Bank of Nova Scotia Earnings - Q4 2025 Analysis & Highlights
Bank of Nova Scotia reported strong Q1 2026 earnings momentum with double-digit revenue growth and improved return on equity, driven by margin expansion and disciplined expense management, while navigating elevated credit provisions and macroeconomic uncertainty with confidence in achieving medium-term ROE targets ahead of schedule.
Key Financial Results
Adjusted earnings of CAD 2.7 billion with diluted earnings per share of CAD 2.05, representing 16% year-over-year growth in EPS.
Revenue grew a strong 11% year-over-year, with net interest income up 13% and non-interest income up 10%.
Return on equity improved to 13%, up 120 basis points year-over-year, with management expressing confidence in achieving the 14%-plus medium-term target one year ahead of plan.
Net interest margin expanded 27 basis points from higher business line margins and lower funding costs.
Expenses grew 7% year-over-year, mainly due to seasonally higher personnel costs and volume-driven compensation.
Pre-tax pre-provision profit grew a strong 16% year-over-year.
Productivity ratio improved 200 basis points year-over-year to 52%, with positive operating leverage of 4.2%.
Effective tax rate increased to 25.7% from 23.8%, primarily due to lower income in lower tax jurisdictions and higher withholding taxes.
Business Segment Results
Canadian Banking reported earnings of CAD 960 million, up 5% year-over-year, with return on equity of 18.1%, up 140 basis points.
Canadian Banking loans grew 3% year-over-year, with mortgages up 5% while business and personal loans each declined modestly 1%.
Canadian Banking deposits declined 2% year-over-year, with day-to-day/savings deposits growing a strong 5%, offset by 10% decrease in personal term deposits and 2% decrease in non-personal deposits.
Canadian Banking net interest income grew 3% year-over-year from loan growth and margin expansion, with net interest margin expanding 2 basis points quarter-over-quarter.
Canadian Banking fee and commission income grew 8% year-over-year from higher mutual fund fees, strong FX fees, and higher credit card revenues.
Canadian Banking generated strong positive operating leverage of 2.8% with expenses flat year-over-year.
Demand deposits grew 5% year-over-year, retail mutual fund net sales doubled versus the same quarter last year, and retail referrals to wealth were CAD 2.4 billion, up 19% year-over-year.
Global Wealth Management earnings of CAD 488 million were up 18%, with spot AUM up 10% year-over-year to CAD 436 billion and AUA growing 8% to over CAD 800 billion.
Global Wealth Management return on equity improved to 17.9%, up 180 basis points year-over-year and up 300 basis points since Investor Day.
Global Wealth Management net sales for the quarter came in at CAD 1.8 billion, marking the sixth consecutive quarter of positive net flows.
International Wealth Management generated earnings of CAD 64 million, up 18% year-over-year, driven by 45% growth in Mexico.
Global Wealth Management revenues were up 14% from higher mutual fund fees, net interest income, and brokerage revenues, with expenses up 12% resulting in positive operating leverage of 1.9%.
Global Banking and Markets delivered strong earnings of CAD 545 million, up 5% year-over-year, with return on equity above 14% for the second quarter in a row.
Global Banking and Markets revenue increased 11% as Capital Markets revenues were up 19%, while Business Banking grew a modest 2%.
Global Banking and Markets net interest income was up 25% year-over-year, primarily due to higher margin and robust capital markets activities.
Global Banking and Markets non-interest income was up 7% year-over-year due to higher trading-related revenues from fixed income and equities, and higher underwriting and advisory fees.
Global Banking and Markets expenses were up 14% year-over-year, mainly due to higher performance and share-based compensation and technology costs.
International Banking delivered earnings of CAD 717 million, up a strong 8% year-over-year and 11% quarter-over-quarter.
International Banking return on equity came in at 16%, in line with the medium-term target.
International Banking revenue was up 4% year-over-year, with net interest income up 5% from lower funding costs, mainly in Mexico.
