Fixed Income Investor Presentation

Transcription

1 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

2 Caution Regarding 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 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 and on the EDGAR section of the SEC s website at

3 Appendix: other Scotiabank Overview

4 Canada s International Bank Franchise in attractive markets History Global footprint in over 55 countries Established on east coast of Canada in 1832 In U.S. and Caribbean 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 Scotiabank Credit Ratings 4 Moody s S&P Fitch DBRS Senior Rating Aa3 A+ AA- AA Outstanding Covered Bonds Aaa Not Rated (1) Adjusts for restructuring charge of $278 million after-tax ($378 million before-tax) (2) Taxable Equivalent Basis (3) Basel III all-in Common Equity Tier 1 Ratio (4) A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revisions or withdrawals at any time AAA AAA Outlook Negative Stable Stable Negative 4 As at Q (C$) 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 Ratio % Capital Ratio % # of Employees 89,610

5 Scotiabank s Strategy is Clear Maintain High Degree of Diversification 1 Balance Earnings from Canada & International 1 Wholesale Global Banking & Markets 18% International Banking 28% Canadian Banking 54% Personal & Commercial 82% 19% Canada 16% 63% 2% US Pacific Alliance Other International Generate 70-75% of earnings from Generate ~50% of earnings from Canada Retail and Commercial Focus on the Pacific Alliance Pursue Selective Acquisitions Deliver Key Strategic Priorities Complement organic growth with selective acquisitions Customer experience Low cost by design Business mix Leadership Digital transformation Diversified by products, customers and geographies, creating stability and lower risk Centralized control over key functions: capital, expense and risk management (1) As at Q4/15. Excludes Other segment 5

6 Business Performance Personal & Commercial Banking, Wealth and Insurance Wholesale Banking 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 Key Data Q2 16 (C$) Total Loans (avg.) $301B Total Deposits (avg.) $223B Net Interest Margin (%) 2.38% Productivity Ratio 50.7% Branches 1,006 # of Employees 26,365 Net Income 1 (Q2/16) International Banking Business Overview Operate primarily in Latin America (Mexico, Peru, Chile and Colombia), Central America and the Caribbean, with full range of personal and Asia in commercial financial services as well as wealth products and solutions Revenue mix: 65% Latin America, 31% Caribbean/Central America and 4% Asia Key Data Q2 16 (C$) Total Loans (avg.) $106B Total Deposits (avg.) $87B Net Interest Margin (%) 4.69% Productivity Ratio 54.8% Branches 1,836 # of Employees 52,086 Net Income 1 (Q2/16) Global Banking & Markets Business Overview Wholesale banking and capital markets products to corporate, government and institutional clients Full service platform in Canada and Mexico. Niche focus in U.S., Central and South America, Asia, Australia and select markets in Europe Revenue mix: 52% Business Banking and 48% Capital Markets Key Data Q2 16 (C$) Total Loans (avg.) $84B Total Deposits (avg.) $75B Net Interest Margin (%) 1.60% Trading Assets (avg.) $100B Productivity Ratio 46.6% # of Employees 2,581 Net Income 1 (Q2/16) Q2/15 Q1/16 Q2/16 Q2/15 Q1/16 Q2/16 Q2/15 Q1/16 Q2/16 (1) Core net income attributable to equity holders of the Bank 6

7 Capital Highlights Strong Capital Position Basel III Common Equity Tier 1 (%) 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 $17 billion Q/Q Impact of a stronger Canadian dollar on foreign currency denominated risk weighted assets Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 CET1 Risk-Weighted Assets ($B) Basel III Leverage ratio of 4.1% Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 7

8 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) Business & Gov t 35 3% 2% 4% 4% 5% 3% Retail 65% 16% Mortgages ($219B) 17% 45% Personal Loans ($83B) Credit Cards ($12B) Wholesale/Retail ($22B) Real Estate ($20B) Financial Services ($19B) Energy ($16) Automotive ($12B) Other ($79B) Provision for Credit Losses Ratio Gross Impaired Loans Ratio 0.41% 0.42% 0.42% % 0.59% % 1.00% 0.97% 1.03% 1.06% Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 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

