quarter was largely the result
of the impact of an increase in internally generated capital, including share
issuances through the dividend reinvestment plan, partly offset by growth in
risk-weighted assets. The quarter-over-quarter increase in the Total capital
ratio was a result of the factors mentioned above, as well as the issuance of
$1 billion of subordinated debentures in the quarter.
    The tangible common equity (TCE) ratio was 7.7% as at April 30, 2009.

    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 78 to 79 of the 2008 Annual Report. Management's judgment on
valuation inputs is necessary when observable market data is not available,
and 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 $1,600 billion as at April 30,
2009, compared to $1,562 billion as at October 31, 2008, with the increase in
interest rate derivatives partially offset by a decline in foreign exchange
derivative contracts. The percentage of 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 $22.4 billion, compared to $28.5 billion last year end.

    Selected credit instruments

    Mortgage-backed securities

    Non-trading portfolio

    Total mortgage-backed securities held as available-for-sale securities
represent approximately 1% of the Bank's total assets as at April 30, 2009,
and are shown in the table below. Exposure to U.S. subprime mortgage risk is
nominal.

    Trading portfolio

    Total mortgage-backed securities held as trading securities represent
less than 0.1% of the Bank's total assets as at April 30, 2009, and are shown
in the table below.

    
    Mortgage-backed securities

                                                        As at April 30, 2009
                                                     ------------------------
                                                      Non-trading    Trading
    Carrying value ($ millions)                         portfolio  portfolio
    -------------------------------------------------------------------------
    Canadian NHA mortgage-backed securities(1)           $  5,838   $    283
    Commercial mortgage-backed securities                    65(2)      45(3)
    Other residential mortgage-backed securities              108          -
    -------------------------------------------------------------------------
    Total                                                $  6,011   $    328
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                      As at October 31, 2008
                                                     ------------------------
                                                      Non-trading    Trading
    Carrying value ($ millions)                         portfolio  portfolio
    -------------------------------------------------------------------------
    Canadian NHA mortgage-backed securities(1)           $  6,294   $    184
    Commercial mortgage-backed securities                   123(2)      47(3)
    Other residential mortgage-backed securities               55          -
    -------------------------------------------------------------------------
    Total                                                $  6,472   $    231
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Canada Mortgage and Housing Corporation provides a guarantee of
        timely payment to NHA mortgage-backed security investors.
    (2) The assets underlying the commercial mortgage-backed securities in
        the non-trading portfolio relate to non-Canadian properties.
    (3) The assets underlying the commercial mortgage-backed securities in
        the trading portfolio relate to Canadian properties.
    


    Montreal Accord Asset-Backed Commercial Paper (ABCP)

    As a result of the Montreal Accord ABCP restructuring, in the first
quarter, the Bank received longer-dated securities which are classified as
available-for-sale. Approximately 80% of the new notes are A-rated Class A-1
and A-2 notes. The Bank's carrying value of $144 million represents
approximately 62% of par value. Taking into account current market conditions,
the Bank has not recorded any net gain or loss in the current quarter.
    As part of the restructuring, the Bank participated in a margin funding
facility, which is recorded as an unfunded loan commitment. The Bank's portion
of the facility is $200 million; it is currently undrawn.

    Collateralized debt obligations and collateralized loan obligations

    Non-trading portfolio

    The Bank has collateralized debt obligation (CDO) and collateralized loan
obligation (CLO) investments in its non-trading portfolio which are primarily
classified as available-for-sale securities. CDOs and CLOs generally achieve
their structured credit exposure either synthetically through the use of
credit derivatives, or by investing and holding corporate loans or bonds.
These investments are carried at fair value on the Bank's Consolidated Balance
Sheet. Changes in the fair value of cash-based CDOs/CLOs are reflected in
other comprehensive income, unless there has been an other-than-temporary
decline in fair value, which is recorded in net income. Changes in the fair
value of synthetic CDOs/CLOs are reflected in net income.
    Substantially all of the referenced assets of the Bank's CDO and CLO
investments are corporate exposures, with no U.S. mortgage-backed securities.
    As at April 30, 2009, the remaining exposure to CDOs was $393 million
(October 31, 2008 - $420 million), of which $105 million is included in
accumulated other comprehensive income (AOCI) (October 31, 2008 - $83
million). The year-to-date change included the impact of the maturity of a
CDO, foreign currency translation, and current fair value changes. This
portfolio is well diversified, with an average individual CDO holding of $14
million, and no single industry exceeding 25% of the referenced portfolio on a
weighted average basis. Based on their carrying values, these CDOs have a
weighted average rating of A. More than 14% of these investment holdings are
senior tranches with subordination of 10% or more, and 13% of the investments
are in equity tranches.
    During the current quarter, the Bank recorded a pre-tax gain of $2
million in net income (three months ended April 30, 2008 - loss of $51
million) and a pre-tax loss of $5 million in other comprehensive income (three
months ended April 30, 2008 - loss of $26 million), reflecting changes in the
fair value of the CDOs.
    As at April 30, 2009, the fair value of the Bank's investments in CLOs
was $439 million (October 31, 2008 - $660 million), net of $651 million
recorded in AOCI (October 31, 2008 - $436 million). This portfolio is well
diversified with an average individual CLO holding of $5 million, and no
single industry exceeding 14% of the referenced portfolio on a weighted
average basis. Based on carrying values, these CLOs have a weighted average
rating of AA. More than 93% of these investment holdings are senior tranches
with subordination of 10% or more. Only 3% of the investments are in equity
tranches.
    During the current quarter, the Bank recorded a pre-tax loss of $2
million in net income (three months ended April 30, 2008 - nil) and a pre-tax
loss of $56 million in other comprehensive income (three months ended April
30, 2008 - loss of $79 million), reflecting changes in the fair value of the
CLOs. Although these investments have experienced a decline in fair value, the
Bank has the ability and the intent to hold these securities until there is a
recovery in fair value, which may be at maturity. These unrealized losses are
considered temporary in nature.
    The key drivers of the change in fair value of CDOs and CLOs are changes
in credit spreads and the remaining levels of subordination. Based on
positions held at April 30, 2009, a 50 basis point widening of relevant credit
spreads would result in a pre-tax decrease of approximately $10 million in
income and $14 million in other comprehensive income.

    Trading portfolio

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

    
                                                        As at April 30, 2009
                                                     ------------------------
                                                                   Positive/
                                                         Notional  (negative)
    Outstanding ($ millions)                               amount fair value
    -------------------------------------------------------------------------
    CDOs - sold protection                               $  6,508   $ (2,725)
    CDOs - purchased protection                          $  6,561   $  3,141
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                      As at October 31, 2008
                                                     ------------------------
                                                                   Positive/
                                                         Notional  (negative)
    Outstanding ($ millions)                               amount fair value
    -------------------------------------------------------------------------
    CDOs - sold protection                               $  6,647   $ (3,368)
    CDOs - purchased protection                          $  6,550   $  3,187
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    To hedge its trading exposures, the Bank purchases or sells CDOs to other
financial institutions, along with purchasing and/or selling index tranches or
single name credit default swaps (CDSs). The main driver of the value of
CDOs/CDSs is changes in credit spreads. Based on positions held at April 30,
2009, a 50 basis point widening of relevant credit spreads in this portfolio
would result in a pre-tax increase of approximately $15 million in income.
    More than 81% of the Bank's credit exposure to CDO swap counterparties is
to entities which are externally or internally rated investment grade
equivalent. Approximately 51% of the CDO exposures are investment grade
equivalent. The referenced assets underlying the trading book CDOs are
substantially all corporate exposures, with no mortgage-backed securities.

    Exposure to monoline insurers

    The Bank has insignificant direct exposure to monoline insurers. The Bank
has indirect exposures of $2.1 billion (October 31, 2008 - $2.8 billion) in
the form of monoline guarantees, which provide enhancement to public finance
and other transactions, where the Bank has provided credit facilities to
either the issuers of securities or facilities which hold such securities. The
Bank's public finance exposures of $0.9 billion (October 31, 2008 - $1.5
billion) was primarily to U.S. municipalities and states. Approximately 93% of
these securities are rated investment grade without the guarantee, and
represent risk the Bank would take without the availability of the guarantee.
    Other indirect exposures to monoline insurers were $1.2 billion (October
31, 2008 - $1.3 billion). These exposures are primarily comprised of $0.9
billion (October 31, 2008 - $0.9 billion) of guarantees by the monolines on
diversified asset-backed securities held by the Bank's U.S. multi-seller
conduit (as discussed below in the section on multi-seller conduits sponsored
by the Bank). During the quarter, both monoline insurers were downgraded by
two rating agencies, one of which rated the two monoline insurers as
non-investment grade.

    Exposure to Alt-A

    In the U.S., loans are classified as Alt-A when they have higher risk
characteristics such as lower credit scores and/or higher loan-to-value
ratios. As at April 30, 2009, the Bank had insignificant indirect exposure to
U.S. Alt-A loans and securities. In Canada, the Bank does not have a mortgage
program which it considers to be an equivalent of U.S. Alt-A.

    Leveraged loans

    The Bank may provide leveraged financing to non-investment grade
customers to facilitate their buyout, acquisition and restructuring
activities. The Bank's exposure to highly leveraged loans awaiting syndication
as at April 30, 2009, was nominal.

    Auction-rate securities

    Auction-rate securities (ARS) are long-term, variable rate notes issued
by trusts referenced to long-term notional maturity, but have interest rates
reset at predetermined short-term intervals. ARS are issued by municipalities,
student loan authorities and other sponsors through auctions managed by
financial institutions. The Bank does not sponsor any ARS program and does not
hold any ARS.

    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, but could have a current or future impact on the Bank's results of
operations or financial condition. These arrangements can be classified into
the following categories: variable interest entities (VIEs), securitizations,
and guarantees and other commitments. No material contractual obligations were
entered into this quarter by the Bank that are not in the ordinary course of
business. Processes for review and approval of these contractual arrangements
are unchanged from last year.

    Multi-seller conduits sponsored by the Bank

    The Bank sponsors three multi-seller conduits, two of which are
Canadian-based and one in the United States. The Bank earns commercial paper
issuance fees, program management fees, liquidity fees and other fees from
these multi-seller conduits, which totaled $25 million in the second quarter,
compared to $15 million in the same quarter last year.
    As further described below, the Bank's exposure to these off-balance
sheet conduits primarily consists of liquidity support, program-wide credit
enhancement and temporary holdings of commercial paper. The Bank has a process
to monitor these exposures and significant events impacting the conduits to
ensure there is no change in the primary beneficiary, which could require the
Bank to consolidate the assets and liabilities of the conduits, at fair value.
Funded asset levels in these conduits continued to decline this quarter as
assets amortized and were paid down.

    Canada

    The Bank's primary exposure to the Canadian-based conduits is the
liquidity support provided, with total liquidity facilities of $2.9 billion as
at April 30, 2009 (October 31, 2008 - $4.3 billion). As at April 30, 2009,
total commercial paper outstanding for the Canadian-based conduits
administered by the Bank was $2.5 billion (October 31, 2008 - $3.8 billion),
and the Bank held approximately 15% of the total commercial paper issued by
these conduits. The following table presents a summary of assets held by the
Bank's two Canadian multi-seller conduits as at April 30, 2009, and October
31, 2008, by underlying exposure:

    
                                                   As at April 30, 2009
                                             --------------------------------
                                                         Unfunded      Total
                                                Funded    commit-   exposure
    ($ millions)                              assets(1)     ments         (2)
    -------------------------------------------------------------------------
    Auto loans/leases                          $ 1,171   $    278   $  1,449
    Equipment loans/leases                         974         76      1,050
    Trade receivables                              165         59        224
    Canadian residential mortgages                  79          2         81
    Retirement savings plan loans                  119          2        121
    -------------------------------------------------------------------------
    Total(3)                                   $ 2,508   $    417   $  2,925
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                  As at October 31, 2008
                                             --------------------------------
                                                         Unfunded      Total
                                                Funded    commit-   exposure
    ($ millions)                              assets(1)     ments         (2)
    -------------------------------------------------------------------------
    Auto loans/leases                         $  2,204   $    299   $  2,503
    Equipment loans/leases                         969         63      1,032
    Trade receivables                              205         91        296
    Canadian residential mortgages                  89          2         91
    Retirement savings plan loans                  156          3        159
    Loans to closed-end mutual funds               161         91        252
    -------------------------------------------------------------------------
    Total(3)                                  $  3,784   $    549   $  4,333
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Funded assets are reflected at original cost.
    (2) Exposure to the Bank is through global-style liquidity facilities and
        letters of guarantee.
    (3) These assets are substantially sourced from Canada.
    

    Substantially all of the conduits' assets have been structured to receive
credit enhancements from the sellers, including overcollateralization
protection and cash reserve accounts. Approximately 11% of the funded assets
were externally rated AAA as at April 30, 2009, with the balance having an
equivalent rating of AA- or higher based on the Bank's internal rating
program. There were no non-investment grade assets held in these conduits as
at April 30, 2009. The funded assets have a weighted average repayment period
of approximately 1.1 years, with 64% maturing within three years. There is no
exposure to U.S. subprime mortgage risk within these two conduits.

