The Bank of Nova Scotia (BNS) Earnings Call Transcript & Summary

Ladies and gentlemen, this conference is being recorded.

Good morning, and welcome to Scotiabank's Q3 '26 Results Presentation. My name is Meny Grauman, and I'm Head of Investor Relations here at the bank. Presenting to you this morning are Scott Thomson, Scotiabank's President and Chief Executive Officer; Raj Viswanathan, our Chief Financial Officer; and Shannon McGinnis, 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. Aris Bogdaneris from Canadian Banking; Jacqui Allard from Global Wealth Management, Francisco Aristeguieta from International Banking and Travis Machen from Global Banking and Markets. Before we start and on behalf of those speaking today, I will refer you to Slide 2 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, Meny, and good morning, everyone. Q3 was a record quarter for the bank as we reported strong earnings across all business lines and exceeded all of our medium-term objectives. We are particularly proud of the fact that we demonstrated our ability to hit our 14% plus return on equity target sooner than we had projected. This achievement was aided by strong markets, but is also the product of strategic repositioning and improved capital allocation that have led to sustainable improvements across the bank. It continues to be driven by our Canadian Banking segment, whose return on equity improved 160 basis points sequentially and hit 19.4% this quarter. We expect to continue to improve the return on equity and close the gap with peers through a steady improvement in our business mix, fee income growth and ongoing productivity gains. We are delivering on our strategic priorities. And although you should expect to see some quarter-to-quarter variability, we don't see 14% return on equity as a ceiling for the bank. This quarter, the bank reported record earnings per share of $2.28, up 21% year-over-year. We also delivered all bank positive operating leverage for the tenth consecutive quarter while our CET1 ratio ended the quarter at 13.1% after deploying 23 basis points to organic growth and repurchasing an additional 8.6 million shares in the quarter. Over the past 12 months, we have now returned $8.3 billion in capital to our shareholders through share buybacks and dividends. Our capital deployment priorities continue to be organic growth followed by share buybacks and strategic tuck-in acquisitions that fill a well-defined need. The bank remains focused on deploying accumulated capital in support of Canada's economy including helping fund areas of national importance such as natural resources, critical infrastructure, AI and defense, and we expect to do all of this while maintaining strong capital ratios. While the trade relationship between Canada and the U.S. is evolving, ever since tariffs were imposed last year, the Canadian economy has proven to be much more resilient than expected. We will continue to monitor developments while supporting our clients and focusing on our strategic priorities. Our business mix continues to evolve across our footprint as loan growth improves in higher returning portfolios and we gather higher quality deposits. In Canadian Banking, commercial loans grew 3% sequentially in Q3 after growing 2% in Q2. Looking ahead, we expect growth to continue to improve support our investments we are making in verticals where we've been historically underpenetrated, including the mid-market and small business lending where loan growth was up 3% quarter-over-quarter and 10% year-over-year. Credit card balances were up 3% quarter-over-quarter, and we continue to expect that to further improve by the end of the year helped by growing purchase volumes, which are underscoring the improving quality of our book. The premium mix of new card acquisitions is now at 45% versus 35% last year. On the deposit side, we've been able to retain over 90% of retail GIC maturities year-to-date. These flows are abstained in Canadian Banking, where personal day-to-day and savings deposits grew 1% year-over-year or are moving into retail mutual funds or net sales of $4 billion year-to-date, up nearly 2.5x from last year. Record revenue in Canadian Banking was helped by the fifth consecutive quarter of margin expansion and continued strong fee income growth as we maintain our focus on growing retail mutual fund, credit card and insurance revenues. At the same time, credit trends are improving, thanks in part to better collection efforts, and we are managing expenses very effectively even as we continue to make substantial investments in frontline sales capacity and technology. We