Bank of Nova Scotia Scotiabank’s 27th Annual Financials Summit

All right, perfect. Well, let's get started. I am going to start with a little quote, "A resilient financial system is one of the cornerstones of prosperity." Those words from Mark Carney capture why gatherings like this matter the most. The banking system is simply not part of the economy. It is one of the foundations upon which economic growth, investments, innovation, and opportunity are built. Good morning, everyone. Welcome to the 27th Annual Scotiabank Financial Summit. I am Travis Machen, CEO and Group Head of Global Banking and Markets. On behalf of our entire team, I want to thank you for joining us today, and thank you for your continued partnership and trust. We are meeting at a critical moment for our industry. AI is transforming the way we work, how we serve our clients, and how we create value.

At the same time, businesses and investors are navigating a very complex market volatility, geopolitical uncertainty, and rapid technological change. But through all of this, three things continue to matter the most: trust, resilience, and innovation. Despite the challenges, there is real reason for optimism. Canada's financial system remains very strong, and our banking sector continues to demonstrate resilience and momentum. Investor confidence reflects that strength, with Canadian banks outperforming many of their global peers this year. Over the next two days, you will hear from many of the industry's leading CEOs and executives. I hope these conversations challenge perspectives, generate new ideas, and provide valuable insights into the opportunities ahead. Thank you for being here, and it is now my pleasure to welcome Scott Thomson, President, CEO of Scotiabank, and Mike Rysvandovic, our Canadian Research Services Research Analyst at Scotiabank. Please join me in welcoming Scott and Mike to the stage.

Thanks, Travis. Thanks, Travis. Hey, Mike.

Hi. Good to see you.

Great. Okay. Thanks, Mike, and thanks, everyone, for being here today. Back to conference season and kids back to school. Thanks for your time. We've been at this for three and a half years, right? When you think about where we started, there was a definite initial focus on the balance sheet, making sure the balance sheet was in great shape, and we had a balanced view of deposits and loan growth. If you think about that period of three years, capital ratio is obvious, but LDR 116 to 103, wholesale funding improved by 200 basis points. Performing allowances, CAD 5 billion now, a CAD 1 billion increase over that three-year period. Margin expansion along the way on the back of positive operating leverage. This is the exact plan we laid out three years ago.

It's gone a little bit quicker than we had projected, which is great. It's because of all business lines, right? As you look at all four of those business lines, international improvement of 300 basis points on ROE over a three-year period. Our wealth business has been growing at 17% CAGR. That's on the back of a lot of investment, so it wasn't a one-quarter thing. We've added, I think, 800 salesforce frontline folks to that division and gained market share, going from sixth to third. In our Global Banking and Markets group, you just look at the fee income. Lower capital, higher ROE, more fees, on the back of a three-year capability build. We can talk more about Global Banking and Markets, which Travis runs. What was really pleasing was the Canadian bank.

It had a great quarter, but it's had a great last four quarters. That whole business mix move away from mortgage monoline and auto, where we were very good, to mid-market commercial small business. Using Mortgage Plus as an anchor that drives deposits day-to-day and seeing the improvement in the day-to-day in savings, which allows you to see that ROE improvement in Canada, which contributes to the overall banking results. That's a two-minute synopsis of the last three years, but I'm feeling really good about where the bank's heading.

Yeah. What we said a year ago is a lot of this is driven by the Canadian bank. The Canadian bank is gap relative to our peers on ROE. Year-over-year, we're up 200 basis points. I suspect when we're sitting here next year, we'll look back, we'll be up another 200 basis points. When you look at that progression to 14.2% in the quarter, we told you a year ago the path to get there, half of it was Canadian banking and half of it was the other three businesses. In this quarter, we obviously saw a very constructive market backdrop in GBM, which allowed us to increase our NIAT in that group a little higher than what we'd historically done. A big part of the drive was Canadian banking.

As we look forward, continuing that progress in Canadian banking is going to be job one.

Yeah. Well, three things are driving the improved performance in the Canadian bank and will continue to drive performance. One is risk-adjusted margin, two is business mix, and three is efficiency. Let's start with risk-adjusted margin, and this comes to the business mix, bringing on assets that actually have a higher RAM, right? Small business that comes to mid-market, which we're starting to see growth at 5%, 7%, 10% in the case of small business. When you look at the impaired performance, that impaired performance has done pretty well. We're going to be at the high end of our target at the start of the year, but per quarter. The RAM performance, I think we're up 10 basis points year-over-year. We're going to continue to see continued margin expansion quarter by quarter and into next year as well.

On the business mix, it comes back to credit cards, 45% now premium acquisition up from 35%. Fee income which has been insurance now growing, which was not a part of the business three years ago. It's now growing at around 10%. We're just getting started on that. Then again, some of these areas like small business and mid-market, which are now growing at 5%, 7%, 10%. That's the business mix component. Lastly is efficiency. We've been laser-focused on cost and capital discipline over the last three and a half years. You've seen now four quarters in a row of positive operating leverage. You're going to continue to see positive operating leverage in our Canadian P&C bank. But we're actually taking the investments of the restructuring charges and actually investing in frontline salespeople and technology.