The Bank of Nova Scotia

This conference is being recorded. Cette conférence est enregistrée.

Good morning and welcome to Scotiabank's Q3 results presentation. My name is Manny Gromit and I'm head of IR here at Scotiabank. Presenting to you this morning are Scott Thompson, Scotiabank's President and Chief Executive Officer, Raj Viswanathan, our Chief Financial Officer, and Phil Thomas, our Chief Risk Officer. Following our comments, we'll be glad to take your questions. Also present to take questions are the following Scotiabank experts. Eric Bontanaris from Canadian Banking, Jackie Allard from Global Wealth Management, Francisco Arceguieta from International Banking, and Travis Manchin from Global Banking and Markets. Before we start, and on behalf of those speaking today, I'll 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.

Good morning, everyone. Our strong Q3 results highlight the steady progress we are making towards our Investor Day commitments. We continue to focus on what we can control as we drive profitable to sustainable growth. And we are doing this through the disciplined execution of our strategy, which includes building deeper client relationships, driving efficiency gains while making the necessary investments to the future, and maintaining strong balance sheet metrics to deal with unexpected challenges. For Q3, we delivered adjusted earnings of $2.5 billion, or $1.88 per share. This is up 15% year-over-year, while pre-tax, pre-provision earnings were up 17% year-over-year. We also delivered a return on equity of 12.4%, up 110 basis points compared to the same quarter last year. After taking a conservative stance on credit last quarter that featured an 18 basis point performing provision driven by U.S. tariff uncertainty, our performing bill this quarter is back down to four basis points. Meanwhile, our impaired PCL ratio came in at 51 basis points, down six basis points quarter over quarter. We are pleased with this outcome, but remain committed to managing our business conservatively. Moving to our operating segments, this quarter we reported improved results in Canadian banking, helped by better credit performance versus Q2, but also improved revenue growth, boosted by two basis points of sequential margin expansion. In Canada, we are focused on building deeper and more profitable multi-product relationships with our clients, and I'm very pleased with the progress we are making. Importantly, retail savings and day-to-day deposits are up 6% year-over-year. Our mortgage solution continues to help drive multi-product banking relationships by providing preferred mortgage rates for customers with a day-to-day account and at least one other eligible product. Year-to-date Mortgage Plus has accounted for approximately 90% of our new mortgage originations, including in the independent broker channel. Since the launch of this product, 95% of new clients have retained their day-to-day accounts after one year, and the average balance per client is one and a half times our standard day-to-day acquisitions. Year-to-date, 30% of new Mortgage Plus clients opened a credit card with average credit card balances higher than our standard card acquisitions. We are also seeing strong portfolio retention rates of 90% plus. Our renewals typically happen in our branches and therefore do not incur additional commission-related costs. Our focus on primacy is also driving strong cooperation between Canadian banking and wealth, with combined referrals between retail, commercial, and wealth at $11 billion year-to-date, which is up 13% versus the same period last year. In commercial, we have largely completed our balance sheet optimization, and in small business, we are acquiring clients at approximately two times the market rate, with around 50% of those new clients being primary by month three, and we continue to see above-market growth of our core deposits. Although the Canadian business performance is steadily improving, we do see the opportunity to continue to address expense efficiency with our ultimate objective of delivering positive operating leverage while also making the required investments to drive the business makeshift we see as necessary to deliver our return on equity objectives. The modest quarter-over-quarter expense growth is a step in the right direction. Global wealth management continued its positive momentum with strength across all of its businesses. In the quarter, we had strong results in asset management, private banking, and international wealth management. Our net fund inflows across our retail and advisory businesses demonstrates that our strategy is working. Year-to-date net sales on our collective wealth channels is $6.2 billion versus $5 billion in net redemptions in the same period last year, an $11.2 billion improvement in net sales. In Canadian wealth management, we are seeing strong momentum in our private bank with double-digit loan and deposit growth, along with all-time high fee-based assets within Scotia McLeod. In our global asset management business, we remain focused on delivering investment advice for our branch network, with year-to-date net sales trending positively at $1.7 billion. Notably, we've increased our percentage of retail buyers over mutual fund products over the last 18 months, making strong progress towards the best in class. And in our international wealth business, earnings are up 21% year over year, with 18% asset growth in Mexico. We also demonstrated continued progress in our international banking segment, with results continuing to trend ahead of our investor day commitments. Performance continues to be driven by solid execution, including another quarter of a strong expense discipline, and improved possibility metrics, including a June 3 return year-over-year. We are delivering on our regionalization strategy and laying the groundwork to segment our retail client base with the aim of improving customer experience, boosting revenue growth, and lowering the cost to serve. Finally, global banking and markets delivered another great quarter as we once again reported strong trading revenues and advisory fees. In Canada, year-to-date, GBM is number two in lead table ranking for debt capital markets, and in the United States, GBM continues to reach new highs in its investment-grade VCM market share. Overall, the U.S. contributed 42% of GBM earnings in Q3, and we continue to invest in our U.S. capabilities to drive future growth. We also launched a pilot of our modern U.S. cash management offering, a pivotal step in connecting our North American footprint and strengthening our ability to achieve primacy with our clients. Moving to a brief review of our strategic priorities. We remain committed to optimizing our capital and liquidity to drive increased shareholder returns. One key strategy for achieving this is focusing on value over volume and enhancing the velocity of our balance sheet. While loan growth is important and a key indicator of economic and finance activity, it is not our sole focus. help drive improved client primacy. This approach has resulted in lower loan growth compared to historical levels, but has significantly helped improve our return on equity, capital capacity, and liquidity, which in turn is driving share buybacks. We believe we have effectively repositioned a notable portion of our balance sheet and anticipate that key areas and new initiatives within the bank will reflect increased yet profitable loan growth next year. Let me give you a few key examples of our strategy results, along with key insights into our new initiatives. In Canadian commercial, loan growth Thank you. year-to-date growth in underrated advisory fees, as well as very robust trading-related revenues, which are up 50% for the year-to-date. Our GDM business is needing its growth adjusted, and this quarter we successfully launched our first mortgage capital markets funding transaction in the U.S. We have more investments to make and additional capabilities, but records high M&A fees in 2025 give us confidence we're heading in the right direction. In international banking, we've enhanced profitability by optimizing our balance improvement in return on equity. And in our international global banking and markets business, loans are down almost $9 billion over that same timeframe, while earnings have risen by approximately 76 million or 32%. At the all bank level, our balance sheet optimization efforts have also led to better funding metrics. The loan to deposit ratio has improved to 104% in Q3 2025, down from 116% in Q4 2022. And the wholesale funding to total assets ratio has decreased by 280 basis points to 18.8% from 21.6% in Q4 2022. Beyond balance sheet optimization, we also continue to focus on productivity initiatives to improve our effectiveness. At the all bank level, we delivered positive operating leverage for the sixth straight quarter. And while we remain focused on accelerating top line growth as we demonstrated this quarter, We are also very committed to managing the expense line carefully with an eye to doing things better, faster, safer, and at a lower cost. At the same time, we remain committed to investing in our businesses to deliver improved client experiences and capabilities to drive sustainable future growth. A key area of investment is AI, where we are focused on getting this technology directly into the hands of our frontline staff. This past quarter, we completed the rollout of our Ask AI internal chatbot to all of our Canadian Bank retail branches and client experience centers. Developed using large language models, this platform is designed to assist frontline employees with a whole range of client inquiries. Additionally, our external AI chatbot handles over 125,000 inquiries monthly. Finally, we continue to focus on maintaining strong capital levels and a disciplined approach to capital allocation. We ended the quarter with a steady one ratio of 13.3% after repurchasing 3.2 million shares under current NCIB. This highlights our confidence in the trajectory of our internal capital generation, which we are focused on continuing to improve. In closing, we expect to deliver strong earnings growth in 2025 that will position us well heading into 2026. We will provide a more detailed outlook on our fourth quarter call. We are on track to meet our medium-term financial objectives and our laser focus on execution both at home and across our diversified international footprint. I will now turn it to Raj for more detailed financial review of the quarter.