9 Canadian & Select International Economies

10 Canadian Economy and Financial System Canadian Economy The 15 th 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 Strong Financial System 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 Banking System ranked World s Soundest by World Economic Forum for 8 th consecutive year Global Competitiveness Report ( ) 10

11 Canadian Economy Real GDP Growth annual % change F U.S. U.K. Euro zone Canada Japan Forecasts as at May 11, Source: Scotiabank Economics. General Government Net Financial Liabilities 4.4% 5.3% 6.4% 7.1% 8.1% Canadian GDP by Industry February % 10.7% 20.0% 11.9% 11.2% Source: Statistics Canada, Scotiabank Economics. 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 Government Financial Deficits 140 % of GDP Canada Germany OECD France U.K. U.S. Japan Italy % of GDP -5.2 Germany Canada Italy France U.S. U.K. Japan Source: OECD (2015 estimates); Scotiabank Economics. As at May 25, Source: IMF (2015 estimates), Scotiabank Economics. As at May 25,

12 Stable Economic Fundamentals 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 Inflation Unemployment Rate 14 % Canada 8 6 U.S Source: Statistics Canada, BLS, Scotiabank Economics. Data through April Labour Force Participation Rate y/y % change Bank of Canada Target Inflation Band Source: Statistics Canada, BLS, Scotiabank Economics. Data through April Canada U.S % Canada U.S Source: Statistics Canada, BLS, Scotiabank Economics. Data through April 2016.

13 Economic Outlook in Key Markets 2016 and 2017 Real GDP Growth Forecast Canada / U.S. Scotiabank s Key International Markets 3.8% 3.6% 3.1% 3.0% 1.6% 2.0% 1.8% 2.3% 1.7% 2.3% 2.4% 2.4% Canada 2016 Canada 2017 U.S U.S Chile 2016 Chile 2017 Mexico 2016 Mexico 2017 Colombia 2016 Colombia 2017 Peru 2016 Peru 2017 No Significant Exposure to the BRICs Source: Scotiabank Economics, as of May 11,

14 Canadian Housing Market

15 Canadian Housing Fundamentals Remain Sound 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 Residential Unit Sales to New Listings ratio Balanced Market Source: CREA MLS, Scotiabank Economics. Data through April Seller s Market Buyer s Market Mortgage Debt Service Ratio High Percentage of Equity Residential Mortgages Arrears % of disposable income Mortgage Interest Payments Source: Statistics Canada, Scotiabank Economics. Data through 2015Q real estate equity as % of real estate assets U.S. Canada Source: Statistics Canada, U.S. Federal Reserve, Scotiabank Economics. Data through 2015Q % of mortgages in arrears 3 months or more U.S. Canada Source: CBA, MBA, Scotiabank Economics. Data through 2016 Q1.

16 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 Canadian Mortgage Portfolio: $189B (spot balances as at Q2/16, C$B) $92.3 $9.6 $82.7 Condominium $21B $168B $30.9 $30.0 $6.0 $24.9 $26.5 $3.5 Freehold Insured 62% 2 38% 2 Uninsured (avg. LTV = 51% 1 ) $15.2 $1.6 $11.9 $13.6 $0.2 $8.8 $11.7 $8.2 $0.6 Ontario B.C. & Territories Alberta Quebec Atlantic Provinces Manitoba & Saskatchewan (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. 16

17 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 18

19 Wholesale Funding Composition Wholesale Funding Diversified by Instrument and Maturity 1 Mortgage Securitization 4 Covered Bonds Subordinated Debt 5 8% 4% 3% Deposits from Banks 2 30 $ CDE, BN Maturity Table (ex-sub Debt) 6 Asset Backed Securities 1% 10% 34% Bearer Deposit Notes, Commercial Paper & Certificate of Deposits Medium Term Notes and Deposit Notes 34% 3% < 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years > Senior Debt ABS Covered Bonds ABCP 3 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. 19

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 20

21 Contact Information Michael Lomas Managing Director, Treasury Sales & Market Development, Group Treasury Mark Michalski Director, Strategy & Market Development, Group Treasury Jake Lawrence Senior Vice President, Investor Relations For additional public information, including our Annual Report and Quarterly Results please visit: 21