are also seeing improving business mix in our International Banking segment, where retail loans grew by approximately 5% year-over-year. This growth rate should continue to improve even as growth in our non-retail loan book will remain restrained by design as we continue to optimize our allocation of capital to focus on primary relationships. Our focus on deposits in the region is also working with Q3 deposits up 1% quarter-over-quarter and 6% year-over-year. As a result, earnings remained above the $700 million mark for the third consecutive quarter, led by strong revenue growth of 7% year-over-year. The strategy remains focused on deepening client penetration while further driving efficiencies. Pretax pre-provision earnings in our International Global Banking and Markets business were up 13% year-over-year, helped by our capital markets platform where we're increasingly focused on delivering capital-light higher-value solutions to our clients. In Global Wealth Management, we are continuing to drive connectivity with the rest of the bank and investing in both our full-service advice and discount brokerage businesses. Net sales for the quarter came in at $3 billion, a record Q3, up 14% versus Q3 2025 and marking our eighth consecutive quarter of positive net flows. Our net sales for the year-to-date are now higher than full year fiscal 2025. Total closed referrals between Canadian Banking and Canadian Wealth Management came in at $14 billion year-to-date, and more specifically, close referrals between commercial banking and wealth were $4.5 billion or 33% higher than what we reported for the same period last year. In our Global Asset Management business, we ranked third among our bank-owned peers in long-term retail mutual fund sales, up from fifth in the same order last year and sixth at Investor Day. And in our international wealth business, we are continuing to scale our total wealth solution across the region, including in the Caribbean and Mexico, where quarter-over-quarter earnings were up 14% and 15%, respectively. Finally, in Global Banking and Markets, loans were up 7% quarter-over-quarter as growth returns after a period of optimization. Deposits were also up 9% sequentially, helped by positive momentum in Global Transaction Banking, ended the quarter with the highest quarterly net income on record in global banking and markets as both global Capital Markets and Investment Banking delivered several marquee transactions for us. These include Atna's joint lead and book runner on the 2 largest debt capital markets deals ever done in Canada, our largest asset-backed securities deal since we established our structured credit platform, acting as a book runner on the largest IPO in Canada since 2021 and our first lead left leveraged finance deal. All of this activity speaks to the increasing depth and breadth of our Global Banking and Markets franchise on both sides of the border and the investments we have made in capabilities. We are delivering strong and consistent results across the bank, while still investing in the future, including an AI, where we continue to advance our enterprise-wide AI agenda with a focus on practical adoption, including training, scalable infrastructure and responsible governance. This quarter, we expanded Scotia Intelligence, our bank's centralized data and AI platform to launch new capabilities to improve productivity and free up capacity for higher value work. These new advanced features will help our teams collaborate in real time, term complex information to clear output and move from concept to execution faster. With the recent launch of our Social Intelligence knowledge agents, employees now have access to AI-powered solutions that facilitate easy access to institutional information, enabling faster execution of routine processes, helping them to focus on higher value innovation and client outcomes. Also this quarter, Scotiabank joined with Lightworks, Sun Life and TELUS to launch the AI Consortium, a collaborative Canadian model designed to help large regulated organizations build and govern the critical control systems required to deploy AI safely. Looking ahead, we are confident that we'll be able to finish the year strong and enter fiscal 2027 with momentum. Our Q3 results are proof that our strategy is working and that we are succeeding in building deeper, more profitable client relationships, both in Canada and across our international footprint through a constant focus on improving business mix boosting fee income and driving efficiency gains across the organization. I will now turn it to Raj for a more detailed financial review.

