fixed income investor presentation - scotiabank · 7 10.6 10.4 10.3 10.1 10.1 q2/15 q3/15 q4/15...

This presentation does not constitute an invitation, offer, solicitation or inducement to buy or sell any securities of the Bank of Nova Scotia in any jurisdiction.

Fixed Income Investor Presentation

SECOND QUARTER 2016

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 harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. Forward-looking statements may include, but are not limited to, statements made in this Management’s Discussion and Analysis in the Bank’s 2015 Annual Report under the headings “Overview – Outlook,” for Group Financial Performance “Outlook,” for each business segment “Outlook” and in other statements regarding the Bank’s objectives, strategies to achieve those objectives, the regulatory environment in which the Bank operates, anticipated financial results (including those in the area of risk management), and the outlook for the Bank’s businesses and for the Canadian, U.S. 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,” “may”, “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 the Bank’s control and the effects of which can be difficult to predict, 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 and funding; significant market volatility and interruptions; the failure of third parties to comply with their obligations to the Bank and its affiliates; changes in monetary policy; legislative and regulatory developments in Canada and elsewhere, including changes to, and interpretations of tax laws and risk-based capital guidelines and reporting instructions and liquidity regulatory guidance; changes to the Bank’s credit ratings; operational (including technology) and infrastructure risks; 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; critical accounting estimates and the effects of changes in accounting policies and methods used by the Bank (See “Controls and Accounting Policies – Critical accounting estimates” in the Bank’s 2015 Annual Report, as updated by quarterly reports); 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; increasing cyber security risks which may include theft of assets, unauthorized access to sensitive information or operational disruption; consolidation in the Canadian financial services sector; competition, both from new entrants and established competitors; judicial and regulatory proceedings; natural disasters, including, but not limited to, earthquakes and hurricanes, and disruptions to public infrastructure, such as transportation, communication, power or water supply; the possible impact of international conflicts and other developments, including terrorist activities and war; the effects of disease or illness on local, national or international economies; 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 “Risk Management” section starting on page 66 of the Bank’s 2015 Annual Report. Material economic assumptions underlying the forward-looking statements contained in this document are set out in the 2015 Annual Report under the heading “Overview – Outlook,” as updated by quarterly reports; and for each business segment “Outlook”. 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. The preceding list of factors is not exhaustive of all possible risk factors and other factors could also adversely affect the Bank’s results. 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. Additional information relating to the Bank, including the Bank’s Annual Information Form, can be located on the SEDAR website at www.sedar.com and on the EDGAR section of the SEC’s website at www.sec.gov.

Caution Regarding Forward-Looking Statements

Appendix: other

Scotiabank Overview

4

Canada’s International Bank

• Global footprint in over 55 countries

• Established on east coast of Canada in 1832

• In U.S. and Caribbean 125 + years

• Representative offices in Asia and Latin America

since 1960’s

• Began expanding Caribbean presence into

Central and South America in 1990’s. Primary

focus in the region is on the countries of

Mexico, Peru, Colombia and Chile

History

(1) Adjusts for restructuring charge of $278 million after-tax ($378 million before-tax)

(2) Taxable Equivalent Basis

(3) Basel III “all-in” Common Equity Tier 1 Ratio

(4) A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revisions or withdrawals at any time

Franchise in attractive markets

As at Q2 2016 (C$)1 Scotiabank

Total Assets $895B

Risk Weighted Assets $357B

Market Capitalization $79B

Q2/16 Net Income $1,862M Core Banking Margin 2.38%

ROE 14.4%

Productivity Ratio2

51.7%

Capital Ratio3

10.1%

# of Employees 89,610

Scotiabank Credit Ratings4

Moody’s S&P Fitch DBRS

Senior Rating Aa3 A+ AA- AA

Outstanding Covered Bonds

Aaa Not

Rated AAA AAA

Outlook Negative Stable Stable Negative

5

Scotiabank’s Strategy is Clear Maintain High Degree of Diversification1

Balance Earnings from Canada & International1

Pursue Selective Acquisitions

Deliver Key Strategic Priorities

(1) As at Q4/15. Excludes Other segment

Personal & Commercial

82%

• Complement organic growth with selective acquisitions

• Customer experience

• Low cost by design

• Business mix

Diversified by products, customers and geographies, creating stability and lower risk Centralized control over key functions: capital, expense and risk management

