TORONTO, March 9 /PRNewswire-FirstCall/ — Scotiabank recorded first quarter net income of $988 million, up $146 million or 17% from the same period last year. Revenues were up a strong 16%, notwithstanding a negative foreign currency impact of $289 million. Diluted earnings per share were $0.91 compared to $0.80 in the same period a year earlier. Return on equity was 17.4% compared to 16.2% last year.

“We are pleased to report our results for the first quarter in an environment of improving economic and market conditions,” said President and CEO Rick Waugh. “We are still in the early days of the recovery, and we continue to carefully manage our businesses in order to achieve solid earnings and maintain a strong return on equity.

“Our strategy of diversifying by geography and business line has delivered record revenues. This growth in revenues combined with our core strengths in risk management and expense control has served us well, resulting in strong net income in the first quarter. we have successfully met our retail customers’ needs through growth in our retail and small business portfolios in Canada and internationally.

“Canadian Banking performed particularly well, reporting strong revenue growth of 13% and record net income of $560 million, a 28% increase over the same quarter last year. This quarter’s results benefited from growth in mortgages, lines of credit and personal deposits, in particular our high interest savings and chequing accounts. the year-over-year increase also came from higher net interest income as margins improved. Wealth management revenues were up 16%, with improved market conditions and strong net sales growth.

“Net income in International Banking was $294 million, down from the peak of $388 million in the same quarter a year ago. Solid revenues and good cost control were more than offset by higher provisions for credit losses, a higher effective tax rate, and the significant negative effect of the stronger Canadian dollar. Excluding the negative impact of foreign currency translation, revenues grew 8%.

“Scotia Capital had a very strong quarter with net income of $381 million and solid contributions from all business units. the quarter’s results reflect Global Capital Markets revenues at their second highest level. Global Corporate and Investment Banking benefited from a positive change in the fair value of securities, improved margins and a moderate level of provisions for credit losses. However, this was offset by lower lending volumes and investment banking revenues.

“Provisions for credit losses remain within our expectations for this stage of the credit cycle and there is evidence of stabilization as demonstrated by the decline in provisions from the previous quarter.

“Our productivity ratio of 50.5%, compared to 58.7% in the same period a year ago, demonstrates our continued emphasis on expense control across the Bank.

“Our capital position remains strong by both Canadian and international standards, allowing the Bank to continue to grow our businesses, pursue strategic acquisitions, and deliver shareholder dividends.

“As a well-diversified organization, we continue to focus on sustainable revenue growth, capital management, leadership development, prudent risk management, and expense control. With today’s announcement of results for the first three months of fiscal 2010, we are well positioned to meet our stated objectives for the year.”

