Good morning, and welcome to Scotiabank's Q326 results presentation. 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. Eris Bugden-Eris from Canadian Banking, Jackie Allard from Global Wealth Management, Thank you, Manny, and good morning, everyone.
Q3 was a record quarter for the bank as we reported We have strong and exceeded all of our median-term objectives. We are particularly proud of the fact that we demonstrated our ability to hit our 14%-plus return than we had projected. This achievement was aided by strong strategic repositioning and improved capital allocation that have led to sustainable improvements across the country. It continues to be driven by our Canadian banking segment, whose return on equity improved 160 basis points sequentially and hit 19.4% this quarter. We expect to continue to improve the return on equity and close the gap with peers through a steady improvement in our business mix, fee income growth, and ongoing productivity. We don't see 14% return on equity as a ceiling for the bank. This quarter, the bank reported roughly 28 cents, up 21% We also delivered in the consecutive quarter, while our SETI-1 ratio ended the quarter at 13.1% after deploying 23 basis points to organic growth and repurchasing an additional 8.6 million shares in the quarter. Over the past 12 months, we have now returned $8.3 billion in capital to our shareholders through share buybacks and dividends. Our capital deployment priorities continue to be organic growth, followed by share buybacks and strategic tuck-in acquisitions that fill a well-defined need. The bank remains focused on deploying accumulated capital, including helping fund areas of national AI, and we expect to do all of this. While the trade relationship between Canada and the U.S. is evolving, the Canadian economy has proven to be much more resilient. We continue to monitor development. Our business mix continues to evolve across our footprint as loan growth improves in higher returning portfolios, and we gather higher. In Canadian banking, commercial loans grew through. Looking ahead, we expect growth to continue to improve, supported by investments we are making in verticals where we've been historically underpenetrated, including the mid-market and small business lending, where loan growth was up 3% and 10% year-over-year, 3% quarter-over-quarter, And we continue to expect that to further improve by the end of the year, helped by growing purchase volumes, which are underscoring the improving the premium mix of new card acquisitions is now at 45% versus 35%. On the deposit side, we've been able to retain over 90% of retail GIC maturities year-to-date. These flows are either staying in Canadian banking or personal day-to-day and savings deposits, or are moving into retail mutual funds, where net sales are $4 billion year-to-date. Up nearly two and a half. Revenue in Canadian banking was held by the fifth consecutive quarter of margin expansion and continued strong fee income growth as we maintain our focus and insurance revenue. Credit trends are improving, thanks in part, and we are managing expenses very effectively even as we continue to make substantial investments in frontline sales. We're also seeing improving business mix in our international banking segment, where retail loans grew by approximately 5% year-over-year. This growth rate should continue to improve, even as growth in our non-retail loan book will remain restrained by design, as we continue to optimize. Our focus on deposits in the region is also working, with Q3 deposits up. As a result, earnings remained above the $700 million mark for the third consecutive quarter, led by strong revenue growth of 7% year-over-year. The strategy remains focused on deepening client penetration while further driving efficiencies. Pre-tax, pre-provisioned earnings in our international global banking and markets business were up 13% year-over-year, held by our capital markets platform, where we're increasingly focused on higher-value solutions. In global wealth management, we are continuing to drive connectivity with the rest of the bank and investing in both our full-service advice and discount brokerage business at $3 billion, up 14% versus Q3 2025, and marking our eighth year-to-date, are now Canadian banking and Canadian wealth management came in at $14 billion year-to-date, and wealth were $4.5 billion, or 33% higher than what we reported for the same period last year. In our global asset management business, we rank third in long-term retail mutual funds. And in our international wealth business, we're continuing to scale our total wealth solution across the region, including in the Caribbean and Mexico, where quarter-over-quarter earnings were up 14% and 15%. Finally, in global banking and markets, loans were up 7% quarter-over-quarter as growth returns after a period of optimization. Deposits were also up 9% sequentially, helped by positive momentum in global transaction banking. We ended the quarter with the highest quarterly net income on record in global banking and markets, as both global capital markets and investment banking delivered several marquee transactions. These include acting as joint lead and book runner on the two largest debt capital markets deals ever done in Canada, Our largest asset-backed securities deal since we have started, acting as a book runner on the largest IPO in Canada since 2021, and our first lead-left leveraged finance deal. All of this activity and breadth of our global banking and markets franchise and the investments we have made in capabilities, including in AI, where we continue to advance our enterprise focus on practical adoption, including training, scalable infrastructure. This quarter, we expanded Scotia Intelligence, our bank's centralized data and AI. These new advanced features will help our teams collaborate in real time and to clear output. The recent launch of our Scotia Intelligence Knowledge Agents, employees now have access to AI-powered solutions that facilitate easy access to enabling faster execution of routine processes, helping them to focus on client outcomes. Thank you, Scott, and good morning, everyone.
