Bank Of Nova Scotia (BNS) Q2 2026 Earnings Call Transcript

Good morning and welcome to Scotiabank's Q226 Earnings Call. My name is Manny Grauman and I'm Head of Investor Relations here at the bank. Presenting to you this morning are Scott Thompson, 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 Bogdanaris from Canadian Banking, Jackie Allard from Global Wealth Management, President, Francisco Aristeguieta from International Banking, and Travis Machen from Global Banking and Markets. Before we start, and 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.

Thank you, Manny, and good morning, everyone. Scotiabankers should be proud of this quarter as we continue to drive our business forward 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. Adjuncted earnings came in at $2.7 billion, or $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 SETI-1 ratio was 13.3% even after repurchasing 6.4 million shares in the quarter, and today we announced a quarterly dividend increase of $0.04 per share, reflecting confidence in our earnings growth. In 12 months, we have returned $7.5 billion in capital to our shareholders through share buybacks and dividends, and 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. The fee for the quarter was 13.2% and remains on track to hit 14% plus in Fiscal 2027, one year ahead of our investor date target. Our business mix is shifting, revenue growth and high growth. We expect those trends to continue into Fiscal 2027. In Canadian banking, the momentum is building. Pre-tax, pre-provisioned earnings were up 13% year-over-year, held for the 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 this 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. We continue 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, and 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 remains in the low single digits. But 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, eventually this quarter, and 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, expected to reach mid-single digits by the end of the year, while our mortgage volume should keep pace with peers. revision earnings were up 12% year-over-year helped by revenue growth of 7%. This 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%. 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 and should continue to modestly improve in the second half of the year as we pursue growth thoughtfully and employing a cash management first also gaining traction, climbing 3% quarter over quarter and 5% year over year. We want to sponsor Chili Day 2026, which brought together government and business leaders in New York and Toronto to strengthen Canada-Chili 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 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 $4.7 billion, four times what we had in Q2, 2025, and marked in our seventh consecutive quarter of positive net flows, and at 17.9% of 210 basis points year over year. Canadian wealth management is continuing to benefit from deeper connectivity with Canadian banking, and the total close referrals were at $9 billion year to date, largely stemming from our retail and small business segment. Commercial banking and wealth were $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 $3.1 billion and continue to rank third amongst our peers in long-term retail mutual fund sales in the same quarter last year, highlighting the opportunities we have to deepen penetration within our own network. And in our international wealth business, earnings were up 12% year-over-year and 22% in Mexico. Recognized with eight-euro money private banking awards across our footprint, and Mexico's asset management unit was recognized by Morningstar, ranked in the top 10 among all four and five. 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 up a number of marquee transactions, which is a good example of our U.S. growth strategy. GVM's loans grew 1% quarter over quarter or up 3% excluding our Asia portfolio which is in runoff as the year goes on but will increasingly be driven by our capital market strategy. We'll continue to deploy balance sheets through our corporate revolver loan book but with a focus on customers where we have a broader multi-product relationship. 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. It unifies the capabilities, platforms, and governance required to deliver AI securely and at scale for employees. And 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. trying to take us from isolated AI use cases to AI that is embedded in client interaction in an effective manner, grounded in four key principles, security, which has taken on added 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 standing and monitoring to proactively identify and mitigate risk flexibility evolving rapidly and 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 as the data can understand we've deliberately invested in getting our data foundation right clean so that AI can deliver meaningful outcomes enterprise data platform our fourth and final principle is platform first thinking rather than fragmented tools we're building a unified enterprise AI platform consistent and governance and repeatable scale across the bank. It also enables the deployment of AI agents and continuous monitoring and improvement of models in production, all with enterprise-grade security guardrails built in. In closing, as we've committed to, we're delivering growth strategically important to us and working to thrive clients. 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 constant that that momentum will continue, seeing 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 blow 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 in 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. In global banking and markets, capital markets loans are growing even as total loan growth is being impacted by our decisions of reducing 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 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 recorded basis beginning this quarter moving to slide 9 for a review of the second quarter results the bank reported quarterly earnings of 2.7 billion dollars and a diluted EPS of two dollars and two cents will refer to the last column the impact of the return on equity was 13.2 percent up 270 basis points here over year driven by strong revenue growth of 13 percent net interest income grew 10 percent year-over-year as net interest margin grew 24 basis points from higher business line margins and lower funding costs. The interest margin expanded six basis points quarter over quarter, benefitting 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, and technology spend that also grew 9% to $1.4 billion to support strategic growth initiatives. In a pre-tax pre-provisioned 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 year restrictions and higher inflationary adjustments. 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. In 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, was $474 billion, up $1.6 billion quarter-a-quarter excluding effects, mainly relating to higher credit risk. $5 million, up 53% year-over-year from strong pre-tax pre-provision earnings growth of 13% and lower performing provisions for credit loss from mortgage growth of 4% while commercial and small business loans grew. Day-to-day and savings deposits grew 3% year-over-year in line with our strategy. However, deposits declined 3% year-over-year mostly in 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 4 basis points sequentially. Non-interest income was up 10% year-over-year from higher mutual fund distributions. The PCL ratio was 50 basis points, with in-paid PCLs declining 2 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 $474 million were up 19% year over year as Canadian earnings were up 20% and international was up 12% mainly in Mexico. EUA 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 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 markets earnings were 457 million dollars 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. 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 $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. 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 fee-fail ratio was 166 basis points, mainly from InPay. The effective tax rate was 17.3%, mainly from higher inflation, frequent or higher taxes in Peru, and higher income from associated corporations. The GBM Business and International Banking generated earnings of $237 million, impacted by higher loan loss provision, 2015. The other segment net income was $35 million, compared to a loss of $41 million in the prior quarter, benefiting from higher mark-to-market gains. I'll now turn the call over to Shannon to discuss it.

