Q2 2025 The Bank of Nova Scotia Earnings Call

Okay.

This conference is being recorded so it's closer to home that don't go as you see.

Speaker Change: Good morning, welcome to Scotia Bank's 2025, Q2 results call. My name is money Grubbing Lion's head of Investor Relations here at Scotiabank presenting to you. This morning are Scott talked about Scotia banks, President and Chief Executive Officer, Raj Viswanathan, Our Chief Financial Officer Thomas.

To your first officer following their comments, we'll be glad to take your questions also present to take questions are the foreign Scotiabank executives are smoked scenarios from Canadian banking, Jackie alert from global wealth management Francisco RV cigarettes are from international banking and Travis matching from global banking and markets before we start and on behalf of those speaking.

Speaker Change: Today I will refer you to slide two of our presentation, which contains scotiabank caution regarding forward looking statements with that I will now turn the call over to Scott.

Scott: Thank you Manny and good morning, everyone.

Scott: And what remains a period of global economic uncertainty, we continue to execute on our strategy focusing on areas we can control.

Scott: <unk> strengthened our balance sheet investing in our business, while delivering positive operating leverage and capitalize on revenue opportunities as they emerge.

Scott: We delivered adjusted earnings in the quarter, a $2 1 billion or $1 52 per share.

Scott: This included a significant performing build in Canada, reflecting our conservative estimate on the potential impact of the evolving macroeconomic backdrop driven by tariffs.

Scott: This quarter, we continued to invest in our Canadian banking franchise as we execute on our strategy to grow our primary client base and deepen client relationships, we demonstrated strong expense discipline and international banking grew our wealth earnings and delivered strong results in our global banking and markets franchise led by impressive growth in fee income.

Scott: Underpinning all of this is our continued commitment to strong balance sheet metrics, which positions us well to support clients through this period of uncertainty.

Scott: Our steady one ratio was 13, 2% up 30 basis points quarter over quarter.

Scott: Quiddity metrics remained strong.

Scott: We built almost $200 million of allowances this quarter for cumulative buildup of $1 8 billion since the end of 2022.

Scott: While we have not seen a meaningful deterioration in credit our base case forward looking indicators have worsened.

Scott: The outlook continues to evolve and we are operating in a unique environment.

Scott: Against this dynamic scenario and overlay of expert credit judgment contributed to our provision approach this quarter.

Scott: Our strong balance sheet allows us to remain focused on driving forward, our key strategic objectives, delivering growth and shareholder value over the long term.

Scott: Moving to a brief review of our strategic priorities.

Scott: First is our continued focus on disciplined capital allocation.

Scott: We announced our return to growth in our quarterly dividends, increasing our quarterly dividend by four cents to $1 10 per share.

Scott: This morning, we also announced the launch of a share buyback program for 20 million shares.

Scott: This demonstrates our confidence in the trajectory of internal capital generation and the strength of our capital ratio.

Scott: We expect to use the CIP is one of the tools in our toolkit to allow us optionality to return capital to our shareholders our valuation remains depressed.

Scott: Second we remain focused on our north star, earning client privacy and growing core deposits.

Scott: The bank continues to improve its loan to deposit ratio to 104% the 10th consecutive quarter of improvement.

Scott: Clients are cautious in this environment and we are seeing this in their deposit behavior with deposits up year over year across most business lines.

Scott: Since we launched our strategy we have added approximately 392000, new retail primary clients across the bank.

Scott: Although primary client growth has decelerated in Canada due to the immigration slowdown we were focused on converting near primary clients and are seeing improved client retention rates compared to the prior period.

Scott: International banking continues to execute on our segmentation strategy and we expect to see privacy accelerate once this is fully deployed.

Scott: Our primary clients contribute more than five times the revenue of non primary clients and we're seeing continued growth and privacy across our priority segments.

Scott: Our focus on privacy means we are having more conversations with clients, particularly when it matters most.

Scott: In Canadian retail, our advisers are making 20% more calls to clients compared to the prior quarter.

Scott: Our Canadian wealth business delivered over 4000 financial plans year to date, and we continue to build out our team up retail specialist advisers up 8% this year.

Scott: In addition, our small business banking team added 17000 clients in Q2 alone contributed to a robust net client acquisition rate of 5% year to date well above the market.

Scott: Third we continue to demonstrate operational excellence and return discipline.

Scott: We delivered positive operating leverage.

Scott: Great quarter, while continuing to invest in our businesses to drive longer term sustainable growth and improving client experience.

Scott: We continue to invest in AI to drive productivity.

Scott: For example, in Canada over 70% of commercial client emails received by our business Service Center are now processed by AI to create structured case files delivering faster service and that will lower cost.

Scott: While year to date ROE was down slightly compared to the prior period. This was driven by the significant Q2 performing allowance build.

Scott: We remain steadfast in our focus to achieve 14% plus Roe over the medium term.

Scott: We feel good about the momentum we have heading into the second half of the year and are confident that we'll be able to grow EPS by 5% to 7% in fiscal 2025.

Scott: Now I will briefly turn to highlights from our business lines.

Scott: Global wealth management continued its positive momentum delivering $405 million of earnings, which is up 17% year over year with strength across all of our businesses.

Scott: Our global asset management business continues to expand its offerings by adding new private ASIC solutions.

Scott: Our expanding active ETF product suite is resonating with clients as we are seeing strong asset growth in knee solutions despite market volatility.

Scott: Our Canadian wealth business saw strong growth in fee based assets driven by sales momentum in our advisory channels, while market volatility drove higher trading volumes, particularly in on trade.

Scott: Our private bank continues to innovate and this year, we launched our signature banking offering tailored to a wider segment of high net worth clients with a service focused banking solution.

Scott: We are delivering on our commitment to provide holistic solutions to clients with close referrals between our Canadian wealth retail and commercial businesses at $6 7 billion year to date up 6% year over year.

Scott: We are seeing continued momentum on our retail advice strategy in partnership with Canadian banking with year to date net inflows of one up $1 6 billion compared to the prior year.

Scott: Global banking and markets delivered earnings of $413 million as we continue to generate better results with less capital.

Scott: In Canada, we maintained the number wildly table ranking in debt capital markets.

Scott: Capital markets activity was strong in the first two months slowing down in April at the tariff uncertainty escalated.

Scott: Our M&A business generated near record revenue this quarter fees for the first half of fiscal 2025 already exceed the full year of 2024.

Scott: Despite observing a slowdown in announced M&A due to the market uncertainty our pipeline remains strong and we are ready to capitalize when activity resumes.

Scott: Yeah.

Scott: We remain focused on our balance sheet velocity and continue to deliberately grow our capabilities in strategic products, such as mortgage capital markets leveraged finance and structured credit.

Scott: Canadian banking continues to diversify its business mix, while executing on its privacy strategy.

Scott: Canadian banking deposits were up 5% year over year in our retail business continues to see strong retention of maturing term deposits driven by advice led strategy.

Scott: We continue to deliver enhancements to our Scotia, smart investor solution, which helps clients plan and manage their savings and retirement targets.

Scott: We are also making it easier for clients to bank, how and where they want by continuing to grow our virtual advice for clients.

Scott: While mortgage growth is slowing our mortgage plus solution a major driver of client privacy accounted for 88% of our originations this quarter and mortgage renewal retention rates remain high.

Scott: We are also seeing traction in our card strategy with almost 26% of the 15 million seen class members now folded a payment product.

Scott: <unk> members are seeing the value of the loyalty program as key metrics such as active users voice issuances and redemptions grew year over year.

Scott: This engagement should contribute to client acquisition as rewards are amplified foreseen plus members, who hold scotiabank payment solutions.

Scott: In partnership with private banking Canadian banking also launched a new premium credit card tailored to high net worth clients, combining the value of seen plus with exclusive benefits for cardholders.

Scott: Moving to international banking earnings were $681 million driven by another quarter of strong expense discipline and lower impaired loan loss provisions.

Scott: Return on equity improved both year over year and quarter over quarter as earnings grew while capital attributed was lower.