My All Bank and other segment comments will be on an adjusted basis, which includes the usual amortization of acquisition-related intangibles. The business line results will be on a reported basis. Moving to slide 8 for a review of the third quarter results. The bank reported quarterly earnings of $3 billion and diluted earnings per share of $2.28. My remarks that follow will refer to the last column on this slide that excludes the impact of diversity. Return on equity was 14.2%, up 170 basis points year-over-year, driven by strong revenue growth of 16%. Net interest income grew 12% year-over-year, as net interest margin grew 18 basis points from higher margins across all business segments. NIM was unchanged quarter over quarter, as higher margins in Canadian banking and global banking markets were offset by lower margins in international banking. Recall, international banking margins had some seasonal benefits last quarter. Non-interest income was up 21% year-over-year, primarily on higher banking and wealth management revenues, underwriting and advisory fees, and other fees and commissions, and higher income from associated corporations. Expenses grew 14% year-over-year, mainly due to higher performance and share-based compensation related to higher business volume and higher technology spend to support strategic growth initiatives, which grew 16% to $1.5 billion this quarter. This resulted in pre-tax, pre-provision profit growth of 18% year-over-year. The bank generated positive year-to-date operating Moving to slide 9, the bank's CET1 capital ratio remained strong at 13.1%. We generated capital from strong earnings in the quarter, offset by increased lending and underwriting activity. We repurchased 8.6 million shares this quarter, representing 20 basis points of capital. The total risk-weighted assets was $493 billion, up $11 billion quarter-over-quarter, excluding effects, mainly relating to higher credit risk, including the recall of a synthetic risk transfer transaction. In Q4, certain international banking portfolios are migrating from the standardized approach to the ARB approach that will reduce our capital ratios by approximately 15 basis points. We expect to absorb this impact and maintain our CET1 ratio around 13% next quarter. Turning now to the business line results beginning on slide 10, Canadian banking earnings were $1.1 billion, up 12% year-over-year from strong pre-tax pre-provision earnings growth of 11%, partially offset by higher provision for credit losses. Loans grew 3% year-over-year, driven by 4% growth in mortgages and 3% growth in commercial and small business loans, while personal loans grew 1%. Day-to-day and savings deposits grew 1% year-over-year, in line with our strategy. However, deposits declined 2% year-over-year, mostly in term. Turning to the P&L, net interest income grew 7% year-over-year from loan growth and margin expansion. Net interest margin expanded for the fifth consecutive quarter up two basis points sequentially, driven by an increase in both loan and deposit margins. Non-interest income was up 11% year-over-year from high mutual fund distribution fees, credit card revenues, and insurance income. The PCL ratio decreased eight basis points sequentially to 42 basis points, driven by declines in both performing and impaired PCLs. The expenses were up 5% year-over-year from investments in technology to support strategic growth initiatives, partly offset by the benefit of efficiency initiatives. The year-to-date operating leverage was 3.7%. Turning now to global wealth management on slide 11, the earnings of $515 million were up 23% year-over-year, as Canadian earnings were up 27% and international was up 4%. Spot AUM and AUA grew 16% and 13% year-over-year, respectively, from market appreciation and higher net sales. Revenues were up 18% year-over-year from higher mutual fund fees, net interest income, and brokerage revenues. The expenses were up 16% year-over-year from higher volume-related expenses, Salesforce expansion to support business growth, and technology costs. Year-to-date operating leverage was 2.2%. Turning to slide 12, global banking and markets earnings was $647 million, up 37% year-over-year. The revenue grew 32% year-over-year as capital markets revenues were up 33% and business banking was up 30%. Net interest income was up 34% year-over-year, primarily due to higher margins and higher client-driven capital markets activities. Non-interest income was up 31% year-over-year due to higher underwriting and advisory fees and client-driven trading revenue from equities and foreign exchange. Expenses were up 26% year-over-year, mainly due to higher performance-based personal costs on stronger results and higher volume-related costs, including technology, to support business growth. These results were supported by strong loan growth of 5% year-over-year. Canadian loans grew 7% quarter-over-quarter and 9% year-over-year. Deposits also grew 12% helped by the investments Moving to slide 13, my comments on international banking are on a constant dollar basis and exclude the impact of divested operating. The segment delivered earnings of $725 million, up 6% year-over-year. Revenue increased 7% year-over-year, with