The Bank of Nova Scotia Price & Performance (BNS)

Good morning and welcome to Scotiabank's twenty twenty five First Quarter Results Presentation. My name is John McCartney, and I'm Head of Investor Relations here at Skershe Bank. Presenting to you this morning are Scott Thompson, Scotiabank's President and Chief Executive Officer Raj Viswanathan, our Chief Financial Officer and Phil Thomas, our Chief Risk Officer. Following our comments, we'll be glad to take your questions. Also present to take questions are the following Scotiabank executives The, [indiscernible] Canadian Banking, Jackie Allard from Global Wealth Management, Francisco Aristogeta from International Banking and Travis Machen from Global Banking Markets. Before we start and on behalf of those speaking today, I will refer you to Slide two of our presentation. Which contains Scotiabank's caution regarding forward looking statements. With that, I will now turn the call over to Scott. Thank you, John, and good morning, everyone. 2025 is off to a strong start. We are seeing encouraging signs in this quarter's results that our enterprise strategy is having the desired impact on our financial performance. We delivered adjusted earnings in the quarter of $2,200,000,000 or $1.76 per share, reflecting strengthening revenue led client franchise growth, coupled with the favorable impact of easing funding costs from lower rates.

Am particularly pleased with The 15% year over year growth in non interest revenue. Our relationship based businesses, including our advisory business in global banking and markets, and our advice channels in wealth, coupled with our wealth management product sales throughout our domestic reach out channels, were all strong contributors to the acceleration of growth Our provisions for credit losses this quarter remain elevated. Reflecting the toll on our clients of higher interest rates and inflation over the past few years, in addition to the heightened current geopolitical uncertainty and its potential impact on economic growth. Our balance sheet metrics remained strong. The work we have done over the past two years in managing our capital strengthening the balance sheet, and responsibly building allowances have set a solid foundation enabling us to manage through this period of volatility and continue to fund our strategic growth objectives in 2025 and beyond. Since the end of twenty twenty two, we have improved our capital ratio by approximately 140 basis points build approximately $1,600,000,000 in additional allowances for credit losses, and significantly improved our liquidity ratios. We added almost $350,000,000 to our allowance [indiscernible] We are a much stronger bank today aware of current heightened risks and prepared to respond to more tangible trade developments We remain focused on driving forward our very clear and sound [indiscernible] First, we continue to focus on allocating incremental capital and resources to our priority markets.

This quarter, we closed our investment in KeyCorp, is an example of our active capital deployment strategy into The U. S. Market. This investment is immediately accretive to our earnings growth and return on equity metrics. We also announced the sale of our banking operations in Colombia, Costa Rica and Panama to David Allende, for an approximate 20% ownership stake in the newly combined entity. We expect the transaction to be capital new neutral and our earnings pickup to be well ahead of what our Scotiabank franchise would have earned standalone. Second, we continue to focus on our North earning client primacy and growing core deposits. Our overall bank funding profile continues to strengthen with strong year over year deposit growth of 4%, with positive contributions from each of our business lines that outpaced loan growth and reduced our loan to deposit ratio to 105%. Value over volume remains an enterprise wide priority. [indiscernible] We continue to see an acceleration of multiproduct clients in Canadian retail as we enhance our client acquisition strategies, through initiatives like Mortgage plus and Scene plus Penetration of the 15,000,000 The plus members across Canada 25% of CINE Plus members now have a Scotiabank payment product, up 50 basis points in the quarter.

An impressive 89 came through our Mortgage Plus packaged offerings. In Canadian retail, on a cumulative basis since our strategy launch, we have now added 200,000 new primary clients, Although primary client growth has decelerated due to the notable immigration slowdown, we continue to see good momentum in the number of clients we consider primary which reached 30% of total clients in the quarter. Client depth in Canadian retail with clients holding three or more products increasing sequentially to approximately 47 up 30 basis points And we are also successfully growing primary clients in international [indiscernible] We have now welcomed 113,000 new primary clients to Scotiabank since our strategy launch and are seeing positive trends in overall clients' considered primary Third, we continue to demonstrate operational excellence and return discipline. We delivered again on positive operating leverage while investing in frontline product specialists in retail increasing the sales force and wealth, and additional sectoral coverage professionals in GBM in our drive to deliver best in class solutions to our clients. We delivered an 11.8% return on equity Q1, representing solid sequential progress. But we know the opportunity exists in each of our business lines and geographic markets drive stronger ROE performance.

We have the scale and strategies in place to do so. Finally, we have updated our approach to business segment presentation to be consistent with management's evaluation of the financial performance of the segments. The changes will support better decision making around pricing and capital allocation to help the bank achieve its financial and strategic medium term objectives. [indiscernible] Turning to a few key performance metrics and strategic highlights from each of our business lines. Starting with the market facing businesses. Global Wealth Management continued its positive momentum delivering $414,000,000 in earnings as we continue to invest in the growth of our advice channels and broaden the distribution breadth of our differentiated asset management franchise, Favorable markets, strong trading revenues and drove fee earning assets to record levels as we exceeded $730,000,000,000 of assets under administration [indiscernible] retail asset management and private investment council businesses. Growth in investment fund sales across our branch, wholesale and Scotia financial planning channels remain our leading strategic priority in this business. Strong fund sales in the quarter were up 50% over last year and we expect strong net sales to accelerate through the year. We are tracking ahead of our targets year to date in terms of new clients, financial plans delivered, and client retention.