Thank you, Scott, and good morning, everyone. The adjustments are shown on slide 51, and all my comments that follow will be on an adjusted basis. Starting on slide six for the review of the third quarter results, The bank reported quarterly earnings of $2.5 billion and diluted earnings per share of $1.88. Return on equity was 12.4%, up 110 basis points year-over-year, driven by strong revenue growth of 12% year-over-year. The net interest income grew 13% year-over-year due primarily to a higher net interest margin and loan growth, which included the impact of the BA conversion. The all-bank net interest margin expanded a strong 22 basis points year-over-year. Quarter-over-quarter, NIM also expanded 5 basis points, driven by lower funding costs and higher business line margins. Non-interest income was $4 billion, up 10% year-over-year, primarily from higher wealth management revenues, trading income, and fee and commission revenues that were partly offset by lower banking revenues, due to the BA conversion. The expenses grew 7% year-over-year, driven by the growth in our market-facing businesses. Quarter-over-quarter, expenses were up a modest 1%. As a result, pre-tax deprovision profit grew a strong 17% year-over-year. The provision for cut losses were approximately $1 billion, and the PCL ratio was 55 basis points, down 20 basis points quarter-over-quarter, primarily due to elevated performing provisions in Q2. The bank generated another quarter of positive operating leverage, resulting in year-to-date positive operating leverage of 2.9%. The productivity ratio was 53.7%, an improvement of 230 basis points compared to the prior year. The bank's effective tax rate increased to 25% from 18.6% last year. from higher withholding taxes as we optimize capital deployed in foreign jurisdictions, lower income and lower tax jurisdictions, and the impact of implementation of the global minimum tax. Moving to slide seven, which shows the evolution of the CET1 ratio and RWA during the quarter. The bank CET1 capital ratio was 13.3% and increased of 10 basis points quarter to quarter. Internal capital generation was a strong 13 basis points. Gains from higher fair values of OCI securities contributed four basis points that were partly offset by allocation of capital to sharing purchases of five basis points. The total RWA was $463 billion, up $4 billion from the prior quarter. The increase was driven primarily by higher book size and book quality changes of $1.7 billion. higher market and operational risk of $1.4 billion, and foreign currency translation and other impacts of another $1.4 billion. The bank remains committed to maintaining strong capital and liquidity positions. Turning now to the business line results beginning on Flight 8, Canadian banking reported earnings of $959 million, down 2% year-over-year. Pre-tax fee provision profit was in line with last year as we continued to invest in the business, but up a strong 7% quarter-over-quarter, reflecting good revenue growth and strong expense discipline. Average loans were up 3% year-over-year as mortgages grew 5% and credit cards grew 1%. Year-over-year deposits grew 2%, driven by an increase of 2% in personal deposits and primarily in checking and savings, and 1% in non-personal deposits, primarily in demand accounts. The net interest income grew 2% year-over-year from asset and deposit growth and the benefit of BA conversion. The net interest margin expanded by two basis points quarter-over-quarter from improving deposit mixed with personal checking and savings deposits up $3 million to while term and other deposits declined by approximately $5 billion. Year-over-year net interest margin was down seven basis points, primarily due to the impact of the Bank of Canada's rate cuts on deposit margins. Non-interest income was in line with the prior year, as higher mutual fund distribution fees and insurance income were offset by elevated private equity gains in the prior year and lower banking fees, including the impact of the BA conversion. The PCL ratio was 40 basis points up a modest one basis point year-over-year. Expenses increased 4% year-over-year, primarily due to technology costs related to new systems and infrastructure, and increased project spending supporting strategic and regulatory initiatives. Quarter of all expenses increased a modest 1%. Year-to-date operating leverage was negative 2.2%. Turning now to global wealth management on slide 9. The earnings of $424 million were up 13% year-over-year as Canadian earnings were up 13% and international wealth management earnings were up 21%. The revenues were up 12% year-over-year from higher mutual fund fees, brokerage revenues, and investment management fees as a result of higher AUM and higher net interest rate income. The expenses were up 11% year-over-year from higher volume-related expenses technology costs, and sales force expansion. Year-to-date operating leverage was positive 1.9%. The spot AUM increased 12% year-over-year to $407 billion, and AUA grew 9% over the same period to over $750 billion, driven by market appreciation and higher net sales. International wealth management generated earnings of $64 million, driven by growth from Mexico, Peru, and Chile. Turning to slide 10, global banking and markets delivered earnings of $473 million, up 29% year-over-year. The revenue increased 21% year-over-year, as capital markets revenues were up 54%. Quarter-over-quarter revenues were up 5%, as non-interest income was up 8%, primarily from higher fixed income trading-related revenues that were partly offset by lower net interest income. The net interest income was up 15% year-over-year from higher lending margins and lower trading-related funding costs. The loan balance has declined 14% year-over-year, reflecting favorable debt markets and our efforts to optimize the balance sheet, which is largely complete. Non-interest income was up $220 million or 23% year-over-year due to higher trading-related revenues from fixed income and equities businesses and underwriting and advisory fees. The expenses were up 16% year-over-year, mainly due to higher personal costs, including performance-based compensation, higher technology costs to support business growth, and the negative impact of foreign exchange. The operating leverage was a strong 5.9% year-to-date. Moving to slide 11 for a review of international banking, my comments that follow are on an adjusted and constant dollar basis. The segment delivered earnings of $675 million, up 7% year-over-year and up 1% quarter-over-quarter. For the year-to-date, earnings are up 1%. Revenue was up 3% year-over-year with both NII and non-interest income up 3% from improving margins and higher net banking fees and investment gains. The net interest margin expanded by 13 basis points year-over-year mainly from lower funding costs due to several bank rate cuts. Deposits were flat year-over-year. Loans were down 3% year-over-year as business loans declined 8% while retail loans grew 3%. The provision for credit losses was $562 million and stable at 139 basis points. The expenses were flat compared to the prior year and prior quarter, despite operating in an inflationary environment from disciplined expense management. Operating leverage year-to-date was positive 1.8%. The effective tax rate increased to 23.6% from 19.5% in the prior quarter, as Q2 benefited from favorable adjustments in Peru. The GBM business and international banking generated earnings of $313 million, up 12% year-over-year, driven by revenue growth in business rankings and capital markets. Turning to slide 12. The other segment reported an adjusted net loss of $56 million and an increment of $24 million compared to the prior quarter. Revenues were up $81 million higher than Q2 as a result of lower funding costs. I will now turn the call over to Phil to discuss risk.

