Bank of Nova Scotia 2026 Q3 Earnings Call

Ladies and gentlemen, this conference is being recorded.

Good morning, and welcome to Scotiabank's Q3 2026 results presentation. My name is Meny Grauman, and I am Head of Investor Relations here at the bank. Presenting to you this morning are Scott Thomson, Scotiabank's President and Chief Executive Officer, Raj Viswanathan, our Chief Financial Officer, and Shannon McGinnis, our Chief Risk Officer. Following our comments, we will be glad to take your questions. Also present to take questions are the following Scotiabank executives, Aris Bogdaneris from Canadian Banking, Jacqui Allard from Global Wealth Management, Francisco Aristeguieta from International Banking, and Travis Machen from Global Banking and Markets. Before we start, on behalf of those speaking today, I will refer you to slide 2 of our presentation, which contains Scotiabank's caution regarding forward-looking statements. With that, I will now turn the call over to Scott.

Thank you, Meny, and good morning, everyone. Q3 was a record quarter for the bank, as we reported strong earnings across all business lines and exceeded all of our medium-term objectives. We are particularly proud of the fact that we demonstrated our ability to hit our 14% plus return on equity target sooner than we had projected. This achievement was aided by strong markets, but is also the product of strategic repositioning and improved capital allocation that have led to sustainable improvements across the bank. It continues to be driven by our Canadian Banking segment, whose return on equity improved 160 basis points sequentially and hit 19.4% this quarter. We expect to continue to improve the return on equity and close the gap with peers through a steady improvement in our business mix, fee income growth, and ongoing productivity gains.

We are delivering on our strategic priorities, and although you should expect to see some quarter-to-quarter variability, we do not see 14% return on equity as a ceiling for the bank. This quarter, the bank reported record EPS of CAD 2.28, up 21% year-over-year. We also delivered all bank positive operating leverage for the tenth consecutive quarter, while our CET1 ratio ended the quarter at 13.1% after deploying 23 basis points to organic growth and repurchasing an additional 8.6 million shares in the quarter. Over the past 12 months, we have now returned CAD 8.3 billion in capital to our shareholders through share buybacks and dividends. Our capital deployment priorities continue to be organic growth, followed by share buybacks and strategic tuck-in acquisitions that fill a well-defined need.

The Bank remains focused on deploying accumulated capital in support of Canada's economy, including helping fund areas of national importance such as natural resources, critical infrastructure, AI, and defense. We expect to do all of this while maintaining strong capital ratios. While the trade relationship between Canada and the U.S. is evolving, ever since tariffs were imposed last year, the Canadian economy has proven to be much more resilient than expected. We will continue to monitor developments while supporting our clients and focusing on our strategic priorities. Our business mix continues to evolve across our footprint as loan growth improves in higher returning portfolios and we gather higher quality deposits. In Canadian Banking, commercial loans grew 3% sequentially in Q3 after growing 2% in Q2.

Looking ahead, we expect growth to continue to improve, supported by investments we are making in verticals where we've been historically under-penetrated, including the mid-market and small business lending, where loan growth was up 3% quarter-over-quarter and 10% year-over-year. Credit card balances were up 3% quarter-over-quarter, and we continue to expect that to further improve by the end of the year, helped by growing purchase volumes, which are underscoring the improving quality of our book. The premium mix of new card acquisitions is now at 45% versus 35% last year. On the deposit side, we've been able to retain over 90% of retail GIC maturities year to date.

These flows are either staying in Canadian Banking, where personal day-to-day and savings deposits grew 1% year-over-year, or are moving into retail mutual funds, where net sales are CAD 4 billion year to date, up nearly two and a half times from last year. Record revenue in Canadian Banking was helped by the fifth consecutive quarter of margin expansion and continued strong fee income growth as we maintain our focus on growing retail mutual fund, credit card, and insurance revenues. At the same time, credit trends are improving, thanks in part to better collection efforts, and we are managing expenses very effectively, even as we continue to make substantial investments in frontline sales capacity and technology. We are also seeing improving business mix in our International Banking segment, where retail loans grew by approximately 5% year-over-year.

