Scotiabank Q2 2026 Earnings Call - AI-Driven Efficiency and Capital Markets Surge

Operator: Ladies and gentlemen, this conference is being recorded.

Meny Grauman, Head of Investor Relations, Scotiabank: Good morning, welcome to Scotiabank’s Q2 2026 earnings call. My name is Meny Grauman, I’m 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’ll 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 two of our presentation, which contains Scotiabank’s caution regarding forward-looking statements. With that, I will now turn the call over to Scott.

Doug Young, Analyst, Desjardins2: Thank you, Meny, and good morning, everyone. Scotiabankers should be proud of this quarter as we continue to drive our business forward and deliver for shareholders, even in the face of unexpected geopolitical developments. We remain focused on the needs of our clients as we work to deepen client relationships across our bank. Adjusted earnings came in at CAD 2.7 billion, or CAD 2.02 per share. Pre-tax, pre-provision earnings were up 16% year-over-year as we continue to drive revenue growth and manage our expenses effectively. Our CET1 ratio was 13.3%, even after repurchasing 6.4 million shares in the quarter. Today, we announced a quarterly dividend increase of CAD 0.04 per share, reflecting confidence in our earnings growth. Over the past 12 months, we have returned CAD 7.5 billion in capital to our shareholders through share buybacks and dividends.

Looking ahead, we expect to keep this pace while maintaining strong capital ratios. Our capital deployment priority continues to be organic growth, followed by share buybacks and strategic tuck-in acquisitions that fit a well-defined need. Return on equity for the quarter was 13.2% and remains on track to hit 14%+ in fiscal 2027, one year ahead of our investor day target. Our business mix is shifting, which is resulting in strong revenue growth and higher returns, and we expect those trends to continue into fiscal 2027. In Canadian Banking, the momentum is building, and we are delivering better results quarter, after quarter, after quarter. Pre-tax, pre-provision earnings were up 13% year-over-year, helped with a fourth consecutive quarter of margin expansion and continued strength in our fee income line as we maintain our focus on growing Wealth Management, credit card, and insurance revenues.

At the same time, we are managing expenses effectively, even as we continue to make substantial investments in frontline sales capacity and technology. As a result, Canadian Banking’s productivity ratio was down 230 basis points year-over-year, contributing to positive operating leverage for the third consecutive quarter. Industry-wide term deposit balances continued to contract during the quarter, but we’ve been able to consistently retain over 90% of retail GIC maturities despite intensifying deposit competition. These flows are either staying in Canadian Banking, where savings and deposits were up 3% year-over-year, or are moving into retail mutual funds, where net sales were up significantly year-over-year. A key pillar of our strategy is to grow high-quality, sticky deposits.

Earlier this month, we announced the launch of the Scotia High Interest Savings Account, which is one of Canada’s first relationship-based accounts that offers tiered regular interest rates based on a client’s total relationship balance across eligible Scotiabank accounts. Average loan growth remains in the low single digits, by the end of the year, we expect to catch up to the broader market, thanks in large part to an acceleration in commercial loan growth. Commercial loans were up 2% sequentially this quarter, we expect that pace to increase given our robust pipeline growth. Overall loan growth will also be supported by our small business portfolio, which continues to grow in the high single digits. Spot credit card growth is expected to reach mid-single digits by the end of the year, while our mortgage volume should keep pace with peers.

In International Banking, pre-tax, pre-provision earnings were up 12% year-over-year, helped by revenue growth of 7%. This, combined with strong expense discipline, delivered year-to-date positive operating leverage of 3.2%. Performance in Mexico was particularly strong this quarter, with revenue up 8% year-over-year and earnings up 25% year-over-year. Retail loans continued to grow across our footprint by 4% year-over-year, with non-mortgages growing by a strong 7%, especially in Mexico and the Caribbean. Commercial loan growth was up 2% quarter-over-quarter and should continue to modestly improve in the second half of the year as we pursue growth thoughtfully and employing a cash management first strategy. Our focus on deposits is also gaining traction, climbing 3% quarter-over-quarter and 5% year-over-year.

Earlier this month, we were proud to sponsor Chile Day 2026, which brought together government and business leaders in New York and Toronto to strengthen Canada-Chile ties and advance investment in this important market. Scotiabank also hosted Mexico’s official trade mission to Canada, convening senior government leaders, business executives, and clients. This event was a significant milestone and reinforced Scotiabank’s role as a connector across the North American corridor. In Global Wealth Management, we are continuing to drive our underlying business forward. Net sales for the quarter were at CAD 4.7 billion, four times what we had in Q2 2025, and marking our seventh consecutive quarter of positive net flows. ROE came in at 17.9%, up 210 basis points year-over-year. Canadian wealth management is continuing to benefit from deeper connectivity with Canadian Banking in the form of higher referral volume.

Total closed referrals were at CAD 9 billion year-to-date, largely stemming from our retail and small business segments to wealth. Closed referrals between commercial banking and wealth were CAD 2.8 billion, or double what we reported in the first half of last year. In our global asset management business, we delivered year-to-date net sales of CAD 3.1 billion and continue to rank third amongst our peers in long-term retail mutual fund sales, up from fifth in the same quarter last year, highlighting the opportunities we have to deepen penetration within our own network. In our international wealth business, earnings were up 12% year-over-year and 22% in Mexico. This quarter, we were also recognized with eight Euromoney private banking awards across our footprint, and Mexico’s asset management unit was recognized by Morningstar, with six funds ranked in the top 10 among all four and five-star funds.