FINANCIAL HIGHLIGHTS as at and for the three months ended ————————————————————————- January 31 October 31 January 31 (Unaudited) 2010 2009 2009 ————————————————————————- Operating results ($ millions) Net interest income 2,147 2,099 1,966 Net interest income (TEB(1)) 2,222 2,172 2,036 Total revenue 3,906 3,735 3,351 Total revenue (TEB(1)) 3,981 3,808 3,421 Provision for credit losses 371 420 281 Non-interest expenses 2,009 2,064 2,010 Provision for income taxes 512 321 190 Provision for income taxes (TEB(1)) 587 394 260 Net income 988 902 842 Net income available to common shareholders 939 853 805 ————————————————————————- Operating performance Basic earnings per share ($) 0.92 0.84 0.80 Diluted earnings per share ($) 0.91 0.83 0.80 Diluted cash earnings per share(1) ($) 0.93 0.85 0.82 Return on equity(1)(2) (%) 17.4 16.4 16.2 Productivity ratio (%) (TEB(1)) 50.5 54.2 58.7 Net interest margin on total average assets(2) (%) (TEB(1)) 1.76 1.74 1.52 ————————————————————————- Balance sheet information ($ millions) Cash resources and securities(2) 173,472 160,572 123,687 Loans and acceptances(2) 275,816 275,885 313,204 Total assets(2) 507,626 496,516 510,646 Deposits 364,938 350,419 346,570 Preferred shares 3,710 3,710 3,710 Common shareholders’ equity(2) 21,647 21,062 19,920 Assets under administration 226,308 215,097 191,826 Assets under management 43,626 41,602 34,264 ————————————————————————- Capital measures Tier 1 capital ratio (%) 11.2 10.7 9.5 Total capital ratio (%) 13.5 12.9 11.4 Tangible common equity to risk-weighted assets(1)(3) (%) 8.8 8.2 7.2 Risk-weighted assets ($ millions) 215,891 221,656 239,660 ————————————————————————- Credit quality Net impaired loans(2) ($ millions) 2,677 2,563 1,602 General allowance for credit losses ($ millions) 1,450 1,450 1,323 Sectoral allowance ($ millions) 43 44 – Net impaired loans as a % of loans and acceptances(2)(4) 0.97 0.93 0.51 Specific provision for credit losses as a % of average loans and acceptances(2) (annualized) 0.55 0.63 0.36 ————————————————————————- Common share information Share price ($) High 49.93 49.19 40.68 low 44.12 42.95 27.35 Close 44.83 45.25 29.67 Shares outstanding (millions) Average – Basic 1,025 1,021 1,001 Average – Diluted 1,028 1,024 1,003 End of period 1,029 1,025 1,012 Dividends per share ($) 0.49 0.49 0.49 Dividend yield (%) 4.2 4.3 5.8 Market capitalization ($ millions) 46,115 46,379 30,039 Book value per common share(2) ($) 21.04 20.55 19.67 Market value to book value multiple(2) 2.1 2.2 1.5 Price to earnings multiple (trailing 4 quarters) 13.0 13.6 9.8 ————————————————————————- Other information Employees 67,910 67,802 69,451 Branches and offices 2,692 2,686 2,696 ————————————————————————- (1) Refer further below for a discussion of non-GAAP measures. (2) Amounts for January 31, 2009, have been restated to reflect the impact of the new accounting policy related to the classification and impairment of financial assets implemented in the fourth quarter of 2009, effective November 1, 2008 (refer to Note 1 of the Consolidated Financial Statements in the 2009 Annual Report for further details). (3) Amounts for January 31, 2009, have been restated to reflect a new definition of tangible common equity (refer to non-GAAP measures further below). (4) Net impaired loans are impaired loans less the specific allowance for credit losses. 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; amendments to, and interpretations of, risk-based capital guidelines and reporting instructions and liquidity regulatory guidance; 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 2009 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 http://www.sedar.com/ and on the EDGAR section of the SEC’s website at http://www.sec.gov/.

NOTABLE BUSINESS HIGHLIGHTS Serving our customers

With a focus on improving its Canadian Self Service Banking capabilities, Scotiabank launched Scotia InfoAlerts, a new service that notifies customers via text message or e-mail of activities and balances in their accounts.

ScotiaFunds continues its record of success, ranking number one for the quarter among Canadian banks for total net sales, reflecting the continued confidence that investors and advisors have in our funds and portfolio management team. Scotia Canadian Small Cap Fund, Scotia Resource Fund and Scotia Latin American Fund were all recipients of the 2010 Lipper Fund Awards.

ScotiaMcLeod Wealth Advisors were ranked number one in the industry by Vision Critical on the Financial Advisor Loyalty Index among affluent and high net worth Canadian households.

Scotia Capital worked closely with clients this quarter on a number of significant transactions:

– Acted as Joint Bookrunner on a $2.5 billion treasury offering of common shares by Manulife Financial Corporation, a leading Canadian-based financial services company with operations worldwide. – was financial advisor to Carillion Canada in its successful bid for the Centre for Addiction and Mental Health (CAMH) alternate finance procurement (AFP) redevelopment project in Toronto. Scotia Capital also acted as Underwriter on the $86 million, 31.5 year bond issuance and Mandated Lead Arranger, Administrative Agent and Hedge Provider on the $115 million bank loan facility that will be used to finance construction and operation of the project. – Scotia Waterous is acting as financial advisor to Devon Energy Corporation, on its divestiture of three lower Tertiary development projects in the Gulf of Mexico to Maersk Oil and other working interest owners, for a combined $1.3 billion. Devon is one of the world’s leading independent oil and gas exploration and production companies. Building our operations around the world

Scotiabank became the first Canadian bank to receive an operating license from the Dubai Financial Services Authority (DFSA) enabling the Bank to operate from the Dubai International Financial Centre (DIFC). the license allows the Bank’s ScotiaMocatta division – a global leader in precious metals trading, financing and physical products – to open its own branch in the DIFC.