New financial plans delivered in Q1 were up 10% year over year and average revenue per account is up 13% year to date. We are performing well on referrals with more work needed to meet referral targets between wealth and commercial banking. Referral volume between our wealth and retail business was $2,500,000,000 in the quarter, an increase of 16% over last year. We continue to invest in technology to make it easier for our advisors to do business with their clients and in frontline staff to deliver total wealth solutions to our wealth and retail clients of the bank. Global banking and markets had a very strong start to the year, up 33% year over year in Q1, with particular strength across our capital markets businesses as clients reacted and repositioned their portfolios in response to evolving macro and geopolitical developments. Capital Markets businesses contributed 54% of the GBM revenue this quarter, as our origination and advisory business has delivered one of the strongest quarters on record. Average deposits were up 3% and return on equity improved three fifty basis points year over year demonstrating capital discipline. Our underwriting and advisory practice also had an impressive start to the year, up 61% year over year and 33% sequentially, and our pipeline remains strong looking into the year subject to continued constructive market tone and supportive financing conditions.

Our global banking and markets team continues to exceed targets on lead relationship client growth, while deliberately reducing our absolute exposure to lending only client relationships. We are seeing good progress and competitive positioning across our footprint. In Canada, our debt capital markets and equity capital markets teams delivered number one, and number two league table ranks respectively. Our U. S. Debt capital markets team ranked an outstanding eleventh in the period On the M and A side, we were the number one advisor by deal value in the LatAm Canadian Banking had solid revenue growth driven by asset margin expansion and well diversified fee income growth. However, results this quarter do reflect the impact of higher credit provisions because of portfolio migration and a more cautious consumer outlook. Our commercial banking business delivered growth through capital discipline while our expanded cash management capabilities drove deposit growth. The commercial business continues to show a very attractive funding profile generating deposit growth of over $10,000,000,000 year over year while assets grew at modest $3,000,000,000 Commercial is an increasingly important source of cross sell fee revenue to both our GBM and Global Wealth businesses. Retail deposit growth was up 4% year over year as we continue to focus on day to day and savings accounts.

In addition, investments funded insurance product sales which are a key priority to drive higher non interest revenue at double digit growth. Capitalizing on our Scene plus and Mortgage plus offer opportunities will be required to deliver on our client growth objectives. Cajarene continues to increase primary clients. Aligned to our goal of deepening relationships through everyday banking. This quarter, digital active clients reached an all time high of 1,400,000. We have a new leadership team in place at Tangerine who will be in intensely focused on relationship depth and client acquisition. Primary client growth improved productivity, business mix diversification with a focus on fee businesses, coupled with the normalization of the credit environment will be the drivers of future earnings growth from our domestic banking franchise. International banking delivered solid results based on diversified revenue growth by segment and geography, coupled with strong expense discipline. Our GBM business in this segment had a strong rebound in net delivering $330,000,000 in earnings with lower capital deployed. We continue to reposition our retail business while strengthening our commercial business. Specifically in commercial this quarter, we saw primary client expansion deposits growing 9% year over year, driving improvement in customer revenue by 8%.

Our productivity ratio improved to 51% this quarter a result of 4% revenue growth and disciplined 1% The productivity ratio is expected to continue to improve as the benefits of our move towards a regional model take effect. We are well on pace to achieve our medium term run rate savings commitment of $800,000,000 At an all bank level, we are in encouraged by our strong results this quarter. Excluding the impact of any potential tariffs, we are on track to deliver 2025 earnings growth towards the higher end of our 5% to 7% range prior to the KeyCorp earnings pickup. Our balance sheet strength provides us flexibility in the near term to successfully manage The the various economic and trade scenarios that may evolve. [indiscernible] We remain mindful of the impacts of possible economic disruption and growth pause could have on businesses across the country. Are taking a conservative and proactive approach to ensuring we successfully navigate what could be a volatile period with the long term interest of all stakeholders in mind. [indiscernible] The capital discipline now in place across our business has us well positioned to fund our organic growth agenda while resuming dividend growth and capital return to shareholders over time.

Looking ahead, we are in a period of heightened geopolitical uncertainty and a less certain economic outlook as new government administrations in two of our priority markets The United States and Mexico The, look to define new policy and trade relationships for the next few years. This is an important moment for Canada opportunities to reflect on the trade and productivity challenges that if addressed can serve as a catalyst to redefine our national economic agenda. The bank continues to see the potential for an integrated North American economy to further drive competitiveness and collective prosperity. I remain confident that Canada can come out of this period of transition with a much clearer [indiscernible] and an economic agenda that is squarely focused on raising our competitiveness. Lower taxes, less regulation, a clear focus on measures to boost investment, energy policies that significantly increase export opportunities for Canadian oil and gas and a sharp reduction in the time it takes develop other natural resource projects should be key objectives. And I believe the banking industry will play an important role in supporting a much more deliberate national economic plan. In summary, I am pleased with the progress we have made in executing against our strategy and I'm encouraged by our results in this first quarter of fiscal twenty twenty five.