Finally, in Global Banking and Markets, revenues were up 9% year over year, driven by a 25% year over year increase in capital markets. Our deal pipeline is strong, and Q3 has started off on a strong footing with a number of marquee transactions being announced over the past few weeks. Our mortgage capital markets business is accelerating, which is a good example of our U.S. growth strategy in action. GBM’s loans grew 1% quarter over quarter or up 3% excluding our Asia portfolio, which is in runoff. Growth here should accelerate as the year goes on, but will increasingly be driven by our capital market strategy. We will continue to deploy balance sheet through our corporate revolver loan book, but with a focus on customers where we have a broader multi-product relationship.

We are focused on improving returns while also growing our loan book and investing in critical technology, including AI. This quarter, Scotiabank announced the launch of Scotia Intelligence and Scotia Navigator. Scotia Intelligence unifies the capabilities, platforms, and governance required to deliver AI securely and at scale for employees and clients globally. Scotia Navigator puts AI directly into the hands of employees across the bank, including advanced assistance that automates routine tasks and redirects capacity towards more complex, higher-value tasks. Our approach to AI is designed to take us from isolated AI use cases to AI that is embedded across our processes, decision-making, and client interactions in a trusted, efficient, and effective manner. Our approach is grounded in four key principles, at the top of the list is security, which has taken on added importance given the cybersecurity risk posed by advanced AI models.

We are embedding security, governance, and controls into the foundation of our AI infrastructure by design, enabling us to scale not just quickly, but safely, fully aware of both the opportunities and risks of advanced AI. We are also leveraging AI to strengthen our security posture, including AI-driven scanning and monitoring to proactively identify and mitigate risks. Our second principle is flexibility. The AI landscape is evolving rapidly, we believe that no single model or vendor will dominate over an extended period of time. We have adopted a model-agnostic approach from day one, selecting models based on performance, security, and cost. This approach gives us maximum flexibility with what is a rapidly evolving technology. Our third principle is data. AI is only as effective as the data it can understand.

We have deliberately invested in getting our data foundation right, clean, well-governed, and richly described so that AI can deliver meaningful outcomes at scale. This is enabled by our enterprise data platform, which ensures that our data is discoverable, trusted, and ready for AI consumption across the enterprise. Our fourth and final principle is platform-first thinking. Rather than fragmented tools, we are building a unified enterprise AI platform. This allows for faster deployment, consistent governance, and repeatable scale across the bank. It also enables the deployment of AI agents and continuous monitoring and proven of models in production, all with enterprise-grade security guardrails built in from the outset. In closing, as we’ve committed to, we are delivering growth across product lines that are strategically important to us and where it can drive client primacy.

In Canadian Banking, we delivered sequential commercial loan growth this quarter on top of already strong small business growth, and our growing commercial pipeline gives us confidence that that momentum will continue. Although total deposits are contracting because of industry-wide pressure on GICs, we are consistently growing our higher quality savings and day-to-day deposits, even as deposit dollars increasingly flow into retail mutual funds and our wealth business. The connectivity between Canadian Banking and Global Wealth Management continues to strengthen thanks to growing retail fund sales and two-way referrals between the two units. In International Banking, retail and commercial loans grew 4% year-over-year, with non-mortgage loan growth continuing to outpace mortgage growth on the retail side and growth improving on the commercial side as we build deeper client relationships.

Finally, in Global Banking and Markets, capital markets loans are growing even as total loan growth is being impacted by our decision to reduce our exposure in Asia. Overall, despite increased macro volatility, we continue to drive towards delivering on our medium-term financial objectives and building a stronger and more profitable bank for the long term. I will now turn it to Raj for a more detailed financial review.

Doug Young, Analyst, Desjardins1: Thank you, Scott, and good morning. 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 beginning this quarter. Moving to slide nine for a review of the second quarter results. The bank reported quarterly earnings of CAD 2.7 billion and a diluted EPS of CAD 2.02. My remarks that follow will refer to the last column of this slide that excludes the impact of divestitures. The return on equity was 13.2%, up 270 basis points year-over-year, driven by strong revenue growth of 13%. Net interest income grew 10% year-over-year, as net interest margin grew 24 basis points from higher business line margins and lower funding costs. The net interest margin expanded 6 basis points quarter-over-quarter, benefiting from some seasonality in International Banking and increased levels of higher spread reverse repos.

Non-interest income was up 17% year-over-year, mainly from higher Wealth Management revenues, investment gains, and income from associated corporations. Expenses grew 7% year-over-year, mainly due to higher performance-based and personal costs and technology spend that also grew 9% to CAD 1.4 billion to support strategic growth initiatives. This resulted in a pre-tax pre-provision profit growth of 20% year-over-year. The bank generated positive operating year-to-date leverage of 4.9%, and the productivity ratio improved by 290 basis points year-over-year to 52.5%. The bank’s effective tax rate decreased to 23.3% quarter-over-quarter, primarily due to higher income and lower tax jurisdictions and higher inflationary adjustments. Moving to slide 10. The bank’s CET1 capital ratio remains strong at 13.3%. We generated capital from strong earnings in the quarter and prudent management of RWA growth. We completed the 2025 share repurchase program and commenced repurchases under the 2026 program this quarter.

Under the two programs, we repurchased 6.4 million shares this quarter, representing 13 basis points of capital usage. The model parameter updates also consumed 13 basis points. Total risk-weighted assets was CAD 474 billion, up CAD 1.6 billion quarter-over-quarter, excluding effects, mainly relating to higher credit risk. Turning now to the business line results beginning on slide 11. Canadian Banking earnings were CAD 935 million, up 53% year-over-year from strong pre-tax pre-provision earnings growth of 13% and lower-performing provisions for credit losses. Loans grew 3% year-over-year from mortgage growth of 4%, while commercial and small business loans grew 1%. Day-to-day and savings deposits grew 3% year-over-year, in line with our strategy. Deposits declined 3% year-over-year, mostly in term. Turning to the P&L. Net interest income grew 7% year-over-year from loan growth and margin expansion. Net interest margin continued to expand, up four basis points sequentially.