Scotiabank also increased its stake to 14.8% in Xi’an City Commercial Bank (XACB), a leading city commercial bank in western China. Scotiabank has had a stake in XACB since 2004.

Scotiabank Group recognized for excellence

Marking the progress we have made on our leadership priority, the Global top Companies for Leaders study, published in Fortune magazine, named Scotiabank a “company to watch,” the only Canadian company to be recognized.

for the sixth consecutive year, Scotiabank has been named one of Canada’s 50 best Employers based on a national survey conducted by Hewitt Associates and published in the Globe and Mail’s Report on Business Magazine and in La Presse.

Scotia Capital ranked # 1 in Canadian Corporate Debt Financing by Bloomberg, for the second year in a row.

Global Finance Magazine has named Scotiabank as best Trade Finance Bank in Canada for 2010, the third year in a row that the Bank has received this recognition. the selection was based on transaction volume, scope of global coverage, customer service, competitive pricing and innovative technologies. the magazine also considered the ways in which banks stood by their customers during the credit crunch and found innovative ways to lower risk and expedite cash flow from international transactions.

Scotiabank’s Customer Service and Support Contact Centre team was awarded Service Quality Measurement Group Inc.’s (SQM’s) call centre World Class call Certification Award for 2009. This award is given for sustained performance in customer satisfaction and recognizes the ongoing quality service provided to our customers.

Supporting the communities where we live and work

When the earthquake struck in Haiti, Scotiabank and Scotiabankers responded quickly to support disaster relief efforts. in addition to a corporate donation of $500,000, Scotiabank opened its branch network to accept public donations to support Canadian Red Cross efforts. the Bank also launched a series of initiatives, including waived wire transfer commissions, to help customers reach out to Haiti.

the Scotiabank team in neighbouring Dominican Republic immediately secured emergency supplies and transported them into Haiti. Scotiabank employees around the world rose to the challenge, organizing internal and external fundraising campaigns and the Toronto Customer Contact Centre opened its phone lines as Scotiabank volunteers took calls for the January 29 fundraising telethon.

Scotiabank announced it has entered into a partnership with CUSO-VSO, a leading non-profit, international development organization that will place Scotiabank volunteers in career-relevant positions in the developing world. With this partnership, Scotiabank joins an elite group of companies specially selected to work with CUSO-VSO and its international development programs.

MANAGEMENT’S DISCUSSION & ANALYSIS 2010 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 People – High levels of employee satisfaction and engagement – Diversity of workforce – Collaboration Customer – High levels of customer satisfaction and loyalty – Deeper relationship with existing customers – new customer acquisition Operational – Productivity ratio of (less than)58% – Strong practices in corporate governance and compliance processes – Strong capital ratios – 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 $75 million versus $70 million in the same quarter last year and $73 million last quarter.

for purposes of segmented reporting, a segment’s net interest income and provision for income taxes are grossed up by the taxable equivalent amount. the elimination of the TEB gross up is recorded in the “Other” segment.

Diluted cash earnings per share

the diluted earnings per share is adjusted to add back the non-cash after-tax amortization of intangible assets to arrive at diluted cash earnings per share.

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.

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 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.

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.

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 common shareholders’ equity plus non-controlling interest in subsidiaries, less goodwill and unamortized intangible assets. 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 March 9, 2010 Financial results Net income

Scotiabank’s net income was $988 million in the first quarter, an increase of $146 million or 17% from the same period a year ago. Excluding the negative impact of foreign currency translation of $124 million, net income grew $270 million or 32%. Increased net interest income, strong trading revenues and higher net gains on securities were partly offset by increased provisions for credit losses and the impact of a higher effective tax rate.

Net income increased $86 million or 10% from the fourth quarter, due primarily to growth in net interest income, higher net gains on securities, favourable changes in the fair value of financial instruments used for asset/liability management purposes and lower provisions for credit losses. These items were partly offset by the impact of higher income taxes and lower credit fees.

Impact of foreign currency translation

changes in the average exchange rates affected net income, as shown in the following table:

for the three months ended ————————————————————————- January 31 October 31 January 31 Average exchange rate 2010 2009 2009 ————————————————————————- U.S. dollar/Canadian dollar 0.949 0.930 0.815 Mexican peso/Canadian dollar 12.273 12.298 11.063 ————————————————————————- ————————————————————————-

the table below reflects the impact of foreign currency translation on the quarter-over-quarter and year-over-year change in key income statement items. the impact of foreign currency translation was more significant when comparing this quarter to the same quarter last year due to the significant strengthening of the Canadian dollar year over year.

