Bank of Nova Scotia Q2 Earnings Call Highlights

Key Points

• Scotiabank posted stronger Q2 fiscal 2026 results, with adjusted earnings of CAD 2.7 billion and return on equity of 13.2%. Management said it remains on track to exceed a 14% ROE target in fiscal 2027 ahead of schedule.
• Canadian Banking and Wealth Management were key growth drivers, as Canadian Banking earnings jumped 53% year over year and Wealth Management earnings rose 19%. The bank also highlighted strong net sales, margin expansion, and improving referral activity across businesses.
• Credit costs remain elevated but are expected to moderate, with all-bank provisions for credit losses at CAD 1.2 billion and management forecasting impaired provisions in the mid-50-basis-point range for the rest of 2026. The bank also raised its quarterly dividend and continued share buybacks, signaling confidence in capital strength.

Bank of Nova Scotia NYSE: BNS reported stronger second-quarter fiscal 2026 results, with management pointing to revenue growth, expense discipline and rising returns across several business lines while also acknowledging a more uncertain credit backdrop.

President and Chief Executive Officer Scott Thomson said adjusted earnings were CAD 2.7 billion, or CAD 2.02 per share. Pre-tax, pre-provision earnings rose 16% year-over-year, while return on equity was 13.2%. Thomson said the bank remains on track to reach a return on equity above 14% in fiscal 2027, one year ahead of its investor day target.

The bank’s common equity tier 1 ratio stood at 13.3% after repurchasing 6.4 million shares during the quarter. Scotiabank also announced a quarterly dividend increase of CAD 0.04 per share. Thomson said the bank has returned CAD 7.5 billion to shareholders through dividends and buybacks over the past 12 months.

Canadian Banking Momentum Builds

Thomson said Canadian Banking continued to improve, with pre-tax, pre-provision earnings up 13% from a year earlier. The business posted a fourth consecutive quarter of margin expansion and continued growth in fee income, supported by wealth management, credit cards and insurance.

Chief Financial Officer Raj Viswanathan said Canadian Banking earnings were CAD 935 million, up 53% year-over-year, supported by pre-tax, pre-provision growth and lower performing provisions for credit losses. Loans rose 3% year-over-year, with mortgage growth of 4%, while commercial and small business loans grew 1%. Day-to-day and savings deposits increased 3%, though overall deposits declined 3%, largely due to term deposits.

Thomson said the bank is retaining more than 90% of retail GIC maturities despite industry-wide pressure and deposit competition. Some balances are staying in Canadian Banking, while others are moving into retail mutual funds, where net sales rose significantly from the prior year.

Management also highlighted the launch of the Scotia High Interest Savings Account, described by Thomson as a relationship-based account that offers tiered regular interest rates based on eligible total relationship balances across Scotiabank accounts.

Wealth, International and Markets Units Contribute to Growth

Global Wealth Management earnings were CAD 474 million, up 19% year-over-year, according to Viswanathan. Spot assets under management and assets under administration rose 18% and 15%, respectively, from market appreciation and higher net sales. Thomson said net sales for the quarter reached CAD 4.7 billion, four times the level in the same quarter last year, marking the seventh consecutive quarter of positive net flows.

Thomson said Canadian Wealth Management is benefiting from stronger connectivity with Canadian Banking. Total closed referrals were CAD 9 billion year-to-date, while closed referrals between commercial banking and wealth doubled from the first half of last year to CAD 2.8 billion.

In International Banking, Thomson said pre-tax, pre-provision earnings rose 12% year-over-year, helped by 7% revenue growth. Mexico was highlighted as a strong performer, with revenue up 8% and earnings up 25% year-over-year. Viswanathan said International Banking earnings were CAD 701 million, up 3% year-over-year on a constant-dollar basis and excluding divested operations.

Global Banking and Markets earnings were CAD 457 million, up 11% from a year earlier. Revenue increased 9%, driven by a 25% rise in capital markets revenue. Thomson said the deal pipeline remains strong and that the third quarter had started with “a number of marquee transactions” announced in recent weeks.

Credit Costs Remain Elevated

Chief Risk Officer Shannon McGinnis said the macroeconomic environment remains uncertain, citing geopolitical developments, elevated energy costs, trade pressures and inflation. All-bank provisions for credit losses were CAD 1.2 billion, or 66 basis points, up five basis points from the prior quarter. Impaired provisions were CAD 1.1 billion, or 61 basis points.

McGinnis said the increase was driven mainly by one corporate account in International Banking, representing about seven basis points of all-bank impaired provisions. She said the account reflected company-specific factors rather than broader macroeconomic or trade-related pressure.

The bank’s allowance for credit losses rose to CAD 7.3 billion, or 96 basis points, up two basis points quarter-over-quarter. Gross impaired loans increased four basis points to 99 basis points, mainly due to the single International Banking corporate account and higher formations in Canadian commercial.

McGinnis said Scotiabank now expects impaired provisions to settle in the mid-50-basis-point range for the remainder of 2026. She told analysts that while this is slightly elevated compared with the bank’s earlier outlook, management still expects credit losses to moderate from first-half levels, though more gradually than previously anticipated.

Management Discusses Margins, Capital and Outlook

Viswanathan said the bank’s net interest margin benefited from higher business-line margins and lower funding costs. All-bank net interest income rose 10% year-over-year, while non-interest income increased 17%, driven by higher wealth management revenue, investment gains and income from associated corporations. Expenses rose 7%, including a 9% increase in technology spending to CAD 1.4 billion.

In response to analyst questions, Viswanathan said International Banking’s net interest margin of 476 basis points was a high point for the segment, aided by lower funding costs in Latin America, benefits in Chile and a resilient Caribbean franchise. He said he expected the margin to be in the 465-to-470-basis-point range for the third and fourth quarters.

Thomson said Scotiabank’s capital deployment priorities remain organic growth, share buybacks and strategic tuck-in acquisitions. He said management expects buybacks to remain consistent, citing the valuation gap between Scotiabank and peers. He also said potential tuck-in deals could support areas such as the bank’s mortgage capital markets business or wealth capabilities, but described possible transactions as relatively small, in the range of CAD 200 million to CAD 400 million rather than billions.

Thomson also expressed optimism about Canada’s outlook, pointing to the benefits of higher oil prices for an oil-exporting economy, fiscal stimulus, a shift in tone from international investors and the importance of the Canada-U.S.-Mexico trading bloc. However, management continued to flag uncertainty from inflation, trade dynamics and consumer pressure across the bank’s markets.

About Bank of Nova Scotia NYSE: BNS

Bank of Nova Scotia, commonly known as Scotiabank, is a Canadian multinational banking and financial services company founded in 1832 and headquartered in Toronto, Ontario. It is one of Canada's largest banks and provides a broad range of financial services to retail, commercial, corporate and institutional clients. The bank combines a domestic Canadian franchise with an extensive international presence to serve customers across multiple markets.

Scotiabank's core activities include personal and commercial banking, wealth management, corporate and investment banking, capital markets, and global transaction banking.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.