Non-interest income was up 10% year-over-year from higher mutual fund distributions and credit card revenues. The PCL ratio was 50 basis points, with impaired PCLs declining two basis points quarter-over-quarter. Expenses were up 3% year-over-year from investments in technology, partly offset by the benefit of efficiency initiatives. Year-to-date operating leverage was 3.9%. Turning now to Global Wealth Management on slide 12. The earnings of CAD 474 million were up 19% year-over-year as Canadian earnings were up 20% and International was up 12%, mainly in Mexico. Spot AUM and AUA grew 18% and 15% year-over-year from market appreciation and higher net sales. Revenues were up 14% year-over-year from higher mutual fund fees, net interest income, and brokerage revenues. Expenses were up 12% year-over-year from higher volume-related expenses. Year-to-date operating leverage was 2.1%. Turning to slide 13. Global Banking and Markets earnings were CAD 457 million, up 11% year-over-year.

Revenue grew 9% year-over-year as capital markets revenues were up 25%, while business banking was down 7%. Net interest income was 5% year-over-year, primarily due to higher margins. Non-interest income was up 10% year-over-year due to higher trading-related revenues from equities, commodities, and fixed income, partly offset by lower FX trading and underwriting and advisory fees. Expenses were up 10% year-over-year, mainly due to higher technology and personnel costs. Moving to Slide 14, my comments on International Banking are on a constant dollar basis and exclude the impact of divested operations. The segment delivered earnings of CAD 701 million, up 3% year-over-year. Revenue was up 7% year-over-year, with net interest income up 5% and non-interest income up 14% from higher investment in associated corporations and insurance income.

Net interest margin of 476 basis points expanded by 22 basis points quarter-over-quarter from lower funding costs in Latin America and inflation benefits mainly in Chile. Deposits were up 5% year-over-year as personal deposits grew 3% and non-personal grew 7%. The loans were down 2% year-over-year, as non-retail loans declined 8% while retail grew 4%. The operating leverage was 3.2% year to date. The PCL ratio was 166 basis points, mainly from impaired. The effective tax rate was 17.3%, mainly from higher inflation, the refund of prior taxes in Peru, and higher income from associated corporations. The GBM Business and International Banking generated earnings of CAD 237 million, impacted by higher loan loss provisions. Turning to Slide 15. The other segment net income was CAD 35 million compared to a loss of CAD 41 million in the prior quarter, benefiting from higher mark-to-market gains.

I’ll now turn the call over to Shannon to discuss risk.

Doug Young, Analyst, Desjardins3: Thank you, Raj, and good morning, everyone. The macroeconomic environment remains uncertain, shaped by geopolitical developments and elevated energy costs that continue to affect trade flows and the GDP growth outlook. In Canada, near-term growth has moderated amid continued trade headwinds, and inflation remains a key focus for policymakers. Against this backdrop, all bank provisions were CAD 1.2 billion, or 66 basis points, up five basis points quarter-over-quarter. Impaired provisions were CAD 1.1 billion, or 61 basis points, up three basis points quarter-over-quarter. This increase was driven mainly by one corporate account in International Banking, which represented about seven basis points of the all-bank impaired PCLs. Performing provisions were five basis points, up two basis points quarter-over-quarter, driven mainly by the impact of forward-looking indicators in Canada.

Our allowance for credit losses increased to CAD 7.3 billion, or 96 basis points, up two basis points quarter-over-quarter. Turning to Slide 18. Gross impaired loans increased four basis points quarter-over-quarter to 99 basis points, driven mainly by the one corporate account in International Banking and higher formations in Canadian commercial. Retail gross impaired loans declined across both Canada and International Banking as lower new formations reflected the impact of enhanced collections efforts. In non-retail, deal formations increased CAD 368 million quarter-over-quarter, driven mainly by one account in International Banking and one account in Canadian Banking. Overall, the non-retail portfolio remains well-positioned and underwritten to strong credit standards. Turning to Slide 19. In Canadian Banking, provisions were CAD 575 million, or 50 basis points.

In retail, total PCLs were CAD 435 million, flat quarter-over-quarter, as lower impaired provisions across most products were offset by higher performing PCLs. Performing PCLs were up CAD 22 million quarter-over-quarter, driven primarily by unfavorable impact in our forward-looking indicators, partially offset by credit quality improvements. In unsecured lending, we are seeing the benefit of targeted collection actions, including expanded capacity, enhanced client segmentation, and increased self-service options through our online channels. These efforts contributed to a 20 basis point quarter-over-quarter improvement in 90-plus day delinquency for unsecured products. That said, we continue to closely monitor the portfolio given ongoing macroeconomic uncertainty affecting consumers, including elevated energy costs and inflationary pressure. Moving to International Banking. International Banking provisions were CAD 599 million, or 166 basis points, up from CAD 536 million in the prior quarter.

In non-retail, the increase in PCLs was concentrated mainly in a single corporate account. This reflects primarily company-specific factors rather than broader macroeconomic or trade-related pressures. We continue to actively manage the exposure with close monitoring and ongoing engagement and expect non-retail impaired PCLs to meaningfully moderate from Q2 levels. On the retail side, total PCLs were lower quarter-over-quarter, reflecting lower new formations in the Caribbean and Peru and lower performing provisions in the Chile consumer finance portfolio. Retail impaired PCLs were CAD 381 million, down CAD 24 million quarter-over-quarter, driven by divestitures. In Global Banking and Markets, provisions were CAD 38 million or eight basis points lower quarter-over-quarter. The macroeconomic environment has evolved meaningfully since the start of the year. Elevated energy costs, persistent trade uncertainty, and higher unemployment continue to pressure both consumers and businesses across our footprint.

