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Q3 Bank Roundup

Bank-roundupSome of the Big 6 Banks posted surprising mortgage growth in the third quarter (Q3). That contributed to record profits in the cases of Royal Bank, Scotiabank and TD.

It also helped the five biggest banks boost shareholder dividends.

But with a laundry list of new mortgage restrictions kicking in, many question whether coming quarters will be as prosperous. For insights along these lines, we turned straight to the horses’ mouths (i.e., we poured through their Q3 bank reports and conference calls).

We compiled all the findings into the below summary of notable mortgage tidbits. If you’re really time-pressed, the focal points are highlighted.



BMOBank of Montreal

Net income: $970 million (+37% Y/Y)

Earnings per share:$1.42

  • BMO’s total Canadian residential mortgage
    portfolio stood at $73.9 billion in Q3, up 4.8% from $70.5 billion in Q2. (Source)
  • Mortgage balances are up 6.1% Y/Y (Source)
  • Of BMO’s total mortgage
    portfolio, 65% is insured, down from 70% in Q2. (Source)
  • BMO’s Canadian residential
    mortgage portfolio represents 6.5% of the total Canadian residential mortgage
    market of $1.142 trillion (Source)
  • The average LTV of its residential
    mortgage portfolio stands at 61%, down slightly from 62% in Q2. (Source)
  • “We are attracting new
    customers and steadily increasing the amount of business existing customers are
    choosing to entrust to us,” said Bill Downe, President and Chief Executive
    Officer, BMO Financial Group. “The recent changes to Canada’s mortgage market
    announced by the Minister of Finance were prudent, responsible and timely; they
    align with BMO’s risk practices and ongoing efforts to encourage Canadians to
    borrow smartly.” (Source)
  • “There was good volume growth
    across most product lines, including residential mortgages,” Downe added. “With
    the (Low-Rate Mortgage) promotion which began about two years ago…we’ve been at the forefront of a significant change in the
    structure of the Canadian residential mortgage market. We introduced the
    product because we saw it as a substantial benefit to customers, providing them
    with a faster path to increased home equity and certainty of monthly payments.
    With the success of this mortgage we have seen above average credit quality and
    importantly, the proportion of mortgages approved that are ultimately closed
    have also risen
    . We’ve attracted new customers and established a foundation for
    productive long-term relationships.” (Source)
  • Frank Techar, President and CEO,
    Personal and Commercial Banking Canada, BMO: “… We saw some growth in Q2 and the way the market
    typically works is, Q3 is the strongest quarter overall…We did really well
    on the back of our 5 year fixed rate, 25 year amortization product promotion…Our objective was to promote a product that was in our
    customers best interest, pay less interest, payout the mortgage faster. We
    benefited because we now have customers who are going to be with us for a while
    and we saw a significant increase in new customers coming to BMO through the
    campaign as well. So, putting a fine point on it, our market share went up 21
    basis points in Q3
    , so we did more business than some of our competitors. It’s
    obviously an important product to us, as it is to others and we just think we
    had a really strong quarter. Our expectation is, we’ll see a little softening
    in Q4. Q4 is not typically a strong mortgage quarter, but we’re going to
    compete really strongly going forward.” (Source)



Net income: $841 million (+42% Y/Y) 

