1 2017 ANNUAL REPORT . WHY INVEST IN. Scotiabank ? DIVIDEND. GROWTH Diversified by business and Focused on digitization to Dollars per share geography; providing sustainable strengthen customer experience and growing earnings and improve efficiency Earnings momentum in personal, Strong risk management culture $. commercial and wealth businesses globally Consistent record of dividend increases Attractive growth opportunities CAGR = 6% Strong balance sheet with prudent in our key Pacific Alliance markets 13. 13. 14. 14. 15. 15. 16. 16. 17. 17 capital and liquidity positions EARNINGS. RETURN. PER SHARE*. Diluted, dollars per share ON EQUITY:*. VS in 2016. $. STRONG CAPITAL POSITION. CAGR = 7%. 13 14 15 16 17. 13 14 15 16 17. *Adjusted - please refer to page 14 of the MD&A.
2 CONTENTS. We believe every customer . 1 Message from the President corporate, commercial, wealth and Chief Executive Officer and retail has the right to become 7 Executive Management Team better off. Through advice, financial 8 Board of Directors services and community support, we are committed to building the 9 Message from the personal economy of every one of Chairman of the Board our customers. We know that 11 Management's Discussion when our customers and the and Analysis communities they live and work 125 Consolidated Financial Statements in prosper, we all prosper. CEO'S. MESSAGE Brian Porter to Shareholders President and Chief Executive Officer Dear fellow Shareholders, At 185 years old, Scotiabank is older than the country a better banking experience for our customers.
3 Since I. of Canada itself. From our humble beginnings in Halifax, took over as President and CEO, we have increased our Nova Scotia, we have become one the world's largest and focus on actively managing our business mix. Among our soundest banks. We are proud to be a critical part of the Canadian peer group, we are the only bank to have economic fabric of the countries in which we operate. improved our Net Interest Margin over the past four-year This is a responsibility that Scotiabankers take seriously, period an accomplishment we are proud of, particularly and we are honoured by the trust placed in us by our in a low interest-rate-environment. customers and shareholders. Our ongoing focus on the Pacific Alliance region The Bank's history is a testament to our past success, but it (comprised of Mexico, Peru, Chile and Colombia).
4 Does not guarantee our future success. That is why, since continues to translate into very strong earnings growth in becoming President and CEO four years ago, I have been International Banking. Once again, the division delivered most focused on setting and implementing a Strategic Agenda record earnings and achieved year-over-year gains in loan that positions our Bank for a successful future. Our strategy market share across the Pacific Alliance region. Scotiabank considers how to deploy shareholder capital strategically and now ranks as the 5th largest bank in Mexico, and we responsibly, while delivering a superior banking experience improved our competitive position in Chile. for our customers. As you will read in the letter below, we Good results in our core personal and commercial banking are pleased with the progress we have made to date and businesses have contributed to strong Return on Equity vigilant about the need to drive continuous change.
5 (ROE) at the all-Bank level. International Banking ROE, in particular, has improved by approximately 300 bps Financial Results from since 2014 to today. 2017 was another good year for the Bank. Each of our Our footprint is key to our investment thesis, and an business lines delivered strong results despite only important differentiator for us as Canada's International Bank. moderate growth in some key countries, increased Some people are surprised to learn that more than 50,000. competitive pressures, elevated regulatory requirements, of our 88,000 employees reside outside of Canada. We remain geopolitical challenges and an unusually high number of highly-confident in the above-average earnings potential natural disasters across our footprint.
6 Of our international business, particularly in the Pacific Our good momentum can be seen by the strong relative Alliance region, which we will continue to grow organically performance of our stock price for the past two fiscal years. and through selective acquisitions within our footprint. Our shares appreciated more than 35% since the end of 2015, Global Banking and Markets (GBM) had a stronger year compared to the peer average of 29%, and had the 2nd in 2017 . Earnings were up 16% over 2016, and we saw strongest performance among our Big 5 peer group. some encouraging growth of our presence and relevance in Canadian Banking generated record earnings in 2017 , Latin American markets. As an example, for the better part delivering good revenue growth and meaningful cost of the year, Scotiabank was at the top of Bloomberg's savings a portion of which are being re-invested to build Bookrunner League Table for Syndicated Loans in Latin America.
7 2017 Scotiabank ANNUAL REPORT | 1. We will continue to implement our strategy for GBM, Digital which includes expanding our investment banking and Two years ago, we embarked on a digital transformation capital markets capabilities in Canada, and better journey to better serve our customers and become leveraging the Bank's wholesale capabilities into the more efficient. To demonstrate our commitment to digital Pacific Alliance region. leadership, in 2017 , we were the first bank in Canada to hold a Digital Banking Update. At the event, we communicated Building an Even Better Bank our digital vision and strategy for achieving that vision to In addition to delivering strong financial results in 2017 , the investment community. The targets we presented in we also made considerable progress on our Strategic February are bold and aspirational.
8 We have more work to Agenda, which guides us as we build an even better Bank do, but we are pleased by the progress we are making. A. and create value for you, our shareholders. good example is our Digital Factory Network, which is now fully-operational in Canada, Mexico, Peru, Chile and We are pleased to highlight a few notable achievements Colombia. The Network features a global operating model below, which represent a small sample of the many and is a key pillar of our digital strategy, as it leverages our significant changes we are making across the Bank: international scale and diversity of talent across our Customer Focus footprint. It is also a driver of internal innovation. The core of our Strategic Agenda continues to be our focus Financial Strength on our 24 million customers.
9 This means ensuring that the Our increased attention to business mix has led to us focus voice of the customer is directly embedded into everything equally on both sides of the balance sheet. We have grown we do, on a continuous basis. Throughout the year, we deposits to support a reduction of wholesale funding. rolled-out a number of initiatives to do exactly that. One To date, we have reduced our wholesale funding ratio by example is our implementation of a bank-wide customer approximately 20%. As a result, we have lowered our experience management system called The Pulse or El Pulso. funding costs and further strengthened our financial position. The Pulse is a powerful digital system that allows us to continuously gather feedback from our customers, through Capital Deployment the channels in which they choose to bank with us.
10 We have Scotiabank has the strongest Common Equity Tier 1 (CET1). already received feedback from more than 2 million customers ratio in our peer group at Our strong capital position and made 150,000 call-backs to customers. The rich data provides us with optionality to deploy capital for organic we are gathering allows us to better understand our growth, acquisitions, dividends and share buybacks. We are customers' needs and prioritize investments to improve focused on deploying internally-generated capital to grow their banking experience. the Bank and provide returns to you, our shareholders, through active capital management. Over the past four years, the Bank has generated approximately $30 billion of internal capital.