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 policy makers. Against this backdrop, all bank provisions were $1.2 billion or 66 basis points, up 5 basis points quarter over quarter. Impaired provisions were $1.1 billion or 61 basis points, up 3 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 $7.3 billion, or 96 basis points, up two basis points quarter-over-quarter. Starting 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 commercials. Retail growth-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 $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.

Starting to slide 19. In Canadian banking, provisions were $575 million, or 50 basis points. In retail, total PCLs were $435 million, flat quarter-over-quarter, as lower impaired provisions across most products were offset by higher performing PCLs. Performing PCLs were up $22 million quarter-over-quarter, driven primarily by unfavorable impact and are 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 for our online channels. These efforts contributed to a 20 basis point quarter-over-quarter improvement in 90 plus data elinquency 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 $599 million or 166 basis points up from $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 $381 million, down $24 million quarter-over-quarter, driven by divestitures. In global banking and markets, provisions worth $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-point 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, however, 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, and while the macro uncertainty remains, we expect impaired PCLs to immediately moderate from Q2. In closing, we continued to build allowances, adding $159 million this quarter to bring total reserves to $7.3 billion, or 96 basis points, and now 24 basis points higher in 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 many for Q&A.

Thanks, Shannon. Operator, we're now ready for our first question.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again, press star 1. Your first question comes from Doug Young with Desjardins. Please go ahead.

Hi, good morning. I mean, maybe, Shannon, sticking with yourself, so just the guidance that you gave, so the impaired PCL guidance of mid-50 basis points for the remainder of Fiscal 26, so that is, I guess, your guidance for the fall year now is higher than it was before. I just wanted to confirm that, and then 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?

Good morning, and thanks for the question. So, if I take a look at the macro when we gave guidance back in December, the macro environment has evolved meaningfully since that time. And so, considering this, we do expect impaired PCLs to settle in the mid-50 basis point range for the remainder of 26, 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 and in terms of you know what gives me confidence around that and what's kind of going into that into that outlook I'm going to kind of walk you through a few portfolio components you know in international retail performance continues to be mixed by geography and we do expect impaired PCLs 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. And we do expect impaired PCLs to potentially be impacted by prolonged inflationary pressure. So that could impact some of our vulnerable client segments. And then 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. But as I look from this quarter forward, we do expect to see the non-retail impaired PCLs moderate from the Q2 levels. So when I take all of that into consideration, we do expect to trend down from the first half. But 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.