63% 2%

16%

19% Canada

US

Pacific Alliance

Other International

• Generate 70-75% of earnings from Retail and Commercial

• Generate ~50% of earnings from Canada • Focus on the Pacific Alliance

• Leadership

• Digital transformation

Canadian Banking

54% Wholesale

Global Banking & Markets

18%

International Banking

28%

6

Business Performance

Canadian Banking

Business Overview • Full suite of financial advice and

banking solutions to retail, small business and commercial customers

• Investment, pension and insurance advice and solutions

• Revenue mix: 54% Retail, 20% Commercial and 26% Wealth

Personal & Commercial Banking, Wealth and Insurance


Business Overview • Operate primarily in Latin America

(Mexico, Peru, Chile and Colombia), Central America and the Caribbean, with full range of personal and Asia in commercial financial services as well as wealth products and solutions

• Revenue mix: 65% Latin America, 31% Caribbean/Central America and 4% Asia


Business Overview • Wholesale banking and capital markets

products to corporate, government and institutional clients

• Full service platform in Canada and Mexico. Niche focus in U.S., Central and South America, Asia, Australia and select markets in Europe

• Revenue mix: 52% Business Banking and 48% Capital Markets

Wholesale Banking

Key Data Q2 16 (C$)

Total Loans (avg.) $301B

Total Deposits (avg.) $223B

Net Interest Margin (%) 2.38%

Productivity Ratio 50.7%

Branches 1,006


Net Income1 (Q2/16)

Key Data Q2 16 (C$)





Branches 1,836


Net Income1 (Q2/16)

Key Data Q2 16 (C$)




Trading Assets (avg.) $100B



Net Income1 (Q2/16)

829 875 977

Q2/15 Q1/16 Q2/16

447 505 500

Q2/15 Q1/16 Q2/16

449

366 323

Q2/15 Q1/16 Q2/16

(1) Core net income attributable to equity holders of the Bank

7

10.6 10.4 10.3 10.1 10.1

Q2/15 Q3/15 Q4/15 Q1/16 Q2/16

7

Capital Highlights – Strong Capital Position

• Internal capital generation of $0.6 billion

• Quarterly dividend of $0.72 is 6% higher than the same quarter last year

• CET1 risk-weighted assets were down $17 billion Q/Q

• Impact of a stronger Canadian dollar on foreign currency denominated risk weighted assets

• Basel III Leverage ratio of 4.1%

Basel III Common Equity Tier 1 (%)

CET1 Risk-Weighted Assets ($B)

329 348 358 374 357

Q2/15 Q3/15 Q4/15 Q1/16 Q2/16

8

Business & Gov’t – 35

Retail – 65%

Credit Highlights – Well Managed

• Minimal off-balance sheet assets

• High proportion of on-balance sheet assets are “low risk” residential mortgages

• Corporate loan book is diversified with a focus on Investment Grade clients

• Manageable energy exposure is diversified across sectors and geographies

• Underlying credit fundamentals remain within expectations despite increased provisions on a small number of accounts

• Market risk remains well-controlled

Loans & Acceptances by Category ($481B)

Provision for Credit Losses Ratio Gross Impaired Loans Ratio

0.41% 0.42% 0.42%1 0.45%

0.59%2

Q2/15 Q3/15 Q4/15 Q1/16 Q2/16

(1) Adjusts for collective allowance increase; including collective allowance increase, All Bank PCL ratio was 0.47

(2) Adjusts for collective allowance increase; including collective allowance increase, All Bank PCL ratio was 0.64

0.97%

1.00%

0.97%

1.03%

1.06%

Q2/15 Q3/15 Q4/15 Q1/16 Q2/16

45%

17%

3% 5%

4%

4%

3% 2%

16% Mortgages ($219B)

Personal Loans ($83B)

Credit Cards ($12B)

Wholesale/Retail ($22B)

Real Estate ($20B)

