The Bank of Nova Scotia Q3 FY2026 earnings call

• Strategic Execution & Capital Allocation: Scotiabank exceeded its 14%+ ROE target ahead of schedule, driven by strategic repositioning and improved capital allocation. The bank returned $8.3 billion to shareholders over the past 12 months via buybacks and dividends, prioritizing organic growth first.
• Canadian Banking Strength: The core driver of performance, featuring record revenue due to margin expansion (fifth consecutive quarter) and fee income growth. Commercial loans grew 3% sequentially, while small business lending rose 10% YoY. Retail mutual fund sales hit a record $4 billion YTD, up nearly 2.5x from last year.
• Global Banking and Markets (GBM) Record: GBM achieved its highest quarterly net income on record, fueled by marquee transactions including Canada’s largest debt capital markets deals and IPOs since 2021. Loans grew 7% sequentially, and deposits rose 9%, supported by strong momentum in Global Transaction Banking.
• International Banking Pivot: International Banking is showing signs of successful pivoting toward growth, with retail loans up 5% YoY and deposits up 6% YoY. Revenue grew 7% YoY, led by non-interest income increases from Davivienda investments and card revenues.
• AI and Technology Investment: The bank expanded 'Scotia Intelligence,' its centralized AI platform, launching 'Knowledge Agents' to improve productivity. It also joined the AI Consortium with Lightworks, Sun Life, and TELUS to build safe, governed AI systems for regulated organizations.

The bank reported record quarterly earnings of $3 billion and diluted EPS of $2.28, up 21% year-over-year. Return on equity reached 14.2%, exceeding the medium-term target of 14%. Canadian Banking generated $1.1 billion in earnings (up 12% YoY), with an ROE of 19.4%. Global Wealth Management contributed $515 million in earnings (up 23% YoY). Global Banking and Markets delivered $647 million in earnings (up 37% YoY). International Banking posted $725 million in earnings (up 6% YoY). The Other segment reported a net loss of $42 million.

• ROE Trajectory: Management indicated that 14% ROE is not a ceiling; they expect continued improvement through business mix optimization, fee income growth, and productivity gains, aiming to close the gap with peers.
• Capital Ratios: The CET1 ratio ended at 13.1%. Management expects to maintain a CET1 ratio of around 13% in Q4, absorbing a one-time 15 basis point reduction from migrating certain International Banking portfolios to the Advanced Internal Ratings-Based (AIRB) approach.
• Tax Rate Impact: Chile announced a tax rate reduction to 23% over three years. While this lowers future taxes, it will require a one-time deferred tax asset write-down in Q4.
• Expense Control: International Banking expenses are expected to remain stable around 4%, well below inflation, supporting positive operating leverage as revenue growth accelerates toward 6-8% annually.

• Credit Quality Trends: While overall credit trends are improving with declining impaired provisions, management continues to monitor elevated mortgage delinquencies in Canada and specific weaknesses in the Caribbean and Chilean mortgages.
• Geopolitical and Trade Uncertainty: Evolving U.S.-Canada trade relations and tariffs pose risks. However, direct exposure represents less than 1% of total loans, and allowances already reflect downside scenarios modeling significant tariff impacts.
• Macroeconomic Volatility: Persistent inflation, energy costs, and geopolitical developments create uncertainty. Management monitors forward-looking macroeconomic scenarios to ensure allowance adequacy.
• Operational Transition Risks: The migration of International Banking portfolios to AIRB introduces near-term conservatism in capital requirements, though this is viewed as a one-time adjustment.

Q: Aris Bogdaneris explained how Canadian Banking is expanding ROE from ~18% toward 20%+. He highlighted adding 700 mid-market clients (up 85% YoY) who are deposit-rich and higher-margin. By leveraging transaction banking capabilities and focusing on specialized segments like healthcare professionals where ROE is ~25%, the bank aims to drive sustained ROE expansion beyond current levels.

A: Francisco Alberto Aristeguieta Silva detailed International Banking's pivot to growth, targeting 6-8% annual revenue growth by 2027. He noted that expenses are capped around 4% (below inflation) due to synergy captures. This structure supports PTPP growth of 8%+, enabling double-digit earnings growth and ROEs north of 16% by driving deeper client penetration and efficiencies.

Q: Shannon McGinnis addressed credit outlook, confirming impaired PCLs trended down to 52 bps as expected. She noted that while early-stage delinquencies improved in most retail products, mortgage delinquencies remain a concern. Regarding tariffs, she stated that direct loan exposure is <1% and allowances already model severe scenarios (12.5%-25% tariffs), providing comfort despite evolving trade negotiations.

A: Travis MacHen discussed GBM's record performance, attributing it to broad-based strength in capital markets and investment banking. He emphasized that loan growth (7% sequential) is an outcome of deepening client relationships rather than a KPI target. The strategy focuses on high-velocity capital deployment and capturing full wallet share across sovereign and domestic capital markets.

Q: Scott Thomson clarified that while the Key investment is performing well, Scotiabank’s primary U.S. growth strategy is organic, focused on GBM and Wealth Management capabilities. He cited the small acquisition of MapleMark (a Texas commercial bank) as a tuck-in to enhance deposit funding and commercial capabilities, explicitly stating that U.S. retail or large-scale commercial acquisitions are not currently priorities.