Scott: Our productivity ratio improved to 51% and we remain on track to achieve our medium term run rate savings commitment of 800 million with significant components of our regionalization strategy complete by the end of the fiscal year.

Scott: We continue to execute on our retail segmentation strategy with leadership roles for the retail structure largely in place.

Scott: Looking ahead, we expect to rollout a tailored value proposition for priority segments by the end of the fiscal year across our core markets.

Scott: In commercial our segmentation efforts are complete clients had been partnered with relationship managers best suited to their needs and we're starting to see the benefits.

Scott: We are also driving an improved client experience and have deployed an enhanced onboarding solution across our key markets, allowing us to onboard clients in one third of the time.

Scott: In international banking in GBM earnings were up 8% year over year, driven by capital markets as the bank capitalized on strong market activity.

Scott: Looking ahead with the Canadian election, now behind US I am optimistic the country has entered a period of relative political stability and can now focus on our growth first agenda.

Scott: This will require candidates tackle as underlying productivity issues addressed the obstacles that stand in the way of big infrastructure projects and realize the country's potential as a natural resources powerhouse.

Scott: It also includes creating the conditions for strong and mutually beneficial economic growth across Canada, the United States and Mexico.

Scott: We intend to work with stakeholders across the country to execute on the growth agenda as a country focus is on supporting that as producers manufacturers builders and innovators and creating jobs building affordable homes, producing what the world needs and getting those goods to global markets.

Scott: In summary, while weaker consumer and business confidence is impacting near term loan growth and capital markets activity the future looks bright for Canada, and our team remains focused on executing on our strategic priorities.

Scott: We remain committed to building deeper more advice, driven client relationships and positioning ourselves to capitalize on growth opportunities that drive shareholder returns.

Raj: I will now turn it to Raj for a more detailed financial review of the quarter.

Raj: Thank you Scott and good morning, everyone.

Raj: All my comments that follow will be on an adjusted basis, which includes the usual amortization of acquisition related intangibles.

Raj: Moving to slide six for a review of the second quarter results. The bank that bucket quarterly earnings of $2 1 billion and diluted EPS of $1 52.

Raj: They've done one equity was 10, 4% down 90 basis points year over year, primarily driven by higher performing bcl's.

Raj: Revenues grew a strong 9% year over year.

Raj: Net interest income grew 12% year over year.

Raj: Finally from a higher net interest margin and loan growth, which included the impact of the bankers acceptance conversion.

Raj: All banks net interest margin expanded 14 basis points year over year.

Raj: Waterloo quarter, NIM expanded eight basis points, driven by lower funding costs as a result of rate cuts and higher margins in international banking.

Raj: Noninterest income was $3 8 billion.

Raj: Up 5% year over year, primarily due to higher income from associated Corp's.

Raj: Ian Commission revenues and wealth management revenues, partly offset by lower banking revenues.

Raj: Expenses grew 8% year over year, driven by higher technology costs, including performance and stock based compensation.

Raj: And professional fees to support strategic and regulatory initiatives.

Raj: As a result pretax pre provision profit grew 10% year over year.

Raj: The provision for credit losses of approximately $1 $4 billion.

Raj: <unk> ratio was 75 basis points up 15 basis points quarter over quarter, primarily due to higher performing loan provisions.

Raj: Quarter over quarter expenses were down 1% driven by seasonally lower share based compensation and three fewer days, partially offset by unfavorable impact of foreign exchange and higher professional fees.

Raj: The bank generated year to date positive operating leverage of 2%.

Raj: The productivity ratio was 55, 7% and influenced improvement of 50 basis points.

Raj: Back to the prior year.

Raj: The bank's effective tax rate increased to 21, 8% from 25% last year due to the implementation of the global minimum tax and lower income in lower tax jurisdictions, that's what partially offset by favorable adjustments related to prior periods.

Raj: What are the quarterly effective tax rate decreased due to lower taxes in the past for banking.

Raj: Yeah.

Raj: Moving to slide seven which shows the evolution of the CET, one ratio and risk weighted assets during the quarter.

Raj: The bank CET, one capital ratio was 13, 2% an increase of 30 basis points quarter over quarter.

Raj: Earnings less dividends contributed 12 basis points, while lower regulatory capital deductions relating to the highest performing PCL ACL belt contributed eight basis points.

Raj: A decline in risk weighted asset contributed four basis points this quarter, while FX impact was two basis points.

Raj: The total risk weighted assets was 459 billion down $1 billion from the prior quarter, excluding the 8 million impact from foreign currency translation.

Raj: This was driven primarily by benefits from retail LCD parameter updates.

Raj: To close off credit Scotia.

Raj: Partly offset by higher book size, mainly from retail growth and high operational risk capital.

Raj: Looking ahead, the banks remains committed to maintaining strong capital and liquidity ratios in 2025.

Raj: Turning now to the business line results beginning on slide eight.

Raj: Canadian banking reported earnings of $613 million down 31% year over year.

Raj: The earnings were impacted by significant performing pcl's, while pretax pre provision profit was down only 1% year over year.

Raj: The average loans were up 4% year over year.

Raj: With real estate secured lending was up 6%, while the credit box grew a modest 4%.

Raj: We continue to see deposit growth.

Raj: Year over year deposits grew 5% outpacing loan growth driven by an increase of 8% and non personal deposits, mostly in demand and 3% and both on deposits.

Raj: Net interest income grew 2% year over year, primarily from solid asset and deposit growth and the benefit of the VA conversion.

Raj: The net interest margin, however declined by four basis points quarter over quarter, and 14 basis points year over year, driven by deposit margin compression due to rate cuts.

Raj: Noninterest income was up 1% year over year, primarily due to higher insurance income and mutual fund fees, partially offset by lower banking fees, including the impact of the VA conversion.

Raj: The PCL ratio was 72 basis points up 32 basis points year, it'll be and 25 basis points quarter over quarter, primarily due to higher performing loan provisions.

Raj: The expenses increased 4% year over year, primarily due to technology costs.

Raj: The new systems, and infrastructure and increased project spend supporting strategic and regulatory initiatives.

Raj: Quarter over quarter expenses declined 2% due to three fewer days in the quarter.

Raj: Year to date operating leverage for the segment was negative 2%.

Raj: Turning now to global wealth management on slide nine.

Raj: Earnings of $405 million were up 17% year over year as Canadian earnings were up 19%.

Raj: Living by higher revenues from growth across asset management and advisory businesses.

Raj: <unk> volumes and strong private banking loan growth.

Raj: Revenues were up 12% year over year from higher mutual fund fees brokerage revenues and investment management fees.

Raj: And higher net interest income driven by loan and deposit growth.

Raj: Expenses were up 10% year over year from higher volume related expenses.

Raj: Energy costs and sales force expansion.

Raj: Year to date operating leverage was positive two 4%.

Raj: Spot <unk>.

Raj: Increased 9% year over year to 380 billion and <unk> grew 6% over the same period to over $710 billion driven by market appreciation and higher net sales.

Raj: International wealth management.

Raj: So $57 million up 7% year over year, driven by growth in Mexico, partially offset by the impact of foreign currency translation.

Raj: Turning to slide 10, global banking and markets.

Raj: Global banking and markets, Delaware to earnings of $413 million that was up 10% year over year.

Raj: Revenue increased 18% year over year, driven by higher performance in both capital markets and business banking.

Raj: Underwriting and advisory fees grew a strong 26% year over year.

Raj: Revenues increased decreased 136 million or 9% quarter over quarter from lower trading related revenues in equities and fixed income.

Raj: The net interest income increased 49% year over year due to higher corporate lending margins lower trading related funding costs and the positive impact of foreign currency.

Raj: Loan balances declined 16% year over year.

Raj: The market conditions and continued balance sheet optimization.

Raj: Noninterest income was up 106 million, 11% year over year due to higher underwriting and advisory fees trading related revenue from fixed income equities and effects and the impact of foreign currency translation.

Raj: The expenses were up 15% year over year, mainly due to higher personnel costs, including performance based compensation higher technology costs to support business growth and the negative impact of FX.

Raj: The operating leverage was a strong six 2% year to date.

Raj: Moving to slide 11 for the V O E transfer banking.

