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Q4 2012 Bank Earnings – Mortgage Morsels

Bank-roundupIt’s another fiscal year come and gone at the Big 6

Their latest round of earnings announcements were brimming with mortgage factoids. Much of it reflected recurring themes, like:

  • Projected mortgage volume declines (thanks partly to the government’s latest mortgage rule changes)
  • Heavy uptake of fixed-rate mortgages
  • Margin pressures, especially in the deposit market (which funds a lot of mortgages)

There were also more details from CIBC about the continued impact of its wind-down of FirstLine and its efforts to hang onto mortgage customers.

The compilation of tidbits below comes from pouring through the banks’ quarterly and annual earnings reports, presentations and conference calls. If you’re time-pressed, the focal points are highlighted



Bank of MontrealBMO

Q4 net income: $1.1 billion (+41%

Earnings per share: $1.59

Annual net income: $4.2 billion
(+35% Y/Y)

  • Mortgage balances
    are up 9.4% Y/Y and 4% Q/Q (Source)
  • “We continue to see growth in residential mortgage market share,” said Bill Downe, president and CEO of BMO Financial Group (Source)
  • Regarding mortgage market rule changes, Downe said: ““We..believe the changes to Canada’s mortgage market announced earlier this year, which are aligned with BMO’S risk practices and ongoing efforts to encourage Canadians to borrow smartly, are having the desired moderating effect on housing prices in most markets.” (Source)
  • “Importantly, in the last two years we’ve significantly
    shortened the average term to maturity of our mortgage book, reducing the risk
    to our customers from homeownership,” said Downe. (Source)
  • “We remained comfortable with our exposures as we have strong
    loan-to-value ratios on our mortgages and home equity loans. The quality of our
    new originations is high and overall we see a significant shift to fixed rate
    products,” said Thomas E. Flynn, EVP and
    CFO, BMO Financial Group. (Source)
  • When
    asked if the mortgage product is still an attractive
    product strategically for BMO, Downe replied, “We think it is in certain circumstances
    through certain channels at certain prices with a focus on a broader share of
    wallet … it’s interesting, it wasn’t so long ago that people were questioning
    the fact that our mortgage balances were shrinking. And now all the sudden it
    seems that there’s a problem because they are growing faster than everyone
    else’s. We’ve been very focused on growing our mortgage balances in a
    particular way with a particular segment and we think that we’ve done a great
    job in 2012 and we’re going to continue exploiting the opportunity that we
    have. Our credit quality has improved, we brought new customers into the Bank
    and the returns we are earning on the products that we’re selling at this point
    in time are attractive.” (Source)
  • BMO’s total Canadian residential mortgage portfolio stood at $76.7 billion in Q4, up from $73.9 billion in Q3 (Source)
  • Net interest margin was down 7 bps Q/Q, largely due to “deposit spread compression in a low rate environment” and loan growth exceeding deposit growth (Source)
    (BMO’s not the only one with this problem.)
  • Of BMO’s total mortgage portfolio, 64% is insured, down from 65% in Q3 (Source)
  • The average LTV of the residential mortgage portfolio stands at 62%, up slightly from 61% in Q3 (Source)
  • BMO’s average loan-to-value on Canadian HELOCs is 53.1. (Source)



Q4 net income: $852 million (+13% Y/Y)

Earnings per share: $2.02 a share

Annual net income: $3.3 billion
(+14% Y/Y)

  • CIBC’s mortgage portfolio had year-over-year growth exceeding 10%, well above the peer average. (Source)
  • “We exited the FirstLine mortgage broker
    channel and are renewing FirstLine clients into CIBC branded mortgages where we
    have the opportunity to cross-sell and deepen client relationships.” (Source)
  • CIBC says it is making good progress in “deepening client relationships” with the launch of its CIBC Home Power
    Plan, which it says 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
    relationship with CIBC.” (Source)
    (If CIBC got a dollar for every time it used the word “relationships” this year, its earnings might be $1 million higher.)
  • Commenting on
    how CIBC is working to build sustained customer relationships, David Williamson, Sr. EVP, CIBC, and Group Head,
    Retail and Business Banking, said, “We have put
    in place a leads program and some incentives to make sure that when those
    clients do get a CIBC mortgage we’re welcoming them warmly and building that
    multi-product relationship. So, I’m happy to report it is going well.” (Source)
  • CIBC noted that despite a deceleration in consumer spending, “…mortgage demand remained brisk until late in the year.” (Source)
  • “…we do seem to be set up well
    to grow at, at least industry rates,” said Williamson. “And we’re not doing it by giving it away either … NIMs
    are up quarter-over-quarter and they’re up year-over-year. We haven’t had that
    NIM growth for some extent of period of time.” (Source)
  • Williamson added: “…we’ve now
    introduced Home Power Plans.
    We’ve now got the product (everyone else) had before, which is the mortgage and
    the home equity line of credit. So now that that’s been rolled out nationally
    that will help our HELOC growth as well.” (Source)
    (The Home Power Plan is basically a souped up FirstLine Matrix. See: CIBC’s Home Power Plan)
  • Regarding the FirstLine
    conversion, Tom Woods, Sr. EVP and Chief Risk Officer, Risk Management,
    said:What we’re
    actually seeing is quite a bit more than 25% (of FirstLine clients) staying with us and the
    margin is quite a bit higher than what we expected.” (Source)
  • Woods added: “… when I talk about the
    FirstLine going well, it’s a higher percentage of them staying with CIBC,
    great spreads being quite a bit wider and getting up to branch levels and
    then moving the expenses associated with FirstLine and then just the side
    benefit associated with being lower risk bank or just having less balance
    sheet to fund, just net-net just adds up to a whole lot of good things.” (Source)
  • CIBC’s economic
    outlook for 2013: “Consumer demand will be supported by
    ongoing job creation, but will be held close to income gains as the appetite
    for credit is held in check by existing high debt levels, even with the Bank of
    Canada avoiding interest rate increases through 2013. Housing will turn from a
    strong growth contributor to a slight negative over the course of the year as
    the impact of softer sales shows up in a modest retreat in construction
    activity. (Source)
  • The size of CIBC’s residential mortgage portfolio is $144 billion, little changed from a year ago. The quarterly report notes, “The credit quality of this portfolio continues to be high with a net credit loss rate of approximately 1 basis point per annum.” (Source)
  • Condos account for approximately 12% of the bank’s total mortgage portfolio. Similar to the total mortgage portfolio, 77% of the condo sub-portfolio is insured and the uninsured portfolio has an average loan-to-value of 51%. (Source)
  • 76% of the bank’s Canadian residential mortgage portfolio is insured, with over 90% of the insurance being provided by CMHC. The average loan-to-value of its uninsured mortgage portfolio based on September host price estimates is 50%. (Source)