International Banking net interest margin remained stable at 454 basis points and expanded 27 basis points year-over-year from lower funding costs.
International Banking deposits were up 4% year-over-year, while loans were down 1% year-over-year, as non-retail loans declined CAD 5 billion or 6%, while retail loans grew CAD 3 billion or 5%.
International Banking expenses were up a modest 2% year-over-year from disciplined expense management.
International Banking GBM business generated strong earnings of CAD 354 million.
Credit Quality and Provisions
All-bank provision for credit losses (PCLs) were approximately CAD 1.2 billion, with impaired PCLs at 58 basis points and performing PCLs at 3 basis points.
Allowances for credit losses increased by over CAD 200 million quarter-over-quarter to approximately CAD 7.2 billion.
The bank's allowance for credit losses (ACL) ratio remains strong at 94 basis points, an increase of 2 basis points quarter-over-quarter.
Gross impaired loans increased approximately CAD 425 million quarter-over-quarter, excluding the impact of FX, driven by an increase of CAD 200 million primarily from three accounts in GBM.
The GIL ratio increased 6 basis points to 95 basis points.
Canadian Banking PCLs were CAD 576 million, or 49 basis points, up CAD 81 million quarter-over-quarter.
Canadian Banking retail PCLs were CAD 436 million, up CAD 82 million quarter-over-quarter, driven by increased net write-offs in unsecured lending reflecting current unemployment trends.
Canadian Banking commercial portfolio PCLs were CAD 140 million, in line with Q4.
International Banking PCL ratio was 131 basis points, down 1 basis point quarter-over-quarter.
International Banking retail PCLs were 218 basis points, down 3 basis points quarter-over-quarter, excluding FX.
GBM impaired PCLs were up CAD 54 million this quarter relating to three accounts in the agriculture and wholesale and retail industries.
Mortgage 90-plus day delinquency has increased quarter-over-quarter, driven by COVID-era mortgages concentrated in Ontario and the GTA, but impaired PCLs remain low given strong credit quality and low average LTVs of approximately 55% in the uninsured portfolio.
Early stage delinquency indicators in unsecured lending are showing signs of improvement, as 30-plus day delinquency in both credit cards and ULOC have shown sequential improvement.
Capital Allocation
The bank's CET1 ratio was 13.3%, even after repurchasing 4.9 million shares in the first quarter under the current NCIB.
Capital deployment priorities remain investing in organic growth opportunities followed by share buybacks.
The bank generated capital from the Davivienda transaction of approximately 15 basis points.
Internal capital generation was 7 basis points, and gains from higher fair values of OCI securities contributed a further 4 basis points.
Capital usage was mostly related to model and methodology updates of 16 basis points and a net 8 basis points related to share repurchases.
Approximately 15.7 million shares have been repurchased as of this quarter.
The NCIB is not due for renewal until May, and the bank expects to continue to be active in the buyback program in the remainder of 2026 and potentially into 2027.
Macroeconomic Environment
The bank continues to operate in an environment of heightened macroeconomic uncertainty.
Unemployment rate has improved in recent months and is expected to continue to trend down in coming quarters, but will take some time to impact portfolio behavior.
In Mexico, ongoing trade negotiations continue to weigh on sentiment, with macroeconomic indicators presenting a mixed outlook, with improved GDP estimates offset by softer employment data.
Chile's outlook remains stable, supported by strong commodity prices, but sustained elevated unemployment and cumulative inflation effects continue to drive softness in the consumer finance portfolio.
Peru's GDP outlook remains stable, supported by the rise in commodity prices, but uncertainty is likely to persist until a new administration is placed.
Mexico is expected to grow around 0.5% GDP this year, with the country operating in an uncertain environment.
Recent events in Mexico related to government actions on security and rule of law have created short-term volatility, but the bank's employees and clients are safe and branches are open.
