Bank of Nova Scotia Earnings - Q1 2026 Analysis & Highlights
Bank of Nova Scotia reports strong Q2 2026 earnings with double-digit revenue growth, expanding margins, and positive operating leverage across most business segments, while managing credit quality amid macroeconomic uncertainty and positioning for continued momentum in commercial lending and wealth management.
Key Financial Results
Adjusted earnings of CAD 2.7 billion or CAD 2.02 per share for Q2 2026.
Return on equity of 13.2%, up 270 basis points year-over-year, with expectations to reach 14% plus in fiscal 2027.
Revenue growth of 13% year-over-year, driven by strong performance across business lines.
Net interest income grew 10% year-over-year as net interest margin expanded 24 basis points from higher business line margins and lower funding costs.
Non-interest income was up 17% year-over-year, mainly from higher wealth management revenues, investment gains, and income from associated corporations.
Pre-tax pre-provision profit growth of 20% year-over-year.
Productivity ratio improved by 290 basis points year-over-year to 52.5%, with positive year-to-date operating leverage of 4.9%.
Effective tax rate decreased to 23.3% quarter-over-quarter, primarily due to higher income in lower tax jurisdictions and higher inflationary adjustments.
Business Segment Results
Canadian Banking
Earnings of CAD 935 million, up 53% year-over-year from strong pre-tax pre-provision earnings growth of 13% and lower performing provisions for credit losses.
Loans grew 3% year-over-year from mortgage growth of 4%, while commercial and small business loans grew 1%.
Day-to-day and savings deposits grew 3% year-over-year, though total deposits declined 3% year-over-year, mostly in term deposits.
Net interest income grew 7% year-over-year from loan growth and margin expansion, with net interest margin expanding 4 basis points sequentially.
Non-interest income was up 10% year-over-year from higher mutual fund distribution fees and credit card revenues.
Provision for credit losses ratio of 50 basis points with impaired PCLs declining 2 basis points quarter-over-quarter.
Expenses were up 3% year-over-year from investments in technology, partly offset by efficiency initiatives.
Year-to-date operating leverage of 3.9%.
Fourth consecutive quarter of margin expansion and continued strength in fee income from wealth management, credit card, and insurance revenues.
Productivity ratio down 230 basis points year-over-year, contributing to positive operating leverage for the third consecutive quarter.
Retained over 90% of retail GIC maturities despite intensifying deposit competition.
Commercial loans were up 2% sequentially this quarter with robust pipeline growth expected to accelerate.
Small business portfolio continues to grow in the high-single digits.
Global Wealth Management
Earnings of CAD 474 million, up 19% year-over-year, with Canadian earnings up 20% and International up 12%, mainly in Mexico.
Net sales for the quarter were CAD 4.7 billion, four times what was reported in Q2 2025 and marking the seventh consecutive quarter of positive net flows.
Spot AUM and AUA grew 18% and 15% year-over-year from market appreciation and higher net sales.
Revenues were up 14% year-over-year from higher mutual fund fees, net interest income, and brokerage revenues.
Expenses were up 12% year-over-year from higher volume-related expenses.
Return on equity of 17.9%, up 210 basis points year-over-year.
Year-to-date operating leverage of 2.1%.
Total closed referrals of CAD 9 billion year-to-date, largely stemming from retail and small business segments to wealth.
Closed referrals between commercial banking and wealth were CAD 2.8 billion, double what was reported in the first half of last year.
Year-to-date net sales of CAD 3.1 billion in global asset management business, continuing to rank third amongst peers in long-term retail mutual fund sales, up from fifth in the same quarter last year.
International wealth business earnings up 12% year-over-year and 22% in Mexico.
Recognized with eight Euromoney Private Banking Awards across footprint and Mexico's asset management unit recognized by Morningstar with six funds ranked in the top 10.
Global Banking and Markets
Earnings of CAD 457 million, up 11% year-over-year.
Revenue grew 9% year-over-year as capital markets revenues were up 25% while business banking was down 7%.
Net interest income up 5% year-over-year, primarily due to higher margins.
Non-interest income up 10% year-over-year due to higher trading related revenues from equities, commodities, and fixed income, partly offset by lower FX trading and underwriting and advisory fees.
Expenses up 10% year-over-year, mainly due to higher technology and personnel costs.
Loans grew 1% quarter-over-quarter or up 3%, excluding Asia portfolio which is in run-off.
Strong deal pipeline with Q3 starting off on a strong footing with marquee transactions announced.