    United States

    The Bank's primary exposure to the U.S.-based conduit is the liquidity
support and program-wide credit enhancement provided, with total liquidity
facilities of $9.8 billion as at April 30, 2009 (October 31, 2008 - $12.8
billion). As at April 30, 2009, total commercial paper outstanding for the
U.S.-based conduit administered by the Bank was $5.6 billion (October 31, 2008
- $8.4 billion), and the Bank held less than 0.1% of the commercial paper
issued by this conduit.
    A significant portion of the conduit's assets have been structured to
receive credit enhancement from the sellers, including overcollateralization
protection and cash reserve accounts. Each asset purchased by the conduit has
a deal-specific liquidity facility provided by the Bank in the form of an
asset purchase agreement, which is available to absorb the losses on defaulted
assets, if any, in excess of losses absorbed by deal-specific seller credit
enhancement, and the subordinated note issued by the conduit. The Bank's
liquidity agreements with the conduit generally call for the Bank to fund full
par value of all assets, including defaulted assets, if any, of the conduit.
    The following table presents a summary of assets purchased and held by
the Bank's U.S. multi-seller conduit as at April 30, 2009 and October 31, 2008
by underlying exposure:

    
                                                   As at April 30, 2009
                                             --------------------------------
                                                         Unfunded      Total
                                                Funded    commit-   exposure
    ($ millions)                              assets(1)     ments         (2)
    -------------------------------------------------------------------------
    Credit card/consumer receivables          $     85   $     40   $    125
    Auto loans/leases                            2,420      1,022      3,442
    Trade receivables                            1,618      2,239      3,857
    Loans to closed-end mutual funds               154        868      1,022
    Diversified asset-backed securities            889         18        907
    Corporate loans(3)                             399         37        436
    -------------------------------------------------------------------------
    Total(4)                                  $  5,565   $  4,224   $  9,789
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                  As at October 31, 2008
                                             --------------------------------
                                                         Unfunded      Total
                                                Funded    commit-   exposure
    ($ millions)                              assets(1)     ments         (2)
    -------------------------------------------------------------------------
    Credit card/consumer receivables          $  1,318   $    641   $  1,959
    Auto loans/leases                            2,894      1,160      4,054
    Trade receivables                            2,161      1,855      4,016
    Loans to closed-end mutual funds               690        652      1,342
    Diversified asset-backed securities            932         19        951
    Corporate loans(3)                             417         50        467
    -------------------------------------------------------------------------
    Total(4)                                  $  8,412   $  4,377   $ 12,789
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Funded assets are reflected at original cost.
    (2) Exposure to the Bank is through global-style liquidity facilities in
        the form of asset purchase agreements.
    (3) These assets represent secured loans that are externally rated
        investment grade.
    (4) These assets are sourced from the U.S.
    

    As at April 30, 2009, approximately 74% of the conduit's funded assets
were rated A or higher, either externally (30%) or based on the Bank's
internal rating program (44%). There were no non-investment grade assets held
in this conduit as at April 30, 2009. The funded assets have a weighted
average repayment period of approximately 1.4 years, with 56% maturing within
five years.
    The conduit has investments in two pools of diversified asset-backed
securities. The assets underlying these securities are primarily retail loans,
including U.S. home equity, student loans and residential mortgage-backed
securities. Exposure to U.S. subprime mortgage risk within these securities
was nominal at approximately $26 million as at April 30, 2009 (October 31,
2008 - $28 million). These pools are guaranteed by monoline insurers and were
rated investment grade based on the Bank's internal rating program as at April
30, 2009. Without these guarantees, certain of the underlying assets of the
diversified asset-backed securities would not be rated investment grade.
    During the current quarter, there were external rating downgrades to
these monoline insurers (refer to Exposure to monoline insurers above). Based
on the Bank's assessment of the current events, the accounting for this
conduit remains unchanged.

    Liquidity facilities provided to non-Bank sponsored conduits

    For conduits not administered by the Bank, liquidity facilities totaled
$1.1 billion as at April 30, 2009 (October 31, 2008 - $1.2 billion), all of
which were for U.S. third-party conduits. The assets of these non-Bank
sponsored conduits, which are not administered by the Bank, are almost
entirely consumer auto-based securities. Approximately 72% of these assets are
externally rated AAA/AA. The majority of the liquidity facilities have an
original committed term of 364 days, renewable at the option of the Bank. The
weighted average life of the underlying assets of these conduits is
approximately two years. There is no exposure to U.S. subprime mortgage risk.

    Funding vehicles

    The Bank uses special purpose entities (SPEs) to facilitate the
cost-efficient financing of its operations. The Bank has two such SPEs -
Scotiabank Capital Trust and Scotiabank Subordinated Notes Trust - that are
VIEs and are not consolidated on the Bank's balance sheet, as the Bank is not
the primary beneficiary. The Scotiabank Trust Securities and Scotiabank Trust
Subordinated Notes issued by the trusts are not reported on the Consolidated
Balance Sheet, but qualify as regulatory capital. The deposit notes issued by
the Bank to Scotiabank Capital Trust and Scotiabank Subordinated Notes Trust
are reported in deposits. Total deposits recorded by the Bank as at April 30,
2009, from these trusts were $3.4 billion, unchanged from October 31, 2008.
The Bank recorded interest expense of $50 million on these deposits for the
three months ended April 30, 2009, compared to $49 million for the three
months ended April 30, 2008.

    Other off-balance sheet arrangements

    The Bank may securitize residential mortgages as a means to diversify its
funding sources, as this represents a cost effective means to fund the growth
in this portfolio. A further $4.4 billion in residential mortgages were
securitized this quarter, bringing the balance of outstanding mortgages
securitized to $18.9 billion as at April 30, 2009, compared to $16.4 billion
as at January 31, 2009.
    Guarantees and other indirect commitments decreased 11% from October 31,
2008. Fees from guarantees and loan commitment arrangements recorded in other
income were $95 million in the three-month period ended April 30, 2009,
compared to $85 million in the previous quarter.

    Common dividend

    The Board of Directors, at its meeting on May 28, 2009, approved a
quarterly dividend of 49 cents per common share. This quarterly dividend
applies to shareholders of record as of July 7, 2009, and is payable July 29,
2009.

    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 2008 annual consolidated financial statements for more
information about the significant accounting principles used to prepare the
financial statements. Refer to Note 1 of the interim financial statements for
the changes in accounting policies adopted by the Bank in 2009, which relate
to the definitions of goodwill and intangibles and result in a
reclassification of certain software costs to intangibles.
    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 2008 Annual Report.

    Transition to International Financial Reporting Standards (IFRS)

    Canadian GAAP for publicly accountable enterprises will be replaced with
IFRS for fiscal years beginning January 1, 2011. For the Bank, IFRS will be
effective for interim and annual periods commencing November 1, 2011,
including the preparation and reporting of one year of comparative figures. In
order to prepare for the transition to IFRS, the Bank has developed an
implementation plan and has established a formal governance structure which
includes senior levels of management from all relevant departments. In
addition, the Bank has commenced assessing the impact of significant
accounting differences between IFRS and Canadian GAAP, including analyzing the
impact on business processes, systems, and internal control over financial
reporting. Further updates on implementation progress and the potential
reporting impact from the adoption of IFRS will be provided in the interim and
annual reports going forward until full implementation in 2012.

    Changes in internal control over financial reporting

    There have been no changes in the Bank's internal controls over financial
reporting during the quarter ended April 30, 2009, that have materially
affected, or are reasonably likely to materially affect, the Bank's internal
control over financial reporting.

    Outlook

    There are signs that the unprecedented monetary and fiscal stimulus
announced by many governments is beginning to have a positive impact. Business
and household confidence has shown signs of improving and capital and
commodity markets have strengthened - although there is a need for substantial
restructuring in a number of sectors. With purchasing power being bolstered by
low interest rates, debt refinancing, price discounting and lower energy
costs, there is an increasing likelihood that global economic growth will
re-emerge in the second half of 2009 and gather strength next year.
    With the solid results achieved during the first half of the year, the
Bank is maintaining the objectives established at the beginning of the year.

    
    Business Segment Review

    Canadian Banking

                                                                     For the
                            For the three months ended      six months ended
    -------------------------------------------------------------------------
    (Unaudited)
    ($ millions)
    (Taxable
     equivalent         April 30 January 31   April 30   April 30   April 30
     basis)(1)              2009       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Business segment
     income
    Net interest
     income(2)          $  1,147   $  1,146   $  1,051   $  2,293   $  2,042
    Provision for
     credit losses           188        155        102        343        193
    Other income             524        556        537      1,080      1,056
    Non-interest
     expenses                899        934        890      1,833      1,779
    Provision for
     income taxes            174        175        174        349        331
    -------------------------------------------------------------------------
    Net income(3)       $    410   $    438   $    422   $    848   $    795
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Return on economic
     equity(1)             19.7%      25.8%      35.3%      22.5%      32.9%
    Average assets
     ($ billions)       $    191   $    189   $    172   $    190   $    170
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer above for discussion of non-GAAP measures.
    (2) Commencing in the first quarter of 2009, net interest income includes
        liquidity premium charges arising from a refinement in the Bank's
        transfer pricing. Prior periods have not been restated. Refer to
        footnote 4 below for further details.
    (3) Commencing in the fourth quarter of 2008, the reporting of segment
        profitability has been changed from net income available to common
        shareholders to net income. Prior periods have been restated.
    

    Canadian Banking net income for the quarter was $410 million, down $12
million or 3% from the same quarter last year. Quarter over quarter, net
income declined $28 million or 7%. Return on economic equity was 19.7% versus
35.3% last year, due largely to the acquisition of E(*)TRADE Canada (renamed
Scotia iTRADE) and the significant interest acquired in CI Financial.
    Average assets before securitization rose $19 billion or 11% from the
second quarter last year. The increase was due primarily to growth of $8
billion or 8% in residential mortgages. Personal loans, including revolving
credit also increased. In addition, asset growth reflects the investment in CI
Financial. Personal deposits grew by $9 billion or 10%, in high-interest
savings accounts, personal term deposits, chequing and other savings accounts.
Non-personal deposits rose 16% from growth in both non-personal term and
current accounts. Compared to the last quarter, average assets before
securitization rose $2 billion or 1%, reflecting growth in personal lending,
and the full-quarter impact of the Bank's investment in CI Financial. Deposits
increased 1% from growth in high-interest savings accounts and non-personal
term deposits.
    Total revenue was up $83 million or 5% from the same quarter last year,
as higher net interest income was partly offset by lower other income. Quarter
over quarter, total revenues declined by $31 million or 2% due to lower other
income.
    Net interest income was $1,147 million, up $96 million or 9% from the
second quarter of last year. The increase was due to lower wholesale funding
costs and growth in average assets and deposits. Partially offsetting was a
lower interest margin reflecting higher liquidity costs, growth in relatively
lower spread variable rate mortgages and competitive pricing pressures on
deposits. Average volumes increased for most retail products, as well as in
Small Business and Commercial Banking. Compared to last quarter, net interest
income was unchanged as three fewer days in the quarter was offset by an
increase in the interest margin. The latter increased by 5 basis points to
2.46% as the impact of lower wholesale funding interest costs and the wider
spread between prime and wholesale funding rates was partly offset by
competitive pricing pressures on deposits.
    Other income declined by $13 million or 3% from the same quarter last
year, due largely to a decline in wealth management-related revenues
reflecting difficult market conditions. Partly offsetting were higher revenues
from Scotia iTRADE and higher transaction-based fees in retail banking. Other
income declined by $32 million or 6% from last quarter, reflecting a decrease
in earnings from associated corporations, as DundeeWealth results included
writedowns on certain debt instruments, partly offset by an increase related
to CI Financial. The remaining decline was primarily in wealth management
revenues due to market conditions and in retail banking reflecting seasonally
lower cardholder fees and foreign exchange. However, Commercial Banking
revenues increased in the quarter.
    Provisions for credit losses were $188 million, up from $102 million in
the same quarter last year and $155 million last quarter. Higher provisions
were recorded year over year in personal loans including consumer auto and
revolving credit. Provisions related to commercial and small business banking
were also up, including a $10 million sectoral allowance relating to the
automotive sector. The increase from last quarter was due primarily to higher
provisions for consumer auto, commercial and small business banking.
    Non-interest expenses increased a modest 1% from the second quarter of
last year due to acquisitions, largely offset by lower revenue-related
expenses in wealth management and the impact of cost containment initiatives.
Expenses decreased 4% from last quarter due to lower stock-based compensation,
the short quarter impact on remuneration, and lower technology and
volume-related spending. Partly offsetting these factors were higher pension
and benefits costs.

    International Banking

    
                                                                     For the
                            For the three months ended      six months ended
    -------------------------------------------------------------------------
    (Unaudited)
    ($ millions)
    (Taxable
     equivalent         April 30 January 31   April 30   April 30   April 30
     basis)(1)              2009       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Business segment
    income
    Net interest
     income(2)          $    959   $    947   $    797   $  1,906   $  1,528
    Provision for
     credit losses           115        116         60        231         90
    Other income             349        471        356        820        665
    Non-interest
     expenses                729        772        615      1,501      1,183
    Provision for
     income taxes            102        114        107        216        229
    Non-controlling
     interest in net
     income of
     subsidiaries             30         28         36         58         67
    -------------------------------------------------------------------------
    Net income(3)       $    332   $    388   $    335   $    720   $    624
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Return on economic
     equity(1)             12.7%      17.2%      17.6%      14.8%      18.5%
    Average assets
     ($ billions)       $     95   $     95   $     79   $     95   $     74
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to above for discussion of non-GAAP measures.
    (2) Commencing in the first quarter of 2009, net interest income includes
        liquidity premium charges arising from a refinement in the Bank's
        transfer pricing. Prior periods have not been restated. Refer to
        footnote 4 further below for further details.
    (3) Commencing in the fourth quarter of 2008, the reporting of segment
        profitability has been changed from net income available to common
        shareholders to net income. Prior periods have been restated.
    