Thank you, Raj, and good morning, everyone. Against the backdrop of continued trade uncertainty, all bank PCLs this quarter were approximately $1 billion or 55 basis points. down $357 million quarter-over-quarter. PCLs declined this quarter, driven by performing provisions that were down $280 million to $66 million or four basis points, following elevated performing provisions taken in Q2 to address macroeconomic concerns. This quarter's performing PCL build was driven primarily by migration in our retail and non-retail portfolios and some portfolio growth. Meanwhile, compared provisions were $975 million, down six basis points from last quarter to 51 basis points. This decline was driven by improved credit performance in Canadian retail and lower impairments in GVM, offset by higher compared provisions in commercial. Turning to the business lines. In Canadian banking, PCLs were $456 million, or 40 basis points, down 32 basis points quarter-by-quarter, with 27 basis points of this decrease coming from performing PCLs. The impaired PCL ratio was 39 basis points this quarter, down 5 basis points quarter over quarter. In retail, PCLs were $320 million, down $293 million quarter over quarter. Performing retail PCLs were $5 million, driven by some migration, partially offset by improvements in prime autos. And parent retail PCLs of $315 million, or 34 basis points, were down 11 basis points quarter-by-quarter. This was driven by less migration to stage three across products and lower net write-offs in prime auto as a result of our collection efforts and aging of the 2022 and 2023 vintages. 90-day plus mortgage delinquency held steady at 24 basis points for a third straight quarter. as improvements among variable rate clients were offset by rising delinquencies in fixed rate clients as they state higher payment obligations at renewal. We continue to monitor housing and condo market dynamics, particularly in Toronto and Vancouver, although no material impact to credit performance has been observed to date. In our Canadian commercial portfolio, provisions for credit losses totaled $136 million, a decrease of $56 million from Q2 driven by lower performing PCLs. Impaired commercial PCLs were up $37 million quarter-over-quarter, driven by higher formations. Moving to international banking, PCLs were up two basis points quarter-over-quarter, resulting in a total PCL ratio of 139 basis points, driven almost entirely by performing loans, as impaired PCLs increased only $2 million quarter-over-quarter. Looking specifically at international retail, total PCLs were up $12 million quarter-per-quarter driven by an increase in performing PCLs. Performing retail PCLs increased $26 million quarter-per-quarter due to a modest growth in most geographies and some negative migration. Impaired PCLs fell $14 million quarter-per-quarter as lower net write-offs in Colombia and Peru were partially offset by increased impairments in Mexico where we continue to manage some pockets of weakness, particularly in mortgages. Our impaired PCL ratio has trended down five consecutive quarters as we continue to focus on client primacy, collections, and helped by the sale of Credit Scotia in Peru. International commercial PCLs were flat quarter-per-quarter at $93 million. Finally, in GBM, PCLs were $21 million lower quarter-per-quarter due to one impaired account in Q2. In closing, While we are encouraged by our credit performance this quarter, the operating environment remains challenging. In Canada, the lack of a trade deal with the U.S. and recent mixed macroeconomic results continue to add uncertainty to our near-term outlook. In international banking, credit trends have improved. However, we remain focused on navigating the macroeconomic environment in Mexico. In our non-retail portfolios, impaired provisions have increased slightly as clients adjust to shifting trade dynamics. While we've observed isolated areas of weakness, these remain contained, and we have not seen signs of widespread portfolio deterioration. Year to date, we have built over $470 million in performing allowances, and our total ACL ratio is now at 96 basis points, up one basis point from Q2. We will continue to be proactive in maintaining a strong balance sheet, which will allow us to manage through a range of credit scenarios while we execute on our strategic objectives. Looking ahead, while our unpaired PCL ratio came in better than expected in Q3, we remain cautious as we close out the year. With that, I'll pass it back to Manny for Q&A.