Against this backdrop, we expect impaired PCLs to settle in the mid-50 basis point range for the remainder of 2026. While this is slightly elevated relative to our initial outlook, we still expect PCLs to moderate from first half levels, though more gradual than previously anticipated. Looking at each of our portfolios, in Canadian Retail, Q2 performance benefited from collections efforts. Prolonged inflationary pressures could further strain already vulnerable client segments. In Canadian Commercial, performance remains resilient and in line with expectations, with continued attention on potential second-order impacts from trade developments and sustained elevated oil prices. Across our key International Markets, retail impaired performance is expected to remain elevated in line with our earlier outlook. In Mexico, macroeconomic indicators continue to present a mixed outlook given trade uncertainty.

In Chile and Peru, credit performance has been stable, supported by commodity fundamentals, although the potential impact of higher energy costs remains an area of focus. In non-retail for International Banking, we continue to actively manage the portfolio through ongoing reviews and early warning monitoring. While the macro uncertainty remains, we expect impaired PCLs to meaningfully moderate from Q2. In closing, we continue to build allowances, adding CAD 159 million this quarter to bring total reserves to CAD 7.3 billion, or 96 basis points, and now 24 basis points higher than Q1 2023. Importantly, these allowances reflect a range of forward-looking macroeconomic scenarios, and we are comfortable that both the level of reserves and the quality of our portfolio position us well to navigate the environment. With that, I will turn it back to Meny for Q&A.

Meny Grauman, Head of Investor Relations, Scotiabank: Thanks, Shannon. Operator, we’re now ready for our first question.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you’d like to withdraw that question, again, press star one. Your first question comes from Doug Young with Desjardins. Please go ahead.

Doug Young, Analyst, Desjardins: Hi, good morning. Maybe, Shannon, sticking with yourself. Just the guidance that you gave, so the impaired PCL guidance of mid-50 basis points for the remainder of fiscal 2026. That is, I guess, your guidance for the full year now is higher than it was before. I just wanted to confirm that. The moderation in PCLs in the back half of this year, can you talk a bit about what gives you the confidence in the moderation?

Doug Young, Analyst, Desjardins3: Yeah, of course, Doug. Good morning. Thanks for the question. If I take a look at the macro when we gave guidance back in December, the macro environment has evolved meaningfully since that time. Considering this, we do expect impaired PCLs to settle in the mid-50 basis point range for the remainder of 2026, which I mentioned in my remarks. I think it is important, though, that we still expect a gradual trend down from first half levels, although more modest than we originally anticipated. In terms of what gives me confidence around that and what’s kind of going into that outlook, I just maybe kind of walk you through a few portfolio components. In international retail, performance continues to be mixed by geography, and we do expect impaired PCLs to remain elevated, and that is consistent with our initial outlook.

If I look at Canadian retail, Q2 performance benefited from the collections efforts that we’ve been speaking about over the past few quarters, we do expect impaired PCLs to potentially be impacted by prolonged inflationary pressure. That could impact some of our vulnerable client segments. When I look at the non-retail portfolio, we do continue to monitor on a heightened basis the sectors that are more exposed to trade dynamics and oil price volatility. As I look from this quarter forward, we do expect to see the non-retail impaired PCLs moderate from the Q2 levels. When I take all of that into consideration, we do expect to trend down from the first half.

As you point out, it will be more gradually than we had originally anticipated, and that’s really reflecting the changes in the macro since we gave our guidance back in December.

Doug Young, Analyst, Desjardins: Okay. Just maybe a follow-up on the performing loan side, a bit of a build this quarter. Can you maybe quantify or talk about or just put in perspective how confident you are in your performing loan allowances relative to your forward-looking indicators and your expectations for impaired? Just trying to get a sense. It’s always difficult to kind of look at it across the group, maybe there’s some perspective you can give.

Doug Young, Analyst, Desjardins3: Maybe it’d be helpful to take a step back and just kind of grounding in how we factor scenarios into our performing allowance. We obviously take into consideration a range of scenarios, which includes the environment that we’ve been operating in and as we look forward and talk about some of the pressures that I spoke to in my remarks. As we think about the performing build this quarter, which was five basis points, about CAD 50 million of that was related to our forward-looking indicators, which we do think appropriately captures what we see as we look forward. When I look at the scenarios and what we leverage to generate the performing build. We’re quite comfortable with our reserves. As you know, we’re going to reassess this every quarter as the environment evolves, but feeling good where we are right now.

Doug Young, Analyst, Desjardins: Appreciate the color. Thank you.

Operator: Your next question comes from the line of Gabriel Dechaine with National Bank Financial. Please go ahead.

Gabriel Dechaine, Analyst, National Bank Financial: Hey, good morning. Just a quick numbers one to start the other income. I heard mark-to-market gains in the explanation for the corporate segment. Could you tell me what was in that other income line item that was pretty high this quarter, please?

Doug Young, Analyst, Desjardins1: Sure, Gabe. It’s Raj. Absolutely, you’re right. There’s two items that have gone into that line this quarter. One, I talked about the mark-to-market gains, which is on the private equity book that we have in treasury.

Gabriel Dechaine, Analyst, National Bank Financial: Okay.

Doug Young, Analyst, Desjardins1: That contributed somewhere between CAD 35 million-CAD 40 million.

Gabriel Dechaine, Analyst, National Bank Financial: Okay.