Raj: My comments that follow are on an adjusted and constant dollar basis.

Raj: The segment delivered earnings of $681 million.

Raj: Up 2% sequentially and 4% year over year.

Raj: Revenue was flat year over year as noninterest income.

Raj: 12%, driven by higher trading revenues, and Chile, Peru and Mexico.

Raj: Net interest income was down 4% year over year, driven by lower business loan volumes in Brazil and Mexico.

Raj: The net interest margin expanded by four basis points year over year, mainly in Chile, and Mexico, driven by changes in business mix.

Raj: Net interest margin was up 10 basis points quarter over quarter, driven by lower funding costs and inflation benefits in Mexico and Chile.

Raj: Year over year loans went down 3%.

Raj: Business loans declined, 8%, partially offset by 3% growth.

Raj: Two loans.

Raj: Deposits went down 2% year over year.

Raj: Personal deposits grew 1% non personal deposits declined 3%.

Raj: Yeah.

Raj: The provision for credit losses was $550 million translating to 137 basis points down nine basis points quarter over quarter.

Raj: Expenses were in line with the prior year and were down 3% quarter over quarter.

Raj: And by lower depreciation and amortization and seasonality in expenses in Jamaica last quarter.

Raj: The operating leverage year to date was <unk>, 9%.

Raj: The effective tax rate decreased by 220 basis points quarter over quarter to 95% due to higher information would be adjustments in Chile, and favorable adjustments related to prior periods.

Raj: True.

Raj: GBM International banking generated earnings of $308 million up 8% year over year, primarily from growth in Peru, Mexico and Chile.

Raj: Turning to slide 12, the other segment reported an adjusted net loss of $80 million, an improvement of $97 million compared to the prior quarter.

Raj: This was mainly driven by higher revenues from net interest income.

Raj: That was higher by $147 million quarter over quarter benefiting from lower funding costs and a full quarter of keycorp earnings contribution.

Raj: I'll now turn the call over to Phil to discuss with us.

Phil: Thank you Raj and good morning, everyone.

Raj: There is still significant uncertainty on the path for the global economy in Canada in particular.

Raj: As a result, we remained thoughtful and our posture and continue to proactively manage our credit exposures.

Raj: Against this backdrop of increased uncertainty and a deterioration in our base case economic outlook All bank PCL. This quarter were approximately $1 4 billion or 75 basis points.

Raj: $236 million quarter over quarter.

Raj: The increase from last quarter was driven entirely by performing provisions as impaired PCL fell $12 million.

Raj: This quarter, we had significant performing tcl's of $346 million or 18 basis points up 13 basis points from Q1.

Raj: This performing build was driven by deterioration in our forward looking indicators and the use of expert credit judgment to reflect trade uncertainty.

Raj: The last quarter, our base case scenario also incorporates the impact of higher tariffs.

Raj: In retail the performing build was driven by weaker <unk>.

Raj: Primarily lower GDP growth and higher unemployment, we used expert credit judgment to increase the allowances further.

Raj: And our non retail portfolio, we conducted a comprehensive review of our portfolio to identify more trade sensitive industries and again use expert credit judgment to increase our allowances.

Raj: Turning to Canadian banking, PCL are $805 million or 72 basis points up 25 basis points quarter over quarter, and retail PCL for $613 million up $190 million quarter over quarter, driven primarily by an increase in performing provisions across portfolios.

Raj: Retail performing PCL increased $175 million quarter over quarter, driven by a weaker macroeconomic economic outlook higher delinquencies and the ECJ overlay as mentioned before.

Raj: Our retail impaired PCL ratio was up three basis points quarter over quarter to 45 basis points driven by higher net write offs in our unsecured portfolios and auto.

Raj: 90 day mortgage delinquencies remained stable at 24 basis points as delinquency in our variable rate clients continued to stabilize in the back of Central bank rate cuts.

Raj: Looking at our Canadian commercial portfolio P sales were $192 million up $77 million quarter over quarter, driven by performing build a $97 million skewed towards industry is more likely to be impacted by tariffs such as auto agriculture and manufacturing.

Raj: Impaired commercial PCL was down $14 million quarter over quarter due to elevated PCL to the prior quarter I'm a single account.

Raj: Moving to international banking P sales were down nine basis points quarter over quarter, resulting a PCL ratio of 137 basis points impaired PCL fell $52 million quarter over quarter are performing provisions were flat.

Raj: Looking specifically at retail total Tcs were down $55 million quarter over quarter were down $68 million, excluding FX driven by lower impairments across most of our retail footprint.

Raj: Performing retail pcl's fell slightly by $2 million quarter over quarter due to improved credit quality across Colombia unsecured portfolios in Peru portfolios.

Raj: However, Mexico soft performing provision of $17 million to reflect weaker macroeconomic outlook more specifically, we have increased the total Mexico ACL by $94 million or 16% in the last two quarters.

Raj: Commercial tcl's were $92 million up a modest $2 million quarter over quarter.

Raj: Looking at GBM, PCL increased $22 million quarter over quarter, mainly due to a single imperative account.

Raj: In closing.

Raj: Our outlook at the beginning of the year. It did not contemplate the current operating environment and the associated uncertainty. Since then trade tensions have further escalated.

Raj: Given this continued uncertainty we expect our impaired PCL ratio will remain at or slightly above the Q2 level of 57 basis points for the balance of the year.

Raj: In international banking, our impaired ratio has trended down since Q3 of 2024 and 146 to 131 basis points as we continue to execute our strategy focusing on client privacy collections and helped by the sales credit Scotia in Peru.

Raj: In Canadian banking impaired PCL continue to rise, but growth has slowed as clients continue to benefit from rate cuts, particularly in variable rate mortgages and a similar focus on collections effectiveness and driving client privacy.

Raj: Our total impaired PCL ratio this quarter was 44 basis points up just one basis point quarter over quarter.

Raj: This segment by segment analysis gives us confidence in the trajectory of our impaired PCL ratio for the remainder of 2025, our outlook is reinforced by the significant performing provision we took this quarter to address the underlying uncertainty.

Raj: Our performing provision build this quarter.

Raj: With our performing built performing provision build this quarter, we increased our all bank ACL ratio to 95 basis points up four basis points quarter over quarter to seven 3 billion. This represents a cumulative build at one $8 billion. Since the end of 2022, approximately 70% of which has been to our into our performance.

Raj: Allowances.

Raj: While there continues to be uncertainty around the macroeconomic outlook we believe.

Raj: Built in allowances this quarter combined with a well capitalized balance sheet and strong liquidity positions the bank to navigate this challenging period, while ensuring we are there to support our clients.

Manny: With that I will pass it back to Manny for Q&A.

Manny: Thanks, Phil before we open the line for questions. A reminder, please limit yourself to one or two questions and then requeue.

Speaker Change: Operator, we're ready for the first question.

Raj: Just first I wanted to just I missed your other question there would be a very small smiles participants with just thoughtful questions. Thank you for your patience.

Raj: And we will take the first question from Ryan when I went off on Bank of America Kids go ahead.

Ryan: Hey, good morning.

Ryan: I guess, maybe a question for Phil.

Phil: So significant performing PCL build I think you mentioned deterioration in macro indicators expert judgment, just if you don't mind, but it could down put us around fundamentally I think you said embedded pieces could be slightly higher.

Phil: And I think what we're trying to invest as I'm 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 we're embedded BCS 26 would be even worse unimpaired seals and twenty-five just.

Phil: From a very realistic scenario basis, how do you think about it.

Phil: No I appreciate the question. Thank you.

Speaker Change: Let me, let me break it down for you Ebrahim, if I look at Canadian banking, where we've seen the increase in impaired.

Phil: We're only up one basis points to 44 basis points.

Phil: Order over a quarter and if I double click then on Canadian retail.

Phil: We're up three basis points to 45 basis points and what we've been seeing over the last three quarters as impaired starting to slow or are increasing rather at a slower rate.

Phil: And if you go in to look at page I think it's page 38 of the Investor slides you can see that 90 day delinquency and you can see there things.

Phil: Things are looking relatively relatively stable.