National Bank
of Canada

Q4 net income: $351
million (20% Y/Y)
Earnings per share: $1.97 a share
Annual net income: $1.6 billion (+26% Y/Y)

  • Residential mortgage volumes experienced sustained growth, rising 14% since last year. The strongest increase came from home equity line of credit products. (Source)
  • In response to new federal government
    mortgage guidelines and a slowdown in the economy, the bank said it sees, “…slower loan volumes
    on an absolute basis in the next year or two but we expect National Bank to
    remain ahead of the industry on a relative basis through a differentiated and
    superior value proposition, while stabilizing our portfolio’s profitability.”  (Source)
  • On new technology: “We will shortly begin
    deploying a new technology platform for mortgages and home equity lines of
    credit across our network following the conclusion of successful pilots in
    several branches. We are counting on this roll-out to further improve the
    client experience by significantly reducing processing time for applications.
    This platform, which has been in development for several years, is also
    expected to increase cross-selling opportunities and lower processing costs.” (Source)
  • Details on the tech platform: In the
    fall of 2012, the platform (called MAX for “Modernization – Action – eXperience”) was deployed as a pilot project in a number of
    branches and will be deployed in the branches of Quebec in 2013. Development
    will continue and the platform will be made available to mortgage brokers and
    branches outside of Quebec.” (
  • 2013 outlook: In 2013 as in 2012,
    employment will not grow enough to reduce the jobless rate significantly. Under
    these conditions, the Bank of Canada is unlikely to raise its policy rate
    before the end of next year.” (Source)
  • Residential
    mortgages have grown since 2008, totalling $33.5 billion as at October 31, 2012
    and representing 40.3% of total loans. Personal loans have also increased by
    $10.8 billion since 2008, totalling $26.5 billion as at October 31, 2012. “The
    main reason for these changes was the popularity of home equity lines of credit
    over conventional residential mortgages.” (
  • National Bank’s retail loan portfolio consists of: 38% insured mortgages; 17% uninsured mortgages; 24% HELOCs; 21% other. (Source)
  • The average loan-to-value for HELOCs and uninsured mortgages was approximately 54%. (Source)
  • In its annual report, the bank notes, “In Personal and Commercial Banking, we have achieved above industry growth in retail mortgages and loans while maintaining a lower loan loss ratio than any of our peers. (Source)


Royal Bank of CanadaRBC
Q4 net income: $1.91 billion (19% Y/Y)
Earnings per share: $1.25
Annual net income: $7.5 billion (+17% Y/Y)