Earnings per share:$2.00

  • CIBC’s total Canadian residential mortgage
    portfolio stood at $145 billion in Q3, up slightly from $144 a year ago, with
    an LTV of 49%.  (Source)
  • Of CIBC’s residential mortgage portfolio,
    77% is insured and 23% is uninsured. (Source)
  • CIBC noted it has rolled out its Home Power Plan in Alberta and
    British Columbia. “The new offer combines the benefits of a traditional
    mortgage and a line of credit to give clients a long-term borrowing solution
    resulting in a deeper, longer term relationship with CIBC.” (Source)
  • In its report to shareholders, CIBC
    referred to its sale of FirstLine and resulting departure from the broker
    mortgage channel by saying, “This strategic direction is consistent with Retail and
    Business Banking’s client-centric strategy
    , which has now put a greater
    emphasis on branch mortgage originations
    .” (Source)
  • Residential mortgages were up $636 million due to
    mortgage originations, partially offset by principal repayments and
    liquidations. (Source)
  • CIBC’s
    Canadian condominium mortgages totalled $17.1 billion in Q3, identical to the
    same period a year ago, of which 77% is insured. (Source)
  • Condos account for
    approximately 12% of CIBC’s total mortgage portfolio, with about 70% in Ontario
    and B.C. (Source)
  • CIBC mortgage portfolio gained
    market share with 9% year-over-year growth. (Source)
    Renewals from FirstLine account for approximately 0.5% of this growth. (Source)
  • “Since, we introduced our
    capability for FirstLine customers to renew into CIBC brand on mortgages back
    in April, we’ve been meeting our migration targets that we originally outlined
    [of 50% client retention],” said David Williamson, SEVP, CIBC, and Group Head, Retail and Business Banking.
    A second point I’d make is that the spreads that we’re
    achieving on the converted mortgages are also hitting our targets. I won’t for
    competitive reasons outline what those NIM targets are, but they are
    substantively higher than what we were achieving in 2011.” (Source)
  • CIBC has been “welcoming” FirstLine mortgage customers to the CIBC brand with a promotion on banking fees.
  • Williamson added: “…Our NIMs are expanding so we are certainly not trying to reach for…growth by taking lower prices.” (Source)
  • Asked about the fact that CIBC is growing its mortgage
    book faster than its peers, in the context of a tempered outlook for real
    estate, David Williamson – SEVP, CIBC, and Group Head, Retail and Business
    said this: “…We will be the only
    bank that’s actually reducing our mortgage banking balances over the next few
    , so we’ve got FirstLine which is near enough to $50 billion that’s
    burning off, so although our own brand which has better margins allows for
    deeper relationships and cross-sell, that will be growing, but the $50
    billionish is going to be burning off… We are pulling back on overall
    mortgage exposure if you will and we are trying to get the right kind of
    balances with our clients, bring out deeper relationships and wider NIMs
    and exiting the business that doesn’t have those attributes.” (Source)


National Bank of Canada

Net income: $379 million (+13% Y/Y)

Earnings per share:$2.14

  • “National Bank continues to pose strong volume growth in its lending activities. Mortgages and personal loans volume were up 13%…” (Source)
  • In National Bank’s retail portfolio, “insured mortgages remain the largest asset in the book accounting for 38% of the portfolio. HELOCs and uninsured mortgages represents 24% and 17% respectively.” (Source)
  • “The average loan-to-value on the HELOC and uninsured mortgage portfolio was approximately 54%.”
  • As at July 31, 2012, the volume of
    residential mortgages totalled $31.5 billion, up from $27.6 billion a year
    earlier. (Source)
  • When asked about mortgage broker business, Diane Giard – EVP, Personal and Commercial Banking said: “(Mortgage) growth has been actually more substantial on the Mortgage Development Manager (MDM) side. We’ve been adding capacity and it’s starting to pay off. So, if you look at the allocation of our mortgage business being done currently you see that in fact there was an uptick in the MDM world, so we’re still committed to working with the three channels (brokers, branches and MDMs).