I would like to thank our entire team of Scotiabankers across our footprint who are focused on supporting our clients with advice as they navigate the challenges of [indiscernible] As we stay focused on disciplined capital allocation, growing client primacy, improving productivity, while maintaining a strong balance sheet I remain confident in the path ahead as we continue to execute on our strategy. I will now turn it to Raj for a more detailed financial review of the quarter. Thank you, Scott, and good morning, everyone. This quarter's earnings was impacted by $1.1 of adjusting items, with an approximately 12 basis points impact on common equity Tier one. In addition to our usual adjustment for amortization of acquisition related we recorded a $1,200,000,000 after tax loss net of non controlling interest related to the announced sale of operations in Colombia and Central America, that was recorded in the The segment. All my comments that follow will be on an adjusted basis. Moving to Slide six for a review of the first quarter results. The bank reported quarterly earnings of $2,400,000,000 and diluted earnings per share of $1.76 that improved $0.07 from last year and $0.19 from last quarter. Our investment in Keycor contributed approximately $0.02 to this quarter's EPS.

Return on equity improved 11.8% from 10.6% last quarter and return on tangible common equity was 14.3%. Revenues were up 11% year over year driven by growth in both net interest and non interest income. Net interest income grew 8% year over year due primarily to loan growth including the BA conversion, and a higher net interest margin. The Oil Bank margin expanded four basis points year over year and eight basis points quarter over quarter driven by lower funding costs, as a result of rate cuts. Non interest income was $4,200,000,000 up 15% year over year primarily due to higher trading revenues, wealth management revenues underwriting and advisory fees, income from associated corporations These were partly offset by the impact of BA conversion and the negative impact of foreign currency translation. The provision for credit losses was approximately $1,200,000,000 and the PCL ratio was 60 basis points. Up six basis points quarter over quarter mostly in performing allowances. Expenses grew 8% year over year, of which 3% was from higher performance and volume driven expenses, in GBM, and Global Wealth. The rest of the increase related to higher technology and personal costs to drive business growth. Quarter over quarter expenses were also up seven business and capital taxes, technology related costs and the unfavorable impact of foreign currency translation The bank generated positive operating leverage of 2.8% and the productivity ratio at 54.5% improved 160 basis points sequentially.

The bank's adjusted effective tax rate increased to 23.8% from 19.6% last year. Due to changes in earnings mix across jurisdictions, [indiscernible] and the implementation of the global minimum tax this year. Moving to Slide seven, which shows the evolution of the common equity Tier one ratio and risk weighted assets during the quarter. The bank CET1 capital ratio remained strong at 12.9% a decrease of 20 basis points quarter over quarter and flat year over year. Earnings less dividends contributed 19 basis points and lower risk weighted assets also contributed 19 basis points. Which include the benefits from the Synthetic Risk Transfer transaction. This was offset by 43 basis points from the closing of the additional investment in The Corp, and 12 basis points from the announced sale of our operations in Colombia and Central America. [indiscernible] The total risk weighted assets was $468,000,000,000 up $4,000,000,000 or down $4,000,000,000 excluding the impact of foreign currency. This included a decline in book size of approximately $12,100,000,000 primarily from the Synthetic Rest transaction and other RWA optimization which was partly offset by an increase in book qualitative grade of $4,700,000,000 that related primarily to non retail credit migration and the impact of parameter recalibrations.

Turning now to the business line results beginning on Slide eight. Canadian Banking reported earnings of $914,000,000 down 6% year over year as higher revenues were more than offset by higher loan loss provisions and expenses.

Average loans were up 3% year over year Real estate secured lending was up 4% business loans grew 3% and credit card balances grew 9%. Loans grew a more modest 1% sequentially primarily in mortgages. We continue to see deposit growth as year over year deposits grew 6% driven by an increase of 10% in non personal deposits mostly in demand and 4% in personal deposits mostly in term Net interest income grew 6% year over year primarily from asset and deposit growth. And the benefit of BAs converting to loans partly offset by margin compression. The net interest margin declined by one basis point quarter over quarter and 10 basis points year over year as asset margin expansion of eight basis points was more than offset by lower deposit margin of 17 basis points. Reflecting the impact of rate cuts. [indiscernible] Non interest income was up 4% year over year primarily due to elevated private equity gains higher mutual fund fees and insurance income, that were partly offset by lower banking fees from the impact of BA conversion. PCN ratio was 47 basis points up 13 basis points year over year and seven basis points quarter over quarter. Expenses increased 8% year over year primarily due to higher technology costs and professional fees.