Doug Young, Analyst, Desjardins1: There’s another component, which is WB ended up closing the deal in their books. We had to do an equity pickup of the mark-to-market increases they have on their assets this quarter. That was in the mid-40s. It was about CAD 46 million that has gone into that line. That’s why you’re seeing that line elevated.

Gabriel Dechaine, Analyst, National Bank Financial: Okay, CAD 35 and CAD 45. That’s pre-tax or?

Doug Young, Analyst, Desjardins1: Yes. Correct.

Gabriel Dechaine, Analyst, National Bank Financial: Okay.

Doug Young, Analyst, Desjardins1: Yeah, because the WB end, we pick it up after tax. There’s no tax effect because of the way we account for investment in associated corp.

Gabriel Dechaine, Analyst, National Bank Financial: Okay, great. Just to keep going with this credit discussion of the mid-50s H2, I’m trying to decipher where some of the changes are taking place. I can draw my own conclusions based on what I see in the environment, but it looks like Canadian Retail, because of inflation and the economy that’s not rebounding as fast as expected, that’s where you’re expecting more upward pressure than you did previously. In International Retail, doesn’t sound like it’s changed from what you anticipated at the start of the year, but these in Peru and Chile especially, the energy prices that are putting a lot of pressure, keep using that word, on their economies, that’s got to be a new twist to this saga. I guess it’s too early to start thinking about 2027. Not really, but technically, I guess.

This isn’t a Scotia-specific issue, but none of this stuff seems to be like it’s going to be all clear anytime soon. Are we thinking already that maybe 2027 we’ll have this higher for longer impaired PCL ratio? Thanks.

Doug Young, Analyst, Desjardins3: Yeah. Gabe, maybe I’ll stick to the 2026 guidance and what’s driving our outlook.

Gabriel Dechaine, Analyst, National Bank Financial: Yeah

Doug Young, Analyst, Desjardins3: as we go into the latter half of the year. I mentioned it a bit previously in my remarks. In terms of what’s changed from when we gave our guidance in December, it really is, as I think about the environment that we’re operating in. We do expect to see improvement in the latter half of the year, which is consistent with our guidance we provided. It’s just the magnitude of that is maybe different than we had originally expected, and again, reflecting that the macro that we’re in. To your point, Canadian retail is an area that I would point to. Again, we’re really encouraged by the Q2 performance, and that is a reflection of the collections efforts that have been underway for a period of time.

We’ve seen that impact this quarter, but we are cognizant of the environment. If you think about inflationary pressures and what that can mean to affordability, we have factored that into our outlook as we look out to the rest of the year.

Doug Young, Analyst, Desjardins2: Gabe and Scott, I would just add a couple of things. One, there’s definitely some stresses in the Canadian portfolio. There’s no doubt. I was really pleased that we saw improved impaired performance in that book. As you look out to 2027, I’m actually relatively optimistic about the outlook for Canada. Despite the war and the tragic aspect of it, we’re an oil-exporting nation. You’ve got a new business-friendly government that is trying to get things done. As we look further out, I think we’re going to see some good things in the Canadian environment.

Gabriel Dechaine, Analyst, National Bank Financial: Yeah, I get it. I agree. There’s a lag between when the bad stuff is still having an impact and when the good stuff kicks in, and it’s a moving target, obviously. I’ll leave it there. Thanks.

Operator: Your next question comes from the line of Mario Mendonza with TD Securities. Please go ahead.

Mario Mendonza, Analyst, TD Securities: Good morning. I think, Raj, you covered the corporate gains there. In the past, you’ve given us some outlook on what we’d expect from that segment going forward. Presumably, you’d expect that to return to maybe a modest loss next quarter. Is that right?

Doug Young, Analyst, Desjardins1: That’s correct, Mario.

Mario Mendonza, Analyst, TD Securities: On international, the margin there in international remains well above the outlook you’ve offered in the past, the 440-450. Can you talk about what drove such a meaningful increase in the quarter and what your outlook is?

Doug Young, Analyst, Desjardins1: Absolutely, Mario. I think you’re right. 476 is a high watermark for the International margin this quarter. As you know, IB NIM has got multiple countries, right? It’s got all the Latin American countries, but it also has a big Caribbean operation. A lot of the benefits or the increase in the NIM that we saw is lower funding costs in our Latin American franchises. We’ve seen rate cuts in Mexico, we’ve seen it in Chile earlier, and we’ve seen it in Peru as well. That’s going to continue, and that’s in line with what we expected even at the beginning of the year. What we did not expect, and it’s a nice tailwind to have, is as we know, U.S. rate cuts for the Caribbean NIM has held up very well for us. Then there is the asset balance mix that is happening.

Less mortgages and higher non-mortgages going over there. I look forward, this quarter there was some nuance. There’s some seasonality due to benefits that we get in the International Banking NIM. I call that somewhere between 7 to 10 basis points, Mario. I would say next quarter should be somewhere between 465 to 470, frankly, for the remainder of the year. That is a nice tailwind to have to our 440 to 450 normal expectations we have for that NIM, and that’s primarily driven because we don’t see rate cuts happening at any scale in the U.S. That should help with the Caribbean deposit-rich franchise. It’s a good tailwind. 465, 470 is likely the number I would look at for Q3 and for Q4 as well.

Doug Young, Analyst, Desjardins2: Maybe Francisco, you can just highlight for Mario some of the business mix changes that are ongoing there, because I think it was a great quarter for International. We highlight some of the moving pieces.