Bank of Canada

Net income: $2.24 billion (+73% Y/Y)

Earnings per share:$1.47

  • Royal Bank’s Q3 earnings were its largest on
  • Residential mortgages comprised
    65% of RBC’s $264 billion retail loan portfolio (Source)
  • Total value of RBC-held residential
    mortgages as at July 31, 2012 was
    $172 billion (up from $161 billion a year ago) with an
    LTV of 48%  (Source)
  • Of RBC’s residential mortgage
    portfolio, 38% is insured and 62% is uninsured. (Source)
  • RBC said it has a “Well diversified mortgage portfolio
    across Canada” and that it continues to conduct “Ongoing stress testing for
    numerous scenarios including unemployment, interest rates, housing prices.” (Source)
  • “Our mortgage portfolio
    continues to perform well with (loss) provisions on residential mortgages remaining
    low at two basis points, consistent with our historic performance,” said Morten
    N. Friis, Chief Risk Officer at Royal Bank. “We continue to
    actually monitor this portfolio and remain confident in its ability
    to withstand significant movements in the key underlying economic parameters.”
  • “In regards
    to margins, notwithstanding the low interest rate environment, we continued to
    achieve relative stability,” said Janice R. Fukakusa – CAO and CFO.
    “On an adjusted basis, net interest margin was relatively flat from last year
    and increased two basis points over last quarter. The sequential increase over
    last quarter reflected lower mortgage breakage costs and a favourable change in
    our product mix. Our margin performance reflects our strict pricing discipline
    as well as our ability to grow volumes that are premium to the market and
    profitably gain share.”
  • “As far as the mortgage
    business, you have to expect some slowdown. We have come through a very strong
    spring mortgage season, said David I. McKay – Group Head, Canadian Banking.We’re extremely happy with
    our results and significant market share gains that we’ve seen. We’ll continue
    to compete. There is not a lot of evidence of the slowdown right now, but you
    have to expect with the B20 rules really kicking in, and some of the price
    appreciation that won’t be there…that those are
    some of the key drivers you’ll see [affecting] mortgage growth. You’d have to expect
    some type of slowdown from the strong, strong rates that we’re seeing today.”



Net income: $2.05 billion (+57% Y/Y)

Earnings per share:$1.69

  • Of Scotia’s residential mortgage portfolio, 60% is
    insured (vs. 56% in Q2), and the uninsured portion has an average loan-to-value
    ratio of 57% (vs. 56% in Q2). (Source)
  • The bank’s residential mortgage portfolio totalled $153
    billion in Q3, up from $149 billion in the second quarter. Of this total, $139
    billion is related to freehold properties and $14 billion
    is related to condominiums. Residential mortgage balances are up roughly
    7.5% YoY. (Source)
  • Scotia reported a $15-billion, or 7% increase in average
    assets from a year ago. This was due primarily to growth of $10 billion, or 8%,
    in residential mortgages. (Source)
  • “Credit quality and performance
    of the portfolio remained strong,” said Robert H. Pitfield, Group Head and CRO of Scotiabank.Our
    disciplined and consistent underwriting standards through all of our
    origination channels have resulted in extremely low loan losses and again have
    been stressed under many severe assumptions, which confirm our risk appetite.”
  • “We see volume growth coming primarily from
    residential mortgages, unsecured lines of credit and credit cards,” said Anatol
    von Hahn, Group Head, Canadian Banking, noting
    Scotia expects a more moderate pace of growth in the next quarter, compared to
    Q2 and Q3.(Source)


TD-BankTD Bank

Net income: $1.7 billion (+14% Y/Y)

Earnings per share:$1.78

  • TD’s residential mortgage portfolio stood at $149
    billion in Q3, up from $145 billion in Q2 and $136 billion a year ago. (Source)
  • 70% of the
    portfolio is insured. (Source)
  • As part of the bank’s outlook, it noted: “Although interest rates will remain low and
    supportive in the near term, new rules restricting mortgage lending and
    wariness among households to take on more debt will likely lead to a slowdown
    in housing and credit demand. All said, the modest 2% growth
    environment faced by the Canadian economy of late will likely persist through
    the rest of 2012 and throughout 2013.”
  • “Although interest rates will remain low and supportive in the near term, new rules restricting mortgage lending and wariness among households to take on more debt will likely lead to a slowdown in housing and credit demand.” (Source)

Note: Transcripts are provided by third parties like Morningstar. Their accuracy cannot be 100% assured.

Steve Huebl & Rob McLister, CMT