To support key strategic priorities. Quarter over quarter expenses grew 2% primarily due to higher technology costs, and seasonally higher share based compensation. Operating leverage for the quarter was negative 1.8%. Turning now to Global Wealth Management on Slide nine. The earnings of $414,000,000 were up 23% year over year as Canadian earnings were up 27% driven by higher mutual fund fees, and wealth advisory revenues that were partly offset by higher expenses largely volume related. Quarter over quarter earnings were up 7% due to higher brokerage revenues and mutual fund fees. And net interest income that were partly offset by higher expenses. The revenues of $1,600,000,000 were up 19% year over year from higher mutual fund fees driven by strong AUM growth and higher brokerage revenues. Expenses were also up 17% year over year of which more than half was due to volume related expenses In addition to higher technology costs, and sales force expansion, The operating leverage was a strong positive 2.3%. Spot AUM increased 16% year over year to $396,000,000,000 and AUA grew 13% over the same period to over $730,000,000,000 driven by market appreciation and higher net sales. International Wealth Management generated earnings of 54,000,000 up 1% year over year or 5% excluding the impact of FX.

Driven by higher mutual fund fees and brokerage revenue, that were partly offset by higher expenses and the impact of the global minimum tax. Turning to Slide 10, Global Banking and Markets. Global Banking and Markets delivered a particularly strong start to the year. Earnings of $517,000,000 up 33% year over year. Capital Markets revenue was up 41% year over year and 47% quarter to quarter, driven from higher equities and FICC revenues. The business banking revenues also grew 8% year over year and 7% quarter over quarter due to higher corporate and investment banking revenue including higher underwriting and advisory fees. The net interest income increased 18% year over year from higher corporate lending and deposit margins while loan balances declined 15% year over year. Reflecting market conditions, and management's continued focus on balance sheet optimization. Non interest income was up [indiscernible] across the capital markets business of fixed income, equities and FX. Expenses were up 14% year over year mainly from higher personal costs Including performance based compensation as a result of stronger performance, higher technology costs and the negative impact of FX. Quarter over quarter expenses were up 10% due mainly to seasonally higher share based compensation and higher personnel costs.

The operating leverage was a strong 9.2%. The effective tax rate increased to 24.5% in The segment due to changes in earnings across jurisdictions. The U. S. Business generated strong earnings $296,000,000 up 39% year over year driven by higher capital markets revenues from Actis, fixed income and FX, that were partly offset by higher expenses.

Moving to Slide 11 for The review of international banking.

The comments that follow are on an adjusted and constant dollar basis.

The segment delivered earnings of $657,000,000 up 5% sequentially, but down 7% from last year. The GBM business in The segment generated earnings of $330,000,000 from strong client activity although down 10% compared to the prior year, The revenue was up 1% year over year as non interest income was up 6% driven by higher capital markets revenue that were partially offset by a 1% decrease in net interest income. The margin expanded by five basis points year over year driven by lower funding costs. Net interest margin was down two basis points quarter over quarter driven by lower inflation lower loan margins in Mexico. Year over year loans were down 2%. Business loans declined 8% The were partly offset by 4% growth residential mortgages. Deposits were down a modest 1% year over year. While personal deposits grew 1% year over year non personal deposits declined 2%. The provision for credit losses was $6.00 $2,000,000 translating to 146 basis points. Up nine basis points quarter over quarter. Expenses were up a modest 1% year over year driven mainly by higher salaries and employee benefits. Quarter over quarter expenses grew 3% driven by higher benefits and seasonally higher expenses in Jamaica.

Operating leverage for the quarter was positive 0.4%. The effective tax rate increased by 170 basis points to 21.7% due to lower inflation benefits and the impact of the global minimum tax. Turning to Slide 12. The other segment reported an adjusted net loss of $177,000,000 compared to a loss of $2.00 $2,000,000 in the prior quarter an improvement of $25,000,000 Sequentially, revenue improved approximately $150,000,000 as net interest income continued to improve. Benefiting from lower funding costs driven by rate cuts, This is partly offset by higher expenses, and taxes. I'll turn the call over to Phil to discuss risk.

Last quarter, we indicated that PCLs would remain elevated in the first half the year as our clients continue to manage the impacts from higher for longer rate environment, and the increased macroeconomic uncertainty given geopolitical risks. The announcement of potential tariffs has further increased macroeconomic And based on what we knew on January 31, our base case scenario includes modest tariff risk of approximately 5% on half of Canadian imports and 10% on half of Mexican imports. We also incorporated more severe tariffs into our already stressed pessimistic and very pessimistic scenarios. Against this backdrop of increased uncertainty, all bank PCLs were approximately $1,200,000,000 or 60 basis points this quarter, up $132,000,000 quarter over quarter.

Of this, performing PCLs were $98,000,000 or five basis Approximately two thirds of this performing build was driven by the inclusion of potential tariffs and continued macroeconomic volatility across our Canadian and Mexican portfolios. The remaining drivers of this quarter PCLs included increased impairments across our Canada, Mexico and Chile retail portfolios driven by credit migration and the full provision of one impaired account in Canadian The the food and beverage industry.

Turning to Canadian Banking. PCLs were $538,000,000 or 47 basis basis points, up seven basis points quarter to quarter. Retail PCLs were $423,000,000 up $68,000,000 quarter over quarter driven primarily by on and auto portfolios. Retail performing PCLs increased to $45,000,000 quarter over quarter driven by an unfavorable macroeconomic outlook and higher delinquencies. [indiscernible] Impaired retail PCLs were up $23,000,000 quarter over quarter from higher net write offs in both automotive and unsecured revolving portfolios.

