Presentation to the Scotiabank Annual General Meeting
Halifax, Nova Scotia

An address by Luc Vanneste
Executive Vice-President and Chief Financial Officer

March 6, 2007

"Our record of consistent earnings growth has been more than matched by our record of consistent dividend growth.

"We had two dividend increases in 2006. Dividends were up 14 per cent on the year.

"Furthermore, annual dividends have more than doubled since 2002.

"All this without compromising our capital strength, or our ability to reinvest in our businesses!

"Overall, an excellent track record on dividends."

Check Against Delivery

Thank you very much, Mr. Chairman, and good morning, ladies and gentlemen.

Let me begin by saying how pleased I am to be here in Halifax to speak to you.

This morning, I'm going to discuss the highlights of your Bank's financial performance for 2006 and then briefly report on the first quarter of fiscal 2007.

Forward Looking Statements

Before I begin, I need to advise you that some of the remarks made today may include forward-looking statements, typically relating to the Bank's objectives, intentions and outlook. And I would like to caution you that actual results could differ materially from what is discussed here today.

Exceeded Our 2006 Performance Targets

I am very pleased to report record full-year results.

For the year, our earnings per share were $3.55 versus $3.15 a year ago, an increase of 13 per cent and well ahead of our five to 10 per cent target range.

Our return on equity rose to a strong 22.1 per cent, up from 20.9 per cent in 2005, beating our target range of 18 to 22 per cent.

And our productivity ratio was 55.3 per cent for the year, better than our goal to remain below 58 per cent and still the best among the Canadian banks by a solid margin.

A Record of Consistent Earnings Growth

The next slide shows your Bank's record of consistent earnings growth over the past decade.

Since 1996 earnings have grown at a compounded annual rate of 14 per cent, an excellent record.

Earnings growth was achieved despite the significant negative impact of foreign currency translation, which reduced net income by over $500 million in the past three years as the Canadian dollar strengthened from historic lows.

Excellent retail asset and deposit growth translated into increased market share in several key products. We also benefited from the continued favorable credit environment, record trading results and the contribution of the recent acquisitions we have made.

At the core of this success is our focus on diversification across our three major business lines to drive sustainable growth, which we believe gives us a unique competitive advantage.

A Record of Consistent Dividend Growth

Our record of consistent earnings growth has been more than matched by our record of consistent dividend growth.

We had two dividend increases in 2006. Dividends were up 14 per cent on the year.

Furthermore, annual dividends have more than doubled since 2002.

All this without compromising our capital strength, or our ability to reinvest in our businesses!

Overall, an excellent track record on dividends.

Continued Strong Capital Ratios

As can be seen on the next slide, our high capital ratios remain a big plus for us and give us flexibility to consider a broad range of options for future growth, while continuing to increase returns to shareholders.

Our Tier 1 ratio remained strong at 10.2 per cent at the end of 2006, down slightly from 2005, reflecting organic asset growth as well as the impact of acquisitions.

Even more important, our Tangible Common Equity ratio was also strong, at 8.3 per cent, still the best of the major Canadian banks.

Improved Credit Quality

We experienced continued improvement in the credit quality of our loan portfolio in 2006, the result of strong action we have taken, policies we have implemented and the continued favourable credit environment.

The continuation of positive trends in economic and business conditions allowed us to reduce the general allowance for credit losses by $60 million in 2006.

Provisions for credit losses in 2006 were $216 million, a decrease of $14 million from 2005 and the lowest level in 10 years!

As well, net impaired loans, after deducting the specific allowance, were $570 million at year-end, down $111 million from 2005.

Strong Growth Across Business Lines

The next slide shows the strength of each of our major business lines. For the first time, all three business lines - Domestic Banking, Scotia Capital and International Banking - contributed more than $1 billion in annual net income. 

Earnings in Domestic Banking were up two per cent.

Scotia Capital's earnings increased 14 per cent.

International Banking performed extremely well, up 32 per cent due to strong organic growth and the impact of the recent acquisitions in El Salvador, Costa Rica and Peru. Our International operations are a key differentiator that continues to set us apart from our domestic peers.

Domestic Banking

Looking at the business lines in more detail…

Domestic Banking had a solid year in 2006, with net income available to common shareholders of almost $1.3 billion.

Domestic saw excellent asset and deposit growth particularly in residential mortgages which were up 12 per cent.  This growth translated into solid market share gains, with personal lending and personal deposits up compared to 2005.  We also had solid results in wealth management, small business, and commercial banking. 

However, we were negatively impacted by margin compression, primarily from higher costs to fund the growth of the mortgage portfolio. 

Provisions for credit losses remained well controlled. Non-interest expenses rose as we continued to invest in our Domestic franchise. We opened 15 new branches across Canada.

Scotia Capital

Scotia Capital had record results for the third consecutive year, reflecting higher earnings from Global Capital Markets whose revenue increased 12 per cent. 

We also had strong growth in the loan portfolio, as average assets rose 16 per cent and we continued to benefit from a favourable credit environment.

These impressive results were achieved despite the negative impact on earnings from the effects of foreign currency translation.

International Banking

International Banking also had a record year in 2006, with net income available to common shareholders of just over $1 billion, up $254 million from 2005, notwithstanding the significant negative impact of $65 million foreign currency translation resulting from the appreciation of the Canadian dollar. 

These record earnings were driven by strong contributions from recent acquisitions, which Rick will discuss in more detail in a few moments. 

As well, we benefited from organic growth across the entire division, particularly in Mexico and the Caribbean and Central America, with Asia also having a good year.

Our International Banking operations were also recognized with a number of awards, including "Bank of the Year" awards from several industry magazines, for our operations in Jamaica, the Dominican Republic, the Caribbean and Costa Rica. 

Excellent Returns to Shareholders

In summary, we had a record year and our excellent financial performance continues to be reflected in our total shareholder returns. 

As you can see on the chart, our average 10-year total shareholder return was 20 per cent, which is well above the S&P/TSX Composite Index and the S&P/TSX Bank Index.

To put in terms of dollars and cents, a $100 dollar investment in Scotiabank in 1996 is now worth $621.47!

First Quarter 2007

We continued our strong performance in the first quarter of 2007.  Our record results were announced this morning and I'll just take a moment to give you the highlights.

• our EPS was $1.01 - up 20 per cent from $0.84 a year ago;
• our ROE was a solid 23 per cent - up from 21.6 per cent in Q1/06;
• our net income available to common shareholders was $1.012 billion - up 20 per cent - and the first time we have exceeded one billion in quarterly earnings; 
• our tangible common equity ratio was a strong 8.4 per cent (Tier 1 capital ratio was 10.4 per cent); and
• our productivity ratio remained best in class at 53.6%.

Overall, Mr. Chairman and ladies and gentlemen, 2006 was a very strong year for Scotiabank shareholders and the trend is continuing in 2007 with record first quarter results.

I'd now like to call upon our President and Chief Executive Officer to say a few words.  Ladies and gentlemen, please welcome Rick Waugh.