This growth rate should continue to improve, even as growth in our non-retail loan book will remain restrained by design as we continue to optimize our allocation of capital to focus on primary relationships. Our focus on deposits in the region is also working with Q3 deposits up 1% quarter-over-quarter and 6% year-over-year. As a result, earnings remained above the CAD 700 million mark for the third consecutive quarter, led by strong revenue growth of 7% year-over-year. The strategy remains focused on deepening client penetration while further driving efficiencies. Pre-tax, pre-provision earnings in our International Global Banking and Markets business were up 13% year-over-year, helped by our capital markets platform, where we're increasingly focused on delivering capital-light, higher-value solutions to our clients.

In Global Wealth Management, we are continuing to drive connectivity with the rest of The Bank and investing in both our full-service advice and discount brokerage businesses. Net sales for the quarter came in at CAD 3 billion, a record Q3, up 14% versus Q3 2025, and marking our eighth consecutive quarter of positive net flows. Our net sales for the year to date are now higher than full year fiscal 2025. Total closed referrals between Canadian Banking and Canadian wealth management came in at CAD 14 billion year to date, and more specifically, closed referrals between commercial banking and wealth were CAD 4.5 billion, or 33% higher than what we reported for the same period last year. In our global asset management business, we ranked third among our bank-owned peers in long-term retail mutual fund sales, up from fifth in the same quarter last year and sixth at Investor Day.

In our international wealth business, we're continuing to scale our total wealth solution across the region, including in the Caribbean and Mexico, where quarter-over-quarter earnings were up 14% and 15%, respectively. Finally, in Global Banking and Markets, loans were up 7% quarter over quarter as growth returned after a period of optimization. Deposits were also up 9% sequentially, helped by positive momentum in global transaction banking. We ended the quarter with the highest quarterly net income on record in Global Banking and Markets, as both global capital markets and investment banking delivered several marquee transactions for us.

These include acting as joint lead and book runner on the two largest debt capital markets deals ever done in Canada, our largest asset-backed securities deal since we established our structured credit platform, acting as a book runner on the largest IPO in Canada since 2021, and our first lead leveraged finance deal. All of this activity speaks to the increasing depth and breadth of our Global Banking and Markets franchise on both sides of the border and the investments we have made in capabilities. We are delivering strong and consistent results across The Bank while still investing in the future, including in AI, where we continue to advance our enterprise-wide AI agenda with a focus on practical adoption, including training, scalable infrastructure, and responsible governance.

This quarter, we expanded Scotia Intelligence, our bank's centralized data and AI platform, to launch new capabilities to improve productivity and free up capacity for higher value work. These new advanced features will help our teams collaborate in real time, turn complex information into clear outputs, and move from concept to execution faster. With the recent launch of our Scotia Intelligence Knowledge Agents, employees now have access to AI-powered solutions that facilitate easy access to institutional information, enabling faster execution of routine processes, helping them to focus on higher value innovation and client outcomes. Also this quarter, Scotiabank joined with Lightworks, Sun Life, and TELUS to launch the AI Consortium, a collaborative Canadian model designed to help large regulated organizations build and govern the critical control systems required to deploy AI safely.

Looking ahead, we are confident that we will be able to finish the year strong and enter fiscal 2027 with momentum. Our Q3 results are proof that our strategy is working and that we are succeeding in building deeper, more profitable client relationships, both in Canada and across our international footprint, through a constant focus on improving business mix, boosting fee income, and driving efficiency gains across the organization. I will now turn it to Raj for a more detailed financial review.

Thank you, Scott, and good morning, everyone. My all-bank and other segment comments will be on an adjusted basis, which includes the usual amortization of acquisition-related intangibles. The business line results will be on a reported basis. Moving to slide 8 for a review of the third quarter results. The Bank reported quarterly earnings of CAD 3 billion and diluted earnings per share of CAD 2.28. My remarks that follow will refer to the last column on this slide that excludes the impact of divestitures. Return on equity was 14.2%, up 170 basis points year-over-year, driven by strong revenue growth of 16%. Net interest income grew 12% year-over-year, as net interest margin grew 18 basis points from higher margins across all business segments. NIM was unchanged quarter-over-quarter as higher margins in Canadian Banking and Global Banking and Markets were offset by lower margins in International Banking.