    International Banking's net income in the second quarter was $332
million, a decrease of $3 million or 1% from last year and $56 million or 14%
below last quarter. Excluding the positive impact of foreign currency
translation, net income decreased $47 million from last year, with nominal
impact from last quarter. Return on economic equity was 12.7% compared to
17.6% last year and 17.2% last quarter.
    Average asset volumes of $95 billion were up $16 billion or 20% from last
year, due partly to the $9 billion positive impact of foreign currency
translation. The underlying year-over-year increase in average assets of $7
billion reflects the full-year impact of prior period growth, with an increase
of 23% in retail loans and 11% in commercial loans. Growth in low-cost
deposits was 15%, primarily from the positive impact of a declining Canadian
dollar. Compared to last quarter, average assets were flat, due to economic
conditions and tightening credit policies, while deposits rose 2%.
    Total revenues were $1,308 million this quarter, an increase of $155
million or 13% from the same period last year, including an $87 million
positive impact of foreign currency translation and $65 million from
acquisitions. Compared to last quarter, revenues decreased $110 million or 8%.
    Net interest income was $959 million this quarter, up $162 million or 20%
from the same period last year, and $12 million or 1% above last quarter.
Excluding the impact of foreign currency translation, results were up $88
million over last year and $17 million from last quarter. The underlying
increase from last year was a result of loan growth across the division in
existing businesses, as well as the impact of acquisitions. Net interest
margins were up from both last year and last quarter, due to the change in
fair value of financial instruments used for asset/liability management,
partially offset by tightening margins in Chile.
    Other income decreased $7 million or 2% year over year. The quarter
included a $36 million loss on the sale of a portion of Mexico's performing
credit card portfolio to an associated corporation. Subsequent to the quarter
end, pursuant to a put option by the shareholder, the Bank acquired 100% of
the associated corporation. Excluding the negative impact of this loss and the
positive impact of foreign currency translation and acquisitions, other income
decreased $13 million or 4% over last year. Mark-to-market losses on
securities more than offset the positive impact of widespread
transaction-driven growth and strong foreign exchange revenue. Compared to
last quarter, other income decreased $122 million or 26%. Excluding the
negative impact of the credit card portfolio sale, other income was down $86
million or 18%, mainly from the mark-to-market losses on securities and
foreign exchange revenues slowing from the record level of the first quarter.
    International Banking's specific provision for credit losses was $115
million in the second quarter, compared to $60 million in the same period last
year and $116 million last quarter. Retail provisions experienced an upward
trend, although new initiatives and resources have helped moderate the effect
of weakening global economic conditions. Increased provisions compared to the
same quarter last year were also reflective of acquisition-related retail
asset growth, mainly in Peru. These increases were offset by the reversal of 
$29 million in provisions no longer required for certain retail portfolios in
Mexico.
    Quarter over quarter, provisions were flat as increased retail provisions
and lower levels of reversals and recoveries in commercial portfolios were
offset by a decrease in commercial provisions, and reversal of the retail
provisions no longer required.
    Non-interest expenses were $729 million this quarter, up $114 million or
19% from last year. This included a $25 million unfavourable impact of foreign
currency translation and a $59 million increase from acquisitions. The
remaining modest 5% increase reflected expense control initiatives balanced
with ongoing business growth. Compared to last quarter, expenses decreased $43
million or 6%, due primarily to effective cost containment and operating
improvement efforts across the division.
    The effective tax rate this quarter was 21.9%, relatively unchanged from
the same quarter last year and quarter over quarter. While the effective tax
rate rose in Mexico, due to tax-deductible limits on provisions, and in Asia,
from a change in income mix, these were offset by lower rates in Chile.

    Scotia Capital

    
                                                                     For the
                            For the three months ended      six months ended
    -------------------------------------------------------------------------
    (Unaudited)
    ($ millions)
    (Taxable
     equivalent         April 30 January 31   April 30   April 30   April 30
     basis)(1)              2009       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Business segment
     income
    Net interest
     income(2)          $    345   $    338   $    246   $    683   $    520
    Provision for
     credit losses           159         10         (9)       169        (19)
    Other income             502        366        292        868        423
    Non-interest
     expenses                231        291        243        522        434
    Provision for
     income taxes            129        103         49        232         82
    -------------------------------------------------------------------------
    Net income(3)       $    328   $    300   $    255   $    628   $    446
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Return on economic
     equity(1)             18.3%      22.4%      29.6%      20.1%      26.2%
    Average assets
     ($ billions)       $    189   $    194   $    167   $    191   $    162
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer above for discussion of non-GAAP measures.
    (2) Commencing in the first quarter of 2009, net interest income includes
        liquidity premium charges arising from a refinement in the Bank's
        transfer pricing. Prior periods have not been restated. Refer to
        footnote 4 further below for further details.
    (3) Commencing in the fourth quarter of 2008, the reporting of segment
        profitability has been changed from net income available to common
        shareholders to net income. Prior periods have been restated.
    

    Scotia Capital contributed record net income of $328 million this
quarter, an increase of $73 million or 29% from the second quarter of 2008,
and up $28 million or 9% from last quarter. The increase compared to last year
was mainly due to record revenues and the positive impact of foreign currency
translation, partly offset by higher provisions for credit losses. Compared to
last quarter, higher revenues and lower expenses were partly offset by higher
provisions for credit losses. Return on economic equity at 18.3% was down from
both the same period last year and from last quarter, as the record income
level was offset by an increase in economic equity.
    Total average assets increased 13% over last year to $189 billion.
Average corporate loans and acceptances increased $15 billion or 40% across
all lending businesses. The strongest growth was in the U.S., up $10 billion,
due in part to the impact of the weaker Canadian dollar. There was also a $16
billion increase in average derivative instrument assets, with a corresponding
increase in derivative liabilities. These increases were partially offset by a
decrease of $11 billion in trading securities and loans. The modest decrease
from the last quarter reflects a $1 billion drop in average corporate loans
and acceptances and a $4 billion decrease in derivative instrument assets.
    Total revenues were a record $847 million, an increase of $309 million or
57% compared to the second quarter last year and up $143 million or 20% from
last quarter. This quarter's performance reflects record revenues in Global
Capital Markets and near-record revenues in Global Corporate and Investment
Banking.
    Net interest income of $345 million increased $99 million or 40% over
last year, primarily from higher loan volumes, interest margins and loan
origination fees. The increase from the previous quarter reflects an increase
in interest margins and higher loan origination fees, partially offset by a
small decrease in average loan volumes.
    This quarter, net provisions for credit losses were $159 million,
compared to net reversals of $9 million in the same period last year and net
losses of $10 million last quarter. Net provisions for credit losses were
incurred primarily in the U.S. this quarter and last quarter, versus net
recoveries predominantly in Canada and the U.S. in the second quarter last
year. This quarter, a $50 million sectoral allowance was established relating
to the automotive industry sector.
    Other income was $502 million, a significant increase of $210 million or
72% from last year. Global Capital Markets increased $91 million, reflecting
record revenues in the precious metals businesses and near-record revenues in
fixed income business. The segment also benefited from very strong foreign
exchange, equity trading and underwriting revenues. Global Corporate and
Investment Banking increased 129% over the same period last year, as the prior
year included a loss on non-trading securities arising primarily from the
acquisition of a CDO asset under a liquidity purchase agreement in the United
States. The segment also benefitted from higher acceptance and credit fees in
the lending businesses. Compared to last quarter, other income increased $136
million, due primarily to the stronger trading revenues in Global Capital
Markets in particular strong fixed income trading and lower trading losses.
    Non-interest expenses were $231 million this quarter, down $12 million or
5% from last year, due primarily to lower performance-related compensation and
other personnel costs, partially offset by higher salaries, technology costs,
professional fees and support costs. Compared to last quarter, non-interest
expenses dropped $60 million or 21%. Lower performance-based compensation and
lower other personnel costs were somewhat offset by higher technology costs
and professional fees.

    Other(1)

    
                                                                     For the
                            For the three months ended      six months ended
    -------------------------------------------------------------------------
    (Unaudited)
    ($ millions)
    (Taxable
     equivalent         April 30 January 31   April 30   April 30   April 30
     basis)(2)              2009       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Business segment
     income
    Net interest
     income(3)(4)       $   (364)  $   (465)  $   (221)  $   (829)  $   (403)
    Provision for
     credit losses            27          -          -         27          -
    Other income             134         (8)       114        126        180
    Non-interest
     expenses                 27         13         46         40         67
    Provision for
     income taxes(3)         (86)      (202)      (121)      (288)      (240)
    -------------------------------------------------------------------------
    Net income
     (loss)(5)          $   (198)  $   (284)  $    (32)  $   (482)  $    (50)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Average assets
     ($ billions)       $     44   $     51   $     37   $     48   $     36
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 April 30, 2009 ($77), January 31, 2009 ($70), and April
        30, 2008 ($100), and for the six months ended April 30, 2009 ($147),
        and April 30, 2008 ($218), to arrive at the amounts reported in the
        Consolidated Statement of Income.
    (4) Historically, assets and liabilities are transfer-priced at wholesale
        market rates. In the first quarter of 2009, due to current market
        conditions, the Bank refined its transfer pricing to include a
        liquidity premium charge in the cost of funds allocated to the
        business segments. The net impact of this change was to reduce the
        net interest income of the three major segments which was offset by a
        reduction in the net interest expense of the Other segment. Prior
        periods have not been restated.
    (5) Commencing in the fourth quarter of 2008, the reporting of segment
        profitability has been changed from net income available to common
        shareholders to net income. Prior periods have been restated.
    

    The Other segment had a net loss of $198 million in the second quarter,
compared to a loss of $32 million last year and $284 million in the prior
quarter.
    Net interest income and the provision for income taxes include the
elimination of tax-exempt income gross up. This amount is included in the
operating segments, which are reported on a taxable equivalent basis. The
elimination was $77 million in the second quarter, compared to $100 million in
the same period last year and $70 million last quarter.
    Total revenue this quarter was negative $230 million, compared to
negative $107 million in the prior year, but improved from the negative $473
million last quarter.
    Net interest income was negative $364 million this quarter, $143 million
below the same quarter last year, but an improvement of $101 million from last
quarter. The year-over-year change was due mainly to the negative impact of
relatively higher term funding costs compared to the declining wholesale rates
used for transfer pricing with the business segments. The change in the fair
value of financial instruments used for asset/liability management purposes
was favourable compared to both last year and the prior quarter.
    Other income was $134 million in the second quarter, $20 million higher
than last year and $142 million above last quarter. The increase from last
year was mainly attributable to higher securitization revenues, partly offset
by increased writedowns on available-for-sale securities. The significant
increase from last quarter reflected higher securitization revenues and lower
writedowns on available for sale securities, partly offset by lower gains
realized on sale of securities.
    Non-interest expenses were $27 million this quarter, a decrease of $19
million from last year and $14 million higher than last quarter. Legal
expenses were down year over year, but up quarter over quarter.
    The provisions for credit losses this quarter included a $27 million
increase in the general allowance. There were no changes in the general
allowance last year or last quarter.

    
    Total

                                                                     For the
                            For the three months ended      six months ended
    -------------------------------------------------------------------------
    (Unaudited)         April 30 January 31   April 30   April 30   April 30
    ($ millions)            2009       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Business segment
     income
    Net interest
     income             $  2,087   $  1,966   $  1,873   $  4,053   $  3,687
    Provision for
     credit losses           489        281        153        770        264
    Other income           1,509      1,385      1,299      2,894      2,324
    Non-interest
     expenses              1,886      2,010      1,794      3,896      3,463
    Provision for
     income taxes            319        190        209        509        402
    Non-controlling
     interest in net
     income of
     subsidiaries             30         28         36         58         67
    -------------------------------------------------------------------------
    Net income(1)       $    872   $    842   $    980   $  1,714   $  1,815
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Other measures
    Return on equity(2)    17.6%      16.9%      21.4%      17.2%      20.0%
    Average assets
     ($ billions)       $    519   $    529   $    455   $    524   $    442
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Commencing in the fourth quarter of 2008, the reporting of segment
        profitability has been changed from net income available to common
        shareholders to net income. Prior periods have been restated.
    (2) Refer above for a discussion of non-GAAP measures.


    Geographic Highlights

                                                                     For the
                            For the three months ended      six months ended
    -------------------------------------------------------------------------
    (Unaudited)         April 30 January 31   April 30   April 30   April 30
    ($ millions)            2009       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Geographic segment
     income
    Canada              $    395   $    361   $    561   $    756   $  1,064
    United States             55         23         63         78         87
    Mexico                    41         57         77         98        141
    Other international      455        559        356      1,014        614
    Corporate
     adjustments             (74)      (158)       (77)      (232)       (91)
    -------------------------------------------------------------------------
    Net income(1)       $    872   $    842   $    980   $  1,714   $  1,815
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average assets
     ($ billions)
    Canada              $    336   $    330   $    293   $    333   $    289
    United States             43         51         29         47         29
    Mexico                    20         21         20         20         20
    Other international      114        117        102        116         94
    Corporate
     adjustments               6         10         11          8         10
    -------------------------------------------------------------------------
                        $    519   $    529   $    455   $    524   $    442
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Commencing in the fourth quarter of 2008, the reporting of segment
        profitability has been changed from net income available to common
        shareholders to net income. Prior periods have been restated.


    Quarterly Financial Highlights

                                     For the three months ended
    -------------------------------------------------------------------------
                      April    Jan.   Oct.  July  April    Jan.   Oct.  July
                         30     31     31     31     30     31     31     31
                       2009   2009   2008   2008   2008   2008   2007   2007
    -------------------------------------------------------------------------
    Total revenue
     ($ millions)    $3,596 $3,351 $2,491 $3,374 $3,172 $2,839 $3,078 $3,201
    Total revenue
     (TEB(1))
     ($ millions)     3,673  3,421  2,586  3,477  3,272  2,957  3,294  3,302
    Net income
     ($ millions)       872    842    315  1,010    980    835    954  1,032
    Basic earnings
     per share($)      0.81   0.80   0.28   0.99   0.97   0.83   0.95   1.03
    Diluted earnings
     per share($)      0.81   0.80   0.28   0.98   0.97   0.82   0.95   1.02
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer above for a discussion of non-GAAP measures.