Phil: And so as we look out the next two quarters and forecast.

Phil: Forecast, we're seeing things relatively.

Phil: Stable at the current rates that we have in Q2, maybe slightly elevated from here, but we're confident that we're gonna be sort of in and around where we are today in Paris for the remainder of the year, we're not seeing any major pockets of strain in the in any of our portfolios.

Phil: And we're feeling quite confidence as I look at the Canadian book.

Phil: That mortgage delinquencies are stabilized I'm seeing auto delinquencies stabilized, we're watching credit cards very very carefully.

Phil: And with that.

Phil: As I mentioned in my prepared remarks, a big focus on collections and we've been investing in new tools technology and people in that space just to make sure that we were prepared coming into this.

Phil: This environment.

Phil: And then just turning to IV, because I think it is important to to look at it from an all bank perspective, because we are seeing some really positive credit trends in international we saw the sale of Crazy Scotia coming through this quarter in Peru.

Phil: I think Francisco and his team are doing a wonderful job on client privacy, which is driving down some.

Phil: Some of the some of the single product deterioration that we've seen in the past in that portfolio. So all that gives me confidence that as they look for the next two quarters. We're feeling good that we can give guidance sort of in and around the current rate for the remainder of the year.

Speaker Change: That's helpful. And then if I can follow up just on that maybe.

Speaker Change: Scott for you as we think about customers picking up activity what are we looking for into the positive headlines coming out of Mark Carney and the white house around the trade issues like what would get customer activity going and avoid way you would see less worried or your customers would be less worried about the macro outlook.

Speaker Change: Yeah sure. Thanks Eva.

Speaker Change: A couple of things I think.

Speaker Change: Making some progress on U S. M theory would be helpful for sure and hopefully that happens over the next six months year, but what I would say is we've already seen a little bit more certainty in Canada.

Speaker Change: Navigated this kind of prime ministerial transition.

Speaker Change: Have a prime minister Carty now enroll with his cabinet enroll a natural resources Minister as an example, who's out in Calgary last week talking about the need to get things done.

Speaker Change: That rest is resonating very well with the business community and so we have seen softness we have seen uncertainty, but as we look to the back half of this year and into 26 I do think there's a moment here, where you're going to see an inflection point with a little bit more loan growth. So I am optimistic, particularly as we look out to 2026.

Speaker Change: Things will be better than where we are today.

Speaker Change: That's helpful. Thank you.

Gabrielle: Thank you. The next question is from Gabrielle does Shine National Bank Financial. Please go ahead, Hey, good morning, just a technical one here.

Gabrielle: On the condo exposure, if I look at your mortgage portfolio.

Gabrielle: Portfolio breakdown them slightly.

Speaker Change: Slide 17.

Speaker Change: 17% of your book through them condos.

Gabrielle: You don't we're hearing stories about the borrowers backing out of pre construction and stuff like that is there anything you're blending your exposure to that type of Uh huh.

Gabrielle: Could you I guess.

Gabrielle: Yes sure Great question.

Gabrielle: Condos represent 20% of our mortgage portfolio.

Gabrielle: But I look at the if I.

Gabrielle: I look at it on the developer side.

Gabrielle: We obviously, it's a there's a lot of headlines in the news and we've been watching it very carefully I would say over the last number of years, we've been very deliberate.

Speaker Change: Focusing on tier one developers with experience through down cycles in tier one and tier one cities and so where we don't feel whereas exposed potentially with some of the headlines that we see.

Speaker Change: There and.

Speaker Change: If I look at it they'll also condo developers only represented about 6% of the commercial real estate portfolio in Canada.

Speaker Change: It's quite small at about 80% of that is investment grade so not to say that we're not monitoring it but it's not one of my Oh no. None of my top concerns right now okay, great and then while I guess stick with this.

Speaker Change: Mortgage business.

Speaker Change: For one I saw the.

Speaker Change: Oh I heard rather.

Speaker Change: Talk about the no credit performance delinquency rates stable and your mortgage portfolio because rates are being cut and we know where your portfolio a little bit different in that sense that all makes sense.

Speaker Change: But when I look at the stage.

Speaker Change: Stage two classifications.

Speaker Change: It was up 9 billion quarter over quarter more than 100% of that was in the Canadian Russell books, which also in this context makes sense, but it is of a divergence I'm just how do you determine.

Speaker Change: When a mortgage goes from the stage, one low risk low risk whatever category to hey, there's a bit more a bit more risk or is it regional southern Ontario was at we've looked at the borrowers and what industry, they're working in its et cetera, but how does that shift take place.

Speaker Change: Thanks, Yeah, you're right it is technical.

Speaker Change: Yeah, as we looked at coming into this quarter obviously.

Speaker Change: The models, who are very focused on kicking out.

Speaker Change: A lot of increases related to unemployment and GDP and so we did end up having to build up quite a big E. C. J for the quarter and a lot of that was into the into the reservoir portfolio. Some of that's a significant amount wasn't a reservoir portfolio, but as we did that we were not.

Speaker Change: And I want to I want to stress. This we're not seeing any areas of deterioration in any particular postal code.

Speaker Change: This was sort of a broad.

Speaker Change: Addition to the to the Russell to.

Speaker Change: So the Russell stage, two that we decided to do as a D C J.

Speaker Change: And I think while we're on the topic of stage two I also want to stress that we've built it up to $302 million in stage two since Q4 about.

Speaker Change: $200 million of this was in retail and about $100 million of this was in non retail. So we're not just focused on that okay. We've been we've been very focused on where where we could potentially see all come in at.

Speaker Change: A negative outcome, hopefully and optimistically speaking it doesn't come but we just wanted to be thoughtful and conservative as we are as we built the allowance this quarter.

Speaker Change: Is there any kind of.

Speaker Change: I don't know if you've looked at Toronto, 10% unemployment, that's where your expert judgment comes in is a simple road or maybe we can take it offline but.

Speaker Change: More practical yeah happy to chat with you offline I mean, obviously, we've been talking about GVA and GTA for awhile now in terms of the in terms of exposures.

Speaker Change: But for the purposes of what we built in B C. J here. It wasn't directed at any sort of geography or region.

Speaker Change: Thanks, how are you sorry for the three questions Okay.

Speaker Change: Okay.

Speaker Change: Thank you next question is from Mario Mendonca TD Securities. Please go ahead. Good morning, So can we stick with you there so your comments about.

Mario Mendonca: Credit conditions, not charity as abruptly slow down I think Scotts 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.

Speaker Change: But I've read about the Canadian consumer.

Speaker Change: You've got every economist in Canada talking about how unemployment is moving higher GDP growth is slowing.

Speaker Change: But we're just simply not seeing it in the bank results not the two banks that have reported so far.

Speaker Change: I don't understand that I don't understand how.

Speaker Change: The banks that have kept that account for I don't know 80, 590% of all the lending in Canada could not be seeing the same stress that we're seeing in the aggregate that is or is there something I'm missing here.

Mario Mendonca: Uh Huh, So Mary I think you were one of the best analyst on the Street you don't Miss much so yeah.

Mario Mendonca: I can tell you what I know and what I'm seeing in my portfolio and I look at the Transunion data the same way the same way you do because it's a it's a good indication of how you know what I'm seeing in the economy, but also how my peers are trending.

Speaker Change: You know I have to say you know coming into this year, we were more optimistic that we would see 2025 being 2024.

Speaker Change: Obviously, when you have the level of uncertainty that you have.

Speaker Change: No we.

Speaker Change: It's going to it's going to result in some sort of a stress, but what we're seeing at the customer level right now if I, if I drill down and look at some of the analytics there is and maybe related to some of the deposit account growth. We've been seeing we're not seeing the level of spend that we would have probably.

Speaker Change: Probably helped too and then you can see that in even in or even in our credit card receivables.

Speaker Change: No, we're not seeing foreign travel necessarily and so we are seeing customers.

Speaker Change: And we're also seeing people switch from sort of higher end to budget groceries, so people or people are being thoughtful about the macro.

Speaker Change: Talking to some mortgage brokers, they're seeing people being a little bit slower to hit the bid on a on a new home because they're not sure about how their employment is going so you do see some of that slowing down but it's it's you know, it's not showing up and be in the day to day impact you know certainly right now.

