#1Scotiabank Investor Presentation Second Quarter, 2006 May 29, 2006 1 Scotiabank This document includes forward-looking statements which are made pursuant to the "safe harbour" provisions of the United States Private Securities Litigation Reform Act of 1995. These statements 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. Forward-looking 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. The Bank cautions readers not to place undue reliance on these statements, as a number of important factors could cause actual results to differ materially from the estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to, the economic and financial conditions in Canada and globally; fluctuations in interest rates and currency values; liquidity; the effect of changes in monetary policy; legislative and regulatory developments in Canada and elsewhere; operational and reputational risks; the accuracy and completeness of information the Bank receives on customers and counterparties; the timely development and introduction of new products and services in receptive markets; the Bank's ability to expand existing distribution channels and to develop and realize revenues from new distribution channels; the Bank's ability to complete and integrate acquisitions and its other growth strategies; changes in accounting policies and methods the Bank uses to report its financial condition and the results of its operations, including uncertainties associated with critical accounting assumptions and estimates; the effect of applying future accounting changes; global capital markets activity; the Bank's ability to attract and retain key executives; reliance on third parties to provide components of the Bank's business infrastructure; unexpected changes in consumer spending and saving habits; technological developments; consolidation in the Canadian financial services sector; changes in tax laws; 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 59 of the Bank's 2005 Annual Report. The Bank cautions that the foregoing 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 foregoing 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 behalf of the Bank. The "Outlook" section that follows 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. 2#2Scotiabank Scotiabank EPS ($) Overview Rick Waugh President & Chief Executive Officer 3 Earnings growth 0.89 0.84 0.81 0.80 0.77 ROE (%) 22.3 - 23.2 21.6 20.5 19.9 Net Income* ($millions) 887 844 822 803 775 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 *Net income available to common shareholders 4 ■ Record results EPS: $0.89 vs. $0.81 in Q2/05 ROE: 23.2% vs. 22.3% in Q2/05 Volume growth across all businesses Margin stable qtr/qtr Stable credit quality Strong capital position#3Scotiabank annual dividend/share 32.5¢ 1996 1998 Dividend growth CAGR: 16.5% 2000 2002 $1.50* 2004 2006 ■ 3 cent or 8% dividend increase effective Q3/06 ■ 14% increase in 2006 based on current rate 5 Scotiabank Solid contribution from all 3 businesses net income available to common shareholders, $ millions 279 329 296 Domestic 186 233 Q2/05 Q1/06 Q2/06 276 268 258 239 International Scotia Capital ■ Domestic: Substantial year-over-year volume and market share increases in residential mortgages and personal deposits as well as strong results in wealth management. ■ International: Strong growth in Mexico and continued solid performance in the Caribbean & Central America bolstered by low credit losses and acquisitions. ■ Scotia Capital: Record results benefited from continued stable credit environment and a strong performance in derivatives, foreign exchange and precious metals. 