Francisco Aristeguieta, Head of International Banking, Scotiabank: Sure, Scott. Thank you. Mario, good morning. Thanks for the question. We continue to be steady state on the strategy to try to change the balance sheet mix across all countries. This particular quarter, you begin to show on the year-over-year progression, for example, deposits moving quite strongly around the 6% mark. When you begin to see also the loan growth in retail around 4.5%, non-mortgage predominantly growing at twice the pace of mortgage, increasing client profitability. When you see GBM deposits year-over-year growing at 8%, that’s all contributing to the sustainability that Raj was mentioning of the NIM expansion. The overall underlying quality of our balance sheets in every market are improving sustainably on the back of the client strategy and the, I would say, very deliberate effort on quality deposits.

We have been optimizing expensive deposits out and replacing them by operational deposits sustainably across all business lines.

Mario Mendonza, Analyst, TD Securities: Francisco, while you’re there, do you have a sense for when the non-retail loan growth will emerge in your segment?

Francisco Aristeguieta, Head of International Banking, Scotiabank: It’s consistently growing. Remember, this year was a pivot to growth, right? We wanted to ensure that the new value propositions resulting from the segmentation exercise generated high-quality vintages that allow us to get to primacy faster and sustainably. We are on that journey. What is very encouraging to see is that our primary market, being Mexico, is beginning to show that progression quite strongly in this quarter and has been the work of over a year of the new team we have in place in driving that strategy. We’re seeing similar progress in Peru and in Chile, as well as in the Caribbean. You should expect that by 2027, this will consolidate. We are being very deliberate in the quality of the portfolio that we’re building towards sustainability of performance.

Mario Mendonza, Analyst, TD Securities: Thank you.

Operator: Your next question comes from the line of Paul Holden with CIBC. Please go ahead.

Doug Young, Analyst, Desjardins0: Thank you. Good morning. I want to ask you about the net interest margin outlook for Canada. Obviously, a positive result, I think, in Q2. Number of moving parts there, which is why I ask the question. The residential mortgage renewals, which should be a nice tailwind. I think we’re hearing about increasing deposit competition, so maybe a little bit of a headwind there. Maybe you can give us an outlook and sort of wrap all of those components together would be helpful.

Doug Young, Analyst, Desjardins1: Sure, Paul. I’ll start, but I want Aris to talk about his business as well and how the changes are impacting. I’ll keep it short. I think the net interest margin expansion we saw this quarter will continue, maybe not to the same magnitude, but like in the beginning of the year, I had mentioned 2 basis points of quarter improvement driven by better deposits, the mix, better loan growth, because even mortgages I think are more profitable than what we’ve had, and we’re seeing strong growth as well as commercial, like Scott alluded to in his opening remarks. Those are all going to contribute, I would say, for the remainder of the year for margin expansion in the Canadian Banking. Maybe Aris, you can talk about the business mix shifts that you’re seeing in the-

Aris Bogdaneris, Head of Canadian Banking, Scotiabank: Sure. Hi. I think in line with what you heard, the numbers this quarter really affirm the direction and the strategy we embarked on a few years back, and you see it in the numbers. You have to go back, I think, to 2022 to see growth rates at this level across revenues, PTPP, and the like. I think the drivers, as I mentioned in the last call, there’s really four drivers. It’s the business mix shift that you’ve heard about, both on the deposit side and more and more now on the lending side as we increase the proportion of non-mortgage lending. The second is the RAM, the improvement in the risk-adjusted margins from the renewals and repricing of our mortgage book, which is now going to accelerate as the renewals start to increase.

Of course, you saw it in the quarter, the increase in fee income across cards, mutual funds, and insurance. All these put together are helping lift that revenue and PTPP line. In terms of the margin question you asked about, I think you’ll see it primarily now coming on the asset side as the commercial loan book and business banking book and personal lending starts to increase. That will help the overall NIM. You saw the sequential growth in commercial lending on the quarter. That commercial lending growth is broad-based. It’s across real estate, mid-market, and ag. That pipeline that has been built up since a year ago is starting to mature. As it matures, it’s going to actually lift the yield on our lending book as it grows.

We’ll see continued increases in the NIM in the quarter, but again, more now weighted to the asset side as we go forward. All in all, positive outlook from that standpoint.

Doug Young, Analyst, Desjardins0: Okay. That’s good. Maybe, Aris, a follow-up question for you. Maybe you can drill down a little bit more into the NIR growth, because it is quite strong year-over-year, and I think you touched on some of the drivers there, the credit card fees, et cetera. Maybe you can spend just a couple more minutes so we can understand fully

Aris Bogdaneris, Head of Canadian Banking, Scotiabank: Sure. The NIR growth for the quarter was close to 10%. I think there’s three components. First is on the card book. Even though the balances have not grown, what you’re seeing in the card book is a real shift in the quality of the card book. 45% of new card acquisition now is in the premium card segment. That obviously has huge impact on purchase volumes, transactions, and balance growth. We’re shifting the portfolio more to that premium client group. You obviously see the fee increase from there is substantial. I think the other big part in the quarter, I think we had record mutual fund sales in the branches. I think fees were up 21% year-over-year. That’s unprecedented. The third aspect, of course, is insurance. As we build creditor and non-creditor insurance, that’s also providing a lift on the NIR.

Generally, the things that we talked about before in terms of trying to drive card, mutual fund, and insurance growth is starting to really materialize. You see it in the quarter. Again, the other part, and I’m going to pass to Jackie, is just the sheer amount of referrals that we’re doing now, where we’re trying to get the right client in front of the right advisor and moving these clients over to wealth is also having a substantial impact on the business. Maybe Jackie could give a few highlights on that piece.