Okay. And just maybe a follow-up on the performing loan size, a bit of a build this quarter, you know, 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 impairs? Just trying to get a sense. It's always difficult to kind of look at it across the group, but maybe there's some perspective you can give.

Yeah, so maybe it would be helpful to take a step back and just kind of grounding how we factor scenarios into our performing allowance, you know, 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, you know, I spoke to in my remarks. And so as we think about the performing bill this quarter, which was five basis points, about 50 million of that was related to our forward-looking indicators, which we do think appropriately captured what we see as we look forward. And so 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're at right now.

Appreciate the colors.

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

Thanks. Just a quick numbers one to start, the other, other income. I heard mark-to-market gains in the explanation for the corporate segment. Can you tell me what was in that other, other income line item that was pretty high this quarter?

Sure, Gabe. Absolutely 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. that contributed somewhere between 35 to 40 million but another component which is you know WBA and the closer deal in their books you know and we had to do an equity pickup of the mark-to-market increases they have on their assets this quarter and that was in the mid 40s it was about 46 million dollars that has gone into that line that's where you're seeing that line elevated okay so 35 and 45 that's pre-tax or correct yeah because the WBA and we pick it up after There's no tax effect because of the way we account for investment associated cost.

Okay, great. Just to keep going with this, I'm trying to decipher where some of the changes are taking The economy that's not rebounding as fast as expected, that's where you're expecting . In international retail, it doesn't sound like it's changed from what you anticipated at the start of the year, but these, you know, in Peru and Chile, especially the, you know, the energy prices that are putting a new twist, I guess it's too early to start thinking about 2027. Not 2027 will have this higher for longer impaired PCL ratio? Thanks.

Yeah, so, Gabe, maybe I'll stick to the 2026 guidance and what's driving our outlook as we go into the latter half of the year. And I mentioned it a bit previously in my remarks. So, in terms of what we gave our guidance in December, it really is as I think about, you know, the environment that we're operating in. And so we do expect to see improvement in the latter half of the year, which is consistent with our guidance we've provided. It's just the magnitude of that is maybe different than we had originally expected. And again, reflecting that's the macro that we're in. And so we expect it to be more gradual than we did at the time. And to your point, you know, 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. And 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.

And David, Scott, I would just add a couple things. One, portfolio, there's no doubt. I mean, I was really pleased that we saw improved and paired performance in that book. But as you look up to 27, I'm actually relatively optimistic about the outlook for Canada. You know, despite the war and kind of the tragic aspect of it, we're an oil exporting nation. You've got a new business-friendly government that is, you know, trying to get things done.

And so as we look further out I actually I think we're going to see some good things in the Canadian environment yeah I get it I agree but there's a lag between when you know the bad stuff is still I'll leave it there thanks your next question comes from the line of Mario menjonga with TV securities please go ahead absolutely Mario I think I think you're right 476 is a high watermark for the

international margin this quarter as you know I've been in it for multiple It's got all the Latin American countries, but it also has a big Caribbean operation. So a lot of the benefits or the increase in the NIMH that we saw is lower funding costs in our Latin American franchises. We have seen rate cuts in Mexico. We've seen it in Chile earlier, and we've seen it in Peru as well. So 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 there's no US rate cuts for the Caribbean NIMH has held up very well for us. And then there is the asset balance mix that is happening, no, you know, less mortgages and higher non-mortgages going over there. So I look forward. This quarter, there was some nuances and seasonality to some due to benefits that we get in financial banking. I call it somewhere between 7 to 10 basis points, Mario. So I would say next quarter should be somewhere between 465 to 470, frankly, for the remainder of the year. and you know that is a nice tailwind to have to our 440 to 450 normal expectations we have for that NIM and that's primarily different because we don't see rate cuts happening at any scale in the United States that should help with our Canadian you know sorry the Caribbean deposit rich franchise so it's a good tailwind the 465 470 is likely the number I would look at for Q3 and for Q4 as well and maybe Francisco you can just thank you I'm Harry good

morning. Thanks for the question. We continue to be steady strategy to try to change the balance sheet mix across all countries. This particular quarter you begin to show on the year-in-year progression, for example, deposits moving quite strongly around the 6% mark. But when you begin to see also the loan growth in retail around 4.5%, loan mortgage predominantly growing at twice the base of mortgage, increasing client profitability. When you see GVM deposits year-to-year growing at 8%, that's all contributing to the sustainability that Rush was mentioning of the Neiman expansion. So the overall underlying quality of our balance sheets in every market are improving sustainably on the back of the client's strategy and the, I would say, very deliberate effort on quality deposits. So we have been optimizing expensive deposits out and replacing them by operational deposits sustainably across all business lines. It's consistently growing. And remember, this year was a pivot to growth. And 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 fast. We are in that journey.

