Presentation to the Scotiabank Annual General Meeting
Edmonton, Alberta

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

March 4, 2008

Check Against Delivery

Thank you, Mr. Chairman, and welcome, ladies and gentlemen. It’s a pleasure to be here in Edmonton.

I’m going to take a few minutes to go over some of the financial highlights from 2007, and then I’ll briefly touch upon the first quarter of 2008.

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 the Bank’s actual results could differ materially from what is discussed.

I’m very pleased to deliver the Bank’s results for 2007. We had another year of record results, in which we met or exceeded all our financial objectives.

Earnings per share for the year were $4.01, an increase of 13 per cent over our 2006 figure of $3.55. This exceeds our target range of 7-12 per cent, and marked our fifth consecutive year of double-digit EPS growth.

Our return on equity was 22 per cent, at the high end of our target range of 20-23 per cent.

Our productivity ratio improved by 160 basis points over 2006 to 53.7 per cent, better than our target of being below 58 per cent, and the best result among Canadian banks.

We also showed positive operating leverage compared to 2006, which is an important measure of our efficiency in generating new revenue.

Operating leverage measures the relative rate of revenue growth compared to expense growth, and our results here show that we’re on the right track in this area.

The Bank’s 2007 earnings continued our excellent record of consistent earnings growth over the past 10 years.

Since 1997, earnings have grown at a compound annual rate of 13.2 per cent.

In 2007, we achieved broad-based and diversified growth, consistent with our priority of driving sustainable revenue growth.

Our strong earnings performance was driven by robust asset growth, as well as the positive impact of recent acquisitions and favourable credit quality.

We were able to earn through challenges that included lower net interest margins – along with the negative impact of the stronger Canadian dollar, and higher expenses, largely relating to acquisitions and revenue growth initiatives.

As I mentioned – a very strong performance for the year, and an excellent record overall.

Our strong earnings in 2007 allowed us to continue our record of consistent dividend increases.

During the year, shareholders received two dividend increases – and dividends per share increased 16 per cent from 2006.

As the slide shows, we’ve experienced consistent dividend growth for the past 10 years, at a compound annual rate of 16.7 per cent.

As well, annual dividends have more than doubled since 2003.

We have an excellent track record on dividends, and we’ve been able to do it while maintaining our capital strength, and our ability to reinvest in our businesses.

Clearly, a solid capital base is very important.

Our strength in capital management benefits our shareholders, customers and employees. It supports our high credit ratings and enhances shareholder returns through increased dividends.

It also enables us to pursue our strategic priority of driving sustainable revenue growth, both organically and through acquisitions.

Our capital position remains strong by Canadian and international standards, as we continue to generate significant capital from our operations.

Our tangible common equity ratio, a key measure of capital strength, was 7.2 per cent at October 31, 2007, and our Tier 1 capital ratio, at 9.3 per cent, remained well above regulatory requirements.

Overall, credit quality of our loan portfolio remained solid in 2007. The total provision for credit losses was $270 million, up from $216 million a year ago.

Specific provisions for credit losses were up $19 million from 2006, largely reflecting portfolio growth – while the general allowance for credit losses was reduced by $25 million.

In 2007, each business line delivered record earnings – and, for the second straight year, each contributed more than $1 billion in annual net income.

Domestic had a particularly strong year, growing earnings by 21 per cent. Strong asset and deposit growth resulted in good top line revenue growth, despite the impact of margin compression.

International’s earnings were up 17 per cent due to strong organic growth and increased contributions from our acquisitions – particularly from Peru and Costa Rica.

In Scotia Capital, solid overall trading and investment banking results – combined with higher recoveries – more than compensated for the challenging conditions during the fourth quarter.

Taking a look at each business line in more detail…

Domestic Banking reported a record net income of $1.55 billion, a 21 per cent increase over last year, in part due to a gain from the global Visa restructuring. Excluding this gain, earnings were still up a substantial 14 per cent.