6#4Scotiabank ROE Meeting our 2006 financial performance objectives 2006 YTD Objective 22.3% VS. 18-22% EPS Growth 9.5% VS. 5-10% Productivity 55.2 VS. <58% ต Scotiabank 7 Performance Review Luc Vanneste Executive Vice-President & Chief Financial Officer 8#5Scotiabank Credit losses Q2/06 Items of note EPS Impact (cents) Change Change Qtr/Qtr Year/Year 3 Lower tax rate 3 4 Stock-based compensation 2 Securities gains 1 (2) Trading (5) 2 Foreign currency translation (1) (5) Shorter quarter (3) (1) Other Growth 5 9 ▪ Lower tax rate: due mainly to higher earnings in lower tax jurisdictions Trading: revenues decreased from record levels in Q1/06 ■Forex Translation: foreign currency earnings reduced by stronger Canadian $ Change 5 cents 8 cents 9 Scotiabank Broad-based revenue growth year over year $ millions, TEB Net interest income: up 6% yr/yr ☐ 2,830 2,830 12% average asset growth 2,688 1,605 1,644 1,552 1,136 1,225 1,186 Q2/05 Q1/06 Q2/06 ■ Net interest margin down 10 bps Other income: up $50 mm, 4% yr/yr ■ Higher wealth mgmt revenues: $32 mm ■ Higher card and activity-based banking revenues: $30 mm ■ Strong trading results: $32 mm ■Lower securities gains: ($26) mm, Shinsei: $48 mm vs $118 mm in Q2/05 ■Lower securitization revenues due to narrowed spreads: ($12) mm ☐ Net Interest Income (TEB) Other Income 10#6Scotiabank Strong asset growth average earning assets (incl. acceptances), $ billions 12% 282 76- 65 55 71 314 C80: O Residential mortgages up 11% 69 87 Securities up 22% - trading: $9 billion - purchased asset-backed securities: $6 billion Business & government up 5% 78 70 ☐ Other up 7% Q2/05 Other Q2/06 ■Business & government (includes acceptances) Securities Residential mortgages Scotiabank 2.07 All Bank 11 All-Bank margin stable 1.97 1.97 1.97 1.97 All-Bank margin stable qtr/qtr 2.89 2.88 2.88 Domestic 2.78 International 2.74 4.15 4.04 4.06 3.93 3.98 Scotia Capital ▪ Interest rate gap has been well managed Margin pressures remain ■ Opportunity to leverage strong asset growth 0.84 0.70 0.72 0.73 0.70 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 12#7Scotiabank $ millions Expenses well controlled 1,562 1,565 1,490 883 934 928 Q2/05 Q1/06 Q2/06 ☐ Other expenses Premises & technology Salaries & employee benefits Expenses up 5% or $75 mm yr/yr ■ Salaries up mainly due to acquisitions: $25 mm Higher benefit costs: $19 mm Higher premises, technology and communication costs: $17 mm ■Lower business and capital taxes: ($19) mm ■ Other expenses up, partly due to acquisitions: $33 mm Expenses flat qtr/qtr Higher performance-based compensation in Scotiabank Mexico reflecting finalization of year-end payouts in Q1/06: $21 mm Higher payroll taxes, full quarter impact of El and CPP: $11 mm ■ Lower stock-based compensation: ($35) mm 13 Scotiabank % of risk-weighted assets Strong capital ratios 11.4 10.8 10.2 9.5 9.0 8.6 Q2/05 Q1/06 Q2/06 Tier 1 ■Tangible Common Equity Tier 1 decline of 60 bps vs. Q1 due to: ■ Risk weighted assets (RWA) growth: (63) bps - $11 billion increase in RWA split evenly between organic growth & acquisitions Increased goodwill: (8) bps ■ Retained earnings growth: 11 bps ☐ Higher minority interest: 4 bps (mainly Peru) 14#8Scotiabank High level of unrealized securities' gains $ millions Qtr/Qtr decline of $195 mm due to: Fixed income down $112 mm · market value declined due to rising interest rates - ■ EM debt down $64 mm - decrease in value of Mexican government bonds due to higher interest rates Equities down $19 million realized gain of $48 mm on Shinsei investment, offset by price increases Q2/06 Q1/06 Q2/05 ■ Fixed Income (158) (46) 28 Emerging 534 598 540 Market Debt Equities 519 538 420 895 1,090 988 ต Scotiabank 15 Business Line Results 16#9Scotiabank $ millions Domestic Banking Solid performance Change vs. Q2/05 Q1/06 Total revenue 1,369 5% (1)% Provision for credit losses 88 32% 36% Non-interest expenses 845 3% 1% Net Income available to common 296 6% (10)% shareholders Return on Equity 27% Average assets ($B) 132 9% 2% Year/Year: Net income up 6% " 5% revenue growth partly offset by higher expenses and provisions Quarter/Quarter: Net income down 10% ■ earnings impacted by shorter quarter and higher provisions in the commercial portfolio Scotiabank $ millions 1,600 1,400 17 Domestic Banking Steady revenue Year/Year: up 5% 10% growth in retail assets - 10% growth in mortgages - 11% growth in lines of credit ■ 12% growth in business deposits ■Margin down 14 bps due to impact of rising rates ■ Wealth mgmt. revenues up 14% Quarter/Quarter: down 1% ■ Slight decline mainly