Overall, ninety day mortgage delinquency The quarter, as delinquency in our variable rate mortgage clients begins to stabilize as they experience relief from central bank rate cuts. Furthermore, decreasing payments continued to benefit variable rate mortgage clients as their deposit coverage maintained its upward trend.

Commercial PCLs were $115,000,000 up $20,000,000 quarter over quarter, which includes the account previously mentioned. Moving to International Banking. PCLs were $6.00 2,000,000 in Q1 resulting in a PCL ratio of 146 basis points up nine basis points quarter over quarter. Enteric PCLs were flat quarter over quarter while we had $47,000,000 increase in performing provisions. Presale PCLs were up $58,000,000 quarter over quarter as last quarter had a $40,000,000 release in performing PCLs.

This quarter's higher performing allowances were driven by Mexico and Chile offset by improvements in other markets. Commercial PCLs improved quarter over quarter down $12,000,000 We increased all bank allowances for credit losses again this quarter by a further $44,000,000 and it is now $7,000,000,000 The ACL ratio is at 91 basis points, up five basis points year over year and three basis points quarter over quarter. We still anticipate our PCL ratio to trend down in the second half of the year However, this assumes we do not see significant deterioration in the macroeconomic environment and meaningful tariffs. With the backdrop of potential tariffs, we have conducted a significant amount of analysis across various scenarios. This is to ensure the bank is sufficiently prepared to navigate through this uncertainty. Any impact to allowances from tariffs will depend on several variables, including the size and duration of tariffs, degree of retaliation the amount of government subsidies or intervention, any client actions taken to mitigate the impact, and bank actions we take to further support our clients. We are comfortable with the adequacy of our allowances for credit losses as grown approximately $1,600,000,000 since the end of twenty twenty two. If tariffs are imposed, we will review and adjust our allowances as needed in the quarter they are finalized.

In addition to our allowances, we remain well capitalized. Have a strong liquidity position and are confident in our proven track record in managing through more challenging periods across all our markets while supporting our clients. With that, I will pass it back to John for Q and A. Great. Thank you, Phil. We'll now move to the Q and A segment of the call. Please limit yourself to one question re queue if you have another. Operator, can we have the first question?

Thank you. We will now take questions from the telephone lines. Our first question is from Ebrahim Puma Poonawala from Bank of America. Please go ahead.

Hey, good morning. I guess maybe just a question on Credit outlook, I think if we can break this down in an ex tariff world, I think, Phil, you mentioned expect TCLs to go down in the second half of 'twenty five And The you referenced higher for longer rates. Would you characterize rates today as no longer being higher for longer? Terms of The ability of the consumer customer base to service their debt. So one, the rate backdrop now low enough where that's not a big risk factor, And ex tariffs, should we you seeing any signs of a cyclical rebound maybe a few if you go back three, four weeks ago before the headline said, would appreciate any color around those two? [indiscernible] Thank you. It's a great question. I'm glad to look out beyond tariffs. Certainly, as we look at there's still a little bit of softness in Canadian retail portfolio, but we are starting to really see customers starting to benefit from rate cuts particularly in our our for [indiscernible] rate cuts are benefiting those customers. As The look out for the remainder of the year, still very positive that tariffs aside, we'll see our provision starting to trend down in the latter half of the year.

And that's what our models are telling us. That's the way customers, consumer trends are are shaping up and we've got confidence in that outlook outside of the tariff landscape.

Got it. And one quick follow-up maybe Scott for you. Stocks at very discounted valuations, why not initiate buybacks given their capital levels are? Yes. Hi, Ebrahim. For first, I mean, I'm very pleased with the capital discipline and the internal capital generation The we saw this quarter. Think as we think about capital return, it will be important to see how tariffs play out. But my expectation is that we will resume dividend growth albeit at a modest level next quarter. And I'm hopeful that we'll be in a position to start returning capital to shareholders via share repurchases by the end of the year. Thank you. Thank you.

Following question is from John Aiken from Jefferies.

Please go ahead.

Good morning. Wanted to focus in on the strong performance that we saw in Global Banking and Markets this quarter. The productivity ratio showed some market improvements, both quarter over quarter, year over year. I know a lot of that is related to the strong growth that we saw in revenues, but I was a little surprised that it came in this low.

What how should I be interpreting this? Are we expecting guess, lower expenses or a better productivity ratio through 2025? Or is this an indication that we're expecting revenues to significantly decline to a more normalized level from what we saw in the first quarter? This is Travis. Listen, I appreciate The If you look at our business, in this quarter, we had a lot of segments that really performed where you have great operating leverage. I think that plays out to the profitability of the ROE and the productivity level. We expect revenues probably to normalize towards a more normal level in this business. We clearly earned Nearly a record amount in this quarter. So I'd expect that productivity level ratio to productivity ratio to normalize a little higher.

Just to add a little more color. Yes, the $517,000,000 earnings is really good. We're very pleased we have the strength to monetize and capitalize the opportunities come up. The normal run rate for this business, Umesh, should be between $425,000,000 to $450,000,000 I think. Right? Like in Scott's comments, he talked about capital markets being 54% of the revenue mix. And that plays a big role in reducing productivity ratio. But The are focused on managing expenses line with revenue growth and prioritizing the spend in that segment.