    Share Data

                                                                       As at
    -------------------------------------------------------------------------
                                                                    April 30
    (thousands of shares outstanding)                                   2009
    -------------------------------------------------------------------------
    Common shares                                                1,017,020(1)
    -------------------------------------------------------------------------
    Preferred shares Series 12                                      12,000(2)
    Preferred shares Series 13                                      12,000(3)
    Preferred shares Series 14                                      13,800(4)
    Preferred shares Series 15                                      13,800(5)
    Preferred shares Series 16                                      13,800(6)
    Preferred shares Series 17                                       9,200(7)
    Preferred shares Series 18                                   13,800(8)(9)
    Preferred shares Series 20                                  14,000(8)(10)
    Preferred shares Series 22                                  12,000(8)(11)
    Preferred shares Series 24                                  10,000(8)(12)
    Preferred shares Series 26                                  13,000(8)(13)
    Preferred shares Series 28                                  11,000(8)(14)
    -------------------------------------------------------------------------
    Series 2000-1 trust securities issued by BNS Capital Trust        500(15)
    Series 2002-1 trust securities issued by Scotiabank
     Capital Trust                                                    750(16)
    Series 2003-1 trust securities issued by Scotiabank
     Capital Trust                                                    750(16)
    Series 2006-1 trust securities issued by Scotiabank
     Capital Trust                                                    750(16)
    -------------------------------------------------------------------------
    Scotiabank Trust Subordinated Notes - Series A issued
     by Scotiabank Subordinated Notes Trust                         1,000(16)
    -------------------------------------------------------------------------
    Outstanding options granted under the Stock Option Plans
     to purchase common shares                                  25,058(1)(17)
    -------------------------------------------------------------------------
    (1)  As at May 15, 2009, the number of outstanding common shares and
         options were 1,017,043 and 25,025, 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 in an
         amount of $0.39195 per share.
    (7)  These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly in an amount of $0.35 per share, except
         for the initial dividend paid on April 28, 2008 in an amount of
         $0.33753 per share.
    (8)  These preferred shares have conversion features.
    (9)  These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly. The initial dividend was paid on July
         29, 2008, in an amount of $0.4315 per share. Dividends, if and when
         declared, during the initial five-year period ending on April 25,
         2013, will be payable in an amount of $0.3125 per share. Subsequent
         to the initial five-year fixed rate period, and resetting every five
         years thereafter, the dividends will be determined by the sum of the
         five-year Government of Canada yield plus 2.05%, multiplied by
         $25.00.
    (10) These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly. The initial dividend was paid on July
         29, 2008, in an amount of $0.1678 per share. Dividends, if and when
         declared, during the initial five-year period ending on October 25,
         2013, will be payable in an amount of $0.3125 per share. Subsequent
         to the initial five-year fixed rate period, and resetting every five
         years thereafter, the dividends will be determined by the sum of the
         five-year Government of Canada yield plus 1.70%, multiplied by
         $25.00.
    (11) These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly. The initial dividend was paid on
         January 28, 2009, in an amount of $0.4829 per share. Dividends, if
         and when declared, during the initial five-year period ending on
         January 25, 2014, will be payable in an amount of $0.3125 per share.
         Subsequent to the initial five-year fixed rate period, and resetting
         every five years thereafter, the dividends will be determined by the
         sum of the five-year Government of Canada yield plus 1.88%,
         multiplied by $25.00.
    (12) These shares are entitled to non-cumulative preferential cash
         dividends, payable quarterly. The initial dividend was paid on April
         28, 2009, in an amount of $0.5865 per share. Dividends, if and when
         declared, during the initial five-year period ending on January 25,
         2014, will be payable in an amount of $0.3906 per share. Subsequent
         to the initial five-year fixed rate period, and resetting every five
         years thereafter, the dividends will be determined by the sum of the
         five-year Government of Canada yield plus 3.84%, multiplied by
         $25.00.
    (13) These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly. The initial dividend was paid on April
         28, 2009, in an amount of $0.41524 per share. Dividends, if and when
         declared, during the initial five-year period ending on April 25,
         2014, will be payable in an amount of $0.390625 per share.
         Subsequent to the initial five-year fixed rate period, and resetting
         every five years thereafter, the dividends will be determined by the
         sum of the five-year Government of Canada yield plus 4.14%,
         multiplied by $25.00.
    (14) These shares are entitled to non-cumulative preferential cash
         dividends payable quarterly. The initial dividend was paid on April
         28, 2009, in an amount of $0.37671 per share. Dividends, if and when
         declared, during the initial five-year period ending on April 25,
         2014, will be payable in an amount of $0.390625 per share.
         Subsequent to the initial five-year fixed rate period, and resetting
         every five years thereafter, the dividends will be determined by the
         sum of the five-year Government of Canada yield plus 4.46%,
         multiplied by $25.00.
    (15) Reported in capital instrument liabilities in the Consolidated
         Balance Sheet.
    (16) Reported in deposits in the Consolidated Balance Sheet.
    (17) Included are 19,729 stock options with tandem stock appreciation
         right (SAR) features.

    Further details, including convertibility features, are available in Notes
13, 14 and 17 of the October 31, 2008, consolidated financial statements
presented in the 2008 Annual Report, and Note 7 below in this report.

    INTERIM CONSOLIDATED FINANCIAL STATEMENTS

    Consolidated Statement of Income

                                                                     For the
                            For the three months ended      six months ended
    -------------------------------------------------------------------------
    (Unaudited)         April 30 January 31   April 30   April 30   April 30
    ($ millions)            2009       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Interest income
    Loans               $  3,369   $  4,137   $  3,798   $  7,506   $  7,623
    Securities             1,198        868      1,200      2,066      2,368
    Securities
     purchased under
     resale agreements        99        156        204        255        433
    Deposits with banks      119        209        260        328        579
    -------------------------------------------------------------------------
                           4,785      5,370      5,462     10,155     11,003
    -------------------------------------------------------------------------
    Interest expenses
    Deposits               2,111      2,752      2,948      4,863      6,026
    Subordinated
     debentures               69         63         36        132         60
    Capital instrument
     liabilities               9          9          9         18         18
    Other                    509        580        596      1,089      1,212
    -------------------------------------------------------------------------
                           2,698      3,404      3,589      6,102      7,316
    -------------------------------------------------------------------------
    Net interest income    2,087      1,966      1,873      4,053      3,687
    Provision for credit
     losses (Note 5)         489        281        153        770        264
    -------------------------------------------------------------------------
    Net interest income
     after provision for
     credit losses         1,598      1,685      1,720      3,283      3,423
    -------------------------------------------------------------------------
    Other income
    Card revenues            105        113         93        218        188
    Deposit and payment
     services                225        231        208        456        415
    Mutual funds              63         80         78        143        156
    Investment management,
     brokerage and trust
     services                172        178        189        350        375
    Credit fees              203        185        140        388        273
    Trading revenues         235        180        123        415         79
    Investment banking       221        287        170        508        334
    Net gain (loss) on
     securities, other
     than trading           (133)      (144)        59       (277)        79
    Other                    418        275        239        693        425
    -------------------------------------------------------------------------
                           1,509      1,385      1,299      2,894      2,324
    -------------------------------------------------------------------------
    Net interest and
     other income          3,107      3,070      3,019      6,177      5,747
    -------------------------------------------------------------------------
    Non-interest expenses
    Salaries and employee
     benefits              1,024      1,130      1,005      2,154      1,983
    Premises and
     technology(1)           379        388        353        767        674
    Communications            89         90         80        179        155
    Advertising and
     business development     68         78         78        146        147
    Professional              53         54         68        107        113
    Business and capital
     taxes                    39         50         38         89         52
    Other(1)                 234        220        172        454        339
    -------------------------------------------------------------------------
                           1,886      2,010      1,794      3,896      3,463
    -------------------------------------------------------------------------
    Income before the
     undernoted            1,221      1,060      1,225      2,281      2,284
    Provision for
     income taxes            319        190        209        509        402
    Non-controlling
     interest in net
     income of
     subsidiaries             30         28         36         58         67
    -------------------------------------------------------------------------
    Net income          $    872   $    842   $    980   $  1,714   $  1,815
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Preferred dividends
     paid                     51         37         22         88         43
    -------------------------------------------------------------------------
    Net income
     available to common
     shareholders       $    821   $    805   $    958   $  1,626   $  1,772
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average number of
     common shares
     outstanding
     (millions):
      Basic                1,014      1,001        986      1,007        985
      Diluted              1,016      1,003        992      1,010        992
    -------------------------------------------------------------------------
    Earnings per common
     share (in
     dollars)(2):
      Basic             $   0.81   $   0.80   $   0.97   $   1.61   $   1.80
      Diluted           $   0.81   $   0.80   $   0.97   $   1.61   $   1.79
    -------------------------------------------------------------------------
    Dividends per
     common share
     (in dollars)       $   0.49   $   0.49   $   0.47   $   0.98   $   0.94
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Certain comparative amounts have been reclassified to conform to current
    period presentation.

    (1) Refer to note 1 for changes in accounting policies related to
        goodwill and intangible assets.
    (2) The calculation of earnings per share is based on full dollar and
        share amounts.

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



    Consolidated Balance Sheet

                                                    As at
    -------------------------------------------------------------------------
                                   April 30 January 31 October 31   April 30
    (Unaudited) ($ millions)           2009       2009       2008       2008
    -------------------------------------------------------------------------
    Assets
    Cash resources
    Cash and non-interest-bearing
     deposits with banks           $  2,919   $  3,007   $  2,574   $  2,641
    Interest-bearing deposits with
     banks                           27,340     27,261     32,318     26,178
    Precious metals                   3,690      3,529      2,426      3,668
    -------------------------------------------------------------------------
                                     33,949     33,797     37,318     32,487
    -------------------------------------------------------------------------
    Securities
    Trading                          61,107     50,529     48,292     62,138
    Available-for-sale (Note 3)      47,555     43,788     38,823     34,322
    Equity accounted investments      3,449      3,266        920        802
    -------------------------------------------------------------------------
                                    112,111     97,583     88,035     97,262
    -------------------------------------------------------------------------
    Securities purchased under
     resale agreements               14,838     14,182     19,451     15,323
    -------------------------------------------------------------------------
    Loans
    Residential mortgages           110,672    111,984    115,084    108,382
    Personal and credit cards        52,847     51,674     50,719     45,273
    Business and government         124,248    130,182    125,503    104,928
    -------------------------------------------------------------------------
                                    287,767    293,840    291,306    258,583
    Allowance for credit
     losses (Note 5)                  2,828      2,706      2,626      2,490
    -------------------------------------------------------------------------
                                    284,939    291,134    288,680    256,093
    -------------------------------------------------------------------------
    Other
    Customers' liability under
     acceptances                     11,801     13,144     11,969     11,782
    Derivative instruments           39,250     43,526     44,810     25,638
    Land, buildings and
     equipment(1)                     2,443      2,422      2,449      2,278
    Goodwill                          2,845      2,820      2,273      2,162
    Other intangible assets(1)          549        561        521        491
    Other assets                     10,842     10,660     12,119      9,057
    -------------------------------------------------------------------------
                                     67,730     73,133     74,141     51,408
    -------------------------------------------------------------------------
                                   $513,567   $509,829   $507,625   $452,573
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities and shareholders'
     equity
    Deposits
    Personal                       $125,308   $122,648   $118,919   $109,994
    Business and government         195,021    198,887    200,566    176,878
    Banks                            26,531     25,035     27,095     35,566
    -------------------------------------------------------------------------
                                    346,860    346,570    346,580    322,438
    -------------------------------------------------------------------------
    Other
    Acceptances                      11,801     13,144     11,969     11,782
    Obligations related to
     securities sold under
     repurchase agreements           42,407     35,578     36,506     27,446
    Obligations related to
     securities sold short           14,608     11,963     11,700     15,028
    Derivative instruments           41,292     43,831     42,811     24,010
    Other liabilities                26,296     29,474     31,063     26,412
    Non-controlling interest in
     subsidiaries                       536        549        502        588
    -------------------------------------------------------------------------
                                    136,940    134,539    134,551    105,266
    -------------------------------------------------------------------------
    Subordinated debentures
     (Note 6)                         6,359      5,407      4,352      3,946
    -------------------------------------------------------------------------
    Capital instrument liabilities      500        500        500        500
    -------------------------------------------------------------------------
    Shareholders' equity
    Capital stock
      Preferred shares (Note 7)       3,710      3,710      2,860      2,210
      Common shares                   4,629      4,496      3,829      3,643
    Retained earnings                19,179     18,853     18,549     18,300
    Accumulated other
     comprehensive income
     (loss) (Note 8)                 (4,610)    (4,246)    (3,596)    (3,730)
    -------------------------------------------------------------------------
                                     22,908     22,813     21,642     20,423
    -------------------------------------------------------------------------
                                   $513,567   $509,829   $507,625   $452,573
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Certain comparative amounts have been reclassified to conform with
    current period presentation.

    (1) Refer to note 1 for changes in accounting policies related to
        goodwill and intangible assets.

