Bank of Nova Scotia Issues Capped Buffered Enhanced Participation Notes Linked to MSCI EAFE Index

Structure and Payment Mechanics of the Enhanced Participation Notes

The notes issued by The Bank of Nova Scotia are derivative products designed to provide enhanced upside exposure to the MSCI EAFE Index with downside protection. The notes will be non-interest bearing and will deliver returns based entirely on the performance of the reference asset measured from the trade date through a valuation date expected approximately 25 to 28 months after issuance. The maturity date is expected to be the second business day following the valuation date, with all payments deferred until that point.

The participation mechanism includes three distinct scenarios. If the final index level exceeds the initial level on the valuation date, investors receive $1,000 principal plus 160% of the percentage gain in the index, subject to a maximum payment cap. If the index declines by up to 15%, investors receive full principal protection. However, if the index falls more than 15%, losses are magnified at a rate of approximately 1.1765% per 1% decline below the 85% buffer threshold, which could result in complete loss of the principal investment.

Pricing and Estimated Value Details

The Bank of Nova Scotia offered the notes at an original issue price of 100% of principal amount, with no underwriting commissions disclosed in the filing. The Bank would receive 100% of the offering proceeds. However, the filing discloses that the initial estimated value of the notes at the time terms are set is expected to range between $944.30 and $974.30 per $1,000 principal amount, substantially below the original issue price. This pricing differential reflects the Bank's internal funding rate, hedging costs, and the economic value of the embedded options.

The Bank's internal funding rate, which is the rate it would pay to borrow funds through similar structured product issuances, was used to determine the economic terms and maximum payment amounts. The filing notes that this internal funding rate is typically lower than the rate the Bank would pay for conventional fixed-rate debt securities, and this favorable rate reduces the economic terms available to investors in the notes. The actual value of the notes at any time will be subject to many factors and cannot be predicted with accuracy, according to the disclosure.

Downside Protection and Risk Parameters

A key feature of these notes is the 15% buffer against index declines. If the MSCI EAFE Index falls by no more than 15% from its initial level on the trade date, investors receive full repayment of their $1,000 principal amount with no loss of capital. This buffer provides meaningful cushion against moderate market weakness and represents a significant component of the notes' value proposition relative to direct index investment.

Beyond the 15% threshold, however, the notes employ a leverage mechanism on the downside. For every 1% decline in the index below 85% of the initial level, investors lose approximately 1.1765%, meaning losses are amplified by a factor of 117.65%. This leverage mechanism creates the potential for substantial losses exceeding the principal amount in severe market downturns. The filing emphasizes that investors may lose up to their entire principal amount, highlighting the material downside risk once the buffer is exceeded.

Credit Risk and Obligations Structure

The notes are unsecured and unsubordinated obligations of The Bank of Nova Scotia, meaning they do not have any special claim on the Bank's assets beyond those available to general creditors. All payments on the notes, regardless of the reference asset's performance, are subject to the creditworthiness and ongoing solvency of the Bank. Unlike deposits held in Bank accounts, these notes are not covered by the Canada Deposit Insurance Corporation (CDIC) or the U.S. Federal Deposit Insurance Corporation (FDIC) or any other government deposit insurance scheme, creating material counterparty credit risk.

The filing notes that in addition to market risk tied to the MSCI EAFE Index performance, investors bear the risk that the Bank may be unable or unwilling to pay any amounts due at maturity. Scotia Capital (USA) Inc., a Bank affiliate, will purchase the notes from the Bank for distribution through registered broker-dealers and may engage in secondary market-making activities. This affiliate distribution arrangement creates potential conflicts of interest that investors should consider when evaluating the notes.

Maximum Payment Constraints and Upside Cap

The maximum payment amount on the notes is expected to range between $1,262.56 and $1,308.80 for each $1,000 principal amount invested. This cap represents the maximum total return an investor can receive regardless of how strongly the MSCI EAFE Index performs. The specific maximum will be determined when the final pricing supplement is delivered. This cap structure means that while investors benefit from 160% participation up to the cap, gains beyond that level are forfeited entirely, which limits upside exposure in strong index performance scenarios.