Thank you, Scott, and good morning, everyone. My all bank and other segment comps will be on an adjusted basis, which includes the usual amortization of acquisition-related intangibles. The business line results will be on a reported basis. Moving to Slide 8 for a review of the third quarter results. The bank reported quarterly earnings of $3 billion and diluted earnings per share of $2.28. My remarks that follow will refer to the last column on this slide that excludes the impact of divestitures. Return on equity was 14.2% or up 170 basis points year-over-year, driven by strong revenue growth of 16%. Net interest income grew 12% year-over-year as net interest margin grew 18 basis points from higher margins across all business segments. NIM was unchanged quarter-over-quarter as higher margins in Canadian Banking and Global Banking markets were offset by lower margins in International Banking. Recall International banking margins had some seasonal benefits last quarter. Noninterest income was up 21% year-over-year, primarily on higher banking and wealth management revenues, underwriting and advisory fees and other fees and commissions and higher income from associated corporations. Expenses grew 14% year-over-year, mainly due to higher performance and share-based compensation related to higher business volume and profitability and higher technology spend to support strategic growth initiatives, which grew 16% to $1.5 billion this quarter. This resulted in pretax pre-provision profit growth of 18% year-over-year. The bank generated positive year-to-date operating leverage of 3.9% and the productivity ratio improved by 90 basis points year-over-year to 52.5%. The average loans increased 4% year-over-year, while deposits increased 5%. Moving to Slide 9. The bank's CET1 capital ratio remained strong at 13.1%. We generated capital from strong earnings in the quarter, offset by increased lending and underwriting activity. We repurchased 8.6 million shares this quarter, representing 20 basis points of capital usage. The total risk-weighted assets was $493 billion, $11 billion quarter-over-quarter, excluding FX, mainly related to higher credit risk, including the recall of a synthetic retransfer transaction. In Q4, certain international banking portfolios are migrating from the standardized approach to the IRB approach that will reduce our capital ratios by approximately 15 basis points. We expect to absorb this impact and maintain our CET1 ratio of around 13% next quarter. Turning now to the business line results, beginning on Slide 10. Canadian Banking earnings were $1.1 billion, up 12% year-over-year from strong pretax pre-provision earnings growth of 11% and partially offset by higher provision for credit losses. Loans grew 3% year-over-year, driven by 4% growth in mortgages and 3% growth in commercial and small business loans, while personal loans grew 1%. Day-to-day and savings deposits grew 1% year-over-year, in line with our strategy. However, deposits declined 2% year-over-year, mostly in term. Turning to the P&L. Net interest income grew 7% year-over-year from loan growth and margin expansion. Net interest margin expanded for the fifth consecutive quarter, up 2 basis points sequentially, driven by an increase in both loan and deposit margins. Noninterest income was up 11% year-over-year from higher mutual fund distribution fees credit card revenues and insurance income. The PCL ratio decreased 8 basis points sequentially to 42 basis points, driven by declines in both performing and impaired PCLs. Expenses were up 5% year-over-year from investments in technology to support strategic growth initiatives, partly offset by the benefit of efficiency initiatives. The year-to-date operating leverage was 3.7%. Turning now to Global Wealth Management on Slide 11. The earnings of $515 million were up 23% year-over-year as Canadian earnings were up 27% and international was up 4%. Spot AUM and AUA grew 16% and 13% year-over-year, respectively, from market appreciation and higher net sales. Revenues were up 18% year-over-year from higher mutual fund fees, net interest income and brokerage revenues. The expenses were up 16% year-over-year from higher volume-related expenses sales force expansion to support business growth and technology costs. Year-to-date operating leverage was 2.2%. Turning to Slide 12. Global Banking and Markets earnings was $647 million, up 37% year-over-year. The revenue grew 32% year-over-year as capital markets revenues were up 33% and business banking was up 30%. Net interest income was up 34% year-over-year, primarily due to higher margins and higher client-driven capital markets activities. Noninterest income was up 31% year-over-year due to higher underwriting and advisory fees and client-driven trading revenue from equities and foreign exchange. Expenses were up 26% year-over-year, mainly due to higher performance-based personnel costs on stronger results and higher volume-related costs, including technology to support business growth. These results were supported by strong loan growth of 5% year-over-year. Canadian loans grew 7% quarter-over-quarter and 9% year-over-year. Deposits also grew 12%, helped by the investments we have made in Global Transaction Banking. Moving to Slide 13. My comments on International Banking are on a constant dollar basis and exclude the impact of divested operations. The segment delivered earnings of $725 million, up 6% year-over-year. Revenue increased 7% year-over-year, with net interest income up 3% while noninterest income increased 18% from higher income from the WBN investment, card revenues and insurance income. Net interest margin of 469 basis points was up 18 basis points but declined 7 basis points from seasonally higher net interest margin in the prior quarter. Deposits were up 6% year-over-year as personal deposits grew 4% and nonpersonnel grew 7%. The loans were down 1% year-over-year as non-retail loans declined 7%, while retail loans grew 5%. Operating leverage was 1.9% year-to-date. The PCL ratio declined 28 basis points sequentially to 138 basis points, mainly driven by lower impaired PCLs. The GTM business and International Banking generated earnings of $321 million, driven by strong capital markets revenue growth. The effective tax rate increased sequentially to 21.3% due to favorable adjustments in the prior quarter and changes in earnings mix across jurisdictions. Looking ahead, Chile announced a reduction in the tax rate by 4% over the next 3 years to 23%. Although this will result in lower taxes in future years, once enacted, it will also require a onetime deferred tax asset write-down in Q4. Turning to Slide 14. The Other segment net loss was $42 million compared to $35 million of income in the prior quarter due to elevated investment gains in the last quarter. I'll now turn the call over to Shannon to discuss risk.