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



    Consolidated Statement of Changes in Shareholders' Equity

                                                    For the six months ended
    -------------------------------------------------------------------------
                                                         April 30   April 30
    (Unaudited) ($ millions)                                 2009       2008
    -------------------------------------------------------------------------
    Preferred shares
    Balance at beginning of period                       $  2,860   $  1,635
    Issued                                                    850        575
    -------------------------------------------------------------------------
    Balance at end of period                                3,710      2,210
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Common shares
    Balance at beginning of period                          3,829      3,566
    Issued                                                    800         77
    -------------------------------------------------------------------------
    Balance at end of period                                4,629      3,643
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Retained earnings
    Balance at beginning of period                         18,549     17,460
    Net income                                              1,714      1,815
    Dividends: Preferred                                      (88)       (43)
               Common                                        (990)      (926)
    Other                                                      (6)        (6)
    -------------------------------------------------------------------------
    Balance at end of period                               19,179     18,300
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Accumulated other comprehensive income (loss)
    Balance at beginning of period                         (3,596)    (3,857)
    Other comprehensive income (loss)                      (1,014)       127
    -------------------------------------------------------------------------
    Balance at end of period                               (4,610)    (3,730)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total shareholders' equity at end of period          $ 22,908   $ 20,423
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statement of Comprehensive Income

                                               For the               For the
                                    three months ended      six months ended
    -------------------------------------------------------------------------
                                   April 30   April 30   April 30   April 30
    (Unaudited) ($ millions)           2009       2008       2009       2008
    -------------------------------------------------------------------------
    Comprehensive income
    Net income                     $    872   $    980   $  1,714   $  1,815
    -------------------------------------------------------------------------
    Other comprehensive income
     (loss), net of income
     taxes (Note 8):
    Net change in unrealized
     foreign currency translation
     losses                            (323)       (85)      (449)       800
    Net change in unrealized gains
     (losses) on available-for-sale
     securities                         (51)      (210)      (437)      (270)
    Net change in gains (losses)
     on derivative instruments
     designated as cash flow hedges      10       (140)      (128)      (403)
    -------------------------------------------------------------------------
    Other comprehensive income
     (loss)                            (364)      (435)    (1,014)       127
    -------------------------------------------------------------------------
    Comprehensive income           $    508   $    545   $    700   $  1,942
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these interim consolidated
    financial statements.



    Condensed Consolidated Statement of Cash Flows

                                               For the               For the
                                    three months ended      six months ended
    -------------------------------------------------------------------------
    Sources (uses) of cash flows   April 30   April 30   April 30   April 30
    (Unaudited) ($ millions)           2009       2008       2009       2008
    -------------------------------------------------------------------------
    Cash flows from operating
     activities
    Net income                     $    872   $    980   $  1,714   $  1,815
    Adjustments to determine net
     cash flows from (used in)
     operating activities               796        (23)       898        216
    Net accrued interest
     receivable and payable            (294)       (11)      (214)       233
    Trading securities              (10,850)    (1,200)   (13,201)    (1,531)
    Derivative assets                 3,648        242      5,660       (885)
    Derivative liabilities           (1,930)    (1,666)    (1,593)    (3,408)
    Other, net                       (1,425)       634     (3,760)     1,472
    -------------------------------------------------------------------------
                                     (9,183)    (1,044)   (10,496)    (2,088)
    -------------------------------------------------------------------------
    Cash flows from financing
     activities
    Deposits                          3,567      4,007      2,142     21,337
    Obligations related to
     securities sold under
     repurchase agreements            6,878     (5,841)     6,441     (1,612)
    Obligations related to
     securities sold short            2,743      1,430      2,990     (1,336)
    Subordinated debentures issued    1,000      1,800      2,000      2,194
    Preferred shares issued               -        345        600        575
    Common shares issued                130         27        297         63
    Cash dividends paid                (548)      (485)    (1,078)      (969)
    Other, net                       (2,716)      (477)    (2,364)       949
    -------------------------------------------------------------------------
                                     11,054        806     11,028     21,201
    -------------------------------------------------------------------------
    Cash flows from investing
     activities
    Interest-bearing deposits
     with banks                        (112)     3,558      2,839     (1,621)
    Securities purchased under
     resale agreements                 (644)     5,150      4,228      7,687
    Loans, excluding
     securitizations                 (2,338)    (8,823)    (9,150)   (22,333)
    Loan securitizations              4,418      1,142      9,181      1,692
    Securities, other than
     trading, net                    (3,146)      (869)    (5,535)    (2,904)
    Land, buildings and
     equipment, net of disposals        (76)       (76)      (127)      (155)
    Other, net(1)                        (2)       (35)    (1,565)    (1,081)
    -------------------------------------------------------------------------
                                     (1,900)        47       (129)   (18,715)
    -------------------------------------------------------------------------
    Effect of exchange rate
     changes on cash and cash
     equivalents                        (59)        16        (58)       105
    -------------------------------------------------------------------------
    Net change in cash and cash
     equivalents                        (88)      (175)       345        503
    Cash and cash equivalents at
     beginning of period              3,007      2,816      2,574      2,138
    -------------------------------------------------------------------------
    Cash and cash equivalents at
     end of period(2)              $  2,919   $  2,641   $  2,919   $  2,641
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash disbursements made for:
      Interest                     $  2,849   $  3,571   $  6,463   $  7,224
      Income taxes                 $    466   $    423   $    719   $    754
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Certain comparative amounts have been reclassified to conform with
    current period presentation.

    (1) For the three and six months ended April 30, 2009, comprises
        investments in subsidiaries, net of cash and cash equivalents at the
        date of acquisition of nil and nil, respectively (April 30, 2008 - $2
        and $37, respectively), and net of non-cash consideration of common
        shares issued from treasury of nil and $500, respectively (April 30,
        2008 - nil and nil, respectively), and net of non-cumulative
        preferred shares of nil and $250, respectively (April 30, 2008 - nil
        and nil, respectively).
    (2) Represents cash and non-interest-bearing deposits with banks.

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



    Notes to the Interim Consolidated Financial Statements (Unaudited)

    These interim consolidated financial statements have been prepared in
    accordance with Canadian Generally Accepted Accounting Principles (GAAP).
    They should be read in conjunction with the consolidated financial
    statements for the year ended October 31, 2008. 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, except as discussed in
    Note 1.

    1.  Changes in accounting policies

        Goodwill and intangible assets

        Commencing November 1, 2008, the Bank adopted a new accounting
        standard - Goodwill and Intangible Assets. As a result of adopting
        the new standard, certain software costs previously recorded as Land,
        buildings and equipment are now recorded as Other intangible assets
        in the Consolidated Balance Sheet. Accordingly, $239 million as at
        October 31, 2008 (as at January 31, 2008 - $220 million; as at April
        30, 2008 - $228 million) was reclassified from Land, building and
        equipment to Other intangible assets. The related amortization
        expense that was previously recorded in Premises and technology
        non-interest expenses on the Consolidated Statement of Income is now
        recorded as Other non-interest expenses. Accordingly, $6 million for
        the three-month period ended April 30, 2008 (six-month period ended
        April 30, 2008 - $12 million) was reclassified from Premises and
        technology non-interest expenses to Other non-interest expenses.

        Note 1 to the Bank's 2008 annual audited consolidated financial
        statements describes accounting policy changes for the prior year.

    2.  Future accounting changes

        The following summarizes future accounting policy changes that will
        be relevant to the Bank's consolidated financial statements.

        International Financial Reporting Standards (IFRS)

        The Canadian Accounting Standards Board (AcSB) has determined that
        profit-oriented publicly accountable enterprises will be required to
        adopt International Financial Reporting Standards. IFRS will replace
        current Canadian GAAP for those enterprises. For the Bank, IFRS will
        be effective for interim and annual periods commencing November 1,
        2011, including the preparation and reporting of one year of
        comparative figures. The Bank is currently in the process of
        evaluating the impacts and implications from its conversion to IFRS.

    3.  Securities

        An analysis of unrealized gains and losses on available-for-sale
        securities is as follows:

                                                       As at
                                   ------------------------------------------
                                                  April 30, 2009
                                   ------------------------------------------
                                                 Gross      Gross
                                            unrealized unrealized       Fair
        ($ millions)                 Cost(1)     gains     losses      value
        ---------------------------------------------------------------------
        Canadian federal government
         debt                       $15,975    $   527    $    25    $16,477
        Canadian provincial and
         municipal debt               1,109         23          -      1,132
        U.S. treasury and other
         U.S. agencies' debt          1,187         15         18      1,184
        Other foreign governments'
         debt                         6,682        303        114      6,871
        Bonds of designated
         emerging markets               332        187          2        517
        Other debt                   20,530        310      2,386     18,454
        Preferred shares                580         14        177        417
        Common shares                 2,668        107        272      2,503
                                   ------------------------------------------
        Total available-for-sale
         securities                 $49,063    $ 1,486    $ 2,994    $47,555
                                   ------------------------------------------
                                   ------------------------------------------

                                                       As at
                                   ------------------------------------------
                                                 October 31, 2008
                                   ------------------------------------------
                                                 Gross      Gross
                                            unrealized unrealized       Fair
        ($ millions)                 Cost(1)     gains     losses      value
        ---------------------------------------------------------------------
        Canadian federal government
         debt                       $ 9,662    $   232    $     1    $ 9,893
        Canadian provincial and
         municipal debt                  14          -          -         14
        U.S. treasury and other
         U.S. agencies' debt          2,178         12         14      2,176
        Other foreign governments'
         debt                         6,983        226        124      7,085
        Bonds of designated
         emerging markets               334        140          5        469
        Other debt                   17,398         69      1,492     15,975
        Preferred shares                598          5         64        539
        Common shares                 2,884        134        346      2,672
                                   ------------------------------------------
        Total available-for-sale
         securities                 $40,051    $   818    $ 2,046    $38,823
                                   ------------------------------------------
                                   ------------------------------------------
        (1) Cost for debt securities is amortized cost.


        The net unrealized loss on available-for-sale securities of $1,508
        million (October 31, 2008 - $1,228 million) increases to a net
        unrealized loss of $1,827 million (October 31, 2008 - $1,320 million)
        after the net fair value of derivative instruments and other hedge
        amounts associated with these securities is taken into account. The
        net unrealized loss on available-for-sale securities is recorded in
        accumulated other comprehensive income.

    4.  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 April 30, 2009, the key
        weighted-average assumptions used to measure the fair value at the
        dates of securitization were a prepayment rate of 21%, an excess
        spread of 2.4% and a discount rate of 2.3%. The following table
        summarizes the Bank's sales.

                                                                     For the
                            For the three months ended      six months ended
        ---------------------------------------------------------------------
                        April 30 January 31   April 30   April 30   April 30
        ($ millions)        2009       2009       2008       2009       2008
        ---------------------------------------------------------------------
        Net cash
         proceeds(1)    $  4,418   $  4,763   $  1,142   $  9,181   $  1,692
        Retained
         interest            225        170         37        395         53
        Retained
         servicing
         liability           (24)       (29)        (6)       (53)       (10)
        ---------------------------------------------------------------------
                           4,619      4,904      1,173      9,523      1,735
        Residential
         mortgages
         securitized       4,420      4,827      1,142      9,247      1,697
        ---------------------------------------------------------------------
        Net gain (loss)
         on sale(2)     $    199   $     77   $     31   $    276   $     38
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Excludes insured mortgages which were securitized and retained by
            the Bank of $1,382 for the three months ended April 30, 2009
            (January 31, 2009 - $847; April 30, 2008 - $555), and $2,229 for
            the six months ended April 30, 2009 (April 30, 2008 - $1,906). As
            at April 30, 2009, the outstanding balance of mortgage-backed
            securities was $5,296, and these assets have been classified as
            available-for-sale securities.
        (2) Net of issuance cost.

    5.  Impaired loans and allowance for credit losses

        (a) Impaired loans

                                                          As at
        ---------------------------------------------------------------------
                                              April 30 January 31 October 31
                                                  2009       2009       2008
        ---------------------------------------------------------------------
                                   Specific
        ($ millions)       Gross  allowance(1)     Net        Net        Net
        ---------------------------------------------------------------------
        By loan type:
          Residential
           mortgages    $    892   $    243   $    649   $    542   $    432
          Personal and
           credit cards      965        669        296        154         84
          Business and
           government      1,740        506      1,234        906        675
        ---------------------------------------------------------------------
        Total           $  3,597   $  1,418   $  2,179   $  1,602   $  1,191
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        By geography:
          Canada                              $    746   $    449   $    354
          United States                            191        131         80
          Other
           International                         1,242      1,022        757
        ---------------------------------------------------------------------
        Total                                 $  2,179   $  1,602   $  1,191
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) The specific allowance for impaired loans evaluated on an
            individual basis totalled $503 (January 31, 2009 - $459;
            October 31, 2008 - $462).

        (b) Allowance for credit losses

        During the second quarter of 2009, the Bank established a sectoral
        allowance of $60 million related to the automotive industry. This
        industry continued to deteriorate during the quarter, as evidenced by
        an increase in number of credit defaults as well as downgrades in
        publicly available debt ratings for companies in that industry. The
        sectoral allowance is in addition to the specific and general
        allowances.

        The general allowance is established against the loan portfolio in
        respect of the Bank's core business lines, where prudent assessment
        by the Bank of past experience and existing economic and portfolio
        conditions indicate that it is probable that losses have occurred,
        but where such losses cannot be determined on an item-by-item basis.

        When an industry sector or geographic region experiences specific
        adverse events or changes in economic conditions, it may be necessary
        to establish an additional allowance for loan losses for the group of
        loans as a whole, even though the individual loans comprising the
        group are still classified as performing. These allowances are
        considered sectoral and are established for losses which have not
        been specifically identified, and where the losses are not adequately
        covered by the general allowance. The level of the allowances
        considers the probability of default, loss given default and expected
        exposure at default.