22 Appendix 1: Canadian Covered Bonds

23 Scotiabank s Covered Bond Program Global Program USD 25 billion global registered covered bond program (uninsured Canadian mortgages) Active in multiple currencies: USD, EUR, GBP and AUD 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 23

24 Canadian Legislative Covered Bonds (CMHC Registered) Issuance Framework Eligible Assets Mortgage LTV Limits LTV limit of 80% Basis for Valuation of Mortgage Collateral Substitute Assets Substitute Assets Limitation Cash Restriction Coverage Test Credit Enhancement Swaps Market Risk Reporting Covered Bond Supervisory Body CMHC Requirement to Register Issuer and Program Registry Disclosure Requirements 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) Uninsured loans secured by residential property 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 Securities issued by the Government of Canada Repos of Government of Canada securities having terms acceptable to CMHC 10% of the aggregate value of (a) the loans (b) any Substitute Assets and (c) all cash held by the Guarantor The cash assets of the Guarantor cannot exceed the Guarantor s payment obligations for the immediately succeeding six months Asset Coverage Test Amortization Test Overcollateralization Reserve Fund Prematurity Liquidity Covered bond swap, forward starting Interest rate swap, forward starting Valuation calculation Mandatory property value indexation Yes; prior to first issuance of the covered bond program Yes 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) 24

25 Scotiabank Registered Covered Bond Program Issuer Guarantor Guarantee Status Program Size Ratings Cover Pool Asset Percentage Law Issuance Format The Bank of Nova Scotia Scotiabank Covered Bond Guarantor Limited Partnership 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 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 US$15bn Aaa / AAA / AAA (Moody s / Fitch / DBRS) First lien uninsured Canadian residential mortgage loans 93.5% (7% minimum overcollateralization) Ontario, Canada SEC Registered 144A / Reg S (UKLA Listed) 25

26 Portfolio Details: Scotiabank Global Registered Covered Bond Program 1 Loan-to-Value Ratios 2 Credit Scores 1% 4% 2% 4% 35% 42% 18% 0% - 20% 20%-40% 40%-60% 60%-80% 80% and Above 52% 8% 19% 15% 599 and Below and Above Remaining Term Distribution Provincial Distribution 3% 3% 11% 8% 26% Less than % 2% 2% 8% 3% 3% 15% 17% Alberta British Columbia Ontario Quebec Manitoba New Brunswick Newfoundland 49% (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 26 48% Nova Scotia Saskatchewan

27 Appendix: other Appendix 2: Additional Housing Information

28 Housing Market Structural Differences vs. U.S. Regulation and taxation Canada 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 U.S. 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 28

29 Scotiabank Canadian Mortgage Product Offerings Key Features Fixed Rate Mortgages Fixed rate and payment for a specific term Variable Rate Mortgages Interest rate that changes with Scotiabank Prime, low payment based on current rate that changes with each interest rate change Target Market Delivery Channels Want rate stability for a period of time Take advantage of short term market rates over the longer term 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 LTV New home purchase, resales, renewals/early renewals, switches, refinances 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 29

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 3 rd 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 Maximum amortization on insured mortgages reduced to 30 years (from 35) Maximum amount borrowed on insured mortgages at refinancing reduced to 85% (from 90%) 2010 Maximum amount borrowed on insured mortgages at refinancing reduced to 90% (from 95%) 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 Maximum amortization on insured mortgages reduced to 35 years (from 40) Minimum 5% down payment to qualify for insured mortgages 30

31 Appendix 3: PCL Ratios

32 PCL Ratios Total PCL as % of average net loans & BAs Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Canadian Banking Retail Commercial Total PCL Net Interest Margin (%) International Banking Retail Commercial Total PCL Net Interest Margin (%) Global Banking & Markets Total PCL Net Interest Margin (%) 2, All Bank Total PCL Ratio Core Banking Margin (%) (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

33 Appendix 4: Energy Exposures

34 Energy Exposures 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 Drawn Energy Exposure by Sector 11% E&P 13% Midstream 56% 20% Downstream Services Drawn Energy Exposure by Geography 1 31% 45% 24% Canada U.S. Other 2 (1) By country of residence (2) Other includes Latin America, Asia and Europe 34