Financial Services ($19B)

Energy ($16)

Automotive ($12B)

Other ($79B)

Canadian & Select International Economies

10

Canadian Economy and Financial System

Strong Financial System

Canadian Banking System ranked World’s Soundest by World Economic Forum for 8th consecutive year

Global Competitiveness Report (2015 – 2016)

• Effective regulatory framework

– Principles based regime

– Single regulator for major banks

– Conservative capital requirements

– Proactive policies and programs

• Risk management practices

– Conservative lending standards

– Few sub-prime mortgages

– Relatively little securitization

– Primarily originate to hold model

• Canadian banks well capitalized and profitable

Canadian Economy

• The 15th largest economy in the world, with a large export orientation

• Economy is diversified, with a focus on services, primary, manufacturing, construction and utilities industries

• Proactive governments and central bank

• Manageable Canadian government deficits

• Moderate growth with slowdown in commodity sectors balanced by continuing manufacturing, service sector and construction activity

11

0.6

-1.7

-2.6

-3.6 -3.7

-4.4

-5.2 -6

-5

-4

-3

-2

-1

0

1

Germany Canada Italy France U.S. U.K. Japan

41.0 43.4

71.7 75.3 80.3

86.4

131.8 132.4

0

20

40

60

80

100

120

140

Canada Germany OECD France U.K. U.S. Japan Italy

Canadian Economy Real GDP Growth

General Government Net Financial Liabilities Government Financial Deficits

annual % change

% of GDP

% of GDP

Canadian GDP by Industry

Source: Statistics Canada, Scotiabank Economics.

20.0%

11.9%

11.2%

10.7% 8.1%

7.1%

6.4%

5.3%

4.4%

14.8%

Finance, Insurance & Real Estate

Health & Education

Wholesale & Retail Trade

Manufacturing

Mining and Oil & Gas Extraction

Construction

Public Administration

Professional, Scientific & Technical Services

Transportation & Warehousing

Other

February 2016

Source: OECD (2015 estimates); Scotiabank Economics. As at May 25, 2016. Source: IMF (2015 estimates), Scotiabank Economics. As at May 25, 2016.

0

1

2

3

U.S. U.K. Euro zone Canada Japan

2000-2014

2015-2016F

Forecasts as at May 11, 2016. Source: Scotiabank Economics.

12

60

61

62

63

64

65

66

67

68

69

70

90 92 94 96 98 00 02 04 06 08 10 12 14 16

0

2

4

6

8

10

12

14

90 92 94 96 98 00 02 04 06 08 10 12 14 16

Stable Economic Fundamentals

Labour Force Participation Rate

Unemployment Rate

y/y % change

Inflation

U.S.

Canada

%

U.S.

Canada

Bank of Canada Target

Inflation Band

%

U.S.

Canada

Canada

• Economy has moderated due to persistent weakness in commodity prices and sluggish exports abroad

• Household spending remains reasonably buoyant, underpinned by relatively low and stable unemployment as well as low borrowing costs

• Population and labour force growth supported by strong immigration

• Stable inflation within Bank of Canada target band

• Non-resource exports are supported by improving U.S. demand and a competitive Canadian dollar

Source: Statistics Canada, BLS, Scotiabank Economics. Data through April 2016.



-2

-1

0

1

2

3

4

5

6

00 02 04 06 08 10 12 14 16

13

Economic Outlook in Key Markets

1.6%

2.0% 1.8%

2.3%

1.7%

2.3% 2.4%

3.1%

2.4%

3.0%

3.8% 3.6%

Canada2016

Canada2017

U.S.2016

U.S.2017

Chile2016

Chile2017

Mexico2016

Mexico2017

Colombia2016

Colombia2017

Peru2016

Peru2017

Scotiabank’s Key International Markets Canada / U.S.

Source: Scotiabank Economics, as of May 11, 2016

2016 and 2017 Real GDP Growth Forecast

No Significant Exposure to the BRICs

Canadian Housing Market

15

0

1

2

3

4

5

6

7

90 92 94 96 98 00 02 04 06 08 10 12 14 1635

40

45

50

55

60

65

70

75

80

90 92 94 96 98 00 02 04 06 08 10 12 14 16

Canadian Housing Fundamentals Remain Sound

real estate equity as % of real estate assets

High Percentage of Equity

U.S.