Thanks, Phil. Operator, we will now take the first question from the line.

Thank you. Please press star 1 at this time if you have a question. There will be a brief pause while participants will just offer their questions. Thank you for your patience. The first question is from Ibrahim Poonawalla, Bank of America. Please go ahead. Good morning.

I guess maybe Scott or Raj, I just wanted to spend some time on how you're thinking about capital and buybacks. So when you think about the CET1 at 13.3, OSFI I think said last month they feel good about 11.5 being the real reg minimum and adds a management buffer to it. I'm just wondering, given where the stock trades today from a valuation perspective, the progress you made in getting towards that 14% ROE. Is there any sort of desire to be a little bit more aggressive on buybacks? And is a sub-13% CET1 an absolute no-no given where the peers are and no bank probably wants to be below 13? I just would love to hear how you're thinking about it because in a very simplistic way as a shareholder, I think you would like management to lean in into buybacks and be a little more aggressive. given where the stock is. But I would love some color there.

Sure, I agree, Mr. Ryan. So I'll try to provide our thoughts in a sequential manner. To us, you know, the capital ratio of 13.3%, like you pointed out, is very strong. It's based on the number of deliberate efforts we've taken over the last two years to build up this capital ratio to where it is. And in previous calls, we've talked about how we've added over 200 base points of capital over the last two years or so. So it's a great position to be in. And as I mentioned, my prepared remarks, we used about five basis points to buy back stock this quarter. You would expect us to continue to keep doing that, and we'll keep going, right? We have approval up to 20 million shares. We'll see how the stock trades. Valuation is one of the considerations we have. We think of capital deployment in this order. For us, organic growth is the number one priority for capital deployment. We have a lot of businesses which are now optimized and repositioned for growth, as Scott mentioned. We're going to start growing the books. So that to us is important. The second objective is, you know, Phil talked a little bit about the credit situation. You know, credit migration does absorb capital. We want to be thoughtful about it. This quarter was small and I expect it to be small, but we always consider that as we think about what is the appropriate level of capital to run. And third is definitely buybacks. You know, we introduced a buyback program about a quarter back. We've been active. You know, we talked about the 3.2 million shares we have already bought back using five basis points. You'll see us complete the buyback program. You know, as quickly as possible and depending on market conditions and so on, you know, trade uncertainty and so on is always a consideration for capital management. I think prudent capital management is one of the key competencies we have in this bank. And, you know, we're committed to maintaining strong balance sheet metrics, capital being at top of the priority over there. Buybacks, definitely part of the deployment options that we have. We have a lot of capacity to buy back. It's a little hard for me to comment, you know, would we operate below 13%? At this time, you know, if I think about next quarter with all the programs we have going, including buybacks, this will be comfortably about 13%. I have no issues with that. As we talk about 2026 in the Q4 call, we'll probably give you a better understanding based on the growth rates and so on, what would be the levels we'd be comfortable operating at. But having great buffers over 11.5% is a fantastic position to be in to grow from.

That's helpful. I guess maybe just one follow-up. Maybe for you, Scott, I think you talked about the focus, value over volume, enhancing sort of the velocity of the balance sheet. I think a few years removed now from the investor day in your seat, when you look at sort of the three big businesses, GBM, IB, Canadian BNC, where do you think the progress has been slowest according to you? And what does it take to sort of kind of bridge that gap? Is there additional need for leaning on tech investments, et cetera? But, yeah, give us a sense in terms of a scorecard of where there are things where you think things have not moved as fast and where we could see an improved pace of execution over the coming year. Thanks.

Yeah, thanks, Ibrahim. So if you look at the IBE performance, it's significantly ahead of what we said at the investor day, and a large part of that has been the optimization of the balance sheet and the cost control, the discipline cost control. And you just look at the quarter and you see 1% expense increase in these markets. I mean, that is just a great outcome. The trick now for Francisco, which he's talked about a lot, is now pivoting to growth, and that's difficult but achievable, and we're laying foundations for that through the retail side and also on the GBM side. We're thinking of optimizing a lot of that capital, so I feel really good about where the IB business is heading over the next couple of years. On GBM, the output this quarter is a result of a lot of work in that market business over the last few years, and the When you look at those numbers and see balance sheet coming down 14%, you have fee income going up significantly. We've got a lot of momentum in that business. You know, is every quarter going to be replicable like this quarter? Maybe not, but I think we're building the foundations for sustainability here and a real growth in capital velocity and fee income, so feeling really good about that. The Canadian business did sequential improvements and a lot of work going on. business as well. What I highlighted in my opening comments was that small business and commercial business mix move. And you don't see loan growth in commercial, but you see PTPP growth up 20%. And that's around the optimization of the balance sheet. That's around the cross-sell. That's around the transaction banking. And that's the area we've got to start seeing some growth into next year. And I'm confident by looking at the mid-market, by focusing more on transaction banking, we will do that. And so I think we're tracking at or above what we said we were going to do. And we're looking into 2026 with growth rates higher than what we told you seven quarters ago. So all in all, I think doing pretty good about strategy execution.