I mean the only other thing I'd add is when you look at the expense growth this quarter, it was primarily driven by our market facing businesses. So when you see the wealth expense growth, it was because of the big revenue growth and similarly in Travis' business, you had great revenue performance, but you also had expense growth with that. So get to a more normalized expense growth for the overall entity if those been came off a little bit from a revenue perspective.

And then not to downplay the advisory impact this quarter, but I mean The exceptionally strong growth on trading. You give us a sense in terms of what you're seeing for pipeline on advisory given the fact that there's a lot of, I guess, excitement or exuberance in terms of what the outlook may be Sure.

Yes. Listen, our pipeline remains incredibly strong.

We have tremendous buying activity across all segments and all sectors. The market is robust. The being said, there's clearly headwinds that persist. In the market with rate uncertainty, tariffs, [indiscernible] and I would say The U. S. Market, stock market is priced per perfect. Perfection right now.

So there's a lot of things that can slow down the pipeline. As of right now, we it looks incredibly strong.

What I really liked about this quarter too was the lead table performance. So when you look at number one in debt capital markets in Canada, number 11 in debt capital markets in The U. S. Number one in M and A. In LatAm, great M and A, performance here in Canada, I mean from an advisor perspective, it was really good competitive result. For the business this quarter.

Fantastic. Thanks for the color. Thank you. Following question is from Matt Yulie from Canaccord Genuity.

Please go ahead.

Hi.

Thanks for taking my question. Maybe just one on international. And the Devena transaction.

Was taking back equity a strategic decision on your end or maybe more a way to negotiate more favorable terms on the deal? I think I guess as you look at divesting more assets, so would you expect more deals like this one or Maybe a greater focus on receiving cash in the The.

Great, Matthew. Thanks for the question. It's Scott The then I'll let Francisco follow-up.

There's not a strategic view here on minority investment if that was the question. I mean, the key core acquisition was done or investment was done for particular reasons that we talked about in terms of financial attractiveness.

On the Davyenda side, we didn't want to sell at the low point in the cycle. And so when we could take advantage of combining with The strong bank in the region, to become the second largest bank, capture a lot of synergies and see both capital neutrality in the short term and earnings accretion in the long term that seemed like the right plan for our shareholders.

Frances could just give us a sense of Absolutely, Scott. Yes, The terms of our footprint, there's no plan to enter into minority agreements as part of our strategic push forward. So that's not at all the way forward. However, when we look at the situation in Colombia, it's very particular. And we identified [indiscernible] opportunity to partner with a very strong operator that culturally provides an extraordinary fit to our culture. They have a footprint that is relevant to our client base both Central America and in Colombia. Have now created a very strong bank that enjoys a scale that on our own ranking six, we would never achieve. And allows us to redeploy management time, capital and effort to our core growth markets while maintaining through the referral agreement the ability to support our multinational and wealth clients both in Central America and Colombia effectively.

What this allows us to do is also benefit from the transformation and improvement of the Colombian market because we have no doubt as a management team that Colombia will turn around over the next few years. And this will allow us to capture the offslane. Of Colombia coming back to normal in terms of economic activity and macro performance. So overall, we see this as a very accretive transaction to our current short term strategy while positioning us strong for the long term. All right. Thanks. That's helpful.

Thank you. Our following question is from Doug Young from Desjardins Capital Markets.

Hi, good morning. Questions for Phil and sorry, Phil, I'm going to go tariff. But you haven't changed your PCL rate guidance for fiscal twenty twenty five. You were at the higher end this quarter, but you're expecting to be lower in the back half as you kind of talked about and you've built a little bit of cushion in for for tariffs. Now you've done a lot of stress testing. Can you give us a sense if tariffs are put in as proposed, but what word does your guidance go? Or what are the kind of ranges we should be thinking about in terms of your total PCR rate?

Thank you. I appreciate the question. Obviously, that's the topic de jure The sure everybody in the financial services industry is looking and trying to to come up with some outlook. Listen, as I said in my prepared remarks, There's going to be a number of variables that we're going to work through. The size and duration of The tariffs, the degree of retaliation, the amount of government subsidies, client actions, bank actions. And it's really hard to give you a range or an come at this at this point in time without having some understanding of what these tariffs look like. I think what I wanted to really just stress is that If tariffs come along, in Q2, We'll do the appropriate build in Q2.

And it'll be a sizable but manageable build and we'll work through it. We've done a great job over the past couple of years of strengthening the balance sheet. Strengthening the balance sheet and and we're well capitalized and we're feeling pretty comfortable that we could it'll be meaningful The manageable.

Okay. I would ask what meaningful means I'm going to guess you're not going to tell me. [indiscernible] Okay. I appreciate the color. Thank you.

Thank you. Following question is from Gabriel Duchenne from National Bank Financial. Please go ahead.

Hey, good morning.

Quick one on international. Your earnings were down still high single digits. And I'm wondering, you had guided to softer performance for that business this year. Just wondering if that's better or worse in line than what your expectations were? And then on capital, actually I'll wait for the answer and I'll ask you the capital one The.