due to shorter quarter 1,200 474 453 472 485 445 1,000 800 600 400 852 905 929 909 884 200 0 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Other Income Net interest income 18#10Scotiabank * Domestic Banking Market share growth Year /Year Residential Mortgages: Personal Deposits: +120 basis points* 3rd in market share +34 basis points* 3rd in market share Impact of Maple Trust & National Bank of Greece acquisitions: - residential mortgages: 117 basis points - personal deposits: 17 basis points 19 Scotiabank $ millions Domestic Banking Expenses well controlled Total Non-Interest Expenses 900 870 817 825 833 845 750 600 450 300 150 0 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Year/Year: up 3% Higher salaries & benefits ■ Higher technology and marketing expenses ■ Increased appraisal and acquisition fees ▪ Partly offset by lower business and capital taxes Quarter/Quarter: up 1% ▪ Higher benefit, technology, premises and marketing costs Partly offset by lower stock- based compensation 20#11Scotiabank $ millions International Banking A strong performance Total revenue Provision for credit losses Non-interest expenses Net Income available to common shareholders Return on Equity Average assets ($B) Year/Year: Net income up 44% 762 Change vs. Q2/05 Q1/06 15% 2% 1 (95)% (96)% 443 13% (2)% 268 44% 15% 26% 54 8% 3% strong year-over-year growth in Mexico, solid performance in Caribbean & Central America and low credit losses Quarter/Quarter: Net income up 15% ■ increased contribution from Caribbean and Central America, Peru and Chile offset by slightly lower contribution from Mexico 21 Scotiabank $ millions International Banking revenue 900 800 700 220 237 215 600 202 174 500 400 300 489 512 506 529 542 200 100 0 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Other Income Net interest income Year/Year: up 15% ■ Average assets up 8% - 22% underlying growth in retail loans Major contributors: - Peru, Scotiabank Mexico, Caribbean & Central America Impact of foreign currency translation: ($45) mm Quarter/Quarter: up 2% Higher volumes ■ Partly offset by impact of forex translation and shorter quarter 22#12Scotiabank $ millions 500 400 300 200 100 391 International Banking Expenses impacted by acquisitions Total Non-Interest Expenses 486 447 452 443 0 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 23 Year/Year: up 13% ■ El Salvador, Peru acquisitions Higher compensation expenses in Mexico, Jamaica and Puerto Rico Partly offset by impact of foreign currency translation: ($25) mm Quarter/Quarter: down 2% ■ Lower litigation, benefit expenses Partly offset by Peru acquisitions and higher performance-based compensation in Mexico from low level in Q1/06 Scotiabank earnings contribution, $ millions Scotiabank Mexico 150 138 124 125 100 85 15 75 50 25 0 Q2/05 Q1/06 Q2/06 Year/Year contribution: up 46% ☐ Higher volumes in retail lending: - residential mortgages: 26% - personal lending: 14% commercial lending: 14% ■ Lower tax charge due to change in tax rates in Q2/05 Qtr/Qtr contribution: down 10% ■ Lower securities gains and higher performance-based compensation 1 Partly offset by strong volume growth in mortgages and retail loans 24#13Scotiabank $ millions Scotia Capital - record net income Change vs. Total revenue Provision for credit losses Non-interest expenses Net Income available to common shareholders Return on Equity Average assets ($B) Year/Year: Net income up 16% Q2/05 Q1/06 580 4% (6)% (54) (5)% (100+)% 253 (1)% 276 16% 7% 35% 128 14% 12% ■ revenues 4% higher, expenses down 1%, foreign currency translation impact of ($20) mm Quarter/Quarter: Net income up 7% ■ primarily due to increased net loan loss recoveries and strong trading, although lower than Q1/06 record levels 25 Scotiabank $ millions Scotia Capital revenue 700 600 500 329 411 400 351 316 338 300 200 Year/Year: up 4% ■ Global Capital Markets: - $9 B increase in trading securities - strong performance in precious metals and derivatives ■ Global Corporate & Investment Banking: - $5 B increase in U.S. auto receivables - revenue down due mainly to sale of restructured