Speaker Change: And but bottom line is this is why we just did an 18 basis point performing allowance build to make sure that we're prepared for that eventuality. If it does come about that you know unemployment continues to spike up and we do see layoffs and.

Speaker Change: And it does significantly impact the AR and the Canadian consumer.

Speaker Change: Somebody itself.

Speaker Change:

Speaker Change: Harriss here I just wanted to just talk up on what Phil said, so what what I'm seeing in the Canadian Bank are our two effects really youre seeing just.

Speaker Change: A reduction in general demand to take on that do you see it in the auto business you see it in the car and you see it you see it in the unsecured so youre seeing diminished demand. That's one aspect and then you're also seeing on the other side people starting to hold more cash and not invest in mutual funds. So that trend was kind of interrupted and people are just cause.

Speaker Change: They're cautious in their spending is still set on the discretionary side and in the purchase volumes. We're seeing on the card book, So you're just seeing hesitation out there not yet materializing in a lot of additional stress on the on the delinquencies, but just caution caution in terms of activity, that's how I would categorize it.

Speaker Change: Alright slightly different type of question.

Speaker Change:

Speaker Change: Yeah.

Speaker Change: Thinking about wholesale and international loan growth now.

Speaker Change: There has been a prolonged period here, where the bank simply isn't growing and I get it I get it I understand the sort of North star focus we're going to focus on client privacy.

Speaker Change: Does there come a time when you can grow those two loan books again is it like 25 as of 2026 or is there is this period of shrinking going to persists much longer.

Francisco: Thank you for the question Francisco here.

Speaker Change: We have been.

Speaker Change: Laser focused and deliberate on the outcomes that you're seeing.

Speaker Change: When you see the trajectory on a reduction or Ottawa you way, we have been number one extremely selective on how we do it.

Speaker Change: <unk> been very mindful of how through that exercise, we create the appropriate robustness in terms of sustainable results. So what you have seen is that in spite of the reduction it out all your way allocation to certain clients on the international business, we have been able to maintain our strong earnings growth.

Speaker Change: And that is expected to continue we're moving from being primarily a lender.

Speaker Change: Two a relationship bank client centric, where we introduced the whole bank in every conversation and that brings a very different dialogue with clients.

Speaker Change: Which youre seeing resulting and those relationships that we have been tackling redo.

Speaker Change: Reducing out or would you wait while we introduce other products intuit relationship youre going to see growth, but we're not there yet we see 2025 still as a transitional year, where more needs to be done in terms of cleaning up the book from a mono line clients primarily lending.

Speaker Change: We grow other components of the JDM portfolio.

Speaker Change: We are however, very confident that in every conversation we're having with these clients. They are very open to do more with us and they want to grow their relationship with us as we ask for our cigarette business up round on lending activity and that is what you're seeing across the rest of the products in the portfolio.

Speaker Change: So that's that's the way we're managing it.

Speaker Change: Cross IP.

Speaker Change: And we see that as I said throughout 'twenty five 'twenty, six, though youre going to begin to see a more broad deployment, particularly around G. T D.

Speaker Change: Engine for growth internationally around the <unk> portfolio as well as investment banking <unk> capital markets.

Speaker Change: Both both portfolios international commercial and capital markets portfolios could start to grow in 'twenty six.

Speaker Change: Yes, yes.

Speaker Change: As Travis I would just echo everything Francisco said.

Speaker Change: We're completely aligned on this I would say there's two other components kind of taken place from a G. P. M standpoint, one remember most of our portfolios.

Speaker Change: Great and utilization still remain really low they've been trending downwards for the last two years. So that that you see that playing out in the loans outstanding where clients just aren't utilizing their lives as much as there's diminished demand for for some of the lending products to as we transitioned from a lending only strategy.

Speaker Change: For some of our clients adopt that that total relationship strategy that Francisco mentioned, we are largely through that and we do expect to start growing our loan portfolio, depending on the economic conditions.

Speaker Change: And then the last piece I would lay out there as new initiatives like mortgage capital markets.

Speaker Change: Initiatives like that will continue to help us grow our loan portfolio.

Speaker Change: Excuse me.

Speaker Change: And a much better economic value proposition for the banks.

Speaker Change: What I was really pleased with Mario as you see the fee growth as an example in GBM. So yes, you have lower capital deployment, you have significantly higher fees.

Speaker Change: Which as you know changing that mix of it but its the relationship model that we're trying to go after value over volume and you're starting to see that those results come through at a higher Roe.

Speaker Change: An international Bank.

Speaker Change: Better fee income in our wholesale bank.

Speaker Change: Alright, thank you.

Speaker Change: Thank you. The next question is from John Kim Jeff.

Speaker Change: Jefferies.

Speaker Change: Go ahead.

Speaker Change: Thanks, I wanted to focus on the on the buyback.

Speaker Change: I know in normal times, it's basically level of capital relative valuation of the share price, but considering that our riverwalk is.

Speaker Change: 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 Hey, John It's Scott. Thanks for the question. Obviously, you have to be thoughtful about the economic environment and will that economic outlook will deter.

Speaker Change: About pace and magnitude, but to put it in perspective.

Speaker Change: We've said, we're comfortable running the bank as I call. It a half percent capital range 70 basis points of our 31 ratio is $3 million to $5 million and 20 million shares as part of that $1 billion. So theres lots of flexibility to deploy capital.

Speaker Change: Share buybacks to help.

Speaker Change: Take advantage of what we think is a depressed valuation multiple and so we will use that as part of the toolkit. We have been very consistent on that going forward and of course, we'll keep the macro in mind as we deploy that through the rest of the year.

Speaker Change: Thanks, Scott very clear 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 key Corp.

Speaker Change: Any lessons learned or anything that we can expect coming down the pipeline in terms of potential synergies from that investment.

Speaker Change: Yeah.

Speaker Change:

Speaker Change: The one you see in the first quarter with the full impact of it.

Speaker Change: I think we are pleased to see their balance sheet repositioning.

Speaker Change: There growth in NII going forward, which will contribute I think it was $68 million in the quarter. So that will contribute going forward I think what we're learning is the regulatory environment in the U S is changing pretty dramatically.

Speaker Change: And I think from a supervisory perspective from a capital perspective, what we're going to see in the U S as tailwind for the banking sector.

Speaker Change: And I think that will be helpful for keycorp. It will be helpful for our earnings and key corporate it will also I think it'd be helpful for the Canadian regulatory landscape, because I think the regulators in Canada would be pretty focused on maintaining a level playing field and so I'm optimistic that that's been a great tailwind for the banking sector across North America, which we will benefit from.

Speaker Change: Fantastic. Thanks, Scott I appreciate it.

Speaker Change: Thank you.

Speaker Change: Next question is from Matthew Lee Canaccord Genuity. Please go ahead.

Matthew Lee: Hi, guys. Thanks for taking my questions maybe.

Speaker Change: Maybe one more on international T cells are a bit better than expected both underperforming impaired.

Speaker Change: Can you maybe dig into what indicators, you're seeing that would make you comfortable and the allowances that you built.

Speaker Change: In those countries, just particularly given the fact that there's a.

Speaker Change: Global macro economics and.

Speaker Change: Comments on here about Canada is the implication that there is less uncertainty there right now.

Speaker Change: Yeah, I'll start and Matt. Thank you for the question itself.

Speaker Change: You know, it's it's interesting we were some of US are down in Chile in through a couple of weeks ago, and just speaking to corporate clients there.

Speaker Change: It's definitely not the same feeling of holding back and angst with the impact of the trade and trade uncertainty and you can start to see that in the quality of the portfolio that you know in the releases that we've had this quarter and the impaired both in Colombia, Peru and Chile.

Speaker Change: We've been focusing our build really on Mexico, and so since Q4 weeks, we've increased ACL in Mexico by but $89 million and.

Speaker Change: Most of that's in in retail and if you look at the last two quarters in terms of D. C. L. A we've increased by about 16%.

Matthew Lee: Actually almost more or less in line in what we've done in that in Canada as well so.