                                                                     For the
                            For the three months ended      six months ended
        ---------------------------------------------------------------------
                        April 30 January 31   April 30   April 30   April 30
        ($ millions)        2009       2009       2008       2009       2008
        ---------------------------------------------------------------------
        Balance at
         beginning of
         period         $  2,714   $  2,634   $  2,462   $  2,634   $  2,252
        Writeoffs           (397)      (283)      (190)      (680)      (384)
        Recoveries            48         59         51        107        102
        Provision for
         credit losses       489        281        153        770        264
        Other, including
         foreign
         exchange
         adjustment          (18)        23         22          5        264
        ---------------------------------------------------------------------
        Balance at the
         end of
         period(1)(2)
         (3)            $  2,836   $  2,714   $  2,498   $  2,836   $  2,498
        ---------------------------------------------------------------------
        (1) As at April 30, 2009, includes nil of specific allowance and nil
            of general allowances relating to acquisition of a new subsidiary
            (January 31, 2009 - nil and nil, respectively; April 30, 2008 -
            $149 and $25, respectively), which may change as the valuation of
            acquired loan assets is finalized.
        (2) As at April 30, 2009, $8 has been recorded in other liabilities
            (January 31, 2009 - $8; April 30, 2008 - $8).
        (3) As at April 30, 2009, the sectoral allowance for credit losses
            was $60 (January 31, 2009 - nil; April 30, 2008 - nil) and the
            general allowance for credit losses was $1,350 (January 31, 2009
            - $1,323; April 30, 2008 - $1,323).

    6.  Subordinated debentures

        (a) Subordinated debentures totalling $1 billion were issued on
        January 22, 2009, and will mature on January 22, 2021. Interest is
        payable semi-annually in arrears, commencing on July 22, 2009, at
        6.65% per annum until January 22, 2016. From January 22, 2016, until
        maturity, interest is payable at an annual rate equal to the 90-day
        Bankers' Acceptance Rate plus 5.85%, payable quarterly in arrears
        commencing April 22, 2016. The subordinated debentures are redeemable
        by the Bank, at any time subject to prior regulatory approval. The
        subordinated debentures qualify as Tier 2B capital.

        (b) Subordinated debentures totaling $1 billion were issued on
        April 15, 2009 and will mature on April 15, 2019. Interest is payable
        semi-annually in arrears, commencing on October 15, 2009, at 4.94%
        per annum until April 15, 2014. From April 15, 2014, until maturity,
        interest is payable at an annual rate equal to the 90-day Bankers'
        Acceptance Rate plus 4.24%, payable quarterly in arrears commencing
        July 15, 2014. The subordinated debentures are redeemable by the
        Bank, at any time subject to prior regulatory approval. The
        subordinated debentures qualify as Tier 2B capital.

    7.  Capital management

        The Bank has a capital management process in place to measure, deploy
        and monitor its available capital and assess its adequacy. The
        objectives and practices of the Bank's capital management process are
        consistent with those in place as at October 31, 2008.

        Regulatory capital ratios

        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 represent the Bank's exposures to credit, market and
        operational risk and are computed by applying a combination of the
        Bank's internal credit risk parameters and Office of the
        Superintendent of Financial Institutions, Canada (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 substantially exceeded
        these minimum ratio thresholds as at April 30, 2009. OSFI has also
        prescribed an asset-to-capital leverage multiple; the Bank was in
        compliance with this threshold as at April 30, 2009.

        Bank regulatory capital consists of two components - Tier 1 capital,
        which is more permanent, and Tier 2 capital as follows:

                                                           As at
        ---------------------------------------------------------------------
                                              April 30 January 31 October 31
        (unaudited) ($ millions)                  2009       2009       2008
        ---------------------------------------------------------------------
        Shareholders' equity per
         consolidated balance sheet           $ 22,908   $ 22,813   $ 21,642
        Components of accumulated other
         comprehensive income excluded from
         Tier 1                                  1,735      1,624      1,220
        Capital instrument liabilities
         - trust securities                      2,750      2,750      2,750
        Non-controlling interest in
         subsidiaries                              536        549        502
        Goodwill deduction                      (2,845)    (2,820)    (2,273)
        Other capital deductions(1)             (1,951)    (2,077)      (578)
        ---------------------------------------------------------------------
        Tier 1 capital                          23,133     22,839     23,263
        ---------------------------------------------------------------------
        Qualifying subordinated debentures,
         net of amortization                     6,309      5,357      4,227
        Trust subordinated notes                 1,000      1,000      1,000
        Other net capital items(2)              (1,832)    (1,818)      (643)
        ---------------------------------------------------------------------
        Tier 2 capital                           5,477      4,539      4,584
        ---------------------------------------------------------------------
        Total Regulatory Capital                28,610     27,378     27,847
        ---------------------------------------------------------------------
        Total risk weighted assets            $241,837   $239,660   $250,591
        ---------------------------------------------------------------------
        Capital ratios
        Tier 1 capital ratio                      9.6%       9.5%       9.3%
        Total capital ratio                      11.8%      11.4%      11.1%
        Assets-to-capital multiple               17.3x      18.1x      18.0x
        ---------------------------------------------------------------------
        (1) Comprised of 50% of all investments in certain specified
            corporations and other items.
        (2) Comprised of 50% of all investments in specified corporations and
            other items, 100% of investments in insurance entities, offset by
            eligible allowance for credit losses.

        Significant capital transactions

        (a) In the third quarter of 2008, the Bank initiated a new normal
        course issuer bid to purchase up to 20 million of the Bank's common
        shares. This represented approximately 2% of the Bank's common shares
        outstanding as at April 30, 2008. The bid terminated on January 11,
        2009.

        (b) On December 12, 2008, the Bank issued 14,450,867 common shares at
        a price of $34.60 per share as part of the acquisition of CI
        Financial Corp. (CI Financial). Refer to Note 12 for further details.

        (c) Series 24 non-cumulative five-year rate reset preferred shares
        totaling $250 million were issued on December 12, 2008, as part of
        the acquisition of CI Financial. Holders are entitled to receive
        fixed non-cumulative preferential cash dividends, payable quarterly,
        if and when declared, in an amount of $0.3906 per share for the
        initial five-year fixed rate period ending on January 25, 2014. The
        initial dividend was paid on April 28, 2009, in an amount of $0.5865
        per share. Subsequent to the initial five-year fixed rate period, and
        resetting every five years thereafter, the dividends will be
        determined by the sum of the five-year Government of Canada yield
        plus 3.84%, multiplied by $25.00. Holders of Series 24 preferred
        shares have the option to convert their shares into an equal number
        of Series 25 non-cumulative floating rate preferred shares on January
        26, 2014, and on January 26 every five years thereafter. Series 25
        preferred shares are entitled to receive floating rate non-cumulative
        preferential cash dividends, if and when declared, in an amount per
        share equal to the sum of the treasury-bill rate plus 3.84%,
        multiplied by $25.00. If the Bank determines that, after giving
        effect to any election notices received, there would be less than
        1 million Series 24 preferred shares issued and outstanding on the
        applicable Series 24 conversion date, all of the issued and
        outstanding Series 24 preferred shares will automatically be
        converted on such Series 24 conversion date into an equal number of
        Series 25 preferred shares. With prior written approval of the
        Superintendent of Financial Institutions Canada, Series 24 preferred
        shares and, if applicable, Series 25 preferred shares, are redeemable
        by the Bank. These shares are redeemable at $25.00 per share on
        January 26, 2014, and every five years thereafter. On all other dates
        beginning January 26, 2014, Series 25 preferred shares are redeemable
        at $25.00 per share plus a redemption premium of $0.50 per share.
        These preferred shares qualify as Tier 1 capital.

        (d) Series 26 non-cumulative five-year rate reset preferred shares
        totaling $325 million were issued on January 21, 2009. Holders are
        entitled to receive fixed non-cumulative preferential cash dividends,
        payable quarterly, if and when declared, in an amount of $0.390625
        per share for the initial five-year fixed rate period ending on April
        25, 2014. The initial dividend was paid on April 28, 2009, in an
        amount of $0.41524 per share. Subsequent to the initial five-year
        fixed rate period, and resetting every five years thereafter, the
        dividends will be determined by the sum of the five-year Government
        of Canada yield plus 4.14%, multiplied by $25.00. Holders of Series
        26 preferred shares have the option to convert their shares into an
        equal number of Series 27 non-cumulative floating rate preferred
        shares on April 26, 2014, and on April 26 every five years
        thereafter. Series 27 preferred shares are entitled to receive
        floating rate non-cumulative preferential cash dividends, if and when
        declared, in an amount per share equal to the sum of the
        treasury-bill rate plus 4.14%, multiplied by $25.00. If the Bank
        determines that, after giving effect to any election notices
        received, there would be less than 1 million Series 26 preferred
        shares issued and outstanding on the applicable Series 26 conversion
        date, all of the issued and outstanding Series 26 preferred shares
        will automatically be converted on such Series 26 conversion date
        into an equal number of Series 27 preferred shares. With prior
        written approval of the Superintendent of Financial Institutions
        Canada, Series 26 preferred shares and, if applicable, Series 27
        preferred shares, are redeemable by the Bank. These shares are
        redeemable at $25.00 per share on April 26, 2014, and every five
        years thereafter. On all other dates beginning April 26, 2014, Series
        27 preferred shares are redeemable at $25.00 per share plus a
        redemption premium of $0.50 per share. These preferred shares qualify
        as Tier 1 capital.

        (e) Series 28 non-cumulative five-year rate reset preferred shares
        totaling $275 million were issued on January 30, 2009. Holders are
        entitled to receive fixed non-cumulative preferential cash dividends,
        payable quarterly, if and when declared, in an amount of $0.390625
        per share for the initial five-year fixed rate period ending on
        April 25, 2014. The initial dividend, was paid on April 28, 2009, in
        an amount of $0.37671 per share. Subsequent to the initial five-year
        fixed rate period, and resetting every five years thereafter, the
        dividends will be determined by the sum of the five-year Government
        of Canada yield plus 4.46%, multiplied by $25.00. Holders of Series
        28 preferred shares have the option to convert their shares into an
        equal number of Series 29 non-cumulative floating rate preferred
        shares on April 26, 2014, and on April 26 every five years
        thereafter. Series 29 preferred shares are entitled to receive
        floating rate non-cumulative preferential cash dividends, if and when
        declared, in an amount per share equal to the sum of the treasury-
        bill rate plus 4.46%, multiplied by $25.00. If the Bank determines
        that, after giving effect to any election notices received, there
        would be less than 1 million Series 28 preferred shares issued and
        outstanding on the applicable Series 28 conversion date, all of the
        issued and outstanding Series 28 preferred shares will automatically
        be converted on such Series 28 conversion date into an equal number
        of Series 29 preferred shares. With prior written approval of the
        Superintendent of Financial Institutions Canada, Series 28 preferred
        shares and, if applicable, Series 29 preferred shares, are redeemable
        by the Bank. These shares are redeemable at $25.00 per share on April
        26, 2014, and every five years thereafter. On all other dates
        beginning April 26, 2014, Series 29 preferred shares are redeemable
        at $25.00 per share plus a redemption premium of $0.50 per share.
        These preferred shares qualify as Tier 1 capital.

    8.  Accumulated other comprehensive income (loss)

        The components of accumulated other comprehensive income (loss) as at
        April 30, 2009, and other comprehensive income (loss) for the six
        months then ended were as follows:

        Accumulated other comprehensive income (loss)

                                          As at and for the six months ended
        ---------------------------------------------------------------------
                                           Opening          Net       Ending
                                           balance       change      balance
                                       --------------------------------------
                                        October 31                  April 30
        ($ millions)                          2008                      2009
        ---------------------------------------------------------------------
        Unrealized foreign currency
         translation gains (losses),
         net of hedging activities      $   (2,181)  $     (449)  $(2,630)(1)
        Unrealized gains (losses) on
         available-for-sale securities,
         net of hedging activities            (949)        (437)   (1,386)(2)
        Gains (losses) on derivative
         instruments designated as
         cash flow hedges                     (466)        (128)     (594)(3)
        ---------------------------------------------------------------------
        Accumulated other comprehensive
         income (loss)                  $   (3,596)  $   (1,014)  $   (4,610)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

                                          As at and for the six months ended
        ---------------------------------------------------------------------
                                           Opening          Net       Ending
                                           balance       change      balance
                                       --------------------------------------
                                        October 31                  April 30
        ($ millions)                          2007                      2008
        ---------------------------------------------------------------------
        Unrealized foreign currency
         translation gains (losses),
         net of hedging activities      $   (4,549)  $      800   $(3,749)(1)
        Unrealized gains (losses) on
         available-for-sale securities,
         net of hedging activities             639         (270)       369(2)
        Gains (losses) on derivative
         instruments designated as
         cash flow hedges                       53         (403)     (350)(3)
        ---------------------------------------------------------------------
        Accumulated other comprehensive
         income (loss)                  $   (3,857)  $      127   $   (3,730)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Net of income tax expense of $435 (April 30, 2008 - expense of
            $574).
        (2) Net of income tax benefit of $441 (April 30, 2008 - expense of
            $186).
        (3) Net of income tax benefit of $239 (April 30, 2008 - benefit of
            $163).