Canada

Mortgage Debt Service Ratio

% of disposable income

Mortgage Interest Payments

Source: Statistics Canada, Scotiabank Economics. Data through 2015Q4.

Source: Statistics Canada, U.S. Federal Reserve, Scotiabank Economics. Data through 2015Q4.

Residential Unit Sales to New Listings

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

90 92 94 96 98 00 02 04 06 08 10 12 14 16

ratio

Seller’s Market

Buyer’s Market

Balanced

Market

Residential Mortgages Arrears

Source: CREA MLS, Scotiabank Economics. Data through April 2016.

0

1

2

3

4

5

6

90 92 94 96 98 00 02 04 06 08 10 12 14 16

% of mortgages in arrears 3 months or more

U.S.

Canada

Source: CBA, MBA, Scotiabank Economics. Data through 2016 Q1.

• Steady population and household income gains, low interest rates and continuing immigration are underpinning demand

• High household debt supported by continuing low debt service costs, low unemployment and significant home equity

• Structural considerations, strong underwriting discipline and conservative lending policies are reflected in low delinquency rates

• Unemployment rate remains low and stable

• Marginal affordability strain observed in select markets

16

$82.7

$24.9 $26.5 $13.6 $11.7 $8.2

Ontario B.C. & Territories Alberta Quebec Atlantic Provinces Manitoba &Saskatchewan

Scotiabank’s Canadian Residential Mortgage Portfolio • Mortgage business model is originate to hold

• 62% of the mortgage portfolio is insured

• 38% is uninsured and has an average loan-to-value (LTV) of 51%

• Majority is freehold properties; condominiums represent approximately 11% of the portfolio

• Good diversification across Canada with approximately half of the portfolio anchored in Ontario

• Loans to Canadian condominium developers were $839 MM at Q2/16 ($816 MM at Q1/16)

– High quality portfolio of well known developers with longstanding relationships with Scotiabank

(1) LTV calculated based on the total outstanding balance secured by the property. Property values indexed using Teranet HPI data. (2) In Q2/16, new portfolio insurance transactions converted $26.5 billion of uninsured to insured mortgages. (3) Some figures on bar chart may not add due to rounding.

38%2 62%2

Insured

Uninsured (avg. LTV = 51%1)

Canadian Mortgage Portfolio: $189B (spot balances as at Q2/16, C$B)

$168B

Condominium $21B

Freehold

$92.3

$30.9 $30.0

$15.2

$11.9 $1.6

$8.8

$3.5

$0.6 $0.2

$6.0

$9.6

Funding

18

Funding Strategy

• Build core deposits in all of our key markets

• Achieve appropriate balance between cost and stability of funding

– Maintain pricing relative to peers

• Diversify funding by type, currency, program, tenor and markets

– Regular issuance in all markets executed via wholesale funding centers in Toronto, New York, London and Singapore

• Funding strategy and associated risk management are managed centrally from Toronto within framework of policies and limits approved by Board of Directors

• For countries where we operate a branch banking subsidiary, strategy is for it to be substantially self-funded in the local market

19

3%

34%

3%

34%

1%

10%

8% 4%

Wholesale Funding Composition

Subordinated Debt5

Mortgage Securitization4

Covered Bonds

Asset Backed Securities

Medium Term Notes and Deposit

Notes

ABCP3

Bearer Deposit Notes,

Commercial Paper &

Certificate of Deposits

Deposits from Banks2

Wholesale Funding Diversified by Instrument and Maturity1

1) Wholesale funding sources exclude repo transactions and bankers acceptances, which are disclosed in the contractual maturities table in Note 20 of the Condensed Interim Consolidated Financial Statements. Amounts are based on remaining term to maturity. 2) Only includes commercial bank deposits raised by Group Treasury. 3) Wholesale funding sources also exclude asset-backed commercial paper (ABCP) issued by certain ABCP conduits that are not consolidated for financial reporting purposes. 4) Represents residential mortgages funded through Canadian Federal Government agency sponsored programs. Funding accessed through such programs does not impact the funding capacity of the Bank in its own name. 5) Although subordinated debentures are a component of regulatory capital, they are included in this table in accordance with EDTF recommended disclosures. 6) As per Wholesale Funding Sources Table in MD&A. As of Q2/16.