The capped structure is essential to the notes' economics. The difference between the original issue price (100% or $1,000) and the initial estimated value ($944.30 to $974.30) is largely attributable to the value of the options embedded in the notes, including the protection mechanism and the cap itself. These embedded options are funded by the gap between what investors pay and the true economic value, compensating the Bank and option writers for the risks they assume in structuring and hedging the notes.

Valuation Mechanics and Secondary Market Considerations

Following determination of the initial level on the trade date, the value of the notes at maturity will be determined exclusively by the reference asset's level on the valuation date, expected to occur 25 to 28 months after trading. No intervening price movements will affect the final payment calculation, making these notes insensitive to intra-period volatility or timing issues. Investors do not receive dividend or distribution components; the notes provide only price return participation in the MSCI EAFE Index, excluding any dividends paid by constituent companies.

Scotia Capital (USA) Inc. is expected to engage in secondary market-making for the notes after their initial issuance, though it is not obligated to do so. The filing indicates that if SCUSA makes a market, the initial secondary market price (excluding its customary bid-ask spreads) would equal its estimate of market value based on its pricing models, adjusted by an additional amount per $1,000 principal. Investors should be aware that no organized exchange will list these notes, creating potential liquidity constraints and dependence on SCUSA's willingness to facilitate secondary transactions.

Reference Asset and Investment Structure

The notes are linked to the performance of the MSCI EAFE Index, which represents equity market performance in developed markets outside the United States, particularly in Europe, Australia, and the Far East. The reference asset return is calculated as the percentage change from the initial level (set on the trade date) to the final level (measured on the valuation date). Investors should note that by purchasing these notes, they do not acquire any ownership stake, voting rights, or entitlements to dividends from the underlying index constituents or any of the companies represented in the index.

The notes are derivative products rather than direct investments in the securities or assets underlying the MSCI EAFE Index. This distinction is material for several reasons: investors have no direct claim on index constituents, no ability to exercise shareholder or stakeholder rights, and no recourse if index companies experience financial difficulties. The return structure reflects only index price performance and does not include dividend reinvestment or total return components, potentially understating or overstating return relative to actual index investors depending on dividend yield environments.

Regulatory Status and Important Disclosures

The notes are being offered pursuant to the Bank's shelf registration statement (Registration No. 333-282565) filed with the Securities and Exchange Commission. The pricing supplement was filed under Rule 424(b)(2) on July 20, 2026, in preliminary form subject to completion. The SEC and state securities regulators have not approved the notes, and the filing includes standard language indicating that any representation of such approval would constitute a criminal offense. The notes may not be sold in any state where such offer or sale is not permitted under applicable law.

The filing notes that Scotia Capital (USA) Inc. and its affiliates and agents may use the pricing supplement in market-making transactions and that unless otherwise informed in the confirmation of sale, the customer should assume any purchase of the notes represents a market-making transaction. The Bank reserves the right to issue additional notes after the final pricing supplement at different original issue prices, commissions, and proceeds, which means that future issuances may have materially different economics from this offering.

Investment Risk Considerations and Complexity

The Bank has disclosed that investment in the notes involves certain risks and has directed investors to detailed risk disclosures on pages P-15 of the pricing supplement, pages PS-6 of the product supplement, and pages S-2 and 8 of the prospectus supplement and prospectus. These structured notes carry complexity that warrants careful analysis, including market risk from index performance, credit risk from the Bank's financial condition, liquidity risk from the absence of exchange listing and optional secondary market-making, and opportunity cost risk from the gap between issue price and estimated value.

The initial estimated value disclosure—showing that the notes are worth materially less than the original issue price upon issuance—is particularly important for investors to understand. This valuation gap reflects the economic costs of the embedded options, the Bank's funding rates, hedging expenses, and distribution costs. Investors purchasing these notes at face value receive notes that are immediately worth less according to the Bank's internal valuation models, a dynamic that may create challenges for investors seeking to liquidate positions in the secondary market before maturity.