Good. Thank you. Thank you. The next question is from Johnny Camp. Jeffrey, please go ahead.

Good morning, Phyllis. In your commentary, you talked about the negative credit migration within commercial and on the international side. Is there – was there any particular region or particular sector that was causing that?

Yeah. So, I think generally, as we look at international commercial, it's interesting. It's basically market dynamics within those particular markets. It's not necessarily related to trade uncertainty, and we're not seeing anything – from trade impacting Peru or Chile. As we focus on Mexico, that's where we're starting to see some weaknesses on our portfolio and in the commercial business. And so, positive on Chile, Peru, still sort of constructive on Mexico. Francisco and I are spending a lot of time there with our teams, helping them navigate the uncertainty in that market.

Thanks, Simon. If I can keep you on your toes and pivot to the domestic 90-day past due, we saw strong sequential improvement on credit cards. How much of that seasonality and how much of that is actually more strengthened in terms of the Canadian household, or am I just reading too much into this?

No, it's a wonderful question. If I looked at The dynamics in the portfolio, it has to do with how we're focused on originations. We've been very thoughtful about how we're looking at growth in that portfolio. We've been very surgical around the type of originations that we're doing into this environment. And we've also spent a lot of time on collections. Aris, myself, our teams, collectively as a management group, We're spending time on the operational effectiveness of our collections area, and you're starting to see that pay off there. I do think from a Canadian consumer health perspective, it's really mixed right now. You're seeing signs of stress, particularly in younger clients. If you look at where we see some, from a demographic perspective, where we're seeing some pockets of weakness. It's really that 18 to 26-year-old population. Now, having said that, you know, we saw retail sales up 2.3% in Q2, which potentially leads to some growth for the remainder of the year. And for the first time since Liberation Day, we saw discretionary spend improving over spend on essentials in that portfolio of credit as we look at the credit card spend data. And so there's some green shoots coming, but we're still really cautiously optimistic about the outlook.

Thanks. I appreciate the call.

Thank you. Next question is from . Hi.

Good morning. Maybe for the Canadian banking business and that goal for positive operating leverage, when you think about that inflection point, when do you think we can reach positive operating leverage?

And, you know, can you do so even if loan growth at an industry level stays pretty muted?

Thank you for the question. So it's our long-term desire, obviously, to have positive operating limits on a sustainable basis. And as part of our strategy that we laid out, our primacy strategy at Invest Your Day, we're investing in our business. And we're investing to get not only revenue growth down the road, but also productivity. And we've been making substantial investments in technology, in cloud, in our payment platforms, and also in our channels to engineer the transformation, we want to be a more digital mobile led bank. And then we're also working on the productivity side with investments to digitize, and that will pay dividends going forward. So we're optimistic that over time, as these investments pay out, we're going to drive operating leverage positive on a sustainable basis. So that's the way we're positioning it.

Is that like in 2015 or kind of longer?

I would say going into next year, that's the aim. As these investments start to

When we talk about multi-product customers, the themes into that, does that program resonate with customers, or are there maybe other avenues you might explore to benefit a mass affluence and above audiences?

In terms of SIEM, as you know, roughly 26% of our SIEM Plus base today has a payment product, and it's a valuable forward of, obviously, multi-product cross-buy with that base. We're working very hard to actually extract the data with our SIEM Plus partners to try and identify and target the right customer for the right product over time. So that should help product penetration and drive primacy. But we still have a bit of work to do in terms of getting that penetration up, and we're optimistic over the coming period that we invest in data and in technology that this will be a rich source of future primacy growth for the business. I appreciate all your time.

Thank you. The next question is from Gabrielle Deschain, National Financial. Please go ahead.

First question is, just for an updated outlook for the corporate segment, we've obviously seen the beneficial impact of lower rates on the revenue line there. If we get the type of rate cuts that are being forecasted in Canada and the U.S. over the course of the next half year or so, does that go to zero? And then at some point, do we maybe see a profit from the corporate segment? I just want to know what the likelihood of that scenario is.

Sure. Yes, it's right. The corporate segment is not meaningful improvement this quarter, right? So it's now into the mid-50s early fall in that segment. I think just to look one quarter forward and in the U.S. and Canada. And you know we're most sensitive only to the Canadian situation. The U.S. is like, you know, borrowing and lending is on a typical basis, so it's not an impact for us. If, presumably, we had a rate cut, or even a rate cut, I think it'll be somewhere in the low 40s next quarter as it improves on some of the line items over there, including taxes, which we paid this quarter on withholding taxes in the segment. to go down to zero at some point. I think it's better to have a conversation in November as I get a better understanding of how the rate situation and our focus plays out across the segments. You know, I'm obviously pricing all this stuff. But the intention is to keep it stable and low. Something like what we had in the last two years where it was volatile.

I think they just don't want to hear what we're doing here. going to drive great outcome for shareholders all the time.

Right. Okay. And then just in the Canadian business, both sides of the balance sheet, to get some questions in, and just a clarification, is the message that the debanking phase in the commercial business is at or near an end, and then sometime in next quarter or in 2026, we start having commercial loan growth again, and by extension, could that be one of the primary drivers of a rebound in PTPP growth for the segments? And then on the other side of the balance sheet, I just noticed a small but notable personal deposits were down sequentially. That had been doing nothing but increase over the last couple of years as you're trying to improve your loans to deposit ratio. I'm just wondering if you've hit kind of like your target and maybe don't need to be as competitive on deposit pricing going forward. and that's another potential driver for next year in that segment.