net interest income up 3%, while non-interest income increased 18% from higher income from the WB&I investment, card revenues, and insurance Net interest margin of 469 basis points was up 18 basis points, but declined 7 basis points from seasonally higher net interest margin in the prior quarter. Deposits were up 6% year-over-year as personal deposits grew 4% and non-personal grew 7%. The loans were down 1% year-over-year as non-retail loans declined 7% while retail loans grew. Operating leverage was 1.9% year-to-date. The PCL ratio declined 28 basis points sequentially to 138 basis points, mainly driven by lower in-paid PCLs. The GBM business and international banking generated earnings of $321 million, driven by strong capital markets revenue growth. The effective tax rate increased sequentially to 21.3% due to favorable adjustments in the prior quarter and changes in earnings mix across the year. Looking ahead, Chile announced a reduction in the tax rate by 4% over the next three years to 23%. Although this will result in lower taxes in future years, once enacted, it will also require a one-time deferred tax asset write-down in Q4. Turning to slide 14, the other segment net loss was $42 million compared to $35 million of income in the prior quarter due to elevated investment gains in the last quarter. I'll now turn the call over to Shannon to discuss risk.
Thank you, Raj, and good morning, everyone. Our credit performance improved this quarter, with PCLs beginning to decline in line with our outlook for the second half of the year. Against this backdrop, all bank provisions were $1.1 billion, or 56 basis points, down 10 basis points, quarter over quarter. Impaired provisions were $1 billion, or 52 basis points, down 9 basis points, quarter over quarter, driven mainly by lower international banking provisions related to the single corporate account we discussed last quarter, and better performance in Canadian retail. Performing provisions were four basis points, down one basis point quarter-over-quarter, reflecting lower provisions in Canadian and international banking, partially offset by higher provisions in global banking and markets. Our allowance for credit losses increased to $7.6 billion, or 97 basis points, up one basis point quarter-over-quarter. Turning to slide 17. Growth-impaired loans increased one basis point quarter-over-quarter to 100 basis points, with modest increases across business lines. Overall, GIL formations declined quarter-over-quarter, primarily reflecting elevated corporate formations in international banking and Canadian commercial in the prior quarter. Turning to slide 18. In Canadian banking, provisions were $498 million, or 42 basis points, down 8 basis points, quarter-over-quarter. In commercial, total PCLs were down $11 million, quarter-over-quarter, to $129 million. In retail, total PCLs were $369 million, or 39 basis points, down $66 million, quarter-over-quarter. Performing PCLs were $24 million, down $10 million quarter-over-quarter, reflecting more favorable, forward-looking indicators, primarily from lower interest rates and positive credit migration in auto and cards. Impaired provisions in retail were $345 million, down $56 million, driven by lower net write-offs and unsecured lines of credit, and lower impairments in auto, reflecting improved delinquency trends from continued collection efforts. While we are encouraged by the improving trends in impaired provisions in 90-day delinquency across most retail products, we continue to monitor some pockets of weakness, including elevated mortgage delinquencies. That being said, mortgage clients remain resilient, and our overall retail portfolio quality remains strong, with an average FICO score of 798. Moving to international banking. International banking provisions were $522 million, or 138 basis points, down 28 basis points quarter-over-quarter. In commercial, PCLs declined quarter-over-quarter, driven mainly by lower impaired provisions from an elevated Q2 relating to the one account in Brazil. We continue to work through this account. In this quarter, we took an incremental provision of $57 million International Banking retail provisions were also lower quarter-over-quarter, reflecting improved performance in Mexico and improved delinquency performance in Chile across most products. This was partially offset by higher mortgage impairment in Chile and the Caribbean. In global banking and markets, provisions for $53 million, or 18 basis points, up four basis points quarter-over-quarter, driven by higher-performing provisions from forward-looking indicators and impaired provisions mainly driven by new formations in Canada. In closing, while the delinquency trends are encouraging, we continue to monitor the sustainability of the improvements given continued geopolitical developments, elevated energy costs contributing to increased inflation, and persistent trade uncertainty. Our allowances incorporate a range of forward-looking macroeconomic scenarios. This, together with the high quality and demonstrated resilience of the portfolio, supports our comfort with current allowance levels and our position in the current environment. With that, I will turn it back to many for Q&A.
