Bank of Nova Scotia Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ebrahim Poonawala - Bank of America Securities - Analyst : Hey, good morning. I guess maybe a question for Phil. So significant performing PCL build. I think you mentioned deterioration in macro indicators, expert judgment. Just if you don't mind, break it down for us around fundamentally -- I think you said impaired PCLs could be slightly higher. And I think what we are trying to and investors are trying to figure out is, what's the fundamental deterioration that has already taken place? And what do you see realistically happening over the coming weeks and months as we think about write-offs and where impaired PCLs, could '26 be even worse on impaired PCL than '25? Just from a very realistic scenario basis. How do you think about it?

Question: Ebrahim Poonawala - Bank of America Securities - Analyst : That's helpful. And if I can follow up just on that, maybe Scott, for you. As we think about customers picking up activity, what are we looking for? Is it a positive headline coming out of Mark Carney and the White House around the trade issues? Like what would get customer activity going in a world where you would feel less worried or your customers would feel less worried about the macro-outlook? Thank you.

Question: Ebrahim Poonawala - Bank of America Securities - Analyst : That's helpful. Thank you.

Question: Gabriel Dechaine - National Bank Financial - Analyst : Hey, good morning. Just a technical one here. Like on the condo exposure, if I look at your mortgage portfolio breakdown on -- what slide it is, but it shows 17% of your book is in condos. We're hearing stories about the borrowers backing out of preconstruction and stuff like that. Is there any lending exposure to that type of activity, I guess?

Question: Gabriel Dechaine - National Bank Financial - Analyst : Okay. Great. And then while I guess, stick with this mortgage business. for one. I saw the -- I heard rather, you talk about the credit performance delinquency rate stable in your mortgage portfolio because rates are being cut. And we know your portfolio is a little bit different in that sense. That all makes sense. But when I look at the Stage 2 classifications, it was up $9 billion quarter-over-quarter, more than 100% of that was in the Canadian RESL book, which also in this context makes sense, but it is a divergence. I'm just -- how do you determine when a mortgage goes from the Stage 1 low risk, no risk, whatever category to, hey, there's a bit more -- a bit more risk there. Is it regional, Southern Ontario, is it -- we've looked at the borrowers and what industry they're working in, et cetera? Like how does that shift take place?

Question: Gabriel Dechaine - National Bank Financial - Analyst : Is there any kind of, I don't know, you look at Toronto, 10% unemployment, that's where your expert judgment comes in. Is that as simple as that? Or maybe we can take it offline if that's a bit more practical.

Question: Gabriel Dechaine - National Bank Financial - Analyst : All right. Thanks. Sorry for the three questions.

Question: Mario Mendonca - TD Cowen - Analyst : Good morning. Phil, can we stick with you there? So your comments about credit conditions not deteriorating as abruptly as the slowdown. I think Scott's comments early on that credit still looks good. All of that is in direct contrast to what appears to be a lot of stress for the Canadian consumer. And I'm referring to the Equifax numbers, any number of articles that I've read about the Canadian consumer. And you've got every economist in Canada talking about how unemployment is moving higher, GDP growth is slowing, but we're simply not seeing it in the bank results, not in the two banks that have reported so far. I don't understand that. I don't understand how the banks that account for, I don't know, 85%, 90% of all the lending in Canada could not be seeing the same stress that we're seeing in the aggregate data. Is there something I'm missing here?

Question: Mario Mendonca - TD Cowen - Analyst : All right. Slightly different type of question. Thinking about wholesale and international loan growth now. there has been a prolonged period here where the bank simply isn't growing. And I get it. I get -- I understand the sort of North Star focus; you're going to focus on client primacy. Does there come a time when you can grow those two loan books again? Is it late '25? Is it 2026? Or is there -- is this period of shrinking going to persist much longer?

Question: Mario Mendonca - TD Cowen - Analyst : So both portfolios, international, commercial and capital markets portfolios could start to grow in '26?

Question: Mario Mendonca - TD Cowen - Analyst : All right. Thank you.

Question: John Aiken - Jefferies - Analyst : Thanks. I wanted to focus on the buyback. Now I know in normal times, it's basically a level of capital and relative valuation to share price. But considering that our outlook is softer economic growth, some concern about what the full impact is. How much does the economic outlook going to impact how conservative or how aggressive you are on the buyback moving forward?

Question: John Aiken - Jefferies - Analyst : Thanks, Scott, very clear. And since I have you on the line, can I just ask you in terms of -- I know this is very early days. But in terms of the strategic investment in KeyCorp, any lessons learned or anything that we can expect coming down the pipeline in terms of potential synergies from that investment?

Question: John Aiken - Jefferies - Analyst : Fantastic. Thanks. Got it. Appreciate it.

Question: Matthew Lee - Canaccord Genuity - Analyst : Hi, guys. Thanks for taking my questions. Maybe one more on international. PCLs were a bit better than expected, both on the performing and impaired. Can you maybe dig into what indicated you're seeing that and make you comfortable in the allowances that you've built in those countries, just particularly given the fact that there's the global macroeconomics and comments about Canada. Is the implication that there's less uncertainty there right now?

Question: Matthew Lee - Canaccord Genuity - Analyst : Right. And then maybe to that end, I mean, you've mentioned before that you wanted 90% of incremental capital towards the focused geographies. But I mean, if some of these markets end up becoming better opportunities on a risk-adjusted basis more quickly, would you maybe consider investing more heavily in the Peru and the Chile relative to maybe the Mexico and the United States?