So, hi, Gabe. So let me cover commercial first. So I think over the last 18 months, we've been on the journey, as Scott referred to, to drive value versus volume as we focus on balance sheet optimization around return enhancement, client primacy, and actually getting referrals to wealth, bringing the whole bank to the client. I think that journey is now coming – to an end. And when we look at the pipeline in commercial going into the next year, we should be growing with the market in commercial banking. So I think that phase is coming. I think I have to, again, reiterate what Scott said. The PTPP in our commercial is up 25% year-on-year. Our margins are up 16 basis points year-on-year. So we've really been successful in driving more value and more velocity out of the balance sheet that we deployed. This is a big capital consumer, so it's been a really successful run, but now it's time to grow, and of course the market will predicate a lot of the growth, and we're starting to see the pipelines, as I mentioned, build. In terms of deposits, you mentioned about the deposit growth year-on-year or quarter-on-quarter. I think it's important to separate term deposits, which are falling as a market phenomenon, but what's important is We've grown core deposits, that's day-to-day checking savings. In the last quarter, we've grown more in the last quarter than in the previous seven months of our business. So the efforts we're doing, as I mentioned in the last call, end-to-end across the value chain from our scorecards and our branches all the way to the products and the whole marketing mix, the growth. AUM, branch-driven mutual fund growth, is also very strong. We grew 7% sequentially, 11% year-on-year. And this is also a very important part of our business that we also highlighted during Investor Day, getting more mutual fund sales in our branch. And this, to get the core deposits in the AUM growing at the same time and savings is a very big achievement for this business. And it's one quarter, but that's just before.

Great. Thanks. Thank you. Next question is from .

Good morning. I guess the last comment you had in your prepared remarks was impaired DCLs are below guidance, but you're cautious. And I go back to last quarter, I think you stated, I think the second half of fiscal 25 will be at or slightly above Q2 levels on an impaired basis.

I think that was 57 basis points. So you came at 51 basis points. I don't have a lot going on here between impaired and performing and macro and trends, but you maybe dig a little bit more into what you mean by cautious relative to No, thanks, Doug. I appreciate the question.

Now, we were really encouraged by how the impaired PCL showed up this quarter. I think it's too early to tell if the trends are sustainable. There's obviously a lot going on in the Canadian economy, particularly. We still have trade uncertainty that's hitting us. The Canadian consumer is still showing some signs of stress, as I mentioned earlier. But maybe let me walk you through each one of the business lines and tell you how we're thinking about it. But certainly, the impaired PCLs here were generally stable. But it's a big global footprint, and we're cautious of weakness in Mexico and some variability is possible there. In terms of non-retail, impaired PCLs are down $14 million quarter to quarter. And we're not really seeing anything in these portfolios that gives us concern. But as you know, we can be a bit lucky as different clients are sort of navigating the economic uncertainty, particularly here in Canada. And that really brings me to Canadian retail, which is where you saw the biggest improvement in impaired this quarter. I've talked a lot in the past about the automotive portfolio, the prime automotive portfolio. specifically the originations that we did on used cars during the pandemic. And we're starting to see, this is a technical risk term, but we're starting to see the pig moving through the pipeline. We're almost halfway or maybe more through that pipeline now with those 2022 and 2023 vintages. So I think the worst has passed us as we look at that auto book. And similarly, if you look at unsecured lines of credit, we saw continued improvement this quarter. And so, you know, if I look at, passed up, and I think we still need to be very thoughtful about the macroeconomic dynamic. We're still waiting for, you know, Canada-U.S. trade agreement, and so this uncertainty is still clouding some of the outlook. I hope it is. No, no, it is. And then, Raj, just, you know, if I look at slide 7, internal capital generation, 13 basis points, I'm more interested in for a cycle, what you think that should be, and obviously, are we improving, and what helps kind of benefit that metric when you think of a target or what you think of a reasonable through the cycle internal capital generation? What is that?

basis points of internal capital generation per quarter. And that's going to come through, you know, some of the growth that we talked about is going to come through as our market-facing businesses start performing even better, whether it's wealth or GBM. Both of them are hitting this right at this time. And those are highly critical to internal capital generation, as you know. So I think the number between 15 to 20 basis points is the right number for this company. We've been looking forward to the immediate future, and eventually our expectation is we want the number to continue to improve. It's all the basis of how we get better returns for the capital that's deployed, the capital velocity. So tell me a quote from a number of my colleagues over here. By looking through the basics, that's probably the right number. Appreciate the cover. Thank you.

Thank you. The next question is from Paul Walden, CIBC. Please go ahead.

Thank you. Good morning. I want to ask a question on the trading called out fixed, very good quarter of fixed income trading. We see that in the numbers, I think, 432, significantly higher than we've seen in any previous quarter. Maybe we can talk through that, like how much of it's sustainable, how much of it might have been more specific to Q3? Okay.

Sure. Hey, excuse me. This is Travis. You know, I want to reiterate, we had an excellent quarter. We're obviously very proud of our results. We're super focused on the philosophy of our balance sheets we mentioned and utilizing our capital efficiently. But you're absolutely right. We benefited from a volatile trading environment and robust equity markets. In addition, we also had a record year in investment banking. So all the pieces were really coming together well. Well, we are focused on building a more durable franchise. We have lots of new initiatives in place, which should alleviate some of the volatility that you may see in the trading business, and we'll continue to invest in the future. So, you know, I think said another way, it's probably difficult, as Scott mentioned, to replicate this quarter every quarter, but we're definitely building a durable franchise where we think this would be more of the norm.