  • Residential mortgages comprised 65% of RBC’s
    $268 billion retail loan portfolio (Source)
  • Margins were stable with NIMs of 2.74%,
    relatively flat YoY and QoQ, “despite low
    interest rates and competitive pressures” (Source)
  • Total value of RBC-held residential mortgages
    in Q4 was $174
    billion, up 6% from $165 billion a year ago, with an LTV of 47%( (Source)
  • Of RBC’s residential mortgage portfolio, 37%
    is insured (down from 38% in Q3) and 63% is uninsured (vs. 62% in Q3) (Source)
  • “We do not
    foresee the recent cooling as a sign of [a U.S.-like] downturn. Beyond the
    significant structural differences between [U.S. and Canadian] mortgage markets
    that mitigate risk, housing affordability remains reasonable in most regions
    and we are carefully monitoring certain areas where the price appreciation has
    been above the long-term average,” said Morten N. Friis, Chief Risk Officer.We
    actively stress test our portfolio for changes in key parameters including
    interest rate increases, housing price decreases and unemployment levels. Our
    analysis shows that our portfolios can absorb large movements in these
    variables without significant impact on loss rates.
    ” (Source)
  • Friis added:
    “Also, we are seeing a shift in behaviour as more clients opt for fixed instead
    of variable rate mortgages, which is good both from a business and risk
    perspective. With respect to gross impaired loans, new formations has increased
    somewhat over the last quarter but remain well within our historical range.” (Source)
  • “…Mortgage
    growth as you saw in Q4 was strong, home equity growth is still over 6%,” said David
    I. McKay, Group Head, Personal and Commercial Banking.We
    certainly are seeing the effect of the B20 rules come into effect
    , they vary
    across the country obviously with different sentiments towards buying a home,
    particularly first-time homebuyers. I think obviously you’ll see a slowing. I
    think the industry will still be positive and you should expect roughly 3% to
    4% growth in the industry going forward. It’s hard to predict that exactly. I think the range is widening as we’re not sure of the impact,
    particularly on first-time homebuyers, as you read in a paper…it’s the broker
    industry talking about their slowing trends. We expect to outperform the
    marketplace as we always have and going forward at a 25% premium.” (Source)
  • McKay added:
    “…There is still demand out there, there are still people that need to buy homes,
    there [are new] immigrants coming into the marketplace. So there always is a
    base of new demand that comes in every year. You’ve seen housing starts slow by
    10%, so I think that’s a pretty good approximation of a 10% to 15% to 20%
    slowing in the marketplace, but (it’s) still positive, still really good customers out
    there buying homes and we expect growth going forward.” (Source)
  • Also from McKay: “We still are in, obviously, the continued
    low rate environment as mortgages that were put on the book in 2008 and 2009
    and 2010 come off. They’re coming off with higher spreads and being reinvested
    at lower spreads. So…all banks have that reinvestment issue that [is] suppressing margins. On the other side of it, we’ve been very
    disciplined on our pricing strategies.” (



Q4 net income: $1.5 billion (31%

Earnings per share: $1.69

Annual net income: $6.4 billion

  • Q4 results were
    driven by
    volume growth in residential mortgages and commercial lending (Source)
  • Anatol von Hahn, Group Head, Canadian Banking, said that while the bank has seen compression in its deposits due to competition. Scotia has made that up as variable rate mortgages from “the last two to three years” come due. “…Those customers…well over 80% (likely 85-90%), are taking (3- to 5-year) fixed rate mortgages where the spreads are higher than the spreads we are making on the variable rates.” (Source)
  • The
    bank’s residential mortgage portfolio totalled $156 billion in Q4, up from $153
    billion in the third quarter. Of this total, $142 billion is related to freehold
    properties and $14 billion (unchanged) is related to condominiums. (Source)
  • Of
    Scotia’s residential mortgage portfolio, 60% is insured and 40% is uninsured
    (unchanged from Q3). The uninsured portion has an average loan-to-value ratio
    of 54% (vs. 57% in Q3). (Source)
  • Net interest income (TEB) rose $12 million to
    $2.5 billion, reflecting growth in residential mortgages and personal
    lending. (Source)
  • Scotia reported a
    $16-billion, or 7% increase in average assets from a year ago. This was due
    primarily to growth of $11 billion, or 8%, in residential mortgages. (Source)
  • “We believe that
    solid economic fundamentals and the new mortgage regulation changes will enable
    the Canadian market to remain healthy and balanced,” said Robert H. Pitfield, Group Head and CRO. (Source)
  • “I would expect that early in 2013 we’d be in a position to issue covered bonds again (for mortgage funding).”—Sean McGuckin – EVP and CFO


TD BankTD-Bank
Q4 net income: $1.6 billion (7% Y/Y)
Earnings per share: $1.66
Annual net income: $6.47 billion (+7% Y/Y)

  • Average loans
    were up 16% year-over-year, including a 37% increase in residential mortgages (Source)
  • “I think it’s becoming quite clear that Canada is well in the lead of implementing Basel III versus all the other major jurisdictions in the world,” said Ed Clark, TD president and CEO. “I think if the housing market reheated up, then I think the government would say, is there other monetary policy rules that they could do to continue to tighten down on it, but I think right now, that’s a question for – a year from now and not for now.” (Source)
  • TD’s residential
    mortgage portfolio stood at $153 billion in Q4, up from $149 billion in Q3 and
    $141 billion a year ago. (Source)
  • 69% of TD’s
    residential mortgage portfolio is insured. (Source)
  • 75% of
    HELOCs are in first lien position; a further 20% are in second to a TD first. (Source)
  • Canadian residential mortgage loans
    totalled $154 billion in 2012, up from $142 billion in 2011. (Source)
  • Canadian residential mortgages represented 36.9% of the bank’s loan portfolio in
    2012, up from 36.8% in 2011. (Source)
  • 2013 economic outlook: TD’s annual report
    noted, “We also expect retail volume growth will continue to moderate due to
    slow economic growth, new mortgage regulation, and weaker consumer loan demand.” (Source)

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

Steve Huebl & Rob McLister, CMT