10

20

30

< 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years >

Maturity Table (ex-Sub Debt)6

Senior Debt ABS Covered Bonds

$ CDE, BN

20

Diversified Wholesale Funding Programs

Short-Term Funding

• USD 25 billion Bank CP program

• USD 3 billion Subsidiary CP program

• CD Programs (Yankee/USD, EUR, GBP, AUD, HKD)

Term Funding & Capital

• CAD 7 billion ABS shelf (unsecured lines of credit)

• CAD 10 billion shelf (preferred shares, subordinated debt, common equity)

• Canada Mortgage Bonds and Mortgage Back Securities

• USD 3 billion Singapore MTN program

• AUD 4 billion Australian MTN program

• USD 25 billion global registered covered bond program (uninsured Canadian mortgages)

• USD 25 billion shelf (senior notes, preferred shares, subordinated debt, common equity)

• USD 20 billion global public covered bond shelf (in run-off, CMHC insured mortgages)

• USD 20 billion EMTN shelf

21

Contact Information

For additional public information, including our Annual Report and Quarterly Results please visit: http://www.scotiabank.com/investorrelations

Michael Lomas

Managing Director, Treasury Sales & Market Development, Group Treasury

416 866 5734 | [email protected]

Mark Michalski

Director, Strategy & Market Development, Group Treasury


Jake Lawrence

Senior Vice President, Investor Relations


Appendix 1: Canadian Covered Bonds

23

Scotiabank’s Covered Bond Program

Covered Bond Legislation

• Framework passed into law in 2012

• Only uninsured mortgages allowed

• Statutory protection for the covered bond investor and, as a result, in the event of issuer default, increased certainty for investors with respect to the cover pool of collateral

• Extensive regulatory oversight and pool audit requirements

• Mandatory property value indexation

• Established high level of safeguards and disclosure requirements

Global Program

• USD 25 billion global registered covered bond program (uninsured Canadian mortgages)

• Active in multiple currencies: USD, EUR, GBP and AUD

24

Canadian Legislative Covered Bonds (CMHC Registered) Issuance Framework

Canadian Registered Covered Bond Programs’ Legal Framework (Canadian National Housing Act)

Canadian Registered Covered Bond Programs Guide issued by Canada Mortgage and Housing Corporation (CMHC)

Eligible Assets Uninsured loans secured by residential property

Mortgage LTV Limits LTV limit of 80%

Basis for Valuation of Mortgage Collateral

Starting in July 2014, issuers are required to index the value of the property underlying mortgage loans in the covered pool while performing various tests

Substitute Assets Securities issued by the Government of Canada

Repos of Government of Canada securities having terms acceptable to CMHC

Substitute Assets Limitation 10% of the aggregate value of (a) the loans (b) any Substitute Assets and (c) all cash held by the Guarantor

Cash Restriction The cash assets of the Guarantor cannot exceed the Guarantor’s payment obligations for the immediately

succeeding six months

Coverage Test Asset Coverage Test

Amortization Test

Credit Enhancement

Overcollateralization

Reserve Fund

Prematurity Liquidity

Swaps Covered bond swap, forward starting

Interest rate swap, forward starting

Market Risk Reporting Valuation calculation

Mandatory property value indexation

Covered Bond Supervisory Body CMHC

Requirement to Register Issuer and Program

Yes; prior to first issuance of the covered bond program

Registry Yes

Disclosure Requirements

Monthly investor report with prescribed disclosure requirements set out by CMHC

Investor reports must be posted on a program website

Required to meet disclosure requirements in the jurisdictions in which the program is registered (US) or listed (UK)