Okay. And I want to go back to Phil for my second question. So gill formations are up 7% quarter-over-quarter, not a huge move, but still directionally going the opposite way of impaired PCL. Sometimes when investors see that, they're like, oh, great, is that a sign that impaired PCL next quarter can be higher? And we know that's not always the case. So you can talk through in Scotia's specific circumstance why that hopefully is not true, but why, why not? It might be an indication of future impaired PCLs. Thanks.

Thanks, Paul. I appreciate it. We definitely saw some higher formations in certain pockets of the business. If I look at Canada, I mentioned Canadian commercial earlier. You still have consumers that are customers, clients that are still moving through the uncertainty with the trade environment. I think in international, I mentioned some of the activity in Mexico and And then in GBM, there's something there too. Sorry, the gills were lower rather than GBM, so more so an improvement in that business. I think in this case, though, Paul, if I look forward in terms of what I'm seeing in our forecasting, I don't think you're going to see the translation of these gills enter into higher PCLs. And so we're feeling confident that We're digesting these gills. We're working out through the situation, and it's not going to translate into the higher loan losses next year.

Okay.

That's it for me. Thanks for your time.

Thank you. Next question is from Jill Shay from UBS. Please go ahead.

Good morning. Thanks for taking the question. Perhaps just on the margin, the Canadian banking margin was up a little bit this quarter, and I think you had mentioned the deposit mix with the helper, and Aris talked about their core deposit growth. Should we expect that deposit mix improvement to continue and maybe bigger picture, you know, how should we think about the Canadian MIM going forward?

Sure, Jill. It's Raj. Yes, I think the two basis points, improvement quarter over quarter, mostly driven from deposit margin expansion. Aris talked about the business makeshift, like you mentioned, on savings and demand. This is going to be our share focus. You know, completely like when we think about deposits, you know, some deposits are always part of the solution. It's about customer preferences and so on. But we really want to focus on primacy. We want to improve the deposit mix over there. We want to get more savings. And likewise, we want to have more demand deposits, be it in commercial or in the retail book. The expansion caveat is there's only one item. It depends on if there are future rate cuts in the Bank of Canada's annual rate. Like I mentioned in my previous answer, we don't have any assumptions of rate cuts for the remainder of the fiscal year or even the calendar year for the Bank of Canada. If rate cuts happen, it obviously impacts the deposit in the Canadian business event, but the bank as a whole. But again, the event would be impacted But excluding that, because that's not our assumption, we should be continuously seeing sequential but small improvements in the Canadian bank then starting next quarter as well.

Okay. Thank you. Very helpful. And then perhaps just turning to the international banking segment as well, in the same scheme, the margin is a little bit better than we expected. It can be trending better than that 445, 450 range you guys had talked about. And the margin has been sort of drifting high over the past year. Could you just talk about the push and take there and how we should think about the international banking margin as well?

It starts with banking members in lots of countries, right?

You know, the Latin American countries are impacted by local rate changes. The Caribbean is dependent on the U.S. rate changes. So there's a lot of dynamics over there. Then there's inflation. So multiple factors impact on them. You're right. I think our sustained NIM expectations is 4.45 to 4.50. This is why we think of a few more basis points because we just had opportunistic trades in Brazil because of the significant arbitrage between, say, offshore rates and onshore rates in Brazil. A couple of transactions are probably noted. But if we look at it in perspective, the full basis points improvement of 4.50 to 4.50 for financial banking is about half the basis points that the bank has scored because of the proportionality

But international banking is on the same path as the Canadian banking answer I gave you. They want to grow core deposits. That's our strategy, whether it's in retail or commercial. We'll continue to be thoughtful about it. We want to increase privacy over there. That number will be likely stable, maybe 445 to 450 for the foreseeable future, and should start improving afterwards as we track better core deposit growth in the business and have better privacy on the lending market. You know, the lending market could start improving, but that's likely a 2027 story.

Okay. Thank you very much. Thank you. Next question is from Darko Mielic from RBC Capital Markets. Please go ahead.

Hi, thank you. Good morning. My questions are for Francisco, and maybe it's easiest to do this if you look at slide 27 and slide 28 of your presentation. And if what I'm getting, I'm getting the sense that maybe the client's deselection program is sort of nearing its end, and I'm trying to get a sense of magnitude. So, for example, if I look at slide 27, I see the balances down year over year. And let's say on a constant currency basis, that's $5 billion. There's two moving parts, right? There's the part where you've deselected and there's originations. And so for all I know, you've removed $10 billion and you've had originations of $5. So that's what I'm trying to get at, Francisco, is how much of this has been client deselction?

What's the underlying sort of origination rate? And as we get past the deselction, could we be expecting significant growth once you're – what sounds like you're done with deselction? I hope you understand that question.

Maybe you can give me an order of magnitude, please. Thanks for the question. I'm being thorough on this because this is very much at the core of the strategy and the changes that we're driving. The first element that I will draw you in is a little bit of the big picture. When we started at Invest Today, we were growing at 1%. We're now growing at 3% revenue and earnings at 6%. When we committed the two-year transformation, we did not anticipate growth. This is in spite of planned selection, and a deliberate effort to improve our asset mix and reducing RWA below target. So we are way ahead in terms of that RWA optimization. That's not to say that the discipline is going to change. We will remain absolutely focused in maintaining that target of about 2% return on these weighted assets, and that's driving a lot of the decision-making across all businesses. So that's not going to change. Now, in terms of client deselection, a significant effort went on, primarily in commercial, where we moved really to focus on clients where we can drive GTB or transaction banking opportunities. And that process is well advanced, and I would say pretty much done. On the retail bank, our effort has been really around the mass market, first understanding it to segmenting next week, and all of that will just continue to drive the right acquisition with the right value proposition, multi-product, getting us closer from inception to primacy. So in the exercise of this election, it's primarily mass market focused.