($ millions except per share amounts) for the three months ended ————————————————————————- January 31, 2010 vs January 31, 2010 vs January 31, 2009 October 31, 2009 ————————————————————————- Impact on income: Net interest income $ (146) $ (6) Other income (143) (13) Non-interest expenses 79 2 Other items (net of tax) 86 6 ——————————— Net income (124) (11) ——————————— Earnings per share (diluted) (0.12) (0.01) ————————————————————————- Impact by business line: Canadian Banking (6) – International Banking (47) (2) Scotia Capital (58) (7) Other (13) (2) ————————————————————————- ————————————————————————- Total revenue

Total revenue (on a taxable equivalent basis) was $3,981 million this quarter, up $560 million or 16% from the first quarter last year, notwithstanding the negative foreign currency translation impact of $289 million. the increase was attributable to many factors, including increased net interest income, higher net gains on securities, and strong trading results. These items were partly offset by lower securitization and investment banking revenues.

Compared to the fourth quarter, total revenue (on a taxable equivalent basis) increased $173 million or 5%, due mainly to higher net gains on securities, growth in trading revenues, increased net interest income due to asset growth, and the favourable change in fair values of financial instruments used for asset/liability management purposes and non-trading financial instruments. Partly offsetting these items were lower underwriting and credit fees.

Net interest income

This quarter’s net interest income (on a taxable equivalent basis) was $2,222 million, an increase of $186 million or 9% over the same period last year, notwithstanding the negative foreign currency translation impact of $146 million. the increase in net interest income was due mainly to growth in retail assets offset by lower volumes of corporate loans, an improved net interest margin and higher loan origination fees. the improved net interest margin was a result of wider spreads on corporate loans, mortgages and personal lines of credit and positive changes in the fair value of financial instruments used for asset/liability management purposes.

Compared to the previous quarter, net interest income (on a taxable equivalent basis) was higher by $50 million. the increase was attributable to growth in retail assets, wider spreads on mortgages and personal lines of credit in Canadian Banking, and a favourable change in the fair value of financial instruments used for asset/liability management purposes. the increase was partly offset by narrower spreads in Mexico and lower corporate loan volumes.

the Bank’s net interest margin was 1.76% in the first quarter, compared to 1.52% in the same quarter of last year and 1.74% last quarter. Compared to the prior year, the increase in the margin was due primarily to the favourable change in fair value of financial instruments used for asset/liability management purposes and a lower level of average non-earning assets.

the quarter-over-quarter increase was due partly to wider spreads on mortgages and personal lines of credit in Canadian Banking, favourable changes in the fair value of financial instruments used for asset/liability management purposes and a lower level of average non-earning assets.

Other income was $1,759 million this quarter, an increase of $374 million or 27% from the first quarter last year, despite the negative impact of foreign currency translation of $143 million. the growth was due primarily to higher net gains on securities, from a combination of gains on the sales of securities and lower writedowns, and strong equity and derivative trading revenues, partly offset by a loss on the Bank’s investment in an affiliate in Venezuela, reflecting a significant devaluation in the Venezuelan bolivar. in addition, last year’s results included derivative trading losses. the increase in other income was also driven by higher wealth management revenues as a result of growth in assets under administration, a one-time gain on the sale of the pension administration business in Mexico, and a positive change in the fair value of non-trading financial instruments. These items were partly offset by lower securitization and underwriting revenues.

Quarter over quarter, other income was up $123 million or 8%, due primarily to higher net gains on sales of securities, solid precious metals and derivative trading revenues, the one-time gain on the sale of the pension administration business in Mexico, and the positive change in the fair value of the non-trading financial instruments. Partly offsetting these items were lower credit fees and investment banking revenues.

Provision for credit losses

the provision for credit losses was $371 million this quarter, up $90 million from the same period last year, but down $49 million from last quarter. the higher year-over-year provisions were mainly in Canadian and International Banking, with only modestly higher provisions in Scotia Capital.

Non-interest expenses and productivity

Non-interest expenses were $2,009 million this quarter, unchanged from the same quarter last year. lower business and capital taxes and technology costs and the positive impact of foreign currency translation were offset by higher stock-based compensation, due in part to changes to incentive plans.