Question: Matthew Lee - Canaccord Genuity - Analyst : Okay, that's helpful. Thanks. I'll pass it on. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 27, 2025 / 12:00PM, BNS.TO - Q2 2025 Bank of Nova Scotia Earnings Call

Question: Doug Young - Desjardins Securities - Analyst : Good morning. Hopefully, this will be relatively quick. But Raj, on capital, on the CET1 ratio, just two things. Just hoping to get a little color. You talked a bit about parameter updates and that had a decent positive impact on CET1 this quarter. And then there was a boost in operational or (inaudible) way. Just curious what that related to? And then maybe if you can round it out with just kind of is there any other levers you can pull to bolster the CET1 ratio?

Question: Doug Young - Desjardins Securities - Analyst : And just a follow-up, Scott, you said you're comfortable taking the ratio down to 12.5%. Is that kind of the bottom end of the range?

Question: Doug Young - Desjardins Securities - Analyst : Okay. And just lastly, Phil, can you quantify the total expert credit judgment tariff or trade overlay that you have in your ACL that you've done in the last two quarters? Or in whatever way you want to kind of portray that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 27, 2025 / 12:00PM, BNS.TO - Q2 2025 Bank of Nova Scotia Earnings Call

Question: Doug Young - Desjardins Securities - Analyst : North of 60% of the performing build in the last two quarters would be --

Question: Doug Young - Desjardins Securities - Analyst : Okay. Perfect. Thank you very much.

Question: Paul Holden - CIBC Capital Markets - Analyst : Hey, good morning. A couple of questions on Canadian P&C banking. I guess first off, in terms of the investments the bank is making in digital and technology, understand the requirement for them. Just want to get a better understanding of the cadence of how we should be thinking about the productivity ratio. Is this something that can improve in '26, following the investments of '25? Or is this sort of maybe a little bit of a longer-term game plan here in terms of the ultimate efficiency improvements?

Question: Paul Holden - CIBC Capital Markets - Analyst : So given the current macro-outlook, roughly when would you expect the efficiency ratio to stabilize or inflect higher?

Question: Paul Holden - CIBC Capital Markets - Analyst : Perfect. Thank you. One other quick question on the CET1 ration, maybe this is a question for Raj. I just want to better understand that impact coming from the PCLs or the credit impact that boosted the CET1 this quarter. Maybe you can kind of walk me through how that worked.

Question: Paul Holden - CIBC Capital Markets - Analyst : Okay, that's helpful. Thanks for that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 27, 2025 / 12:00PM, BNS.TO - Q2 2025 Bank of Nova Scotia Earnings Call

Question: Lemar Persaud - Cormark Securities - Analyst : Yeah, thanks. My first question is for Raj. Can you talk about the outlook for margins at the all-bank level and then at the segments, I guess, negative trend in domestic retail, international looks like it's towards the upper end of what we should expect. And then the other segment, NII approaching neutral. So would it be fair to say that perhaps we're approaching the end in terms of all bag NIM expansion? Or am I kind of thinking about this wrong?

Question: Lemar Persaud - Cormark Securities - Analyst : That's perfect. And then my second question, maybe for Scott. I noticed the change in verbiage in how you talked about the 5% to 7% EPS growth for 2025. And I guess last quarter, you mentioned it was towards the upper end of that 5% to 7% before KeyCorp. Is that now -- is that 5% to 7% now inclusive of KeyCorp? Did I hear that right?

Question: Lemar Persaud - Cormark Securities - Analyst : And not to put too fine a point on it, but that 5% to 7%, is that including buyback activity?

Question: Lemar Persaud - Cormark Securities - Analyst : Okay. I appreciate the time.

Question: Darko Mihelic - RBC Capital Markets - Analyst : Hi. Thank you. Good morning. Thanks for squeezing me in here. I have two questions for Aris on Canada. I'm going to get a little bit granular here, I apologize, but I really want to understand the trend that I'm seeing. And so the first is on the asset side within Canada. Quarter over quarter, there's only one place where I see you doing really well, and that's in mortgages. You're up 1.4% and TD is actually down 80 basis points. But in every other category, I see remarkably weaker. And so the question arises from -- when I think about that, I think about things that have changed. One is President Trump. And so possibly, this is a deliberate strategy to move towards mortgages and sort of not necessarily grow other more risky, call it, loan categories in the face of tariff uncertainty. But a second thing that also happened at Scotia was you changed your funds transfer pricing mechanism. And I'm wondering if possibly, that is also at play here. And if that's causing sort of pricing changes and therefore, you're losing share in other categories. All of this aimed, Aris, at understanding if this kind of trend should continue, where I should continue to see Scotia diverge from peers and so grow mortgages at a higher pace and everything else in a lower pace relative to peers.

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay. Great. Thank you. I appreciate the time. I do have a question on deposits, though, Aris. I understand that you're really focused on them, but it still seems like there's a bit of a struggle here with term versus demand. What is it that you intend to do in the back half of the year, if anything, to really focus on the demand side of the deposit equation? And I ask this again just because relative to peers, you may be doing better than you used to do at Scotia, but still relatively weaker than peers.

Question: Darko Mihelic - RBC Capital Markets - Analyst : And therefore, mostly a '26 kind of story on deposits? Or do you think this could accelerate even in Q3?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay. Thank you for that.

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay. Thank you for that too, Jacqui, and I'll come back to you on more recent developments in the marketplace given the volatility. Anything changed?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay, great. Thank you very much. Appreciate that.

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Hey, Scott, a quick answer. Scott, lots of reference back to the Investor Day. At Investor Day, you had talked about probably more of a 12% plus CET1 ratio. Now you're talking about 12.5% understandably. So environment has changed. What sort of bearing does that have on the ROE target that you had communicated at Investor Day? Higher capital ratio?

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Thank you for squeezing me in. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 27, 2025 / 12:00PM, BNS.TO - Q2 2025 Bank of Nova Scotia Earnings Call