Mortgage capital markets business accelerating as part of US growth strategy.
International Banking
Earnings of CAD 701 million, up 3% year-over-year.
Revenue up 7% year-over-year, with net interest income up 5% and non-interest income up 14% from higher investment in associated corporations and insurance income.
Net interest margin of 476 basis points, expanded by 22 basis points quarter-over-quarter from lower funding costs in Latin America and inflation benefits mainly in Chile.
Deposits up 5% year-over-year as personal deposits grew 3% and non-personal grew 7%.
Loans down 2% year-over-year, as non-retail loans declined 8%, while retail grew 4%.
Operating leverage of 3.2% year-to-date.
Provision for credit losses ratio of 166 basis points, mainly from impaired.
Effective tax rate of 17.3%, mainly from higher inflation, refund of prior taxes in Peru and higher income from associated corporations.
Pre-tax pre-provision earnings up 12% year-over-year, helped by revenue growth of 7%.
Performance in Mexico particularly strong with revenue up 8% year-over-year and earnings up 25% year-over-year.
Retail loans continued to grow across footprint by 4% year-over-year, with non-mortgages growing by 7%, especially in Mexico and the Caribbean.
Commercial loan growth up 2% quarter-over-quarter and expected to continue to modestly improve in the second half of the year.
Deposits climbing 3% quarter-over-quarter and 5% year-over-year.
Capital Allocation
Quarterly dividend increase of CAD 0.04 per share, reflecting confidence in earnings growth.
CAD 7.5 billion returned to shareholders over the past 12 months through share buybacks and dividends.
Repurchased 6.4 million shares in the quarter under the 2025 and 2026 share repurchase programs, representing 13 basis points of capital usage.
Capital deployment priority continues to be organic growth, followed by share buybacks and strategic tuck-in acquisitions that fit a well-defined need.
Expectation to keep pace of capital returns while maintaining strong capital ratios.
Technology spend grew 9% to CAD 1.4 billion to support strategic growth initiatives.
Macroeconomic Environment
Macroeconomic environment remains uncertain, shaped by geopolitical developments and elevated energy costs that continue to affect trade flows and GDP growth outlook.
In Canada, near-term growth has moderated amid continued trade headwinds and inflation remains a key focus for policymakers.
Elevated energy costs, persistent trade uncertainty, and higher unemployment continue to pressure both consumers and businesses across the bank's footprint.
Prolonged inflationary pressures could further strain already vulnerable client segments in Canadian retail.
Canadian commercial performance remains resilient and in line with expectations, with continued attention on potential second order impacts from trade developments and sustained elevated oil prices.
In Mexico, macroeconomic indicators continue to present a mixed outlook, given trade uncertainty.
In Chile and Peru, credit performance has been stable, supported by commodity fundamentals, although the potential impact of higher energy costs remains an area of focus.
Management optimism on Canadian economy next year based on oil exporting nation status, new business-friendly government, and significant fiscal stimulus supporting provinces impacted by trade or affordability issues.
Foreign direct investment sentiment toward Canada has improved significantly, with examples including Shell's acquisition of ARC and increased pension fund interest in domestic investments.
CUSMA increasingly viewed as essential by business community, with recognition that Canada, US and Mexico need each other, reducing uncertainty compared to a year ago.
Growth Opportunities and Strategies
Scotia Intelligence and Scotia Navigator launched to unify AI capabilities and deliver AI securely at scale for employees and clients globally.
AI approach grounded in four key principles: security, flexibility, data, and platform-first thinking.
Model-agnostic approach adopted from day one, selecting models based on performance, security, and cost to provide maximum flexibility.
Enterprise data platform ensures data is discoverable, trusted, and ready for AI consumption across the enterprise.
Unified enterprise AI platform allows for faster deployment, consistent governance, and repeatable scale across the bank with enterprise-grade security guardrails.
Scotia High Interest Savings Account launched as one of Canada's first relationship-based accounts offering tiered regular interest rates based on client's total relationship balance.
Canadian Banking strategy focused on growing high-quality sticky deposits and deepening client relationships.
Commercial loan growth driven by rebuilding salesforce in mid-market, adding boots on the ground in high growth markets in BC and Quebec, with robust pipeline growth.
International Banking strategy includes deliberate effort on quality deposits, optimizing expensive deposits out and replacing them with operational deposits sustainably across all business lines.
Non-retail loan growth in International Banking expected to consolidate by 2027, with deliberate focus on quality of portfolio being built towards sustainability of performance.