Compared to the fourth quarter, non-interest expenses were down $55 million or 3%. This reduction was due primarily to a decrease in advertising and business development and technology expenses, lower legal provisions, and a reduction in loyalty reward point costs. These items were partly offset by an increase in stock-based compensation.

the productivity ratio, a measure of the Bank’s efficiency, was 50.5%, compared to 58.7% in the same quarter last year and 54.2% last quarter. the Bank’s operating leverage this quarter was 16.4% compared to a year ago, driven by 16% revenue growth, while expenses were unchanged.

the effective tax rate for this quarter was 33.6%, up from 17.9% in the first quarter last year, and 25.7% in the fourth quarter. the increase from a year ago and from the previous quarter reflected net writedowns of future tax assets as a result of the Ontario tax rate reductions enacted during the current quarter. in addition, this quarter there was proportionately lower income and higher losses in lower tax rate jurisdictions, a non-deductible foreign currency devaluation loss on the investment in the Venezuelan affiliate, and a correction of a tax expense related to a prior acquisition in International Banking.

the Bank’s risk management policies and practices are unchanged from those outlined in pages 62 to 76 of the 2009 Annual Report.

the provision for credit losses was $371 million this quarter, compared to $281 million in the same period last year and $420 million in the previous quarter.

the total provision for credit losses was $180 million in Canadian Banking, up from $155 million in the same quarter last year, but down from $190 million in the previous quarter. the year-over-year increase was due mainly to higher retail provisions in the unsecured lending portfolios, and to moderately higher commercial provisions. the decrease from the previous quarter was due mainly to lower retail provisions in the unsecured lending portfolios, partially offset by moderately higher commercial provisions.

International Banking’s provision for credit losses was $177 million, compared to $116 million in the same period last year, and $167 million last quarter. the year-over-year increase was due mainly to a provision on a commercial account in the Caribbean, whereas the same quarter last year benefited from reversals in commercial provisions. On a year-over-year basis, retail provisions were unchanged. the increase in provisions from the previous quarter was due mainly to higher retail provisions in Mexico, Chile and the Caribbean, partially offset by lower provisions in Peru.

Scotia Capital’s provision for credit losses was $14 million, compared to $10 million in the same period last year and $63 million last quarter. new provisions this quarter were attributable primarily to one account in Canada.

Total net impaired loans, after deducting the allowance for specific credit losses, were $2,677 million as at January 31, 2010, an increase of $114 million from last quarter.

the general allowance for credit losses was $1,450 million as at January 31, 2010, unchanged from last quarter.

the sectoral allowance specific to the automotive industry was $43 million, down $1 million, reflecting a reclassification to specific provisions this quarter.

Automotive industry exposure

the Bank’s direct (corporate and commercial) loan exposure to the North American and European automotive industry was $4.1 billion as at January 31, 2010, and was comprised of the following:

as at ————————————————————————- January 31 October 31 ($ billions) 2010 2009 ————————————————————————- Original equipment manufacturers (OEMs) $ 0.2 $ 0.2 Financing and leasing 0.6 0.6 Parts manufacturers 0.5 0.5 Dealers 2.8 2.4 ————————————————————————- Total $ 4.1 $ 3.7 ————————————————————————- ————————————————————————-

Approximately 32% of this exposure is rated investment grade, either externally or based on the Bank’s internal rating program, in line with the 30% as at October 31, 2009. Loans are typically senior in the capital structure of the borrowers. in the first quarter of 2010, there was a small net provision recovery.

in fiscal 2009, 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. of the $60 million, $16 million of the sectoral allowance was reclassified to the specific provision for credit losses in the prior year. During the first quarter of 2010, $1 million of the sectoral allowance was reclassified to the specific provision for credit losses. Management believes this sectoral allowance is adequate to address potential losses inherent in the exposures to this sector.

Consumer auto-based securities

as at January 31, 2010, the Bank held $6.2 billion (October 31, 2009 – $6.2 billion) of consumer auto-based securities which are classified as loans. These securities are loan-based securities, which arise from retail instalment sales contracts (loans), which were 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 less than one year, and was modified in 2008 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 overcollateralization 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 regular 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 83% of these assets are externally rated AAA and have a weighted average life of approximately two years.

as a result of the Bank’s broad international operations, the Bank has sovereign credit risk exposure to a number of countries. the Bank actively manages this sovereign risk, including the use of risk limits calibrated to the credit worthiness of the sovereign exposure. the Bank’s exposure to certain European countries that have come under recent focus is not significant, with no sovereign risk exposure to Greece. in February 2010, the Bank participated in a Jamaican debt exchange, which is not expected to have a significant impact on earnings.