What is very encouraging Your next question comes from the line of Paul Holden with CIBC. Please go ahead.

Thank you. I want to ask you about the net interest margin outlook for Canada, obviously a positive result, I think, in Q2. A number of moving parts there, which is why I asked the question, right, like 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. Anyways, maybe you can give us an outlook and sort of wrap all of those components together would be – Sure, Paul, I'll start, but I want Eris 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 mentioned two basis points a quarter improvement driven by better deposits, you know, that makes better loan growth, because even mortgages, I think, are more profitable than what we've had, and we've seen strong growth, as well as commercial, like Scott alluded to in his opening remarks. So those are all going to contribute, I would say, for the remainder of the year for margin expansion in the Canadian bank. And maybe, Ares, you can talk about the business mixtures that you're seeing in the...

Sure, hi. So I think, in line with what you heard, the numbers this quarter really affirm the direction in the strategy we embarked on a few years back, and you see it in the numbers, and you have to go back, I think, to 2022 to see growth rates at this level across revenues, PPPP and the like. And 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. And then, of course, you saw it in the corner of the increase in fee income across cards, mutual funds, and insurance. So 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. And again, that commercial lending growth is broad basis across real estate, mid-market, and ag. And that pipeline that has been built up since a year ago is starting to mature. And as it matures, it's going to actually lift the yield on our lending book as it grows. So we'll see continued increases in the NIM in the quarter, but again, more now weighted to the asset size as we go forward. So all in all, positive outlook from that standpoint.

Okay, that's good. And maybe, Aris, a follow-up question for you. Maybe we can drill down a little bit more into the NER growth because it is quite strong year-over-year. And I think you've had some – maybe you can spend just a couple more minutes so we can understand fully. Sure.

Sure. So the near 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 balanced growth. And we're shifting the portfolio more to that premium client group, and then 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 these were up 21% year on year. That's unprecedented. And the third aspect, of course, is insurance. As we build creditor and non-creditor insurance, that's also providing a lift on the near. So 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 corner. And 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. So maybe Jackie could give a few highlights on that piece.

Yeah, I think what really stands out to me in the quarter 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 and in that kind of environment we might typically see clients moving to the sideline but what I found really encouraging is we saw positive client flows throughout the quarter despite that backdrop from our perspective from the next you know what we're really focused on is retail growth and wealth advisory growth and on the retail side is as Sarah said, you know, we had a really good quarter. We were number three 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 five a year ago, number six at Investor Day. And net flows in the first half of the year in business alone exceeded our full year flows for 2025. So 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 3 billion in net use flows for the quarter. fee-based assets are at an all-time high in those business. So overall, we're seeing great momentum both in terms of flows and mix, and I think that positions that really well. They continue to deliver consistent, higher-quality earnings growth going forward.

That's great. Thanks for the time.

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

Hi, guys. Good morning. Keep it tight. You've spoken about strong commercial momentum, and the expectation for that growth to continue accelerating. Could you say the impact what's driving that outlook, whether it's broader demand recovery, sector-specific opportunities, or maybe just that increasing deeper find activities?

Thanks for the question. So 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 VCE, in Quebec, and 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, and all you're seeing now is these pipelines materializing. The paydowns we saw in real estate have stabilized now, so that is also helping the overall balance growth. So 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.

All right, thanks. I'll pass the line.

Your next question comes from the line of Sourab Moubehedi with BMO Capital Markets. Please go ahead.

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?

