The Bank of Nova Scotia Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Scotiabank delivered adjusted earnings of $2.5 billion or $1.88 per share in Q3, up 15% year-over-year. Return on equity was 12.4%, up 110 basis points year-over-year.
• Canadian Banking saw improved results with better credit performance and revenue growth boosted by margin expansion. Focus on building multiproduct relationships, with Mortgage+ accounting for 90% of new mortgage originations.
• Global Wealth Management continued positive momentum with strong results in asset management, private banking, and international wealth management. Net fund inflows were strong.
• Global Banking and Markets reported strong trading revenues and advisory fees. The U.S. contributed 42% of GBM earnings in Q3.
• International Banking results trended ahead of Investor Day commitments with solid execution and improved profitability metrics.
• Focus on optimizing capital and liquidity, value over volume, balance sheet repositioning, and productivity initiatives. Rollout of ASK AI internal chatbot in Canadian bank retail branches and client experience centers.

Segment Performance

• Canadian Banking: Earnings of $959 million, down 2% year-over-year. Pretax pre-provision profit was in line with the prior year but off 7% quarter-over-quarter. Average loans were up 3% year-over-year, deposits up 2%. Net interest income grew 2% year-over-year, with the net interest margin expanding 2 basis points quarter-over-quarter. Noninterest income was in line with the prior year. The PCL ratio was 40 basis points. Expenses increased 4% year-over-year.
• Global Wealth Management: Earnings of $424 million, up 13% year-over-year. Revenues were up 12% year-over-year. Expenses were up 11% year-over-year. Spot AUM increased 12% year-over-year to $407 billion, and AUA grew 9% over the same period.
• Global Banking and Markets: Earnings of $473 million, up 29% year-over-year. Revenue increased 21% year-over-year. The loan balance declined 14% year-over-year. Noninterest income was up 23% year-over-year. Expenses were up 16% year-over-year.
• International Banking: Earnings of $675 million, up 7% year-over-year. Revenue was up 3% year-over-year. The net interest margin expanded by 13 basis points year-over-year. Deposits were flat year-over-year, loans were down 3% year-over-year. The provision for credit losses was $562 million and stable at 139 basis points.

Guidance

• Scotiabank expects strong earnings growth in 2025 and will provide a more detailed outlook in the fourth quarter call.
• Focus on value over volume, enhancing balance sheet velocity. Anticipate increased yet profitable loan growth next year.
• Committed to maintaining strong capital levels and disciplined capital allocation, with a CET1 ratio of 13.3% at the end of the quarter.

Risks

• Trade uncertainty adding uncertainty to near-term outlook in Canada.
• Credit trends in International Banking, particularly challenges in Mexico commercial and Canadian consumer stress.
• Impact of macroeconomic conditions on credit performance, including mixed results and trade dynamics.
• Volatility in interest rates and their impact on net interest margin and revenue.

Question and Answer

• Q: Regarding capital and buybacks, thoughts on CET1 and buyback aggressiveness?

A: Raj mentioned the strong CET1 ratio, with capital deployment prioritizing organic growth, then credit migration, and finally buybacks. Comfortable operating above 13% CET1.

• Q: Progress in segments, slowest progress areas?

A: Scott noted International Banking is ahead of Investor Day targets, GBM has momentum, and Canadian business has work to do in small business and commercial mix shift.

• Q: Credit migration in commercial and international?

A: Philip mentioned international commercial affected by market dynamics in specific markets, and Canada has consumer stress and trade uncertainty impacts.

• Q: Outlook for corporate segment and deposit growth?

A: Raj stated the corporate segment benefit from rate cuts, and focus on core deposit growth with strong AUM and branch-driven mutual fund growth.