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 (further below) and Liquidity facilities provided to non-Bank sponsored conduits (further below).

value at Risk (VaR) is a key measure of market risk in the Bank’s trading activities. in the first quarter, the average one-day VaR was $14.6 million compared to $21.7 million for the same quarter last year. the change was primarily the result of decreased interest rate risk. Compared to the fourth quarter, the average one-day VaR decreased from $15.0 million to $14.6 million due primarily to higher diversification between risk factors, offsetting an increase in equity risk.

Average for the three months ended ————————————————————————- Risk factor January 31 October 31 January 31 ($ millions) 2010 2009 2009 ————————————————————————- Interest rate $ 14.1 $ 14.3 $ 19.7 Equities 7.3 4.0 5.3 Foreign exchange 2.6 2.1 2.3 Commodities 2.7 4.1 3.9 Diversification effect (12.1) (9.5) (9.5) ————————————————————————- All-Bank VaR $ 14.6 $ 15.0 $ 21.7 ————————————————————————- ————————————————————————-

there were eight trading loss days in the first quarter, compared to six days in the previous quarter. the losses were well within the range predicted by VaR.

the Bank maintains large holdings of cash, deposits with banks and securities which may be used to support liquidity management. These assets generally can be realized, sold or pledged to meet the Bank’s obligations. as at January 31, 2010, these assets totalled $159 billion or 31% of total assets, compared to $146 billion or 29% of total assets as at October 31, 2009. Securities represented 63% of these assets (October 31, 2009 – 69%).

in the course of the Bank’s day-to-day activities, securities and other assets are pledged to secure an obligation, participate in clearing or settlement systems, or operate in a foreign jurisdiction. Securities may also be sold under repurchase agreements. as at January 31, 2010, total assets pledged or sold under repurchase agreements were $86 billion, compared to $84 billion as at October 31, 2009. the quarter-over-quarter increase was due to an increase in assets pledged to secure an obligation and in securities sold under repurchase agreements.

the Bank’s total assets at January 31, 2010, were $508 billion, up $11 billion from October 31, 2009. Excluding the negative impact of foreign currency translation, total assets were up $14 billion, primarily in cash resources due mainly to higher interest bearing deposits with central banks.

Total securities decreased by $1 billion from October 31, 2009, primarily in available-for-sale securities. as at January 31, 2010, the unrealized gain on available-for-sale securities, after the impact of qualifying hedges is taken into account, was $1,028 million, an increase of $200 million from October 31, 2009. the change was due primarily to increases in the values of equity securities, corporate bonds and Canadian government debt, as a result of improvements in capital markets, partially offset by realized gains on foreign government debt securities.

the Bank’s loan portfolio increased by $2 billion from October 31, 2009, including a negative impact from foreign currency translation of $1 billion. in retail lending, residential mortgages increased $4 billion, primarily in Canadian Banking. Business and government loans decreased by $2 billion from October 31, 2009, or $1 billion excluding the impact of foreign currency translation, primarily in the U.S. and Europe within Scotia Capital.

Total liabilities were $482 billion as at January 31, 2010, up $10 billion from October 31, 2009. Excluding the negative impact of foreign currency translation, total liabilities rose $13 billion. Growth in deposits and obligations related to securities sold under repurchase agreement was partially offset by decreases in acceptances and other liabilities.

Total deposits increased by $15 billion net of foreign currency translation of $2 billion. Personal deposits rose by $1 billion, due primarily to increases in demand deposits in Canada. Business and government deposits grew by $9 billion and deposits by banks rose by $5 billion.

Acceptances, as well as the corresponding receivables from customers, decreased by $2 billion from October 31, 2009. Other liabilities, primarily cash collateral received from customers, declined by $3 billion.

Total shareholders’ equity increased $585 million from October 31, 2009. This resulted primarily from internal capital generation of $437 million and the issuance of $150 million in common shares through the Bank’s Dividend Reinvestment and Employee Share Purchase Plan and exercise of options. Accumulated other comprehensive loss increased slightly as higher unrealized foreign exchange losses from the strengthening of the Canadian dollar were mainly offset by an improvement in the unrealized gains on available-for-sale securities.