Morning, Sourab. So 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. So in terms of this specific file, it was essentially driven by company-specific factors rather than broader macroeconomic or trade-related pressures. You know, this is a longstanding client for us, investment-grade rating. It's in Brazil, and so this is a domestically important file within that economy, and that's really what led to the downgrade. So I think that's just important context because it's not really related to anything that we're seeing systemically in the book. But 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. And there's a few things that I look at that give me comfort around that. You know, first, when I look at our non-retail watch list, that remains below 2% out of our total outstanding. And so 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 portfolio. So we have, you know, disciplined credit reviews. We have, you know, targeted deep dives on higher risk names and sectors. so if you can appreciate it, we're very closely monitoring the portfolio. Importantly, we are talking to our clients each and every day, and so that's giving us real-time visibility into performance and what's happening on the ground. And then our book is overall very well diversified across industry and geography and within our risk appetite. So when I put that together, I'm not seeing systemic stress across the portfolio. And then maybe just one last comment just on this file and just to give you context, you know, since we've been in Brazil prior to this quarter, our impaired $65 million, just to put in context in terms of how that portfolio in particular has performed over an extended period of time.

I mean, I appreciate that, but 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.

Maybe I'll give a bit more details on the Brazil portfolio. And I think, you know, just when I think about exposures, and then I'll go back to this was an investment grade account. So 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, you know, we were in a large kind of banking group on this particular exposure, and we're taking, I'd say, a reasonable hold. Our exposure was less than 5% of the total amount outstanding. You know, when I look at the Brazil portfolio, it is a very selective and deliberate corporate franchise for us. And 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. So, again, you know, we have exposures that are very much driven by, you know, the risk, and we're quite comfortable with where those sit. But Brazil, as a book, we're quite comfortable with.

So a plus or minus 7 to 10 basis point impaired kind of surprise is within your tolerance?

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, and, you know, we do not expect to see those frequently, and I would say we haven't seen those frequently. And again, back to this particular portfolio, you know, in the last, I guess, more than 15 years, we've had one.

Thank you for taking my time.

Your next question comes from the line of Ibrahim Kounawala with Bank of America. Please go ahead. Hey, good morning.

I guess maybe, Scott, just wanted to double click on, like, your optimism on the Canadian economy next year. From what we understand, the government actions probably pick 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 challenge consumer, Kuzma uncertainty. Just round that out for us as we think about the macro outlook for this group and for Kosher. As you think about the next 6 to 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 that?

Sure. So I guess a couple things. One is we're an oil exporting nation. So right now, and you saw this in the budget, and that allows fiscal stimulus, significant fiscal stimulus by the Canadian government to support some of the provinces that will be impacted either by KUSMA or affordability issues. And you saw that in the most recent budget. you've actually seen that in the HST rebate, the HST rebate is actually having an impact on real estate in Ontario in particular. So I guess that's one point. I think the second point is you have seen a significant change and I would not underestimate the impact of something like a shell. 15 years and I've lived this, you've seen a lot of foreign money leave Canada and now you have a lot of foreign money looking at Canada for a foreign direct investment. And 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 increasing looking inside of the borders. And when you look at the agenda from the prime minister, it's the grand bargain or I do think you're going to see. And then the third piece I would say is KUSMA. I think it's become increasingly apparent to everybody, each other. Kuzma is not something that the business community kind of appreciated that now, which is a significant difference than a year ago, and that it may continue to be clear that this regional trading block is increasingly important. So I'm not saying that there's not pressures, particularly in some problems. I'll pick up a little bit in Quebec, in Alberta. And I do think if you look at it, he's highlighting to 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 but nevertheless I think pretty positive.

Got it, so your economists must feel pretty good about life after that phrase on the call. Second question, Scott in your prepared remarks you said when you're addressing capital, tuck in acquisitions, so 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 and give us a sense of so that the speed is not surprised what a tuck-in deal would look like yeah sure so on the I mean the first use of capital is organic and you're seeing our techs pretty significantly as we continue down this day I the second would be share buybacks you've seen what we've done over the last year I would have to highlight it so if we could find something small help that actually really would perform well do something to get FDIC insurance get some more That does conclude our question and answer session.

I will now turn the conference back over to Raj Viswanathan for closing comments.

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.

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