25

Scotiabank Registered Covered Bond Program

Issuer The Bank of Nova Scotia

Guarantor Scotiabank Covered Bond Guarantor Limited Partnership

Guarantee Payment of interest and principal in respect of the covered bonds will be irrevocably guaranteed by the Guarantor. The obligations of the Guarantor under the Covered Bond Guarantee constitute direct obligations of the Guarantor secured against the assets of the Guarantor, including the Portfolio

Status

The covered bonds will constitute legal, valid and binding direct, unconditional, unsubordinated and unsecured obligations of the Bank and will rank pari passu with all deposit liabilities of the Bank without any preference among themselves and at least pari passu with all other unsubordinated and unsecured obligations of the Bank, present and future

Program Size US$15bn

Ratings Aaa / AAA / AAA (Moody’s / Fitch / DBRS)

Cover Pool First lien uninsured Canadian residential mortgage loans

Asset Percentage 93.5% (7% minimum overcollateralization)

Law Ontario, Canada

Issuance Format SEC Registered

144A / Reg S (UKLA Listed)

26

Portfolio Details: Scotiabank Global Registered Covered Bond Program1

(1) As at April 28 ,2016 (2) Uses indexation methodology as outlined in Footnote 1 of the Scotiabank Global Registered Covered Bond Monthly Investor Report

Remaining Term Distribution

Credit Scores Loan-to-Value Ratios2

Provincial Distribution

2% 4%

8%

15%

19%

52%

599 and Below

600 - 650

651 - 700

701 - 750

751 - 800

801 and Above

4%

18%

42%

35%

1%

0% - 20%

20%-40%

40%-60%

60%-80%

80% and Above

26%

49%

11%

3%

3% 8%

Less than 12.00

12.00 - 23.99

24.00 - 35.99

36.00 - 41.99

42.00 - 47.99

15%

17%

48%

8%

2% 2%

2% 3%

3%

Alberta

British Columbia

Ontario

Quebec

Manitoba

New Brunswick

Newfoundland

Nova Scotia

Saskatchewan

Appendix: other

Appendix 2: Additional Housing Information

28

Housing Market Structural Differences vs. U.S.

Canada U.S.

Regulation and taxation

• Mortgage interest not tax deductible • Full recourse against borrowers in most provinces (in Alberta and

Saskatchewan, recourse is only to the value of property) • Ability to foreclose on non-performing mortgages with no stay periods • Mandatory default insurance for any mortgage with Loan-to-Value >80%

- CMHC insurance backed by the government of Canada (AAA). Private insurers are 90% government backed

- Insurance available for homes up to $1 million - Minimum down payment of 10% for properties valued $0.5-$1

million, 5% for properties <$0.5 million - Premium is payable upfront by the customer - Covers full amount for life of mortgage

• Customers with LTV > 80% must qualify at a 5-year fixed rate for variable or less than 5-year term mortgages

• Re-financing cap of 80% on non-insured mortgages • Maximum 25-year amortization on mortgages with LTV > 80% • Maximum 30-year amortization on conventional (LTV < 80%) mortgages • Down payment of > 20% required for non-owner occupied properties

• Tax deductible mortgage interest creates incentive to borrow and delay repayment

• Lenders have limited recourse in most states

• 90 day to 1 year stay period to foreclose on non-performing mortgages

• No regulatory LTV limit • Private insurers are not

government backed

Product

• Conservative product offerings, fixed or variable rate options • Can include exotic products (adjustable rate mortgages, interest only)

Underwriting

• Terms usually 3 or 5 years, renewable at maturity • Extensive documentation and strong standards

• 30-year term most common • Wide range of documentation and

underwriting requirements

29

Scotiabank Canadian Mortgage Product Offerings

Fixed Rate Mortgages Variable Rate Mortgages

Key Features Fixed rate and payment for a specific term

Interest rate that changes with Scotiabank Prime, low payment based on current rate that changes with each interest rate change

Target Market Want rate stability for a period of time Take advantage of short term market rates over the longer term

Delivery Channels All channels (branch, Scotia Mortgage Authority (SMA), Home Financing Solutions (HFS))

Mortgage Terms

6 month, open and closed

1-to-5 years, 7-year closed

10-year closed

5-year closed and open, 3-year capped closed

Eligible loan purpose

New home purchase, resales, renewals/early renewals, switches, refinances

LTV Maximum 80% ( on uninsured mortgages ) & maximum 95% (on insured)