asset in Q2/05 ($17) mm Impact of foreign currency translation: ($29) mm Quarter/Quarter: down 6% 230 100 202 201 209 229 - 0 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Other Income Net interest income O Global Capital Markets: - lower equity trading volumes ■ Global Corporate & Investment Banking: - higher loan syndication fees and net interest income 26#14Scotia Capital expenses Scotiabank $ millions Total Non-Interest Expenses 254 253 300 200 100 256 214 198 Jull 0 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Year/Year: down 1% ▪ Lower performance-related compensation ■ Partly offset by Waterous acquisition Impact of foreign currency translation: $6 mm Quarter/Quarter: flat ■ Lower salaries and stock-based compensation Higher professional fees and technology ด Scotiabank 27 Risk Review Brian Porter Chief Risk Officer 28#15Scotiabank $ millions Credit quality remains stable Q2/06 Q1/06 Q2/05 Specific Provisions: 35 75 35 Net Impaired Loans*: 579 659 666 ■ Specific provisions down $40 mm qtr/qtr and unchanged yr/yr ■ Continued to benefit from recoveries and low levels of provisions ■ Net impaired loans decreased $80 mm qtr/qtr and $87 mm yr/yr ■ No change in General Allowance: $1,330 mm after specific allowance Scotiabank $ millions 29 Specific provisions Q2/06 Q1/06 Q2/05 Domestic: 88 64 66 International: 1 27 26 Scotia Capital: - U.S. (30) (12) (55) - Other (24) (4) (2) (54) (16) (57) Total 35 75 35 ■ Domestic: Higher PCLs qtr/qtr and yr/yr due primarily to provisions taken against two accounts in the commercial portfolio. Retail credit quality remains solid. ■ International: Provisions were favourably affected by retail and commercial reversals in the Caribbean & Central America. ■ Scotia Capital: Higher net recoveries qtr/qtr and no new provisions in Q2/06. 30#16Net formations Scotiabank $ millions Domestic - Retail 73 - Commercial 44 117 International Scotia Capital - Canada (1) - U.S. (27) - Europe Total (87) (115) 11 Domestic Retail: net formations of $73 mm reflect strong volume growth - underlying credit trends remain stable Domestic Commercial: net formations of $44 mm, due in part to the classification of one account International: net formations were $9 mm, with retail formations in the Caribbean and Latin America offset by commercial declassifications in Asia and the Caribbean Scotia Capital: negative net classifications of $115 mm, due mainly to one account each in Europe and the U.S. 31 Scotiabank $ millions Trend in impaired loans Q2/06 Q2/05 Q2/04 Gross Impaired Loans: 1,955 1,882 3,199 Net Impaired Loans*: 579 666 1,371 ■ Q2/06: Gross impaired loans includes $324 mm of loans from acquisitions (Peru: $319 mm, National Bank of Greece: $4 mm, Maple Trust $1 mm); these amounts are fully provided for ■ Gross impaired loans have decreased more than $1.2 billion since Q2/04 ■ Net impaired loans have decreased by almost $800 million since Q2/04 * after specific allowance 32#17Scotiabank Trading revenue trading revenue, second quarter 2006 # days 10 8 6 4 2 0 (4) (3) (2) (1) 0123 ... 456789 10 11 12 $ millions ■87%+ days had positive results in Q2/06 ■ 8 days of trading losses in Q2/06 vs. 4 days in Q1/06 33 Scotiabank $ millions 15 5 (5) Market risk February 1, 2006 to April 30, 2006 и Actual P&L 1 day VAR (15) ■ Average 1 day VAR: $8.0 mm, down $0.1 mm qtr/qtr, up $1.2 mm yr/yr ■ Qtr/Qtr: higher commodities exposure; lower interest rate and equities exposures ■ Yr/Yr: increased exposures in equities, forex and commodities ■ No loss days exceeded the 1 day VAR 34#18Scotiabank Scotiabank Outlook Rick Waugh President & Chief Executive Officer 35 Outlook 1. Reached important milestones in Q2 - another record quarter ☐ ப " #3 in market share in mortgages, personal deposits finalized three acquisitions pickup in corporate loan demand 2. Some challenges remain ■ ☐ stronger Canadian dollar pressure on interest margins, but good leverage from recent asset growth when margins do widen 3. Continue to use capital for acquisitions 4. Credit quality expected to remain stable 5. Expect to meet performance objectives 36