Thank you, Raj, and good morning, everyone. Our credit performance improved this quarter, with PCLs beginning to decline in line with our outlook for the second half of the year. Against this backdrop, all bank provisions were $1.1 billion or 56 basis points, down 10 basis points quarter-over-quarter. Impaired provisions were $1 billion or 52 basis points down 9 basis points quarter-over-quarter, driven mainly by lower international banking provisions related to the single corporate accounts we discussed last quarter and better performance in Canadian Retail. Performing provisions were 4 basis points down 1 basis point quarter-over-quarter, reflecting lower provisions in Canadian and international banking, partially offset by higher provisions in Global Banking and Markets. Our allowance for credit losses increased to $7.6 billion or 97 basis points, up 1 basis point quarter-over-quarter. Turning to Slide 17. Gross impaired loans increased 1 basis point quarter-over-quarter to 100 basis points, with modest increases across business lines. Overall, deal formations declined quarter-over-quarter primarily reflecting elevated corporate formations in International Banking and Canadian commercial in the prior quarter. Turning to Slide 18. In Canadian Banking, provisions were $498 million or 42 basis points, down 8 basis points quarter-over-quarter. In commercial, total PCLs were down $11 million quarter-over-quarter to $129 million. In retail, total PCLs were $369 million or 39 basis points down $66 million quarter-over-quarter. Performing PCLs were $24 million, down $10 million quarter-over-quarter, reflecting more favorable forward-looking indicators primarily from lower interest rates and positive credit migration in auto and cards. Impaired provisions in retail were $345 million, down $56 million driven by lower net write-offs and unsecured lines of credit and lower impairments in auto, reflecting improved delinquency trends from continued collection efforts. While we are encouraged by the improving trends in impaired provisions, and 90-day delinquency across most retail products, we continue to monitor some pockets of weakness, including elevated mortgage delinquencies. That being said, mortgage clients remain resilient and our overall retail portfolio quality remains strong with an average FICO score of 798. Moving to International Banking. International banking provisions were $522 million or 138 basis points, down 2 basis points quarter-over-quarter. In commercial, PCLs declined quarter-over-quarter, driven mainly by lower impaired provisions from an elevated Q2 relating to the 1 account in Brazil. We continue to work through this account. And this quarter, we took an incremental provision of $57 million and reclassified $14 million related to a derivative exposure from CVA to PCL with no change in the underlying exposure. International Banking retail provisions were also lower quarter-over-quarter, reflecting improved performance in Mexico and improved delinquency performance in Chile across those products. This was partially offset by higher mortgage impairment in Chile and the Caribbean. In Global Banking and Markets, provisions were $53 million or 18 basis points, up 4 basis points quarter-over-quarter driven by higher performing provisions from forward-looking indicators and impaired provisions mainly driven by new formations in Canada. In closing, while the delinquency trends are encouraging, we continue to monitor the sustainability of the improvement given continued geopolitical developments, elevated energy costs contributing to increased inflation and persistent trade uncertainty. Our allowances incorporate a range of forward-looking macroeconomic scenarios. This, together with the high quality and demonstrated resilience of the portfolio supports our comfort with current allowance levels and our position in the current environment. With that, I will turn it back to Meny for Q&A.