Jacqui Allard, Head of Global Wealth Management, Scotiabank: Yeah, I think what really stands out to me in the quarter, Aris, is that we saw really strong AUM growth driven by net new client flows. Like markets were actually pretty choppy during the quarter. They were up for the full quarter, but down in March. In that kind of environment, we might typically see clients moving to the sideline. What I found really encouraging is we saw positive client flows throughout the quarter despite that backdrop. From our perspective, from a mix, what we’re really focused on is retail growth and wealth advisory growth. On the retail side, as Aris said, we had a really good quarter. We were number 3 this quarter for the third quarter in a row compared to our bank peers in long-term mutual fund sales. That’s up from number 5 a year ago, number 6 at Investor Day.

Doug Young, Analyst, Desjardins3: Net flows in the first half of the year in Aris’ business alone exceeded our full-year flows for 2025. I think that is quite remarkable, again, considering the market backdrop that I mentioned. Wealth advisory as well had a really good quarter in both Canada and International. We saw over CAD 3 billion in net new flows for the quarter. Fee-based assets are at an all-time high in those business. Overall, we’re seeing great momentum both in terms of flows and mix, and I think that positions us really well to continue to deliver consistent higher quality earnings growth going forward.

Doug Young, Analyst, Desjardins0: That’s great. Thanks for the time.

Operator: Your next question comes from the line of Matthew Lee with Canaccord Genuity. Please go ahead.

Matthew Lee, Analyst, Canaccord Genuity: Hi, guys. Good morning. I’ll keep it tight. You’ve spoken about strong commercial momentum and the expectation for that growth to continue accelerating. Can you just maybe unpack what’s driving that outlook, whether it’s broader demand recovery, sector-specific opportunities, or maybe just that increasing deeper client activity? Thanks.

Aris Bogdaneris, Head of Canadian Banking, Scotiabank: Thanks for the question. As I mentioned earlier, the commercial growth we expect in the subsequent quarters to match the market growth rates you’ll see, and it’s on the back of work we started probably a year and a half ago as we started to rebuild the sales force, particularly in mid-market, starting to add what we call boots on the ground to be able to compete more effectively in high growth markets in BC, in Quebec. Those RMs now are starting to generate business after a certain period of training. The pipeline has grown substantially, as I mentioned, on loan pipeline and the deposit pipeline. All you’re seeing now is these pipelines materializing. The pay-downs we saw in real estate have stabilized now, so that is also helping the overall balance growth.

Taken all together in combination, we’re very confident actually that it’s just more business, more new client acquisition, and more primacy that’s driving this growth that we’re going to see and it’s going to continue in the quarters to come.

Matthew Lee, Analyst, Canaccord Genuity: All right. Thanks. I’ll pass the line.

Operator: Your next question comes from the line of Sohrab Movahedi with BMO Capital Markets. Please go ahead.

Doug Young, Analyst, Desjardins4: Yeah, thanks. Shannon, how many other similar large loans do you have in the non-retail International Banking segment? Where does this kind of rank in the order of magnitude from a concentration risk in the portfolio, please?

Doug Young, Analyst, Desjardins3: Morning, Sohrab. Maybe I’ll start by just giving a bit of context of this particular file and then maybe just talk about the overall non-retail portfolio and why we’re comfortable. In terms of this specific file, it was essentially driven by company-specific factors rather than broader macroeconomic or trade-related pressures. This is a long-standing client for us, investment-grade rating. It’s in Brazil, and so this is a domestically important file within that economy. That’s really what led to the downgrade. I think that’s just important context because it’s not really related to anything that we’ve seen systemically in the book. If I take a step back and I look at this impairment, I do see it as episodic, and I know we had a few in Q1 as well, but not reflecting deterioration in the underlying portfolio.

There’s a few things that I look at that give me comfort around that. First, when I look at our non-retail watch list, that remains below 2% out of our total outstandings. That’s obviously an indicator of where we have stress in the book. The second thing that I look at is our risk management framework and how we’re managing our portfolios. We have disciplined credit reviews. We have targeted deep dives on higher risk names and sectors. As you can appreciate, we’re very closely monitoring the portfolio. Importantly, we are talking to our clients each and every day. That’s giving us real time visibility into performance and what’s happening on the ground. Our book is overall very well diversified across industry and geography, and within our risk appetite.

When I put that together, I’m not seeing systemic stress across the portfolio. Maybe just one last comment just on this file in Brazil. Just to give you context, since we’ve been in Brazil, prior to this quarter, our impaired PCLs have been around CAD 65 million. Just to put in context in terms of how that portfolio in particular has performed over an extended period of time.

Doug Young, Analyst, Desjardins4: I appreciate that, one name you said, I think, cost about 77 basis points of whole bank impaired PCLs. I’m just trying to get a sense of how many other similar size names you would have in Brazil.

Doug Young, Analyst, Desjardins3: Maybe I’ll give a bit more details on the Brazil portfolio. When I think about exposures, and then I’ll go back to this was an investment grade account. When you think about where we typically have higher exposures, it would be in those more highly rated companies. On this particular file as well, I think it’s also important just to comment that we were in a large kind of banking group on this particular exposure, and we’re taking, say, a reasonable hold. Our exposure was less than 5% of the total amount outstanding. When I look at the Brazil portfolio, it is a very selective and deliberate corporate franchise for us. When I look at what’s in that portfolio, these are high-quality borrowers across strategic international corporates and leading players in the Brazilian economy. We have done a deep dive on the portfolio.

You can probably appreciate that, and it really has reinforced our confidence in the quality of the book and absence of similar stress within that particular portfolio. Again, we have exposures that are very much driven by the risk, and we’re quite comfortable with where those sit. Brazil as a book, we’re quite comfortable with.

Doug Young, Analyst, Desjardins4: A ±7-10 basis point impaired kind of surprise is within your tolerance?