Thank you. Thank you for the question. As a matter of fact, Q1 for us in 2025 is our second best quarter ever on the back of a record quarter on the first quarter of twenty twenty four.

So it is a very strong showing. Although we do believe that Getting to the level we were in Q1 and 2024 was very hard to achieve. When you look in constant terms, year over year, we're still growing at 1% quarter over quarter 4%. So revenues still showing strong in spite of the fact that we had again our highest quarter on record to compare to year over year. When you look at performance overall, very much in line with economic activity, although our expectation in Q1. We are seeing the benefit of lower rates at a faster pace than we anticipated. We had a little bit of higher inflation in some markets that also benefited our positions.

So overall, what I see is very much in line with our prior guidance around a slower GDP growth for most of our markets in 2025 but with resilient performance, unimportantistic as markets allow us to perform. Okay. What I really liked about the quarter in international was the productivity ratio.

You see the 4% revenue growth and the 1% expense growth, think about what we've done over the last two years now on bringing that product to be ratio down 300 basis points or 400 basis points, an outlook to continue to reduce that through the regionalization efforts. And I think Colombia will be helpful too. Very much will take out The kind of the overhead costs associated with that business. So on plan here for the $800,000,000 reduction that we talked about, which gives a lot of running room for earnings international over time. While continuing to improve capital deployment, right. So again The quarter of material improvement on our return on risk weighted assets, we're now at 1.99 which is a massive improvement from where we were while maintaining very strong top line and earnings capacity for the business.

Okay. Now as far as the balance sheet management goes, there's optimization process, whatever you call it, as been ongoing for two years or so. And I appreciate it's not a process that ever ends, but it's been a bit more distinct activity in the past couple of years. Your corporate loan book is down roughly $30,000,000,000 from its peak. You did $11,000,000,000 of credit risk transfers this quarter. I don't know the cumulative amount is. Just wondering if we're done with that outsized stuff given that Osprey is put the increases to the Basel III output floor. [indiscernible] Is that are we going to be more business as usual going forward?

Let me just start on the philosophy piece, Gabe, and then Raj, you can follow-up The specifics on the balance sheet. So we're transitioning the business to valuable volume. Right? And we've historically led with the balance sheet and we're trying to grow fee income and a holistic client relationship around The balance sheet really focused on creating value for the client, which will create value for our shareholders. And so when you think about this loan growth, IV or whether it be in mortgages in Canada. And you're starting to see the benefits of that. Through higher return on risk weighted assets and higher ROE performance. And then look at the 15% improvement in fee income year over year. And so that strategy of discipline on the capital deployment, value add for the client, relationship based contribution from all of our business lines, you're starting to see that in the numbers.

And then it comes through in the internal capital generation. I mean The quarter Raja was internal capital generation close to 30 basis points or 20 basis points? Including the optimization, but Dave, to answer your question on, is the heavy lifting done on The? I think most of it is done. Synthetic breast transfer The you pointed out it cumulatively, it's almost $20,000,000,000 you can see it in the disclosure. And those are done simply because we think it enhances our returns. Incidentally, it improves our capital ratios as well. Very selective will be with that. But to Scott's point, we just want to ensure we're deploying the capital to the most profitable relationships I think we are on the back end of that.

All righty then. Thanks.

Thank you. Following question is from Mario Mendonca from TD Securities. Please go ahead.

Good morning. Going to tariffs again for a moment. [indiscernible] Was there any trend in loan growth throughout the quarter that you could highlight And what I'm getting at here is as the threat of tariffs unfolded throughout the quarter, did it have a negative effect on commercial loan growth, corporate loan growth, even retail loan growth throughout the quarter?

Yes.

Sorry, I'll start and maybe I don't know if Scott or others want to join in. I think The the as we've been Going out speaking to clients, I think people are we get a sense people are sort of holding their powder dry. People are waiting to see what's going to happen. And I think as a result, whether it's on the retail side, the corporate side, the commercial side, you kind of see this bit of a stasis right now. And so it's causing people to sort of pause and think about what they're going to do. And hopefully, when we get through through tariffs and we can see through the end of it, we'll probably see more economic growth occurring at that point.

Right. Aris here. Just on the Canadian The side, We're seeing that clearly in the commercial banking business where people are holding back on borrowing. We see it clearly in the trending. However, on the mortgage side, interest [indiscernible] see that pent up demand in the mortgage business starting. So that you don't see yet in terms of obviously The tariff and all the discussion [indiscernible] you'll probably see the mortgage business also start to come down. But we don't see that yet. Okay. Quick question then on impaired. Like with all due respect to the accountants who dreamed of IFRS nine, I'm not really not It's hard to build up my interest in performing loan reserves. What really matters to me is what is the timing and what sort of effect do you expect on your impaired if in fact we do see meaningful tariffs like do the impairs build up abruptly or is it lags 2026? How should we think about the impaired with a little less emphasis on the performing Yes. No, I think you're right, Mario. As we've sort of looked out in our scenarios, it's really going to take time for tariffs to grip to the Canadian consumer.