We saw strong revenue growth in retail, small business and commercial banking.

Very strong results were also generated by our wealth management business, where revenues reached record levels in 2007.

Average asset growth for the Domestic Bank was 13 per cent.

Our broad-based growth translated into strong market share gains, particularly in residential mortgages, personal term deposits and mutual funds.

Substantial growth in retail mortgages and strong growth in personal lending and deposits was partially offset by a narrowing interest margin.

Provisions for credit losses remained well controlled.

Increased expenses for the year largely reflect spending on initiatives to drive future revenue growth – including costs for 35 new branches and the hiring of additional financial advisors and other client-facing staff.

We continued to build our brand awareness through our partnership with Cineplex Entertainment to launch SCENE, our entertainment rewards program, as well as through partnerships with the National Hockey League and its players’ association, and by sponsoring CBC’s Hockey Night in Canada pre-game show.

Scotia Capital also contributed record net income in 2007, a six per cent increase over last year – a very solid result, particularly given the challenging market conditions in the fourth quarter – and the negative effect of foreign currency translation.

Its diverse earnings streams were a key strength in uncertain markets, as revenues grew three per cent.

We benefited from favourable credit conditions through much of the year, as we realized net loan loss recoveries again in 2007. We also recognized a gain on the sale of our bond index business.

Average assets grew 17 per cent.

For the fifth consecutive year, the Scotia Capital derivatives team was ranked #1 in Canada by an independent third-party market survey. We were named best foreign exchange bank in Canada for the third year in a row by Global Finance magazine.

International Banking’s net income in 2007 was a record $1.2 billion, a substantial increase of 17 per cent from 2006 – despite the negative effect from the appreciation of the Canadian dollar.

International’s earnings mix was more diversified in 2007, with Scotiabank Mexico’s earnings being complemented by increasing contributions from our other regions – largely due to our recent acquisitions.

Strong organic asset growth and contributions from acquisitions drove earnings growth – and credit quality remained stable.

The most significant contributors to earnings growth were the Caribbean and Central America, and the full-year impact of our acquisitions in Peru.

Results in the Caribbean and Central America were bolstered by the impact of our acquisitions in Costa Rica, the Dominican Republic and Jamaica, as well as strong organic loan growth and higher credit card revenues.

In addition, we were named Best Bank in Costa Rica by Global Finance magazine, as well as Bank of the Year in Costa Rica, Trinidad and Tobago, and Turks and Caicos by The Banker magazine.

In summary, we were able to achieve strong results and meet or surpass all of our key financial targets – with each business line delivering record earnings.

We were also able to continue our excellent track record on shareholder returns.

The compound annual return on the Bank’s shares over the past five years has averaged 22 per cent, and 17 per cent over the past 10 years.

With our excellent record of dividend growth and share price appreciation, our shareholders have had positive annual returns from the Bank’s shares for 13 consecutive years – the best record among Canada’s major banks.

Turning to 2008, while we anticipated the first quarter to be difficult, it was weaker than expected. This was due primarily to substantial volatility in global financial markets.

We experienced solid core growth in our Domestic and International Banking platforms, but our results in Scotia Capital were negatively affected by the market volatility.

Our results were announced this morning, and I’ll just take a moment to give you an overview.

• our EPS was $0.82 – compared to $1.01 the same period a year ago;
• our net income was $835 million – versus $1,020 million;
• our ROE was 18.3 per cent – compared to 22.1 per cent in Q1/07; and
• our productivity ratio was 56.5 per cent versus 53.6 per cent.

Although these results in the first quarter will pose a challenge to achieving our 2008 financial objectives, we are maintaining – and striving to achieve – the objectives we set at the beginning of the year.

Overall, Mr. Chairman and ladies and gentlemen, 2007 was a strong year.

This year, we are meeting the challenges of this market volatility by continuing to invest in revenue-generating opportunities, emphasizing our traditional focus on controlling expenses, and remaining committed to executing our strategy.

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.