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), to ensure 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 are unchanged from those outlined on pages 38 to 42 of the 2009 Annual Report.

the Bank continues to maintain a strong capital position. the Tier 1 and Total capital ratios as at January 31, 2010, were 11.2% and 13.5%, respectively, compared to 10.7% and 12.9% as at October 31, 2009. the increase in the Tier 1 capital ratio this quarter was due to a combination of internally generated capital and a decline in risk-weighted assets across most business lines. the strengthening of the Canadian dollar did not have a significant impact on capital ratios as the reduction to capital from the higher unrealized losses from foreign currency translation was offset by lower risk-weighted assets also due to currency translation. the tangible common equity (TCE) ratio was 8.8% as at January 31, 2010, an increase from 8.2% as at October 31, 2009.

the Board of Directors, at its meeting on March 8, 2010, approved a quarterly dividend of 49 cents per common share. This quarterly dividend applies to shareholders of record as of April 6, 2010. This dividend is payable April 28, 2010.

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 2009 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 $1,579 billion as at January 31, 2010, compared to $1,540 billion as at October 31, 2009, with the increase primarily in foreign exchange 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 as at January 31, 2010, after taking master netting arrangements into account, was $18.4 billion, compared to $18.5 billion at year end.

Selected credit instruments Mortgage-backed securities Non-trading portfolio

Total mortgage-backed securities held as available-for-sale securities represent approximately 4% of the Bank’s total assets as at January 31, 2010, 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 January 31, 2010, and are shown in the table below.

Mortgage-backed securities as at January 31, 2010 ————————————————————————- Non-trading Trading Carrying value ($ millions) portfolio portfolio ————————————————————————- Canadian NHA mortgage-backed securities(1) $ 20,408 $ 387 Commercial mortgage-backed securities 4(2) 41(3) Other residential mortgage-backed securities 234 – ————————————————————————- Total $ 20,646 $ 428 ————————————————————————- ————————————————————————- as at October 31, 2009 ————————————————————————- Non-trading Trading Carrying value ($ millions) portfolio portfolio ————————————————————————- Canadian NHA mortgage-backed securities(1) $ 21,287 $ 253 Commercial mortgage-backed securities 4(2) 44(3) Other residential mortgage-backed securities 93 – ————————————————————————- Total $ 21,384 $ 297 ————————————————————————- ————————————————————————- (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. Asset-Backed Commercial Paper (ABCP)

as a result of the ABCP restructuring in the first quarter of 2009, the Bank received longer-dated securities which are classified as available-for-sale. the Bank’s carrying value of $144 million represents approximately 62% of par value, unchanged from the prior 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 held for non-trading purposes. CDOs/CLOs generally achieve their structured credit exposure either synthetically through the use of credit derivatives (synthetic CDOs/CLOs), or by investing and holding corporate loans or bonds (cash-based CDOs/CLOs).

Effective November 1, 2008, the Bank’s cash-based CDOs/CLOs were classified as loans and are carried at amortized cost in the Consolidated Balance Sheet. the Bank’s synthetic CDOs/CLOs are carried at fair value on the Bank’s Consolidated Balance Sheet as available-for-sale securities. changes in the fair value of synthetic CDOs/CLOs are reflected in net income.

Substantially all of the referenced assets of the Bank’s CDOs/CLOs are corporate exposures, with no U.S. mortgage-backed securities.

as at January 31, 2010, the carrying value of cash-based CDOs/CLOs on the Consolidated Balance Sheet was $1,031 million (October 31, 2009 – $1,059 million). the fair value was $716 million (October 31, 2009 – $688 million). None of these cash-based CDOs/CLOs are classified as impaired loans.

the overall risk profile of cash-based CDOs/CLOs has not changed significantly since October 31, 2009.

the Bank’s remaining exposure to synthetic CDOs/CLOs was $339 million as at January 31, 2010 (October 31, 2009 – $323 million). During the quarter, the Bank recorded a pre-tax gain of $45 million in net income for changes in fair value of synthetic CDOs/CLOs (first quarter of 2009 – pretax loss of $27 million). the change in fair value of the synthetic CDOs/CLOs was mainly driven by the tightening of credit spreads.

the overall risk profile of synthetic CDOs/CLOs has not changed significantly since October 31, 2009.

the key drivers of the change in fair value of synthetic CDOs/CLOs are changes in credit spreads and the remaining levels of subordination. Based on positions held at January 31, 2010, a 50 basis point widening of relevant credit spreads would result in a pre-tax decrease in income of approximately $16 million.