Amortization Maximum 25 year amortization on LTV ≥ 80% and maximum 30 years if LTV < 80%

Prepayment Options

Up to 15% of the amount of the original mortgage per year and increase payments by up to 15% of the payment set for the current term

Open variable rate mortgage only; prepay any amount at any time without penalty

30

Mortgage Policy Developments in Canada 2015

• Minimum down payment on insured mortgages on homes valued $0.5 - $1 million increased from 5% to 10%

2014

• CMHC discontinued offering mortgage insurance on second homes and to self employed individuals without 3rd party income validation

2012

• Maximum amortization on insured mortgages reduced to 25 years (from 30)

• Maximum amount borrowed on insured mortgages at refinancing reduced to 80% (from 85%)

• CMHC insurance availability is limited to homes with purchase price < $1 million

• For insured mortgages, maximum gross debt service ratio of 39% and maximum total debt service ratio of 44%

• Maximum LTV for HELOCs lowered to 65% (from 80%)

2011



2010


• 5-year fixed rate mortgage used for qualifying rate for conventional mortgages (LTV < 80%) with variable rates or term less than 5 years

• Minimum 20% down payment to qualify for insured mortgages for non-owner occupied properties

2008


• Minimum 5% down payment to qualify for insured mortgages

Appendix 3: PCL Ratios

32

PCL Ratios

32

(1) Colombia small business portfolio reclassed to Retail from Commercial – prior periods have been restated (2) Net Interest Income (TEB) as % of Average Earning Assets excluding Bankers Acceptances (3) Corporate Banking only (4) Excludes collective allowance increase; including collective allowance increase, All Bank PCL ratio was 0.47 (5) Excludes collective allowance increase; including collective allowance increase, All Bank PCL ratio was 0.64

Total PCL as % of average net loans & BAs Q2/15 Q3/15 Q4/15 Q1/16 Q2/16

Canadian Banking

Retail 0.25 0.26 0.26 0.28 0.30

Commercial 0.13 0.08 0.15 0.14 0.14

Total PCL 0.24 0.23 0.24 0.26 0.28

Net Interest Margin (%)2

2.26 2.25 2.26 2.35 2.38


Retail1 2.28 2.37 2.18 2.09 2.09

Commercial1 0.19 0.26 0.26 0.28 0.97

Total PCL 1.19 1.27 1.17 1.14 1.50

Net Interest Margin (%)2 4.67 4.77 4.70 4.57 4.69


Total PCL 0.08 0.08 0.14 0.27 0.57

Net Interest Margin (%)2,3 1.64 1.62 1.60 1.58 1.60

All Bank

Total PCL Ratio 0.41 0.42 0.424 0.45 0.595

Core Banking Margin (%) 2.41 2.40 2.35 2.38 2.38

Appendix 4: Energy Exposures

34 34

Energy Exposures

Drawn Energy Exposure by Sector

Drawn Energy Exposure by Geography1

31%

24%

45%

Canada

U.S.

Other

56%

20%

13%

11% E&P

Midstream

Downstream

Services

2

(1) By country of residence

(2) Other includes Latin America, Asia and Europe

• Energy exposure reflects a well diversified book across

sectors and geographies • $16.3B of drawn energy exposure, reflecting 3.4% of the

Bank’s total loan book Drawn exposure is down 9% Q/Q ~50% is investment grade

• $11.4B of undrawn energy exposure, down 19% from $14.1B in Q1/16

~75% is investment grade • Energy PCLs increased to $150 million in Q2/16 from $79

million last quarter Expect cumulative energy loan losses for 2015 to

2017 to be between 3% and 3.5% • Focus on select non-investment grade E&P and Services

accounts Approximately two-thirds of focus accounts have

issued debt ranking below the Bank’s senior position

• The Bank continues to evaluate exposures through various stress tests, and we have conducted them at current and realistic oil prices with consideration of secondary impacts

• The stress tests indicate that any potential losses are very manageable and within our risk expectation

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