Bank of Nova Scotia (NYSE:BNS) reported adjusted first-quarter fiscal 2026 earnings of CAD 2.7 billion, or CAD 2.05 per share, as management pointed to strong revenue growth, margin expansion, and expense discipline that offset higher impaired provisions for credit losses (PCLs) in a “challenging operating environment.”
On the bank’s earnings call, President and CEO Scott Thomson said adjusted EPS rose 16% year-over-year, while return on equity improved to 13%, up 120 basis points. The bank’s CET1 ratio was 13.3%, even after repurchasing 4.9 million shares in the quarter under its current normal course issuer bid (NCIB). Thomson said the bank’s capital deployment priorities remain investing in organic growth first, followed by share buybacks.
Management highlights: ROE path, technology and AI investment
He also emphasized ongoing technology investment, including increased focus on AI. Thomson cited “Ask AI,” an internal tool used for employee policy and product guidance, which processed over 450,000 queries in Q1 across multiple channels. He also referenced a Tangerine AML AI pilot that showed a 37% reduction in existing alert volumes, with the bank now designing an internal solution to improve precision and reduce false positives.
Financial performance: revenue up 11%, productivity ratio improves
Chief Financial Officer Rajagopal Viswanathan said results were discussed on an adjusted basis excluding the loss on the sale of Colombia and Central America operations and the usual amortization of acquisition-related intangibles. On that basis, the bank posted:
- Revenue up 11% year-over-year
- Net interest income up 13%, with net interest margin up 27 basis points driven by higher business line margins and lower funding costs
- Non-interest income up 10% on higher wealth and trading-related revenues and positive FX translation
- Expenses up 7%, reflecting seasonally higher personal costs, volume-driven compensation, and advertising/development to support growth
- Positive operating leverage of 4.2% and a productivity ratio of 52%, an improvement of 200 basis points
Viswanathan said the bank’s technology-related spend was approximately CAD 1.3 billion in the quarter, up CAD 38 million year-over-year. The effective tax rate increased to 25.7% from 23.8%, which he attributed primarily to lower income in lower-tax jurisdictions and higher withholding taxes paid during the quarter.
On capital, management cited approximately 15 basis points of capital generated from the Davivienda transaction. Viswanathan also noted capital usage tied to model and methodology updates and share repurchases, and said the bank remains committed to maintaining strong capital ratios.
Segment results: Canadian Banking, Wealth, GBM and International Banking
Canadian Banking delivered adjusted earnings of CAD 960 million, up 5% year-over-year, with return on equity of 18.1%. Viswanathan said net interest income rose 3% on loan growth and margin expansion, and fee and commission income increased 8% on higher mutual fund fees, FX fees, and credit card revenues. Deposits declined 2% year-over-year, as growth in day-to-day and savings deposits was more than offset by lower term deposits. Thomson highlighted 5% year-over-year demand deposit growth, doubled retail mutual fund net sales versus the prior year, and CAD 2.4 billion in retail referrals to wealth, up 19%.
Global Wealth Management posted earnings of CAD 488 million, up 18%, with ROE of 17.9%. Viswanathan said spot assets under management rose 10% year-over-year to CAD 436 billion, and assets under administration increased 8% to over CAD 800 billion. Thomson said net sales were CAD 1.8 billion, the sixth consecutive quarter of positive net flows, and pointed to 18% year-over-year earnings growth in international wealth, including 45% growth in Mexico driven by mutual fund and brokerage fee revenue.
Global Banking and Markets (GBM) generated earnings of CAD 545 million, up 5%, with ROE of 14.3%. Revenue increased 11%, supported by stronger capital markets revenues, higher trading-related revenues, and higher underwriting and advisory fees. Management discussed “significant” margin expansion, which executives attributed to disciplined pricing and lower deposit costs relative to asset yield declines. GBM head Travis Machen said the bank has been “managing asset betas and deposit betas” and focusing on total client relationships rather than “loan-only” relationships.
International Banking delivered earnings of CAD 717 million, up 8% year-over-year on a constant-dollar basis and excluding divested operations, with ROE of 16%. Net interest margin was 454 basis points, up 27 basis points year-over-year on lower funding costs as central bank rates declined. Deposits rose 4% year-over-year, while loans fell 1%, reflecting lower non-retail balances offset by retail loan growth. International Banking head Francisco Aristeguieta said the quarter showed resiliency, with expense performance “consistently better than expected,” and said the segment is pivoting toward growth while remaining mindful of uncertainty in emerging markets.
Credit quality: impaired PCLs elevated; guidance reiterated
Chief Risk Officer Shannon McGinnis said impaired loan loss provisions remained elevated amid “heightened macroeconomic uncertainty.” All-bank PCLs were approximately CAD 1.2 billion, with performing PCLs of three basis points and impaired PCLs of 58 basis points (including divestiture impacts). Excluding divestitures, PCLs were approximately CAD 1.1 billion or 60 basis points, and impaired PCLs were 56 basis points, up six basis points quarter-over-quarter.
McGinnis said about half of the quarterly increase in impaired PCLs was driven by three GBM accounts, with the balance driven by Canadian retail. She also said allowances for credit losses increased by over CAD 200 million quarter-over-quarter to approximately CAD 7.2 billion, and the ACL ratio rose to 94 basis points.
Management reiterated prior guidance that impaired PCLs are expected to remain elevated in the first half of the year and then improve in the latter half, while cautioning that the pace of improvement depends on macro conditions. Executives also discussed portfolio trends:
- In Canadian retail, mortgage 90+ day delinquency rose, which McGinnis attributed to “COVID-era” mortgages concentrated in Ontario and the GTA, though she said the uninsured portfolio has low average loan-to-value of about 55% and the bank does not expect material losses.
- In unsecured lending, she said stress is visible among younger, single-product cohorts, but 30+ day delinquency in credit cards and unsecured lines of credit showed sequential improvement.
- In GBM, she said impaired provisions remained “lumpy,” but the portfolio is concentrated in investment-grade exposures and the three files were not related to private credit.
In response to questions on Mexico, executives said the bank is not actively participating in resort financing and characterized its exposure as limited to working capital facilities tied to merchant acquiring services for large hotel operators.
Looking ahead, Thomson said the bank’s first-quarter performance increased management’s confidence in delivering the full-year outlook provided last quarter, while executives continued to frame macroeconomic conditions as the key variable influencing credit outcomes and the pace of ROE expansion.
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.