Mortgage capital markets business accelerating as part of US growth strategy, with strong performance over the past year.
Potential tuck-in acquisitions in Global Banking and Markets for mortgage capital markets business to get FDIC insurance and sticky deposits, and in Global Wealth Management for US offshore booking point for Mexican business.
Connectivity between Canadian Banking and Global Wealth Management strengthening through growing retail fund sales and two-way referrals between units.
Referral volume from Canadian Banking to wealth increasing, with record mutual fund sales in branches and fees up 21% year-over-year.
Credit Quality and Risk Management
All-bank provisions of CAD 1.2 billion or 66 basis points, up 5 basis points quarter-over-quarter.
Impaired provisions of CAD 1.1 billion or 61 basis points, up 3 basis points quarter-over-quarter.
One corporate account in International Banking represented about 7 basis points of all-bank impaired PCLs, driven by company-specific factors rather than broader macroeconomic or trade-related pressures.
Performing provisions of 5 basis points, up 2 basis points quarter-over-quarter, driven mainly by forward-looking indicators in Canada.
Allowance for credit losses increased to CAD 7.3 billion or 96 basis points, up 2 basis points quarter-over-quarter.
Gross impaired loans increased 4 basis points quarter-over-quarter to 99 basis points, driven mainly by one corporate account in International Banking and higher formations in Canadian commercial.
Retail gross impaired loans declined across both Canada and International Banking, as lower new formations reflected enhanced collections efforts.
Non-retail GIL formations increased CAD 368 million quarter-over-quarter, driven mainly by one account in International Banking and one account in Canadian Banking.
Non-retail portfolio remains well positioned and underwritten to strong credit standards.
Canadian Banking provisions of CAD 575 million or 50 basis points.
Retail total PCLs of CAD 435 million, flat quarter-over-quarter as lower impaired provisions across most products were offset by higher performing PCLs.
Performing PCLs up CAD 22 million quarter-over-quarter driven primarily by unfavorable impact in forward-looking indicators, partially offset by credit quality improvements.
90-plus day delinquency for unsecured products improved 20 basis points quarter-over-quarter due to targeted collection actions.
International Banking provisions of CAD 599 million or 166 basis points, up from CAD 536 million in prior quarter.
Non-retail impaired PCLs concentrated mainly in a single corporate account, reflecting company-specific factors.
Retail total PCLs lower quarter-over-quarter, reflecting lower new formations in the Caribbean and Peru and lower performing provisions in Chile Consumer Finance portfolio.
Retail impaired PCLs of CAD 381 million, down CAD 24 million quarter-over-quarter, driven by divestitures.
Global Banking and Markets provisions of CAD 38 million or 8 basis points, lower quarter-over-quarter.
Non-retail watch-list remains below 2% of total outstandings.
Brazil portfolio described as very selective and deliberate corporate franchise with high-quality borrowers across strategic international corporates and leading players in Brazilian economy.
Allowances increased by CAD 159 million this quarter to bring total reserves to CAD 7.3 billion or 96 basis points, now 24 basis points higher than Q1 2023.
Financial Guidance and Outlook
Impaired PCLs expected to settle in the mid-50 basis point range for the remainder of 2026, with gradual trend down from first half levels, though more modest than originally anticipated.
International retail impaired PCLs expected to remain elevated, consistent with initial outlook.
Canadian retail impaired PCLs potentially impacted by prolonged inflationary pressures affecting vulnerable client segments.
Non-retail impaired PCLs expected to moderate from Q2 levels as the year progresses.
Average loan growth in Canadian Banking expected to catch-up to broader market by end of year, thanks in large part to acceleration in commercial loan growth.
Spot credit card growth expected to reach mid-single digit by end of year.
Mortgage volumes expected to keep pace with peers.
Commercial loan growth expected to continue to modestly improve in second half of year in International Banking.
International Banking net interest margin expected to be between 465 to 474 basis points for Q3 and Q4, compared to normal expectations of 440 to 450 basis points.
Margin expansion in Canadian Banking expected to continue for remainder of year, though not to same magnitude as earlier in year, driven by better deposits mix, better loan growth, and commercial growth.
Non-mortgage lending expected to increase as proportion of Canadian Banking lending book.
Risk-adjusted margins from mortgage renewals and repricing expected to improve as renewals accelerate.
Commercial lending growth expected to match market growth rates in subsequent quarters, driven by rebuilt salesforce and maturing pipeline.
Expectation to keep pace of capital returns while maintaining strong capital ratios.