Matthew Lee: Which was around 17% increase in Canadian retail and.

Matthew Lee: And so we're seeing this diversion in Mexico, where you have maybe a bit of a trade.

Matthew Lee: Packed in the trade tensions starting to take hold but we're seeing a very different situation in Peru, Chile and Colombia.

Francisco: Thank you Phil what I would add this is francisco a couple of thoughts the first.

Matthew Lee: The power of being diversified in emerging markets is showing in this quarter and will continue to show in the remainder of the year, where we see how Chile, Peru.

Matthew Lee: Caribbean are performing in lieu of the uncertainty associated with tariffs is quite different than what you're seeing in Mexico, and you're seeing about an economic GDP growth firms. So we're seeing Chile are very much in line with our anticipated two 5% for the year, we're just seeing through improving throw us a 3% growth. This year did you see.

Matthew Lee: <unk> continued stability and the Caribbean are beyond while we're seeing Mexico slowing down to a negative growth GDP this year.

Matthew Lee: So that that significantly recertification for us it's important I've reflected in the way, we're showing DCF performance for the remainder of the year. The other element to highlight is that we have worked very diligently on deliberately and segmenting, our approach and retail and that segmentation towards bringing a very client centric.

Matthew Lee: Our strategy around privacy and how we build more products into our relationships have become stickier and moves off the priority wallet of the client is reflected on better performance overall and that has given us the confidence to continue to see improvement in PCL throughout the remainder of the year.

Matthew Lee: The National Bank. So it is the combination of those two elements that shows contrast to some other pieces of the portfolio, particularly in North America.

Speaker Change: Right and then maybe to that end I mean, you've mentioned before that you won't even 90% of incremental capital towards the focus geographies, but I mean, if somebody's markets end up becoming better opportunities on a risk adjusted basis more quickly.

Matthew Lee: Would you maybe consider investing more heavily in the Peru and Chile.

Matthew Lee: Relative to maybe the Mexico and the United States.

Matthew Lee: Well the strategy remains the same right on the power of what we're trying to do is this is a long term journey.

Matthew Lee: Optimizing our performance and generating shareholder value and we're not moving away from that or are you beginning to see is the execution of the strategy reflected in higher returns, but you see our return on risk weighted assets now at 215% or are we at 15% that is the power of what we're executing against but we are very.

Matthew Lee: At the beginning of the journey.

Matthew Lee: We explained at Investor Day, and we continue to see it the same way is that we have the resources, we need we don't need necessarily to divert capital into these countries to deliver the power of our franchise, we have what we need what we're now through regionalization is optimizing the way, we spend and that optimization, he's bringing consistency of that.

Matthew Lee: Last one for us leveraging not only what we do internationally, but also in Canada and that path will continue to deliver more privacy more competitive solutions, but all at scale that is the consistency. We're looking for and we believe that we are properly set up to capture that value over the next three to five years.

Speaker Change: Okay. That's helpful. Thanks, I'll pass the line.

Matthew Lee: Q.

Speaker Change: The next question is from Doug Young Theres, All Bank capital markets. Please go ahead.

Speaker Change: Good morning, hopefully, but it'll be relatively quick but raj.

Speaker Change: Capital on the set one ratio just two things just hoping to get a little color you talked a bit about parameter updates and a positive impact on the set one this quarter and then there was a boost in operational or that'd be way just curious what that related to and then maybe if you can round. It out was just kind of is there any other levers you.

Speaker Change: Paul.

Speaker Change: To bolster the set one ratio.

Speaker Change: Yes, sure Doug Good morning, I think on the LGD parameters.

Speaker Change: I wouldn't call. It out is there anything different you know we have did a problem. It doesn't regularly if you go back last three four quarters, we actually put up more capital for BD updates. So it can go in our favor again go by absorbing more capital and in this quarter it was updating.

Speaker Change: Our loss experience, which gets reflected an LGD and in the reservoir parameters, primarily so that's good you know two 4 billion that you saw and from time to time. It can help us like I said, where it can go against us from a capital ratio.

Speaker Change: I'll finish on risk weighted asset improvement is there any sort of increase is really not meaningful until it's a little over $1 billion is driven by a couple of things and I agree based on the standardized approach that we have today defend some of the earnings that we have and some of the operational misses on losses that'd be my data and from time to time, you know progress for example.

Speaker Change: Factors into those numbers and so on.

Speaker Change: And Directionally I would think that you know as the bank grows and some of the operations become more complicated on the earnings growth and operational risk ought to be able to consume a little bit more capital not meaningfully higher but you know a few basis points each quarter and that's what he's seen this quarter.

Speaker Change: Leave US go you know, we always have lots of levers that we use in particular sponsored twice as you know in the last two years, we'd be opportunistic, but it will always be driven by what is the utilization of that capital.

Speaker Change: If you believe it's a good trade the how we can deploy that capital and make a superior return, we'd always be happy to do that and that's the benefit of having a very high quality corporate loan book.

Speaker Change: So your ability to be securitized and produce a capital, which as you know economically a meaningful but a 13.2% I don't think we need any of those we are actually looking to see I'll begin to deploy capital and so I think you can improve the returns of the company.

Speaker Change: And just a follow up Scott you said youre comfortable taking the ratio down to 12, 5% is that kind of the bottom end of the range.

Speaker Change: Yeah, I think so I mean, I think that's the right.

Speaker Change: Capital ratio for this bank. We started this journey we were at 11.3 were down at 13.

Speaker Change: Been able to execute on the Columbia transaction at the Keybanc transaction, and our share repurchase and so obviously sensitive to the macro but running into that kind of 12% to 13% range is the right capital ratio for this bank in my opinion.

Speaker Change: And then just lastly, Phil can you quantify the total expert credit judgment care trade overlay that you had in your ACL and yeah that you've done the last few quarters and whatever way you want to kind of between that.

Speaker Change: If I may.

Speaker Change: If you just focus on this quarter, if I look at and well look at all do both quarters, it's probably it's north of 60%.

Speaker Change: Would be with the E C J.

Speaker Change: North of 60% of the performing built in the last two quarters would be correct.

Speaker Change: Yeah Yeah.

Speaker Change: Okay perfect. Thank you very much.

Speaker Change: Thank you. The next question is from Paul Holden CIBC. Please go ahead.

Speaker Change: Thank you and good morning couple.

Paul Holden: Couple of questions on Canadian P&C banking, I guess first off in terms of the.

Speaker Change: The investments the bank is making in digital and technology understand the requirement for them just wanted to get a better understanding of the cadence of how we should be thinking about the productivity ratio.

Speaker Change: Is this something that can improve in 'twenty six following the investments of 25 or is this sort of maybe a little bit of a longer term gain.

Speaker Change: Game plan here in terms of the ultimate efficiency improvements.

Pat: Hi, Pat.

Pat: Let me, let patrik here. So let me let me take you back quickly.

Pat: So what we committed to drink Investor day, we committed to two things we committed to one strengthening our balance sheet and the second thing we committed to was driving more customer depth and on strengthening the balance sheet. Since that time, we've added 36 billion in deposits and a U N compared to a more.

Pat: Modest 14 billion in lending.

Pat: And that is vastly improved our loan to deposit ratio second up.

Pat: Also really enhanced our pricing governance over the period and you see that reflected in the higher asset names.

Pat: Most of our product lines.

Pat: Third thing and you heard earlier from Phil and Raj. We've also increased our balance sheet acl's, adding $600 million again to improve the coverage ratios in our retail and commercial banking books.

Pat: On the customer that side.

Pat: We've added 375000 primary customers 75000 in the first half year, along this year and then you start to see those debt metrics play out in the number of customers with three plus products you see attrition coming down you see the mortgage volume 66 billion in mortgage.

Pat: <unk> originated have come with three plus products since the program began.

Pat: Then again on the debt you see day to day balances increasing sequentially annually, you see saving balances increasing so this whole idea of depth and balance sheet strengthening.

Pat: <unk> is continuing to materialize that said.

Pat: We're cognizant of the challenges on the revenue side, where we see obviously with falling rates of deposit names getting compressed and revenues structurally coming down and you also have sluggish loan demand.