Doug Young, Analyst, Desjardins3: I think when you look at a corporate portfolio, you do from time to time see what I would call a fallen angel, and I would put that in this category. We do not expect to see those frequently, and I would say we haven’t seen those frequently. Again, back to this particular portfolio, in the last, I guess, more than 15 years, we’ve had one.

Doug Young, Analyst, Desjardins4: Thank you for taking my question.

Doug Young, Analyst, Desjardins3: Thank you.

Operator: Your next question comes from the line of Ebrahim Poonawala with Bank of America. Please go ahead.

Ebrahim Poonawala, Analyst, Bank of America: Hey, good morning. I guess maybe, Scott, just wanted to double-click on your optimism on the Canadian economy next year. From what we understand, the government actions probably kick in sometime late next year in terms of having a real impact, and then you could have a multi-year investment cycle if all of that plays itself out. In the near term, you have a challenged consumer, CUSMA uncertainty. Just round that out for us as we think about the macro outlook for this group and for Scotia. As we think about the next 6 months-12 months, where is the optimism coming from? Is it just the tone at the top has already led to businesses making investment hiring decisions? What are the markers that you’re looking for that gives you that optimism outside of the messaging?

Doug Young, Analyst, Desjardins2: Sure. Thanks, Ebrahim. I guess a couple things. One is we’re an oil exporting nation, and you saw this in the budget. When you have oil at these type of prices, that is very beneficial for the overall Canadian economy, and that allowed fiscal stimulus, significant fiscal stimulus by the Canadian government to support some of the provinces that will be impacted either by CUSMA or affordability issues. You saw that in the most recent budget. You’ve actually seen that in the HST rebate that has gone about, and if you talk to people on the ground with this HST rebate, it’s actually having an impact on real estate in Ontario in particular. I guess that’s one point.

I think the second point is you have seen a significant change in tone from international investors to Canada. I would not underestimate an impact of something like a Shell acquisition of ARC, where over the last 15 years, and I’ve lived this, you’ve seen a lot of foreign money leave Canada. Now you have a lot of foreign money looking at Canada from a foreign direct investment. I would say that also includes the pension funds in Canada. I think pension funds in Canada historically looked outside of the borders. Now I think they’re increasingly looking inside of the borders.

When you look at the agenda from the Prime Minister around whether it’s the grand bargain out in Western Canada with pipelines and reduced emissions through carbon capture, or airport privatization, which he’s increasingly talked about, I do think you’re going to see uses of capital in the country. The third piece I would say is CUSMA. I think it’s become increasingly apparent to everybody that Canada, U.S., and Mexico need each other. CUSMA is not something that’s going to be ripped up. I think the business community kind of has appreciated that now, which is a significant difference than a year ago, and that it may continue to evolve and there may be tariffs on specific sectors, and there may be some industries that are impacted.

Ultimately, I think it’s very clear that this regional trading bloc is increasingly important to the U.S. as opposed to unimportant. I think you’ll continue to see business community get more certainty in that regard. I’m not saying that there’s not pressures, particularly in some provinces. You saw the unemployment rate pick up a little bit in Quebec. Similarly, you’ve seen real strength in Alberta. I do think if you look at our economist, who I think is the best economist on the street, he’s highlighting too an improved outlook in Canada next year, an improved unemployment rate, and as Shannon said, probably a little bit later than what we thought at the start of the year. Nevertheless, I think pretty positive from my perspective.

Ebrahim Poonawala, Analyst, Bank of America: Got it. Your economist must feel pretty good about life after that praise on the call. Separate question. Scott, in your prepared remarks, you said we need adjusting capital, tuck-in acquisitions. Two questions. One, at these valuations, do you still want to lean into buybacks the way you have over the last six to 12 months, or do you sort of become more opportunistic? Give us a sense of, so that the street is not surprised, what a tuck-in deal would look like.

Doug Young, Analyst, Desjardins2: Sure. The first use of capital is organic, and you’re seeing our tech spend increase pretty significantly as we continue down this AI journey. That’s the first use of capital for us. The second would be share buybacks. You’ve seen what we’ve done over the last year. I would expect that to remain consistent going forward. I say that because the valuation gap between us and our peers, which will narrow over time, and so we should take advantage of that while we’re in this position. We’ll continue to do that. As we’ve highlighted before, I think pretty transparently, there’s some capabilities in Travis’s business that we need to address, particularly around mortgage capital markets. It would be nice to get some FDIC insurance.

If we could find something small to help that mortgage capital market business, which actually really performed well over the last year, and you’re starting to see it through the numbers. If we could do something to get FDIC insurance, get some more sticky deposits that allowed us to fully capitalize on that opportunity, we would do something in that regard. Similarly, in Jackie’s business, having a U.S. offshore booking point for a Mexican business that’s growing at 25% and a Canadian business that’s growing at 25%, I think that would be helpful. When I say tuck-in, what’s the size? I don’t know. Think $200 million, $300 million, $400 million. We’re not talking about billions of dollars here. We’re talking about tuck-in. Frankly, I would like to do that sooner rather than later because I think the opportunity in those two businesses is so material.

Ebrahim Poonawala, Analyst, Bank of America: Got it. Super clear. Thank you.

Operator: Thank you. That does conclude our question and answer session. I will now turn the conference back over to Raj Viswanathan for closing comments.

Doug Young, Analyst, Desjardins1: Thank you. On behalf of the entire management team, I want to thank everyone for participating in our call today, and we look forward to speaking to you again at our Q3 call in August. Have a wonderful day.

Operator: Ladies and gentlemen, this does conclude today’s conference call. Thank you for your participation, you may now disconnect.