Thanks, Shannon. Operator, we're now ready for our first question.

[Operator Instructions] Your first question comes from the line of Ebrahim Poonawala with Bank of America.

I guess maybe if you could -- if I could start with the Canadian business segment. It feels like we're making a ton of progress there in terms of just improving the business mix, growing that. But I was looking at like the year-to-date ROE in that business is about 18% unchanged. If I go back, I think, Raj, when you presented at the Investor Day, you talked about a big sort of the ROE bridge and that 18% going into, I think, 22%, 23% kind of sort of ballpark. Just talk to us when we think about the ROE in that business today at 18% and that journey towards maybe low to even mid-20s, one, is that the right way to think about that business? And if so, what else needs to happen over the next year or 2 for us to get to that point from where we are today.

[ Aris here ]. Let me take that question. So I think what is happening in business banking, we have to -- obviously, we have the commercial segment and the smaller business banking segment. But on the Commercial segment, what has been in flight for probably the last 18 months is the increase and buildup of our mid-market segment. So as you know, we were quite heavy in the real estate side. And over time now we're expanding into the mid-market. Year-to-date, we've added nearly 700 mid-market clients, which is up almost 85% year-on-year. And obviously, this mid-market client is deposit-rich higher margin lending. And that pipeline is building in market as we also leverage the capabilities of GTB or transaction banking in that segment. We're also, as you know -- on the mid-market, in addition, we are also driving a lot of process improvement end-to-end in the commercial bank. And of course, gathering these operating deposits we're up probably around 3% to 4% in operating deposits across the segment, all contributing, of course, to higher ROE over time. So that's 1 aspect. And then we shouldn't forget business banking, the smaller part of our commercial segment. where you see loans growing double digit consistently quarter-on-quarter, deposits growing. And more importantly, we are focused on specialized segments. That's health care professionals, accountants, and here, we're gaining share. And obviously, the margins are rich. And you see the ROE there almost at 25%. And when you take these 2 businesses together, we're confident as we continue and especially as our transaction banking capabilities improve that we can hit the 20% plus ROE over time. So all on a good track.

Your next question comes from the line of John Aiken with Jefferies.

Francisco, I was hoping that we could dive into the outlook for international. I mean, we're seeing, on a sequential basis, loan growth revenues pick up. Do we think that we're at an inflection point or a pivot in terms of the loan growth looking forward. And then secondarily, even though with the revenue growth, we are still seeing expenses remaining reasonably high. Any sense in terms of when that might move into positive operating leverage territory?

Well, thank you very much for the question. This is an important quarter in the sense that it marks the effectiveness of the Pivot to Growth effort we've been leading for the last 4 quarters. We're now seeing the business growing at 6% year-on-year. And when you look at the underlying business lines are growing substantially higher revenues than what we saw in 2025. and that positions us to the target in 2020 and beyond of growth within the 6% to 8% level on the revenue front. We don't see a reason for expenses to move beyond where we've been, which is around the 4% level. That continues to be materially below inflation. We have been able to capture the power of synergies and scale through the regionalization effort that we implemented in the first 2 years of the transformation, and we see that trajectory stable over time. We see our ability to drive very important solutions across all markets at scale. So when you combine those 2, you should see PTPP like you see in this quarter is growing sequentially year-on-year at 8% or above. We are very encouraged with the quality of the new vintages that we're onboarding and the effectiveness and penetration on our GDP business across corporate and commercial. So the combination of those 2 should allow us to see a more stable credit performance going forward that should allow us to deliver double-digit earnings in '27 and beyond. That's the path we're in. And that path is demonstrated by the ROEs that today are sitting north of 16%, and we see that path going forward. So we are very excited by the delivery across all markets and business lines that we've seen so far and we don't see a change going forward other than consolidating this revenue growth performance that we've seen throughout 2026.