        Other comprehensive income (loss)

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

                                               For the               For the
                                    three months ended      six months ended
        ---------------------------------------------------------------------
                                   April 30   April 30   April 30   April 30
        ($ millions)                   2009       2008       2009       2008
        ---------------------------------------------------------------------
        Net change in unrealized
         foreign currency
         translation losses
        Net unrealized foreign
         currency translation
         gains (losses)(1)         $   (479)  $    182   $   (523)  $  1,323
        Net gains (losses) on
         hedges of net investments
         in self-sustaining
         foreign operations(2)          156       (267)        74       (523)
        ---------------------------------------------------------------------
                                       (323)       (85)      (449)       800
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Net change in unrealized
         gains (losses) on
         available-for-sale
         securities
        Net unrealized losses on
         available-for-sale
         securities(3)                  (32)      (151)      (305)      (143)
        Reclassification of net
         gains to net income(4)         (19)       (59)      (132)      (127)
        ---------------------------------------------------------------------
                                        (51)      (210)      (437)      (270)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Net change in gains
         (losses) on derivative
         instruments designated
         as cash flow hedges
        Net gains (losses) on
         derivative instruments
         designated as cash flow
         hedges(5)                       24         22       (299)       300
        Reclassification of net
         (gains) losses to net
         income(6)                      (14)      (162)       171       (703)
        ---------------------------------------------------------------------
                                         10       (140)      (128)      (403)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Other comprehensive income
         (loss)                    $   (364)  $   (435)  $ (1,014)  $    127
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Net of income tax expense of nil.
        (2) For the three and six months ended April 30, 2009, net of income
            tax expense and of $90 and $117, respectively. (April 30, 2008 -
            expense of $241 $147, respectively).
        (3) For the three and six months ended April 30, 2009, net of income
            tax expense of $58 and benefit of $64, respectively (April 30,
            2008 - benefit expense of $58 and $104, respectively).
        (4) For the three and six months ended April 30, 2009, net of income
            tax expense of $4 and $6, respectively (April 30, 2008 - expense
            of $32 and $48, respectively).
        (5) For the three and six months ended April 30, 2009, net of income
            tax expense of $50 and benefit of $88, respectively (April 30,
            2008 - expense of $12 and $138, respectively).
        (6) For the three and six months ended April 30, 2009, net of income
            tax expense benefit of $16 and benefit of $67, respectively
            (April 30, 2008 - expense of $75 and $326, respectively).

    9.  Financial instruments

        Risk management

        The Bank's principal business activities result in a balance sheet
        that consists primarily of financial instruments. In addition, the
        Bank uses derivative financial instruments for both trading and
        asset/liability management purposes. The principal financial risks
        that arise from transacting financial instruments include credit
        risk, liquidity risk and market risk. The Bank's framework to
        monitor, evaluate and manage these risks is consistent with that in
        place as at October 31, 2008.

        (a) 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.

        Credit risk exposures

        Credit risk exposures disclosed below are presented based on Basel II
        approaches utilized by the Bank. All material portfolios in Canada,
        U.S. and Europe are treated under the advanced internal ratings based
        approach (AIRB), and the remaining portfolios including other
        international portfolios are treated under the standardized approach.
        under the AIRB approach, the Bank uses internal risk parameter
        estimates, based on historical experience.

        Under the standardized approach, credit risk is estimated using the
        risk weights as prescribed by the Basel II framework, either based on
        credit assessments by external rating agencies or based on the
        counterparty type for non-retail exposures and product type for
        retail exposures.

        Exposure at default(1)
        ---------------------------------------------------------------------
                                                          January    October
        As at                April 30, 2009              31, 2009   31, 2008
        ---------------------------------------------------------------------
                                   Standard-
        ($ millions)      AIRB(2)      ized      Total      Total      Total
        ---------------------------------------------------------------------
        By exposure
         sub-type
        Non-retail(2)
          Drawn(3)      $141,986   $ 69,677   $211,663   $213,691   $208,494
          Undrawn
           commitments    54,378      3,879     58,257     59,964     64,870
          Other
           exposures(4)   74,577      2,820     77,397     86,852     87,713
        ---------------------------------------------------------------------
          Total
           non-retail    270,941     76,376    347,317    360,507    361,077
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Retail
          Drawn(5)       102,998     35,332    138,330    137,553    137,624
          Undrawn
           commitments     5,625        226      5,851      8,886      7,540
        ---------------------------------------------------------------------
          Total retail   108,623     35,558    144,181    146,439    145,164
        ---------------------------------------------------------------------
        Total           $379,564   $111,934   $491,498   $506,946   $506,241
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) After credit risk mitigation, excludes available-for-sale equity
            securities and other assets.
        (2) Non-retail AIRB drawn and undrawn exposures include government
            guaranteed mortgages at $33.2 billion.
        (3) Non-retail drawn includes loans, bankers' acceptances, deposits
            with banks and available-for-sale debt securities.
        (4) Includes off-balance sheet lending instruments such as letters of
            credit, letters of guarantee, securitization, derivatives and
            repo-style transactions net of related collateral.
        (5) Retail drawn includes residential mortgages, credit cards, lines
            of credit and other personal loans.

        Credit quality of non-retail exposures

        The Bank's non-retail portfolio is well diversified by industry. As
        at April 30, 2009, 78% of the AIRB portfolio was internally assessed
        at a grade that would generally equate to an investment grade rating
        by external rating agencies. Exposures in the standardized portfolio,
        mainly in the Caribbean and Latin American region, are primarily to
        non-investment grade counterparties, based on the Bank's internal
        grade systems. There has not been a significant change in
        concentrations of credit risk since October 31, 2008.

        As at April 30, 2009, non-retail loans not assessed as impaired but
        with payments past due were $1.2 billion. This represented 1% of the
        total non-retail loan portfolio.

        Credit quality of retail exposures

        The Bank's retail portfolios consist of a number of relatively small
        loans to a large number of borrowers. The portfolios are distributed
        across Canada and a wide range of countries. As such, the portfolios
        inherently have a high degree of diversification. As at April 30,
        2009, retail loans not assessed as impaired but with payments more
        than 30 days past due were $2.6 billion, of which 75% relate to
        insured and conventional residential mortgages. This represented 1.6%
        of the total retail loan portfolio.

        Retail standardized portfolio

        The retail standardized portfolio of $36 billion as at April 30, 2009
        (January 31, 2009 - $37 billion), was comprised of residential
        mortgages, personal loans, credit cards and lines of credit to
        individuals, mainly in the Caribbean and Latin American region. Of
        the total standardized retail exposures, $22 billion (January 31,
        2009 - $23 billion) related to mortgages and loans secured by
        residential real estate, mostly with a loan-to-value ratio of 80% or
        less at origination.

        Collateral

        Collateral held

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

        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 April
        30, 2009, total assets pledged were $56 billion (January 31, 2009 -
        $55 billion; October 31, 2008 - $45 billion; April 30, 2008 -
        $46 billion). Asset pledging transactions are conducted under terms
        that are common and customary to standard derivative, securities
        borrowing and lending, and other lending activities.

        (b) 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 holdings of liquid assets, which can generally be sold or
        pledged to meet its obligations, amounted to $122 billion as at
        April 30, 2009 (January 31, 2009 - $108 billion; October 31, 2008 -
        $106 billion; April 30, 2008 - $112 billion), representing 24% of the
        Bank's total assets (January 31, 2009 - 21%; October 31, 2008 - 21%;
        April 30, 2008 - 25%).

        Contractual maturities

        The table below shows the contractual maturities of certain of the
        Bank's financial liabilities.

                                         Payable on a fixed date
                                      ----------------------------
                                                           Greater
    As at April    Payable   Payable      Less    One to      than
     30, 2009           on     after  than one      five      five
    ($ millions)    demand    notice      year     years     years     Total
    -------------------------------------------------------------------------
    Deposits      $ 38,740  $ 57,621  $183,120  $ 61,372  $  6,007  $346,860
    Subordinated
     debentures          -         -         -       251     6,108     6,359
    Capital
     instrument
     liabilities         -         -         -         -       500       500
    -------------------------------------------------------------------------
    Total         $ 38,740  $ 57,621  $183,120  $ 61,623  $ 12,615  $353,719
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    As at
     January 31,
     2009         $ 38,201  $ 54,654  $184,039  $64,016(2)$11,567(2)$352,477
    -------------------------------------------------------------------------
    As at
     October 31,
     2008         $ 37,157  $ 52,312  $186,818  $ 63,911  $ 11,234  $351,432
    -------------------------------------------------------------------------
    As at
     April 30,
     2008(1)      $ 26,097  $ 42,127  $112,847  $ 52,850  $ 11,927 $ 245,848
    -------------------------------------------------------------------------
    (1) Included in the Bank's contractual maturities of financial
        liabilities at April 30, 2008, are deposits recorded in Canada and
        the United States of $241 billion, representing 75% of the Bank's
        total deposits.
    (2) These amounts have been restated from those presented as at
        January 31, 2009 due to a reclassification between these categories.

        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. The majority
        of these commitments, which are not reflected on the Consolidated
        Balance Sheet, had a remaining term to maturity of less than one year
        for all periods presented.

        Derivative instruments

        The Bank is subject to liquidity risk relating to its use of
        derivatives to meet customer needs, generate revenues from trading
        activities, manage market and credit risks arising from its lending,
        funding and investment activities, and lower its cost of capital. As
        at April 30, 2009, 49% (January 31, 2009 - 49%; April 30, 2008 - 56%)
        of the notional value of the Bank's derivative instruments mature
        within one year, while 86% (January 31, 2009 - 85%; April 30, 2008 -
        86%) mature within five years.

        (c) 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.

        Interest rate risk

        Interest rate risk, inclusive of credit spread risk, is the risk of
        loss due to the following: changes in the level, slope and curvature
        of the yield curve; the volatility of interest rates; mortgage
        prepayment rates; changes in the market price of credit; and the
        creditworthiness of a particular issuer.

        Interest rate sensitivity

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

    As at                             April 30, 2009
    -------------------------------------------------------------------------
                            Net income           Economic value of equity

                               Other                         Other
                  Canadian    curren-           Canadian    curren-
    ($ millions)    dollar      cies     Total    dollar      cies     Total
    -------------------------------------------------------------------------
    100 bp
     increase     $    111  $     85  $    196  $    101  $   (249) $   (148)
    -------------------------------------------------------------------------
    100 bp
     decrease     $    (53) $   (103) $   (156) $    (65) $    259  $    194
    -------------------------------------------------------------------------

    As at           January 31, 2009      April 30, 2008
    -----------------------------------------------------
                            Economic            Economic
                       Net  value of       Net  value of
    ($ millions)    income    equity    income    equity
    -----------------------------------------------------
    100 bp
     increase     $    145  $   (109) $    107  $   (259)
    -----------------------------------------------------
    100 bp
     decrease     $   (113) $    107  $    (99) $    233
    -----------------------------------------------------

        Non-trading 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.

        As at April 30, 2009, a one per cent increase (decrease) in the
        Canadian dollar against all currencies in which the Bank operates
        decreases (increases) the Bank's before-tax annual earnings by
        approximately $37 million (January 31, 2009 - $37 million; April 30,
        2008 - $34 million) in the absence of hedging activity, primarily
        from exposure to U.S. dollars. A similar change in the Canadian
        dollar as at April 30, 2009, would increase (decrease) the unrealized
        foreign currency translation losses in the accumulated other
        comprehensive income section of shareholders' equity by approximately
        $190 million (January 31, 2009 - $187 million; April 30, 2008 - $153
        million), net of hedging.

        Equity risk

        Equity risk is the risk of loss due to adverse movements in equity
        prices. The Bank is exposed to equity risk through its available-for-
        sale equity portfolios. The fair value of available-for-sale equity
        securities is shown in Note 3.

        Trading portfolio risk management

        Market risk arising from the Bank's trading activities can be
        aggregated using VaR and stress testing measures. The table below
        shows the Bank's VaR by risk factor:

    One-day VaR by risk factor
    -------------------------------------------------------------------------
                     As at   For the three months ended      As at     As at
                  April 30          April 30, 2009      January 31  April 30
    ($ millions)      2009   Average      High       Low      2009      2008
    -------------------------------------------------------------------------
    Interest rate     13.9      15.9      19.1      12.8      14.9      14.0
    Equities           2.2       4.0       6.6       2.0       5.4       2.9
    Foreign exchange   2.5       2.2       3.5       0.7       2.8       1.5
    Commodities        2.4       2.9       4.3       1.9       3.6       2.8
    Diversification   (5.6)     (9.0)      n/a       n/a     (11.9)     (4.7)
    -------------------------------------------------------------------------
    All-Bank VaR      15.4      16.0      21.5      12.4      14.8      16.5
    -------------------------------------------------------------------------

        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 uses 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 uses 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 after-tax loss of
        approximately $277 million (January 31, 2009 - loss of $276 million;
        April 30, 2008 - loss of $153 million). As at April 30, 2009, the
        maximum length of cash flow hedges outstanding was less than 10 years
        (January 31, 2009 - less than 10 years; April 30, 2008 - less than
        7 years).

        Any hedge ineffectiveness is measured and recorded in current period
        income in the Consolidated Statement of Income. The Bank recorded a
        gain of $21 million during the three months ended April 30, 2009
        (April 30, 2008 - gain of $3 million), of which a gain of $6 million
        (April 30, 2008 - gain of $11 million) related to cash flow hedges,
        due to the ineffective portion of designated hedges. For the six
        months ended April 30, 2009, the Bank recorded a gain of $48 million
        (April 30, 2008 - loss of $3 million) of which a gain of $9 million
        (April 30, 2008 - $7 million) related to cash flow hedges. When
        either a fair value or cash flow hedge is discontinued, any
        cumulative adjustment to either the hedged item or other
        comprehensive income is recognized in income over the remaining term
        of the original hedge, or when the hedged item is derecognized.

        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. No ineffectiveness was recognized on net
        investment hedges.

