Scotiabank is reporting continued growth in its third quarter with net income of $564 million, 2% higher than a year ago. Earnings per share were $1.05, an increase of 1% over the third quarter in 2001. Return on equity was 16.2% in the third quarter, compared with 17.3% recorded last year.

For the nine-month period ended July 31, 2002, net income was $1,214 million, compared to $1,603 million one year ago. Earnings per share diluted were $2.21, compared to $3.00, while return on equity was 11.7%, down from 17.4%. Excluding charges of $540 million after tax in the first quarter related to Argentina, net income for the nine-month period was $1,754 million, up from $1,603 million in the same period a year ago. Related earnings per share diluted were $3.26, an increase from $3.00, and ROE was 16.8% compare with 17.4% last year.

Net interest income on a tax-equivalent basis was $1,733 million, up $49 million or 3% from the same quarter a year ago, and $21 million or 1% above last quarter.

The Bank’s overall interest margin in the third quarter was 2.33%, down from 2.43% in the same quarter a year ago primarily because of Scotiabank Quilmes, and basically unchanged from 2.34% last quarter.

Non-interest expenses fell significantly by $123 million from the same quarter of the prior year and were $110 million below last quarter. Salaries
and staff benefits declined $70 million from the prior year as a result of lower stock-based compensation. This quarter, there was an expense recovery of
$14 million, an improvement of $61 million from a year ago, when an increase in the Bank’s share price had caused an expense of $47 million. As well, the
devaluation of the Argentine peso resulted in lower expenses in Scotiabank
Quilmes.

As in the past few quarters, credit quality in the Bank’s Canadian loan portfolios remained strong in retail and stable in commercial. Credit conditions in international, excluding Argentina, were also generally stable. There has been some market uncertainty around Brazilian country risk given the
potential political developments. However, the Bank’s Brazilian exposure is almost entirely limited to government bonds and trade finance, and is being
carefully managed.

In Scotia Capital’s U.S. operations, conditions were more difficult than previously expected, with particular weakness in the telecommunications sector. As well, like many other financial institutions, the bank was affected by the well-publicized financial irregularities of several U.S. borrowers. A combination of these factors led to an increase in net impaired loans to
$1,019 million, from $515 million at the end of the previous quarter, and $395 million last year, excluding Argentina, net impaired loans were
$751 million as at July 31, 2002. The specific provision for credit losses also rose to $400 million, an increase of $50 million over last quarter, and $150 million above the same quarter last year, with the largest component being higher provisions in the
U.S. Credit conditions are expected to remain challenging in the fourth quarter.


Domestic Banking, which includes wealth management, generated net income of $262 million in the third quarter, up a substantial $50 million or 24% from last year. This business line accounted for 46% of the Bank’s total net income. Earnings rose 3% quarter over quarter.

Net interest income increased $81 million from last year, mainly the result of strong asset growth, led by residential mortgages and revolving credit. Net interest income rose $33 million quarter over quarter, reflecting asset growth and the benefit of three extra days in the third quarter.

Other income was marginally below last year and last quarter, largely because of lower retail brokerage fees following a market-led decline in customer trading activity.

Credit quality remained strong in retail lending and stable in the commercial portfolio. Operating expenses remained well controlled with modest
growth of 3% over the same quarter last year. The growth of 3% over the past quarter largely arose from three additional days in the quarter.

During the quarter, Scotiabank completed the integration of Charles Schwab Canada and the rebranding of our self-managed brokerage to ScotiaMcLeod Direct Investing. These initiatives support the Wealth Management strategy of building one brokerage business with a full range of offerings, seamlessly integrated with other Scotiabank financial services.

International Banking earned $212 million this quarter, up a substantial 42% from last quarter and 60% above last year, with all regions contributing
to the year-over-year growth.