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 January 31, 2010 ————————————————————————- Positive/ Notional (negative) Outstanding ($ millions) amount fair value ————————————————————————- CDOs – sold protection $ 4,052 $ (1,023) CDOs – purchased protection $ 3,681 $ 1,026 ————————————————————————- ————————————————————————- as at October 31, 2009 ————————————————————————- Positive/ Notional (negative) Outstanding ($ millions) amount fair value ————————————————————————- CDOs – sold protection $ 6,000 $ (1,620) CDOs – purchased protection $ 5,625 $ 1,657 ————————————————————————- ————————————————————————-

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 January 31, 2010, a 50 basis point widening of relevant credit spreads in this portfolio would result in a pre-tax decrease in income of approximately $7 million.

Approximately 53% of the Bank’s credit exposure to CDO swap counterparties is to entities which are externally or internally rated investment grade equivalent. the referenced assets underlying the trading book CDOs are substantially all corporate exposures, with no mortgage-backed securities.

Structured investment vehicles

the carrying value of the Bank’s investments in structured investment vehicles (SIVs) was nil as at January 31, 2010, and October 31, 2009. the Bank does not sponsor, manage or provide liquidity support to SIVs.

Exposure to monoline insurers

the Bank has insignificant direct exposure to monoline insurers. the Bank has indirect exposures of $1.2 billion (October 31, 2009 – $1.3 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 $0.3 billion (October 31, 2009 – $0.4 billion) were primarily to U.S. municipalities and states. Approximately 83% 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 $0.9 billion (October 31, 2009 – $0.9 billion). These exposures were primarily composed of $0.7 billion (October 31, 2009 – $0.7 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). as at January 31, 2010, the two monoline insurers were rated non-investment grade by the external rating agencies.

as at January 31, 2010, the Bank has insignificant or no exposure to the following categories: Alt-A loans and securities; highly leveraged loans awaiting syndication; and auction-rate securities.

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 totalled $13 million in the first quarter, compared to $29 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.

the Bank’s primary exposure to the Canadian-based conduits is the liquidity support provided, with total liquidity facilities of $1.5 billion as at January 31, 2010 (October 31, 2009 – $1.8 billion). as at January 31, 2010, total commercial paper outstanding for the Canadian-based conduits administered by the Bank was $1.2 billion (October 31, 2009 – $1.6 billion), and the Bank held less than one per cent of the total commercial paper issued by these conduits. the following table presents a summary of assets purchased and held by the Bank’s two Canadian multi-seller conduits as at January 31, 2010, and October 31, 2009, by underlying exposure:

as at January 31, 2010 ————————————————————————- Funded Unfunded Total ($ millions) assets(1) commitments exposure(2) ————————————————————————- Auto loans/leases $ 363 $ 190 $ 553 Equipment loans 570 11 581 Trade receivables 165 59 224 Canadian residential mortgages 61 1 62 Retirement savings plan loans 81 2 83 ————————————————————————- Total(3) $ 1,240 $ 263 $ 1,503 ————————————————————————- ————————————————————————- as at October 31, 2009 ————————————————————————- Funded Unfunded Total ($ millions) assets(1) commitments exposure(2) ————————————————————————- Auto loans/leases $ 505 $ 138 $ 643 Equipment loans 723 43 766 Trade receivables 165 59 224 Canadian residential mortgages 67 1 68 Retirement savings plan loans 92 2 94 ————————————————————————- Total(3) $ 1,552 $ 243 $ 1,795 ————————————————————————- ————————————————————————- (1) Funded assets are reflected at original cost, which approximates estimated fair value. (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. as at January 31, 2010, the funded assets had an equivalent rating of AA- or higher based on the Bank’s internal rating program. While 55% of the total funded assets have final maturities falling within three years, the weighted average repayment period, based on cash flows, approximates one year. there is no exposure to U.S. subprime mortgage risk within these two conduits.

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 $7.6 billion as at January 31, 2010 (October 31, 2009 – $7.5 billion). as at January 31, 2010, total commercial paper outstanding for the U.S.-based conduit administered by the Bank was $3.5 billion (October 31, 2009 – $4.2 billion), and the Bank did not hold any 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 wit

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