Growth Opportunities and Strategies
The bank is making important technology investments to help redefine how Scotiabank serves clients, how teams work, and how it creates long-term value.
AI is an important and growing part of the bank's total technology spending, including both technology and talent investments with several strategic hires from other leading global banks.
The bank is scaling AI to boost efficiency across the bank, including through AskAI, a tool which allows employees to get instant access to policy and product guidance.
In Q1 alone, the bank processed over 450,000 queries across the client experience center, the branch network, and the client services and solution helpdesk, representing over 60% of the queries in 2025.
In Tangerine, the bank completed an AML AI pilot that demonstrated positive results with a 37% reduction in existing alert volumes.
The Mortgage+ program continues to drive over 90% of all mortgage originations through a bundled offering encompassing both lending products and deposits.
Shell Canada has joined the Scene+ Loyalty Network as the bank's new fuel partner, unlocking new ways for members to save and earn rewards on everyday essentials.
Canadian Banking expects earnings to grow by double digits in fiscal 2026.
In Global Wealth Management, the bank continues to see momentum in private bank offering with strong year-over-year loan and deposit growth.
The bank continues to add advisors to its full-service Scotia McLeod brokerage unit, where it had another quarter of strong net sales.
In Global Asset Management, the bank ranked third amongst peers in long-term retail mutual fund sales, up from sixth in the same quarter last year.
Global Banking and Markets continues to benefit from productive investments across the business, including the new US Transaction Banking platform.
The US comprises about half of segment earnings in Global Banking and Markets, with the bank expecting this share to increase over time.
The bank confirmed its partnership on the Defence, Security and Resilience Bank, furthering its commitment to providing capital, expertise and strategic advice to strengthen Canada's most critical sectors.
International Banking is pursuing top line growth at a faster pace, with retail growing at a faster pace and commercial beginning to see growth for the first time in a number of quarters.
Global Transaction Banking capabilities are being rolled out as a key return on equity lever.
The bank is building out Global Transaction Banking (GTB) with a sales force, better analytics and data, and better understanding of profitability by client, relationship, and product.
The bank is remixing the quality of deposits to grow deposits while embedding higher-quality deposits and more operating deposits.
Financial Guidance and Outlook
The bank expects return on equity expansion across each of its business units, with the largest increase coming from Canadian Banking.
The bank expects to achieve its 14%-plus medium-term target one year ahead of plan, with greater confidence in this outlook.
The bank's target for Canadian Banking is to get closer to 24% ROE by 2028, currently at 18% with 140 basis points improvement already.
Impaired PCLs are expected to remain elevated in the near term, followed by gradual improvement, with the bank expecting them to be elevated in the first half of the year and coming down in the latter half.
The bank expects impaired PCLs to trend closer to 50 basis points or potentially dip below in the back half of the year, depending on macroeconomic developments.
The bank expects the operating environment will continue to reflect ongoing challenges, with impaired PCLs remaining elevated in the near term before gradually trending lower as the economic outlook improves as the year progresses.
The bank expects to see return on equity expansion across each business unit, with key levers being improved business mix in Canadian Banking, risk-adjusted margin expansion, ongoing rollout of Global Transaction Banking capabilities, and fee income growth and productivity enhancements.
Net interest margin expansion is expected to continue throughout 2026 and beyond into 2027, with 2026 being focused on deposit margins.
The bank expects 2027 to be definitely better than 2026 if the latter half plays out to expectations.
In International Banking, the bank expects earnings growth to accelerate as the year goes on and the region's economies get stronger.
The bank expects the outlook for International Banking to remain elevated but stable, reflecting uncertainty in the market.
Global Banking and Markets expects pre-tax pre-provision revenue to grow between 8% and 10%, depending on quarterly or yearly basis.
The bank will continue to take a considered approach to AI spending to ensure investments are designed for long-term growth and sustainability.
The bank remains comfortable with the adequacy of its allowances and the underlying quality of its portfolio.