And in that exercise, what we're doing is separating clients where we cannot penetrate further, and therefore we're deselecting.

But also when we see mass market, we see a lot of opportunity closer to the total mass, because mass market not only gives a scale to pay for all expenses, therefore a necessary evil to keep in our target market, but also it's a very strong feeder to the total mass, where we see significant opportunity across all markets, So you're going to see us continuing probably to select some mass market. But also going forward, the acquisition pace in the mass market is lower. I'm acquiring 20% less in the mass market than I was historically acquiring. And I'm growing faster in retail than I ever was growing because I'm penetrating more in the core segments. Affluent, emerging affluent, on top of mass. And this is without anybody's props fully rolled out. So as I look forward, and the core to your question is, when are we gonna see growth? Well, number one, we are growing, and we're growing much faster than we anticipated during the transformation. But more importantly, the concept we're introducing as we look at Plan 2026 and beyond is the pivot to growth. And that is, now that we have the organization in place, we will have the new value propositions in place, we need to translate all of that into targeted, deliberate growth in a segment basis as we go quarter in, quarter out. So it will be a gradual transition where we want to see the right returns, the right path to primacy, the right acquisition trends by segment. So I will see 2026 as that pivot year. And you're going to see that pivot year in commercial banking and in retail banking, where both businesses are now regionalized, repositioned, and consistently organized throughout the international banking footprint. So it's a very exciting time because this is where we see all the effort pay off as we begin to look at growth, probably sooner than we anticipated when we did the Investor Day presentation.

Okay, thank you for that. And just a follow-up on the commercial and corporate books. Proportionately a bigger decline in investment grade. Is that the... the way forward to think of really a bigger push on non-investment grade? Is that how I should think about that?

Oh, not at all. Not at all. No, this is just a simple exercise where we looked at share and wallet, where we looked at returns as we had a balance sheet out there, and understand how can we improve returns with those clients and without asset deployment. And in many instances, the conclusion was, number one, we were over-deployed. beyond just sending. And number three, where we are now, is that we are pretty much done in GVM and we're looking to grow. So one of the elements to keep in mind is that these growths cannot come at the expense of lower returns.

And that is just not going to happen. Every dollar of lending needs to come with very powerful cash management penetration. And that's what we're operating at.

So you're going to see higher returns around every dollar of capital deployed. Mexico is a key engine for growth around our GVM business. No secret, the economy is contracting 1.5% this year. So that is impacting our growth household penetration around a wallet share. So R&A, as I mentioned, commercial and retail in 2026, is a vehicle to growth. But the engine for growth in this wallet share is not just assets. We want to see those returns reflective of the underlying risk as we operate in emerging markets.

So there's got to be a return for the risk we take. And that comes through deeper penetration of the wallet. And this is going to make sense in the session on CTV and all the work that's been done in this global sort of And it's a world-class team, not only with the very strong talent we had at Scotiabank, but we complemented that strong talent with key hires from the market that has strengthened our product capability and knowledge, that has strengthened our sales knowledge from world-class players in this space, and also brought alternative experiences to how to do for our competitors that have been in this business for much longer than what we have. So it's an exciting time.

Our pipeline has grown five times over the last year. time in the U.S. as October 1st, we roll out fully our cash management capabilities for the first time in the U.S. and add the North American quarter productivity. That is a fundamental piece of the puzzle that we did not have that would contribute greatly to the aspiration of deeper penetration on wallet share. And internationally, it's a connected proposition. So when you look at how we come differently to these conversations, it's that we come connected, meaning we're going to service you in every country we're in, and you're going to connect these countries through the treasury management portal. And that's something that we did not have.

That is something that we have strongly rolled out and will be core to the way we come across our clients as a platform they should operate in the North American quarter and beyond. So we are very well set up for it. We are investing heavily in this business, but very targeted in terms of the capabilities we want.

So this is not more the same. This is a different proposition for our client. When you look at other Canadian banks or U.S. banks, we are in a position to win here because we're a universal bank in these countries. Let's not forget, I have the opportunity to provide payroll services to multinational clients in all these countries on scale. And when you have a traditional investment,

Okay, I think that's more in the view. Thank you very much for that.

Thank you.

Operator, we have time for one last question.

Okay, thank you. So the last question will be for Salam Al-Aidi. Please go ahead. Okay, thank you.

I appreciate you squeezing in. Maybe just to bring it all together, I mean, we've heard from RSC's targeting budget of operating leverage, Francisco is turning things around. Which one of these two segments is likely to outgrow the other segment, what do you think, over the next six quarters?

Yeah, thanks for having me, Scott. I mean, I think one thing we have to talk about today,

since investment areas always hit on four key areas. The first would be around where we talked about how we held investment advice less than priority. Really happy with the progress here. $1.7 million in acquisitions year-to-date compared to year-to-year. Last year would be $900 million in acquisitions. So really good progress there. A lot more to come. And most importantly, though, improving our penetration, which we began driving promptly. The second area would be our Canadian wealth and monetary business, as well as the McLeod pick. Here, as I see, we have a private wealth, as well as FD. These businesses are really firing on our phone. We're seeing really strong growth in net sales. So 85% of the year-over-year. So really strong growth in terms of our wealth. That's right. And that connection that we're seeing between Canada and

from authorization to growth.

I appreciate you, Susan.

Thank you. This is all the time we have for questions. I would now like to turn the meeting over to Rajat Viswanathan.

Thank you. On behalf of the Empire Management Team, I want to thank everyone for participating in our call today. We look forward to speaking to you again at our Q4 call in December. Have a great day.

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.