And your next question comes from the line of Gabriel Dechaine with National Bank Financial.

Just sticking with international. On the -- you mentioned some conversion of portfolios from standardized to AIRB and that's going to reduce your quarter 1 by 15 basis points. Just wondering why that is typically it goes the other way? And is this a kind of a one and done? Or is there more of that type of transition taking place?

Gabe, it's Raj. Yes, it is one and done. I think there were certain portfolios, we should have converted a few years back. We've been on a journey because our data quality had to continue to improve. And this is a quarter which is the upcoming quarter, we're going to convert those to A or B. Some of it comes from the conservatism that is expected in Basel because the data quality in the countries are not as great, not our portfolio. So it expected to add the level of conservatives onto the model outputs, and that's why it results in a 15 basis point increase in our capital requirements. Obviously, there will be some near-term impact to the ROE in the international banking business because the denominator is going to increase next quarter. But it's pretty much done. And afterwards, we should see -- our portfolio is growing in line with our new risk appetite. The way Francisco is laying out is business for growth. And we should start seeing our returns improving. The ROE should continue to improve, but it's done with Q4.

Okay. And actually, you stick with international and I asked about the global banking and markets earnings that are booked in the segment were up over 40% of total segment earnings from that source so far this year. Like how intertwined is that business with your personal and commercial bank, if you will, across the region? And what does the ROE look like if that business is not there, I expect quite a bit lower.

Well, thanks for the question. It's a very important one because this is a decision we made, I would say, probably 1.5 years ago, a little more as we continue to try to drive higher earnings and create value for investors, managing capital very smartly. And we decided to build market-leading capital markets capabilities supporting the international footprint. And we've been able to put together an extraordinary team, very aligned by the way, with the global strategy that Travis is also leading in the same space. So what we're doing is really capturing the piece of the wallet we never pursue, and we're seeing fantastic response from our clients. We are now covering the sovereign space, which before we never covered given our very substantial presence in many of these markets, we're covering sovereigns with structured solutions and liability management. And we're participating in domestic capital markets in a way that before we couldn't. So what you saw in this quarter as a question year-on-year, you're seeing growth on the revenue front of 40% without necessarily absorbing material capital. This is also very accretive to primacy within the GBM space because we're now having strategic conversations with clients in the nature that we couldn't have before. So when you see this contribution together with our very strong corporate relationships, now capturing the full space of the wallet, including transaction banking and a deeper relationship on the transactional basis with clients, this is really capturing the full wallet on the GDM space. So we see that as a very powerful development in our business strategy and the carryforward definitely going beyond 2026. So very strong showing this quarter, and we're very excited about the potential of this business going forward.

On the ROE?

The ROE [indiscernible] absolutely.

We don't break that out, Gabe. Obviously, the ROE the separate business funds.

Your next question comes from the line of David Konrad with KBW.

I just want to talk a little bit about capital markets. You highlighted in the call, just a really strong quarter, particularly in the IB side with a lot of large deals. So maybe you talked about like maybe near-term expectations next quarter? So is there going to be a little bit of a giveback in that, but also maybe the long-term growth rate with all the investments you made in the business.

Yes. Sure. Gabe, thanks for the question. And I would be remiss if I didn't say that we were thinking about you and your firm over the next couple of weeks. I appreciate it. If you think about where we are right now, I think for this quarter, if you look, it was obviously a broad-based record quarter for GBM. And if you look through the numbers, whether those are capital markets or investment banking, whether it's loans, deposits, you've seen a lot of activity throughout the quarter. And if you step back and look at it, very intentional. Over the last 2 or 3 years, we've been on a journey. We've been deemphasizing some businesses or regions, and we've been doubling down on building new products and services and focus in our core footprint, both Canada and U.S. and rest of the world. And so we're on the journey of trying to build a very durable franchise that's very broad-based. We feel like we're building a business that is perfect for this environment where we can offer excellent products and services and advice to our clients as they are trying to navigate the complex environment. Our outlook and our pipelines remain quite strong. And we're -- and I think we're proving quarter-over-quarter that when the markets are constructive, that we can capitalize on that, and we can service our clients with excellent products and advice.