Pat: And so we have to react to a certain extent.

Pat: On the productivity side and here is where we're working very hard we've actually not added ftes over the last 12 months to drive productivity in this environment that's it.

Pat: We want to continue to invest in our financing strategy and here you see investments in cloud.

Pat: Technology, what I call the channel mix of trying to shift from the assisted channels physical to digital.

Pat: As I talked about also on Investor day, So those investments are critical to two.

Pat: Getting that privacy strategy are in place are solid in terms of the loan to deposit ratio and in terms of the cost to income we manage it but we also manage our strategy and so in terms of going forward.

Pat: We will continue to invest but we will continue to be very prudent in how we add people and where we add people and how we manage the cost base. So that's good.

Pat: So given the current macro outlook roughly when would you expect the efficiency ratio to stabilize or slightly.

Pat: Hi.

Pat: I think as.

Speaker Change: Raj Might've mentioned, we expect that NIM compression to probably stabilize by year end and then starting next year.

Speaker Change: As things start to materialize, we can expect the productivity ratio to start to come back down so you're going to see that in 2026 perfect. Thank you.

Speaker Change: One other quick question on the CET one.

Speaker Change: Ratio maybe this question for for Raj, just wanted to better understand that impact coming from the.

Speaker Change: From the PCL was or the credit impact the boost to the CET one.

Speaker Change: This quarter, maybe you can kind of walk me through how that how that worked.

Speaker Change: Sure Paul I'm happy to do that.

Speaker Change: Expected losses far.

Speaker Change: You know for capital purposes was based on what we call it'll just cycled P. D. So it's like I said looking at average and a loan.

Speaker Change: The loss given default or the LGD downturn LGD citizens would predict.

Speaker Change: Worst case, ACO, unless you'd probably know works on point in time, PD and LGD is up based on our own loss experience so different basis.

Speaker Change: What Basel rule requires is if the expected loss calculation is greater than the accounting losses that we havent sit deduction for common equity tier one and if the Congress is truly Tonight factor tier two capital. So we have had a deduction for sometime last quarter was 535 million. So the bill like Fred was talking about in the ACL.

Pat: This quarter is all based off expert credit judgment or 60% does he talked about she doesn't come through the problem. It goes it's a lot of overlays to the parameter outcomes.

Pat: Essentially what it does for capital as the $535 million of production. We had lost Florida is now down to 153 million of the increase in the easier. It gets absorbed by the capital that is already suffering from the $535 million. The delta between the two is eight basis points pick up so what we gave up on earnings we had only 12 basis points of capital generation.

Pat: <unk>.

Pat: Nearly eight basis points of it we get back through the zeal versus ECM deduction.

Pat: Baseball is that typically what people were generated in the quarter.

Pat: Got it okay. That's helpful. Thanks for that.

Pat: Yes.

Speaker Change: Thank you. The next question is from Lamar Hopped on Max. Please go ahead.

Lamar Hopped: Yeah. Thanks, My first question is for Raj.

Speaker Change: Can you talk about the outlook for margins that'd be 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 of protein neutral so would it be fair to say that perhaps we're approaching the end in terms of all bank NIM expansion or am I kind of thinking.

Speaker Change: This wrong.

Pat: No I think tomorrow, you Havent, mostly right I think the all bank margin has gone up 16 basis points in the last two quarters.

Speaker Change: All of it almost all of it benefiting from lower funding costs because of the rate cuts in Canada.

Pat: And as you probably know you don't that aren't exposed to the U S. So that's the range moved out or not it doesn't have an impact to our net interest margin.

Pat: 131 basis points, that's closer to the top end for this time.

Pat: Because as you know, there's a big mortgage portfolio fixed rate mortgage portfolio, that's coming up for renewal, we have about 25 billion.

Pat: For the remainder of fiscal and then we have twice that amount in 2026 and 27% those are all going to be accretive to the margin as we think about 2026.

Pat: What does that do to us from an earnings perspective, you know you heard Scott say to his prepared remarks, 5% to 7% I think is it's kind of data and a lot of it is coming towards the margin benefits that you have already seen in the other segment reflected and then of course double digit.

Pat: EPS expansion do you still expect in 2026 for all of the all the reasons that 2025 was impacted by in the first half of the year.

Pat: Segment margins I think I think Arris mentioned it just now that his.

Pat: The Canadian banking margin should be at its trough in my opinion, you know a basis point or two doesn't matter, but it will start expanding back again to the mortgage expansion and as well as the deposit margin compression stopping international banking margins at 450 basis points, it's really good.

Pat: We like it but didn't pull forty-five for 50, some inflation benefits helped us that's very healthy and all the rate cuts you know if you look at Chile. For example, it's a dominant rates or was that terminal rate. So there's no more rate cuts that I expected, maybe a little bit in Mexico. So I think second margins shouldn't be fine we have definitely the FTP as you know when you when he stated it so going forward all the <unk>.

Pat: <unk> and the margins you should see it in the segments and that should translate into margin expansion for the bank as a whole.

Speaker Change: Perfect and then my second question.

Speaker Change: Maybe for Scott I noticed the change in verbiage in how you talked about the 5% to 7%.

Speaker Change: <unk> growth for 2025, and then 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. Yeah. I mean, if you think about our.

Speaker Change: Projections at the start of the year in the last quarter, we said, 5% to 7% before kit before tariffs and now what I'm, telling you it was 5% to 7%, including everything including the PCL build that you saw this quarter and including key and so essentially the key benefits are offset by that they perform they build that we weren't expecting at the start of the year through tariffs. So.

Speaker Change: Start first half of the year or kind of flat earnings.

Speaker Change: See that accelerate in the third quarter fourth quarter to get us to 5%.

Speaker Change: Perfect and then as you look at a normalized PCL environment to the benefits of rate cuts the business momentum that we're seeing across all of our businesses you get to the consensus type analyst estimates for 2026 at a double digit EPS growth. So we're feeling good about the momentum that we have here in the back half of the year in 2026.

Speaker Change: Offset by the PCL belt, we had today associated with tariffs and uncertainty.

Speaker Change: And not to put too fine a point on it but that five to seven is that including buyback activity.

Speaker Change: Okay, no that was not including buyback activity. That's a good that's a good.

Speaker Change: That's a good call out.

Speaker Change: Okay I appreciate the time.

Speaker Change: Thank you. The next question is from Darko minutes that'll be see please go ahead.

Speaker Change: Hi, Thank you. Good morning, Thanks for squeezing me in here I have two questions for for Arris.

Speaker Change: On Canada, I know you get a little bit granular here I apologize, but I really want to understand.

Speaker Change: The trend that I'm seeing.

Speaker Change: And so the first is on the asset side within Canada.

Speaker Change: Quarter over quarter, there's only one place where I see you doing really well and that's in mortgages are up one 4% and TD is actually down 80 basis points.

Speaker Change: But in every other category.

Speaker Change: Markedly weaker.

Speaker Change: And so the question arises.

Speaker Change: When I think about that.

Speaker Change: Things that have changed one is president Trump.

Speaker Change: And so possibly this is a deliberate strategy to move towards mortgages.

Speaker Change: And sort of <unk>.

Speaker Change: Not necessarily grow other more risky call it loan.

Speaker Change: <unk> in the face of tariff uncertainty.

Speaker Change: But the second thing that also happened at Scotia was you changed your funds transfer pricing mechanism.

Speaker Change: And I'm wondering if possibly that is also at play here.

Speaker Change: And if that's causing sort of pricing changes.

Speaker Change: And therefore, you are losing share.

Speaker Change: In other categories all of this aimed arris and understanding.

Speaker Change: If this kind of trend should continue well continue to see Scotia diverge from peers.

Speaker Change: Mortgages.

Speaker Change: At a higher pace and everything else at a lower pace relative to peers.

Tycho: Hi, Tycho. Thanks for the question, let me just walk through starting with so mortgages. So in mortgages, what we're seeing as you correctly pointed out we had solid year on year growth, I think 6% and quarterly growth of 1%.

