Earnings & Dividend Growth Presentation

CANADIAN HOUSEHOLD DEBT High headline levels supported by strong underlying metrics. Household debt has been increasing since the mid-1980s ○ Lower interest rates, demographics (including immigration), financial innovation and shift in consumer attitude/behaviour ○ Debt increase has largely been driven by mortgage debt (represents ~71% of total household credit) ⚫ Household debt to disposable income is only one metric to analyze ○ The household-debt-to-income ratio awkwardly mixes a balance sheet measure “debt" with an income statement measure "disposable income". Borrowers are not generally expected to pay off their debts with one year's income ⚫ Other considerations regarding consumer indebtedness and consumer resilience to shocks: o Housing affordability - Mortgage debt-service ratios are in line with historical averages at the national level ○ Interest and principal mortgage debt payments steady at 6-7% of disposable income since 2008 Consumers prudently taking advantage of low rates to repay more principal Net worth - Net asset levels (assets less debt) are at an all-time high of more than 8 times disposable income About half of these assets are financial (not real estate) Asset growth has outpaced debt growth Interest rate shocks - Despite expectations for higher rates, there are mitigating factors Canadians have substantial equity in their homes (71% including HELOCS) The majority of mortgage holders are locked in at fixed rates, with the 5-year term the most popular Mortgage regulations, including the recent B-20 changes, require that borrowers must qualify for all types of mortgage credit using a "stress test" interest rate, which for uninsured mortgages is the higher of the contract rate plus 200 basis points or the Bank of Canada 5 Year Benchmark rate, to provide a buffer against rising interest rates impacting affordability Variable rate mortgage holders have the option to switch into fixed rates Unemployment rate - A key driver of delinquencies and losses that determines borrowers' ability to pay debt ○ Levels are expected to remain fairly stable over the next 2-3 years at historically low rates Scotiabank 49

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