        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 $4.8 billion as at April 30, 2009 (January 31, 2009 - $5.2
        billion; April 30, 2008 - $7.5 billion). The change in fair value
        that was recorded through trading income for the three and six months
        ended April 30, 2009, was a gain of $538 million (April 30, 2008 -
        gain of $53 million) and a gain of $228 million (April 30, 2008 -
        loss of $227 million), respectively. These changes in fair value were
        substantially offset by the changes in the fair value of the related
        credit derivatives.

        The Bank's trading operations purchase loan assets in specifically
        authorized portfolios for which performance is evaluated on a fair
        value basis. The fair value of these loans was $60 million as at
        April 30, 2009 (January 31, 2009 - $63 million; April 30, 2008 -
        $83 million). The change in fair value that was recorded through
        trading income for the three and six months ended April 30, 2009, was
        a loss of less than $1 million (April 30, 2008 - gain of less than
        $1 million) and a gain of $5 million (April 30, 2008 - loss of
        $3 million), respectively.

        The Bank has designated certain debt and equity investments as
        trading securities to reduce an accounting mismatch between these
        assets and fair value changes in related derivatives. The fair value
        of these trading securities was $5,408 million as at April 30, 2009
        (January 31, 2009 - $2,998 million; April 30, 2008 - $97 million).
        The change in fair value that was recorded through trading and net
        interest income for the three and six months ended April 30, 2009 was
        a gain of $103 million (April 30, 2008 - loss of $4 million) and a
        gain of $125 million (April 30, 2008 - loss of $11 million),
        respectively.

        The Bank has classified certain deposit note liabilities containing
        extension features as trading, in order to significantly reduce an
        accounting mismatch between these liabilities and fair value changes
        in related derivatives. The fair value of these liabilities was
        $12 million as at April 30, 2009 (January 31, 2009 - $135 million;
        April 30, 2008 - $573 million). The change in fair value that was
        recorded through net interest income for the three and six months
        ended April 30, 2009, was a gain of less than $1 million (April 30,
        2008 - loss of $3 million) and a loss of $2 million (April 30, 2008 -
        loss of $13 million), respectively. The change in fair value, which
        is mainly attributable to changes in interest rates, was
        substantially offset by the changes in fair value of the related
        derivatives. As at April 30, 2009, the Bank is contractually
        obligated to pay $12 million to the holders of the notes at maturity
        (January 31, 2009 - $133 million; October 31, 2008 - $295 million).

        Reclassification of financial assets

        The Bank reclassified certain non-derivative financial assets out of
        trading securities to available-for-sale securities effective
        August 1, 2008. These assets were comprised of $303 million of bond
        assets and $91 million of preferred shares that were no longer traded
        in an active market and which management intends to hold for the
        foreseeable future. As at April 30, 2009, the fair values of the bond
        assets and preferred shares were $285 million (January 31, 2009 -
        $278 million; October 31, 2008 - $277 million) and $77 million
        (January 31, 2009 - $77 million; October 31, 2008 - $81 million),
        respectively. Due to the reclassification of bond assets, for the
        three and six months ended April 30, 2009, the Bank recorded pre-tax
        other comprehensive income gains of $12 million and losses of
        $3 million, respectively, relating to fair value movements. Due to
        the reclassification of preferred shares, for the three and six
        months ended April 30, 2009, the Bank recorded pre-tax other
        comprehensive income gains of $2 million and losses of $2 million,
        respectively, relating to fair value movements. If these
        reclassifications had not been made, these gains and losses would
        have been recorded in the Consolidated Statement of Income.

    10. Employee future benefits

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

                                                                     For the
                            For the three months ended      six months ended
        ---------------------------------------------------------------------
                        April 30 January 31   April 30   April 30   April 30
        ($ millions)        2009       2009       2008       2009       2008
        ---------------------------------------------------------------------
        Benefit
         expenses
        Pension plans   $    (12)  $     (2)  $      1   $    (14)  $      2
        Other benefit
         plans                28         29         30         57         59
        ---------------------------------------------------------------------
                        $     16   $     27   $     31   $     43   $     61
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Other plans operated by certain subsidiaries of the Bank are not
            considered material and are not included in this note.


    11. 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: Canadian Banking,
        International Banking and Scotia Capital.

        The results of these business segments are based upon the internal
        financial reporting systems of the Bank. The accounting policies used
        in these segments are generally consistent with those followed in the
        preparation of the consolidated financial statements as disclosed in
        Note 1 of 2008 Consolidated Financial Statement. The only notable
        accounting measurement difference is the grossing up of tax-exempt
        net interest income to an equivalent before-tax basis for those
        affected segments. This change in measurement enables comparison of
        net interest income arising from taxable and tax-exempt sources.

        Scotiabank's results, and average assets, allocated by these
        operating segments, are as follows:

        For the three months ended April 30, 2009
        ---------------------------------------------------------------------
        Taxable
         equivalent                   Inter-
         basis          Canadian   national     Scotia
         ($ millions)    Banking    Banking    Capital    Other(1)     Total
        ---------------------------------------------------------------------
        Net interest
         income(2)      $  1,147   $    959   $    345   $   (364)  $  2,087
        Provision for
         credit losses       188        115        159         27        489
        Other income         524        349        502        134      1,509
        Non-interest
         expenses            899        729        231         27      1,886
        Provision for
         income taxes        174        102        129        (86)       319
        Non-controlling
         interest in
         net income of
         subsidiaries          -         30          -          -         30
                       ------------------------------------------------------
        Net income(3)   $    410   $    332   $    328   $   (198)  $    872
                       ------------------------------------------------------
        Average assets
         ($ billions)   $    191   $     95   $    189   $     44   $    519
                       ------------------------------------------------------


        For the three months ended January 31, 2009
        ---------------------------------------------------------------------
        Taxable
         equivalent                   Inter-
         basis          Canadian   national     Scotia
         ($ millions)    Banking    Banking    Capital    Other(1)     Total
        ---------------------------------------------------------------------
        Net interest
         income(2)      $  1,146   $    947   $    338   $   (465)  $  1,966
        Provision for
         credit losses       155        116         10          -        281
        Other income         556        471        366         (8)     1,385
        Non-interest
         expenses            934        772        291         13      2,010
        Provision for
         income taxes        175        114        103       (202)       190
        Non-controlling
         interest in
         net income of
         subsidiaries          -         28          -          -         28
                       ------------------------------------------------------
        Net income(3)   $    438   $    388   $    300   $   (284)  $    842
                       ------------------------------------------------------
        Average assets
         ($ billions)   $    189   $     95   $    194   $     51   $    529
                       ------------------------------------------------------


        For the three months ended April 30, 2008
        ---------------------------------------------------------------------
        Taxable
         equivalent                   Inter-
         basis          Canadian   national     Scotia
         ($ millions)    Banking    Banking    Capital    Other(1)     Total
        ---------------------------------------------------------------------
        Net interest
         income(2)      $  1,051   $    797   $    246   $   (221)  $  1,873
        Provision for
         credit losses       102         60         (9)         -        153
        Other income         537        356        292        114      1,299
        Non-interest
         expenses            890        615        243         46      1,794
        Provision for
         income taxes        174        107         49       (121)       209
        Non-controlling
         interest in
         net income of
         subsidiaries          -         36          -          -         36
                       ------------------------------------------------------
        Net income(3)   $    422   $    335   $    255   $    (32)  $    980
                       ------------------------------------------------------
        Average assets
        ($ billions)    $    172   $     79   $    167   $     37   $    455
                       ------------------------------------------------------
        (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 for the three months ended April 30, 2009 ($77), January
            31, 2009 ($70), and April 30, 2008 ($100), and for the six months
            ended April 30, 2009 ($147), and April 30, 2008 ($218), to arrive
            at the amounts reported in the Consolidated Statement of Income,
            differences in the actual amount of costs incurred and charged to
            the operating segments, and the impact of securitizations.
        (2) Historically, assets and liabilities are transfer-priced at
            wholesale market rates. In the first quarter of 2009, due to
            current market conditions, the Bank refined its transfer pricing
            to include a liquidity premium charge in the cost of funds
            allocated to the business segments. The net impact of this change
            was to reduce the net interest income of the three major
            segments, which was offset by a reduction in the net interest
            expense of the Other segment. Prior periods have not been
            restated.
        (3) Commencing in the fourth quarter of 2008, the reporting of
            segment profitability has been changed from net income available
            to common shareholders to net income. Prior periods have been
            restated.


        For the six months ended April 30, 2009
        ---------------------------------------------------------------------
        Taxable
         equivalent                   Inter-
         basis          Canadian   national     Scotia
         ($ millions)    Banking    Banking    Capital    Other(1)     Total
        ---------------------------------------------------------------------
        Net interest
         income(2)      $  2,293   $  1,906   $    683   $   (829)  $  4,053
        Provision for
         credit losses       343        231        169         27        770
        Other income       1,080        820        868        126      2,894
        Non-interest
         expenses          1,833      1,501        522         40      3,896
        Provision for
         income taxes        349        216        232       (288)       509
        Non-controlling
         interest in
         net income of
         subsidiaries          -         58          -          -         58
                       ------------------------------------------------------
        Net income(3)   $    848   $    720   $    628   $   (482)  $  1,714
                       ------------------------------------------------------
        Average assets
         ($ billions)   $    190   $     95   $    191   $     48   $    524
                       ------------------------------------------------------


        For the six months ended April 30, 2008
        ---------------------------------------------------------------------
        Taxable
         equivalent                   Inter-
         basis          Canadian   national     Scotia
         ($ millions)    Banking    Banking    Capital    Other(1)     Total
        ---------------------------------------------------------------------
        Net interest
         income(2)      $  2,042   $  1,528   $    520   $   (403)  $  3,687
        Provision for
         credit losses       193         90        (19)         -        264
        Other income       1,056        665        423        180      2,324
        Non-interest
         expenses          1,779      1,183        434         67      3,463
        Provision for
         income taxes        331        229         82       (240)       402
        Non-controlling
         interest in
         net income of
         subsidiaries          -         67          -          -         67
                       ------------------------------------------------------
        Net income(3)   $    795   $    624   $    446   $    (50)  $  1,815
                       ------------------------------------------------------
        Average assets
         ($ billions)   $    170   $     74   $    162   $     36   $    442
                       ------------------------------------------------------
        (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 for the three months ended April 30, 2009 ($77),
            January 31, 2009 ($70), and April 30, 2008 ($100), and for the
            six months ended April 30, 2009 ($147), and April 30, 2008
            ($218), to arrive at the amounts reported in the Consolidated
            Statement of Income, differences in the actual amount of costs
            incurred and charged to the operating segments, and the impact of
            securitizations.
        (2) Historically, assets and liabilities are transfer-priced at
            wholesale market rates. In the first quarter of 2009, due to
            current market conditions, the Bank refined its transfer pricing
            to include a liquidity premium charge in the cost of funds
            allocated to the business segments. The net impact of this change
            was to reduce the net interest income of the three major
            segments, which was offset by a reduction in the net interest
            expense of the Other segment. Prior periods have not been
            restated.
        (3) Commencing in the fourth quarter of 2008, the reporting of
            segment profitability has been changed from net income available
            to common shareholders to net income. Prior periods have been
            restated.

    12. Acquisitions

        Current quarter

        On February 3, 2009, the Bank acquired an additional 24% of
        Thanachart Bank in Thailand for approximately $270 million, which
        increased the Bank's ownership from 24.99% to 49%. The investment
        will continue to be accounted for under the equity method of
        accounting.

        Prior quarter

        On December 12, 2008, the Bank completed the acquisition of Sun Life
        Financial Inc.'s 37.6% ownership stake in CI Financial Income Fund
        for approximately $2.3 billion. The consideration was in the form of
        $1.55 billion cash, $500 million common shares and $250 million
        non-umulative preferred shares. This investment is accounted for
        under the equity method of accounting.

        The Bank completed the acquisition of E(*)Trade Canada on
        September 22, 2008, through the acquisition of 100% of the
        outstanding shares for cash consideration of approximately
        $500 million. During the first quarter of 2009, the Bank completed
        the purchase price allocation and recorded goodwill of $430 million
        and intangibles of $32 million on the balance sheet.

    13. Subsequent events

        Redemption of subordinated debentures

        On May 12, 2009, the Bank redeemed all of its $325 million 5.75%
        subordinated debentures due May 12, 2014, at par plus accrued and
        unpaid interest to the redemption date.

        Issuance of Scotiabank Tier 1 Securities

        On May 7, 2009, the Bank completed an issue of 7.802% Scotiabank
        Tier 1 Securities in the amount of $650 million. These securities are
        issued by Scotiabank Tier 1 Trust which is a special purpose entity
        that will not be consolidated by the Bank, as the Bank is not the
        primary beneficiary. These securities qualify as Tier 1 capital, and
        will be reported on the consolidated balance sheet as deposit notes
        issued by the Bank to Scotiabank Tier 1 Trust.

    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 2009

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

        Record Date                   Payment Date
        January 6                     January 28
        April 7                       April 28
        July 7                        July 29
        October 6                     October 28

    Annual Meeting date for fiscal 2009

    The Annual Meeting of Shareholders of the Bank for the fiscal year ending
October 31, 2009, will be held in St. John's, Newfoundland, on Thursday, April
8, 2010.

    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 May 28, 2009, at
2:00 p.m. EDT and is expected to last approximately one hour. Interested
parties are invited to access the call live, in listen-only mode, by
telephone, toll-free, at 1-800-732-0232 (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 May 28,
2009, to June 11, 2009, by calling (416) 640-1917 and entering the
identification code 21306231 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.
        250 Royall Street
        Canton, MA 02021 U.S.A.
        Telephone: 1-800-962-4284

    For other shareholder enquiries, please contact the Finance Department:

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

    Rapport trimestriel disponible en français

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

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

    %SEDAR: 00001289EF          %CIK: 0000009631




For further information:

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


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