Bank of Nova Scotia Launches Adobe-Linked Autocallable Contingent Coupon Notes Maturing in 2027

Detailed Structured Note Terms and Autocall Feature

The Bank of Nova Scotia's Autocallable Contingent Coupon Trigger Notes are complex derivative instruments providing equity exposure to Adobe Inc. stock. The notes include an automatic call mechanism triggered if Adobe's closing price equals or surpasses the initial price (set at the expected trade date of August 4, 2026) on any observation date from February through August 2027. Upon activation, investors receive $1,000 principal per note plus the contingent coupon on the payment date, expected three business days after the observation date. This design encourages early redemption if Adobe appreciates, capping upside participation while the bank retains gains beyond the strike level.

Observation dates occur monthly on the fourth calendar day from September 2026 to September 2027, with the final valuation on September 7, 2027. This schedule offers multiple opportunities for automatic call execution or contingent coupon assessment. Investors face a binary outcome on each observation date: triggering an automatic call (ending the note early with principal plus coupon), earning contingent coupons if the barrier is met, or neither, pushing the note toward maturity with final payment dependent on terminal price.

Contingent Coupon Criteria and Barrier Threshold

The core income feature offers $10.667 per $1,000 principal on coupon dates corresponding to observation dates where Adobe's closing price remains at or above 57% of the initial price. This 57% barrier provides a substantial downside buffer before coupon payments stop; Adobe stock must decline over 43% from the initial price for coupons to cease. If paid monthly, the contingent coupons yield an annualized return near 12.80%, compensating investors for embedded risks and the initial discount from par.

However, these contingent coupons are not guaranteed fixed payments but depend on Adobe maintaining the barrier level. If Adobe closes below 57% on any observation date, no coupon is paid for that period. This conditionality transforms the notes into equity-linked products where income hinges on Adobe's stock performance, potentially disrupting investors seeking stable monthly income amid volatility or prolonged declines.

Downside Exposure and Share Delivery at Maturity

If uncalled at maturity and Adobe's closing price falls below 57% of the initial price, the Bank of Nova Scotia will deliver Adobe shares instead of cash repayment. Investors receive shares equal to $1,000 divided by the initial price, with cash in lieu of fractional shares. This means investors bear the full percentage loss in Adobe's stock price from initial to maturity. For example, a 60% stock decline would reduce the share value to approximately $400 per $1,000 principal, resulting in significant capital loss without coupon protection.

Disclosures specify that if the final price is below 57%, returns will be negative, reflecting Adobe's price drop. Additionally, any decline from the final valuation date to maturity further reduces returns, introducing timing risk for share delivery. Fractional share payments are made in cash without coupons. This downside risk is material for investors skeptical about Adobe maintaining the barrier through September 2027.

Pricing Discount and Initial Estimated Value

The notes' initial estimated value ranges from $925 to $955 per $1,000 principal, representing a 4.5% to 7.5% discount from par. This discount accounts for embedded costs and risks, including the bank's internal funding rate, underwriting commissions up to 2.15%, structuring fees, and hedging expenses. The original issue price exceeds estimated value due to these internal costs differing from fair market derivative valuations.

Valuation uses the bank's internal models based on funding rates and market assumptions as of the trade date. Actual note values will fluctuate based on multiple factors, creating secondary market price uncertainty. The bank's internal funding rate is generally lower than conventional fixed-rate debt issuance costs, indicating pricing advantages for the bank while investors assume structured product risks.

Underwriting and Distribution Details

Scotia Capital (USA) Inc., a Bank of Nova Scotia affiliate, will acquire the notes for distribution to registered broker dealers, establishing a two-tier distribution system. Goldman Sachs & Co. LLC also acts as a dealer. Underwriting commissions are capped at 2.15% of the original issue price, with the bank retaining at least 97.85% of proceeds. Scotia Capital or affiliates may engage in market-making post-sale, providing potential liquidity despite the notes not being listed on U.S. exchanges or quotation systems.

The bank discloses potential conflicts of interest within this arrangement, noting pricing supplements may be used in market-making unless otherwise specified. The bank reserves the right to issue additional notes after the final pricing date with different terms, possibly resulting in varied economic conditions for subsequent investors. This indicates the product is part of the bank's ongoing capital markets strategy rather than a one-time issuance.

Credit Risk and Unsecured Obligation Nature

The notes are unsecured, unsubordinated obligations of the Bank of Nova Scotia, lacking specific collateral and dependent on the bank's creditworthiness. The bank's credit quality is a key factor alongside Adobe's stock performance. These notes are not insured by the Canada Deposit Insurance Corporation (CDIC), U.S. Federal Deposit Insurance Corporation, or other government insurance programs, exposing investors to counterparty risk distinct from equity risk.

Payments or share deliveries depend on the bank's financial condition, meaning even favorable Adobe performance may not guarantee investor recovery if the bank's credit deteriorates. This dual risk—equity reference asset and issuer credit—sets these notes apart from direct equity or traditional bonds. Investors must evaluate both Adobe's prospects and the bank's stability through the September 10, 2027 maturity.

Derivative Product Characteristics and Non-Ownership of Adobe Shares

The bank clarifies that these notes are derivative instruments linked to Adobe's stock performance but do not confer direct ownership of Adobe shares. Investors hold no economic interest, claims, voting rights, or dividend entitlements in Adobe. This distinction means holders will not benefit from dividends or shareholder votes, receiving synthetic exposure to Adobe's price movements only.

The notes' value depends on the bank's internal pricing and hedging rather than direct market prices of Adobe shares. Changes in hedging counterparties or funding conditions may cause note values to deviate from Adobe stock price movements, introducing basis risk. The derivative nature may also result in differing volatility and liquidity profiles compared to direct Adobe stock ownership, especially during market stress or widening credit spreads.

Investment Risks and Considerations

The disclosure references detailed risk discussions in the pricing supplement and prospectus documents. Key risks include income disruption if Adobe falls below the 57% barrier, exposure to full downside via share delivery at maturity, capped upside due to automatic call features, potentially limited secondary market liquidity, and issuer credit risk affecting payment ability. Additionally, internal pricing assumptions may diverge from market consensus over the holding period.

Use of Proceeds and Funding Strategy

This offering enables the Bank of Nova Scotia to raise capital by transferring structured product risks to investors while retaining at least 97.85% of proceeds. Using structured notes linked to Adobe stock allows the bank to manage exposure through hedging and distribute market risk. The structure reflects the bank's strategy to monetize structured product demand and reduce conventional fixed-rate debt issuance.

The bank's option to issue additional notes with varying terms indicates confidence in sustained investor appetite for equity-linked products featuring contingent income. Collaboration with Goldman Sachs and Scotia Capital ensures broad distribution and potential secondary market support, distinguishing this approach from traditional bond offerings.

Regulatory Compliance and Investor Disclosure

The notes are registered under Form 424B2 pursuant to Rule 424(b)(2) of the Securities Act, registration number 333-282565. The July 22, 2026 pricing supplement is preliminary, pending final pricing on the expected August 4, 2026 trade date. Comprehensive disclosure documents, including prospectus and supplements, provide detailed information on terms, risks, and credit considerations.

The bank emphasizes that the Securities and Exchange Commission and state securities regulators have not approved or disapproved the notes or verified the accuracy of disclosures. Any contrary representation is a criminal offense. This underscores that SEC registration reflects disclosure compliance rather than endorsement. Investors should carefully review all relevant documents, especially risk sections, before investing.