I mean there's some obviously some positive tailwinds in the economy as it relates to unemployment GDP already. And so you add tariffs onto The. We're really looking at that to be more of from an impaired perspective, a really a lag out to to 2026 and beyond. So your thesis is correct. And that's the same way we're thinking about it.

Thank you. Our following question is from Paul Holden from CIBC. Please go ahead.

Thank you. Good morning.

I wanted tie it together to predominant themes here, tariffs and capital allocation.

A lot of contingency planning, I'm sure, on the part of Scotia The with many companies. What are you thinking in terms of if tariffs under The scenario where there are significant tariffs and maybe more permanent. Does that change at all, Scott, sort of your thinking around capital allocation? Like does it accelerate the need or desire to do more in The U. S, for example? Yes. Thanks, Paul. I mean, the question, are you still committed to the North American Corridor strategy? Essentially what you're asking and I don't see a need to pivot. At the current time. And as part of the strategy rollout, we said 15% and Mexico is less than 10%. This past quarter, U. S. Grew by 39% and we've continued to be thoughtful about capital deployment into Mexico. Long term, I think given The U. S. Geopolitical ambitions, we believe the resources of Canada and the labor in Mexico will be important I think looking at the renegotiation of USMCA will be an important milestone. For all of us to consider. And so so way too early to think about pivoting off a strategy, which I think long term has a lot of strategic rationale to it.

Okay, got it. Thank you for that. Our following question is from Darko Mielik from RBC Capital Markets. Please go ahead.

Hi. Thank you. Good morning. I see things a little bit different with respect to Stage two. I see Stage two provisioning somewhat of a reflection of conservatism And given all of the uncertainty, I was surprised that you didn't build more in. But I guess your answer to Mario was The, look, you think that the problems come in 2026 The maybe it's outside of the twelve month The. But yet I still think there could have been an overlay. Right? So Phil, can you speak to me about The I look at your base case in your all So you could have at least perhaps put a bigger weighting on a scenario and sort of get ahead of it and build a reserve. But is it really the timing that's preventing you from doing that?

So let me give maybe I'll add a little bit more color Darko, and it's a great question. So we're limited to what we knew as of January 31. And so The quarter ended the '31, and then we had all of if you recall time we had all this noise in The after headline, what we're going to do, what we're going to. So we can only from an accounting perspective going back to Mario's comment in IFRS nine, we could only do what we knew as of the thirty first. And as such, we did 5% tariff on half of Canadian imports, this is sort of what went into the scenarios. With half retaliation, 10% tariff on Mexico, on half of the imports with half retaliation, 15% tariff on China for half of imports with full retaliation. And so you start to think about that We built about just under $100,000,000 in the quarter of which 95% of it was actually Stage two. So we're not far off the way you're thinking about it. But we could only build what we knew from an economic perspective as of at thirty first and about two thirds of that build was related to macroeconomic uncertainty and volatility.

Okay. And so is it fair to say though then The unless something significantly changes, we should be expecting something really in Q2. If we have if tariffs are imposed, then we will look at as I said earlier, we will look at a build within Q2. If there's no tariffs, I go back to the comments I made to Ebrahim earlier. It's we have we continue our guidance as we get it last quarter. And I think we're in good shape to deliver it for lower piece for the latter half of the year.

Okay. Thank you. Our following question is from Sohrab Movahedi, Okay. Thank you. Phil, just maybe to take Darko's question just a little bit differently. If the quarter was ending today, would those 510%, 15% type assumptions be any different? No. No, I mean, we have not seen an executive order that relates to the type of tariffs that are being proposed. Again, we're still we're still digesting what's going on on. When we have certainty, we'll act on certainty. It's difficult to act on headlines and tweets. Understood. So I mean, doesn't really matter that the quarter ended January 31. You have no better information you're seeing today versus January 31. Is that fair putting? If tariffs are imposed by the U. S. Government, then we have clarity in terms of our actions. Until then, we have no clarity. I appreciate that. And Scott, I just wanted to kind of go back to the December twenty twenty three Investor Day, you obviously laid out a plan including a five year set of kind of milestones and what have you mean, you've got a little bit over a year under your belt since The. Which one of the assumptions would you say are being tested the most And you being able to deliver on that 2028, for example, road plan?

Yes. So it's a great question. One, if you look at The different business lines, I think international we're right on track. In terms of what we said we were going to do. We said it was going to be a two year transition and we're going to move through that. And we've had some great progress in that regard. We said leading with The product ratio and that comes back to my points on productivity ratio. Think wealth we're significantly ahead of what we said at an Investor Day. And I think we said we're going to grow at 10%, we're growing at 15%. Now we'll probably moderate a little bit but it's been really good to see that progress. GBM, we're early, but this quarter was a great kind of check mark for what we're trying to do around fee income, but we have to put up more than one quarter to show that we're on the right track, but I was really pleased with that. And in Canada, we're doing the right things, the right things in terms of growing primary clients, 200,000 new [indiscernible] [indiscernible] follow the same procedure? Let me just And you also need to get in the habit of listening into these calls.

Just missed the Scotia one. BMO The starting now. So you I'm so sorry for the interruption. So the call has now [indiscernible] We are sorry for the delay, but the call has now ended. So please disconnect your lines at this time. And we thank you for your participation.