Your next question comes from the line of Doug Young with Desjardins Capital Markets.

I guess this is for Shannon. Shannon, I think you expected or you talked about impaired PCL rate to be mid 50 basis points in the second half was 52% this quarter, and that included a decent drag from the Brazil loan this quarter again. So I think it's safe to say things are -- seem to be progressing better than expected. Just wanted to kind of get your sense as to what's driving that? And are you sticking with that guidance for Q4? And maybe if you can kind of layer on, obviously, some new tariff financings here. How does that impact your outlook in your view on credit over the near term?

Yes. Thanks for the question. So maybe I'll go back to what informed our outlook at the time. as there were a few items I called out that we were monitoring quite closely. The first was the macroeconomic environment and just the uncertainty within it. In Canadian Retail, we were seeing entry rates and early stage delinquency were improving, but we were certainly monitoring whether they would be sustained at those levels. and we had several collection initiatives that were still coming online. And then lastly, for non-retail, we always talk about the risk of episodic activity given the environment we're operating in. So if I think about what's occurred since then, I think there's a few things I would highlight. One, in Canadian Banking retail, the early stage in 90-plus day delinquency has improved across products, except for mortgages, and our collections initiatives are delivering strong benefits. We also saw bill formations decline in Canadian commercial. So the performance continues to develop largely as expected as our collections initiatives are yielding quite strong results. And when I go back to our original outlook, our performance is in line with what we said at the time, which was that impaired PCLs were going to trend down over the latter half of the year, which is certainly what we are seeing. And then if I think about tariffs, I think there's a -- I think about it in a few ways. Clearly, the evolving trade outlook, we look at the impact to our clients and our portfolio and then how we are managing that risk. In terms of outlook, I think this is a good example of the uncertainties that we are currently managing. The scope and duration of tariffs continues to evolve and the ultimate impact is going to depend on degree of retaliation, government support and how consumers and our businesses respond. In terms of our exposure, we've been monitoring industries more vulnerable to tariffs since last year. And if I look at the latest measures that were announced, just to give you some context, that represents less than 1% of our total bank loans. In terms of how we're managing these risks, our scenarios and allowances already reflect a range of outcomes. But we'll continue to reassess new developments as they occur. And maybe if I just take a step back, if you go back to Q2 of last year, we did build 18 basis in performing PCL. And at that time, our downside scenarios modeled Canadian tariff rates of 12.5% and up to 25% with full retaliation. And our base case today assumes that tariffs are implemented and that trade negotiations continue. So if I put all of that together, we're monitoring the situation. We're very comfortable with where we are, and we'll continue to reassess the situation as it evolves.

Maybe just, Doug, if I can add on a couple of things on the tariff situation. I mean I think it's important just to take a step back, the fundamentals in Canada are pretty good. And if you look at the job growth numbers, if you look at the physical capacity on the back of oil prices and if you look at some of the activity that's starting because of the Prime Minister's agenda, you actually have a backdrop that's pretty good. As you think about the tariffs that were just put in place, it's 5% of exports. It's a small impact on GDP, 0.2, 0.3 and you're going to see at 11:00 today support programs rolled out by the government on some of the sectors, which will be impacted, and there will be select sectors will be impacted. So as I put all that together, I think this is obviously creates uncertainty, but with the current tariffs, it's manageable. I think if I could add 1 point, I think we should use this as a country use this moment to accelerate further the Prime Minister's agenda and removing interprovincial trade barriers, reducing the timing of approvals, getting big things done and continuing to diversify trade while also continuing the great trade relationship we have with the U.S. And we look at the U.S., the U.S., as you saw from Travis' business, is doing quite well. So you put that all together, I mean, of course, there's uncertainty but it does feel like a manageable force to get through as a country and as a North American corridor as well.