Tycho: A lot of what we're seeing in the mortgage market now we're seeing the purchase.

Tycho: Volume coming down and smart refi and more switches and we're dealing with a massive increase as you know.

Tycho: The renewals that we've done well the portfolio of renewal rate is over 90% and we're holding the margins on those renewals were also you know.

Tycho: Managing these renewals digitally I think 20% analyses when those are coming through digital channels. So that's a productivity play given that renewals will increased 70% in the third quarter, it's going to continue to climb on the other lending products I think and I alluded to it earlier in terms of the tariffs and the uncertainty we're starting to see a flattening.

Tycho: Of the growth.

Tycho: Could be expected in commercial in auto in cards.

Tycho: So that's more market driven not any strategic seeing nothing to do with pricing nothing on that front. It's just what the market is giving us that said on the deposit side.

Tycho: I would I would say that we're actually making good progress as the term a term or 10 bucks coming up for renewal and 90% plus of that volume is staying within the bank.

Tycho: We're managing the day to day accounts and the day to day balances are growing which has been our primary strategy for us savings balances are also growing substantially so we're actually executing on our plan and our plan has been to maintain the margins on the asset side, which we've been doing and to grow the privacy business, which comes.

Tycho: With all the deposits that I've mentioned so I.

Tycho: I think we're on track and what we're doing again, a lot of whats being driven in terms of the volumes you're seeing is actually market driven and we're not going to chase volume, we're going to stay disciplined on our margins in a couple of things to start with that I would add I mean business because one of the biggest opportunities for us in our Canadian bank to improve the.

Tycho: The total return on the ROE at the back so that has not changed at all in terms of the North Star. If you look at the last eight quarters, we've grown our credit card.

Tycho: Revenue higher than peers, this quarter, a little bit weaker, but higher than peers and small business were significantly higher than the peers. So that's a good thing I think on the mortgage piece. If you go back to 2022, which we had the high volume of mortgages coming through relative to peers and now we're seeing that renewal.

Tycho: And that's why we're growing and others may be shrinking because we have that big bubble coming through and that's actually good news. If you can actually renew those mortgages at a lower acquisition cost associated with three plus products, we should be growing a little bit higher and so I think that business fits description of what's going on on the asset side along with the deposit.

Tycho: Growth on the loan side, both in the savings and overall P&C deposits is a good news story that we need to continue to execute on.

Speaker Change: Okay, great. Thank you I appreciate the time.

Speaker Change: Do you have a question on deposits, though arris.

Speaker Change: I understand that you're really focused on them, but it still seems like.

Speaker Change: 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.

Speaker Change: To really focus on the demand side of the deposit equation and I ask this again, just because relative to peers, but you may be doing better than you used to do it at Scotia, but still relatively weak. It appears right. So you correctly pointed out the structure of our deposit book has always been a bit higher in <unk>.

Tycho: Of the GIC versus the noninterest bearing so correctly.

Tycho: That is true what we're focusing on is of course, and then when you want to raise deposits and you want to raise the core deposits, you've got them work and to and that means frontline we've changed the.

Tycho: The incentives at the frontline in terms of driving more deposit growth with our clients and more cross sell the second thing is the marketing you've got to increase awareness and share of voice out there to drive more traffic into your channels third is the investments, we're going to making the product shelf and part of the <unk>.

Tycho: <unk> that have been materializing as how do we improve our savings products and not only improved the product features but improve them. So they can be a quiet digitally from our clients and then of course ive talked about mortgage plus and when I say that 90% of our mortgages.

Tycho: <unk> upcoming with multiple products. This includes state today and that's very critical for US also to get this this debt.

Tycho: In our lending business through this mortgage plus a program. So all these things put together of course retention. So not the one that is how we retain those deposits and I mentioned that 90% of the deposits that are coming off are staying within the bank 60 per cent I point back into term so it's a <unk>.

Tycho: Multiple city of many things that we're working on to catch up of course, and so again I'm very encouraged by what we've seen in the last quarter and over the last months and again, it's a constant battle, especially when rates come down it becomes harder, but this is a focus of the organization and where we're going to continue to press.

Tycho: And then therefore, mostly at 26 kind of story on deposits or do you think thats. Good good accelerate even in Q3 I think it will continue to each other and again. This is our number one priority for this organization for their Canadian Bank, we have everyone on deck from front to back working on improving our deposit mix and this is a critical.

Tycho: Piece for us.

Speaker Change: Okay. Thank you for that.

Tycho: Thanks, Jessie J F.

Tycho: I would like to just talk about you were calling for it at Investor Day, We talked about we call them asking advice and mutual fund penetration also being a key part of the cycle I think youre seeing that play out as well as we focus on primary client on the first half of the aerie side year to date net sales increased by 285%.

Tycho: Penetration kind of Investor day, It's also improved to almost 200 basis points in terms of that the proportion of retail clients come in basketball, So I think youre seeing that playing out as well.

Tycho: Okay. Thank you for that too Jackie and I'll come back to you on.

Speaker Change: More recent developments in the marketplace given the volatility anything changed.

Tycho: Got it.

Tycho: It's a good point currently.

Tycho: The quarter that we've had it's been a very volatile quarter in terms of the market. They started anchored in February with really strongly talk close I really good markets.

Tycho: Obviously weakened in March with based.

Tycho: Basically the tariff announcements in the U S. And then you saw probably back in the latter half of the quarter I really bottoming out early in April so notwithstanding that we've seen notwithstanding the market volatility we still grew earnings management by 17% year over year.

Tycho: I think what you saw is.

Tycho: A bit of a moderation in terms of feedback.

Tycho: In the second quarter offset by a really strong growth in private banking and cash balances and they are not trading volumes and I try. It. So you know looking ahead of course, I think we're going to continue to see volatility in the market until we see some stabilization from a tariff.

Tycho: Tariff.

Tycho: Activity, but you know we're going to continue to focus on what we can control, which is getting out to clients and putting them through all three of these volatile times and I'm really confident that we're going to continue to see strong growth in wealth advisory and private banking.

Speaker Change: Okay, great. Thank you very much appreciate that operator, we have time for one last question. Thank you. Our last question is from Sohrab <unk> BMO capital markets. Please go ahead.

Speaker Change: They just got a quick answer Scott lots of reference back to the Investor day at the Investor Day, you had talked about.

Speaker Change: Probably more of a 12% plus CET one ratio now you're talking about 12 of them have understandably. So.

Speaker Change: The environment has changed what sort of bearing does that have on the ROE target that you had communicated at Investor day.

Speaker Change: Capital.

Speaker Change: Thanks for that I mean, as you recall from Investor Day, We said, 14% plus and I actually the capital that had been embedded in our plans was.

Speaker Change: Significantly in excess of 12%.

Speaker Change: Built in buffer not only on that 14% plus but also in the amount of capital that we would deploy it so that 14% that we talked about at Investor day is still Ah.

Speaker Change: What we're trying to achieve and I feel confident about that if you'd think about.

Speaker Change: Where we are as a bank wealth is exceeding expectations in international banking.

Speaker Change: Any expectations that we said this was going to be a transition year and they're essentially flat. So when you look at the 2020 sector to see growth there as you listen to Francisco and I think our wholesale bank is also.

Speaker Change: Ahead of schedule as we look at the Canadian Bank more work to do for sure around deposits that we talked about the privacy strategy. It also rep productivity.

Speaker Change: We can address the productivity.

Speaker Change: It's a cute on collections to city of paired loans come down you're going to see a.

Speaker Change: Great outcome for this back in 2026.

Speaker Change: And getting closer and closer to that 40% plus Roe target.

Speaker Change: Thank you for squeezing me in.

Speaker Change: Thank you I would now like to tell them anything over to Raj Viswanathan. Please go ahead.

Speaker Change: On behalf of fan time management team I want to thank everyone for participating in our call today.

Speaker Change: We look forward to speaking again at our Q3 call in August. This concludes our second quarter results call have a great day.

Speaker Change: Thank you the conference has no idea. Please disconnect your lines at this time and we thank you for your participation.

Speaker Change: This conference is no longer being recorded.

Speaker Change: Good day, ladies always you see.