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 maintaining elevated but stable credit provisions amid macroeconomic uncertainty and signaling 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 growth of 11% year-over-year, with net interest income up 13% and non-interest income up 10%.
Net interest margin expanded 27 basis points from higher business line margins and lower funding costs.
Return on equity of 13%, up 120 basis points year-over-year (or 110 basis points excluding divestitures).
Pre-tax pre-provision profit grew 16% year-over-year, partly offset by provision for credit losses of CAD 1.1 billion (or 60 basis points).
Expenses grew 7% year-over-year, mainly due to seasonally higher personnel costs and volume-driven compensation.
Operating leverage of 4.2% and productivity ratio improved 200 basis points to 52%.
CET1 ratio of 13.3% after repurchasing 4.9 million shares in the first quarter.
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 achieved net interest income growth of 3% and fee and commission income growth of 8%, with positive operating leverage of 2.8%.
Canadian Banking saw loan growth of 3% year-over-year (mortgages up 5%, business and personal loans down 1%), while deposits declined 2% with day-to-day/savings deposits up 5%.
Global Wealth Management delivered earnings of CAD 488 million, up 18%, with spot AUM up 10% to CAD 436 billion and AUA up 8% to over CAD 800 billion.
Global Wealth Management achieved return on equity of 17.9%, up 180 basis points year-over-year, with net sales of 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 Banking and Markets delivered earnings of CAD 545 million, up 5% year-over-year, with revenue up 11% and return on equity above 14%.
Global Banking and Markets saw capital markets revenues up 19% while business banking grew 2%, with net interest income up 25%.
International Banking delivered earnings of CAD 717 million, up 8% year-over-year (or 11% quarter-over-quarter), with return on equity of 16%.
International Banking achieved revenue growth of 4% year-over-year with net interest income up 5%, while deposits grew 4% and loans declined 1%.
International Banking generated strong operating leverage with expenses up only 2% year-over-year.
Capital Allocation
Share repurchases of 4.9 million shares in Q1 2026 under the current NCIB program.
Capital deployment priorities remain investing in organic growth opportunities followed by share buybacks.
Approximately 15.7 million shares repurchased as of Q1 2026, with NCIB renewal expected in May and continued buyback activity expected in remainder of 2026 and into 2027.
Capital generation of approximately 15 basis points from the Davivienda transaction, 7 basis points from internal capital generation, and 4 basis points from gains on OCI securities.
Capital usage of 16 basis points from model and methodology updates and net 8 basis points from share repurchases.
Macroeconomic Environment
Unemployment rate has improved in recent months and is expected to continue trending down in coming quarters, though will take time to impact portfolio behavior.
Mexico's GDP growth expected around 0.5% this year, with ongoing trade negotiations continuing to weigh on sentiment.
Chile's outlook remains stable, supported by strong commodity prices, though sustained elevated unemployment and cumulative inflation effects continue to drive softness in consumer finance portfolio.
Peru's GDP outlook remains stable, supported by rise in commodity prices, though uncertainty likely to persist until new administration is placed.
Operating environment expected to continue reflecting ongoing challenges, with impaired PCLs remaining elevated in near term before gradually trending lower as economic outlook improves.
Credit Quality and Risk Management
All-bank PCLs of approximately CAD 1.2 billion, with performing PCLs of 3 basis points and impaired PCLs of 58 basis points.
Impaired PCLs increased quarter-over-quarter, driven primarily by elevated provisions in Canadian Banking Retail and GBM, offset by International Banking down CAD 74 million.
Allowances for credit losses increased by over CAD 200 million to approximately CAD 7.2 billion, with ACL ratio of 94 basis points.
Gross impaired loans increased approximately CAD 425 million quarter-over-quarter, driven by CAD 200 million increase primarily from three accounts in GBM.
GIL ratio increased 6 basis points to 95 basis points.
Canadian Banking PCLs of CAD 576 million (49 basis points), with retail PCLs of CAD 436 million, up CAD 82 million quarter-over-quarter.
Mortgage 90-plus day delinquency increased quarter-over-quarter, driven by COVID-era mortgages concentrated in Ontario and GTA, though impaired PCLs remain low with strong collateral coverage and low average LTVs of approximately 55%.
Early stage delinquency indicators in unsecured lending showing signs of improvement, with 30-plus day delinquency in both credit cards and ULOC showing sequential improvement.
International Banking PCL ratio of 131 basis points, down 1 basis point quarter-over-quarter.
GBM impaired PCLs up CAD 54 million relating to three accounts in agriculture and wholesale and retail industries, with portfolio trends remaining stable and concentrated in investment grade exposures.
Growth Opportunities and Strategies
Fiscal 2026 stands as pivotal year for Canadian Banking, where earnings expected to grow by double digits.
Mortgage+ program continues to drive over 90% of all mortgage originations, with bundled offering encompassing lending products and deposits winning new and deeper client relationships.
Shell Canada joined Scene+ Loyalty Network as new fuel partner, unlocking new ways for members to save and earn rewards on everyday essentials.
Canadian Wealth Management continues to see momentum in private bank offering with strong year-over-year loan and deposit growth.
Global Asset Management ranked third amongst peers in long-term retail mutual fund sales, up from sixth in same quarter last year.
Global Banking and Markets benefiting from productive investments, including new US Transaction Banking platform.
US comprises about half of segment earnings, with expectation this share to increase over time as bank continues to invest in capabilities in that critical market.
Partnership confirmed on Defence, Security and Resilience Bank, furthering commitment to providing capital, expertise and strategic advice to strengthen Canada's most critical sectors.
International Banking pursuing pivot to growth with retail pursuing top line growth at faster pace and commercial beginning to see growth for first time in number of quarters.
Global Transaction Banking capabilities being rolled out as key return on equity lever.
AI investments including both technology and talent, with strategic hires from other leading global banks.
AskAI tool allowing employees to get instant access to policy and product guidance, processing over 450,000 queries in Q1 alone, representing over 60% of queries in 2025.
AML AI pilot in Tangerine demonstrating positive results with 37% reduction in existing alert volumes.
Financial Guidance and Outlook
Return on equity tracking ahead of Investor Day expectations, giving greater confidence in achieving 14%-plus medium-term target one year ahead of plan.
Return on equity expansion expected across each business unit, with largest increase coming from Canadian Banking.
Key return on equity levers include improved business mix in Canadian Banking, risk-adjusted margin expansion across Canadian Banking and International Banking, ongoing rollout of Global Transaction Banking capabilities, and fee income growth and productivity enhancements.
Impaired PCLs expected to remain elevated in first half of year, followed by gradual improvement in latter half, with guidance of high-40s to mid-50s for full year.
Net interest margin expansion expected to continue throughout 2026 and beyond into 2027, with 2026 drivers focused on deposit margins and 2027 expected to be better than 2026.
Canadian Banking target to get closer to 24% ROE by 2028, currently at 18% with 140 basis points improvement already.
International Banking at 16% ROE, with confidence that this will be better than factored into numbers.
GBM pre-tax pre-provision revenue growing between 8% and 10% on quarterly or yearly basis.
Capital ratio expected to be well above 13%, in line with current quarter at 13.3%.
Full year outlook provided last quarter expected to be delivered, with earnings momentum from fiscal 2025 extending into first quarter of 2026.
