Canada's big banks

Q2 2017 Bank Earnings – Mortgage Morsels

Another quarter, another $10.16 billion in net profit for Canada’s Big 6 banks. That’s an 18% increase over last year’s haul.

Growing mortgage portfolios were responsible for much of that growth. CIBC in particular saw it’s mortgage book expand 12% from a year ago.

Observers looking for signs of weakness in the country’s housing market were instead met with all-around solid data and already-low delinquency rates that continued to decline.

As we do every quarter, we’ve gone through the Big Banks’ quarterly earnings reports, presentations and conference calls, and compiled all the mortgage notables right here. Key tidbits are highlighted in blue.


Bank of MontrealBMO

Q2 net income: $1.25 billion (+28% Y/Y)
Earnings per share: $1.84

  • BMO’s total Canadian residential mortgage portfolio rose to $104.1 billion in Q2, up from $103.9 billion in Q1.
  • Mortgage balances were up 5% year-over-year.
  • The bank’s mortgage portfolio represents just 27% of its total loan book
  • 55% of BMO’s portfolio is insured, down from 57% in Q1 and down from 59% a year ago.
  • The loan-to-value on the uninsured portfolio is 54%, unchanged from the previous quarter but down from 57% a year ago.
  • 70% of the portfolio has an effective remaining amortization of 25 years or less, down from 71% a year ago.
  • The condo mortgage portfolio stands at $14.8 billion (up from $14.2 billion in Q2 2016) with 49% insured (down from 51% a year ago).
  • Loss rates for the trailing four-quarter period were less than 1 bp and the 90-day delinquency rate was 23 bps, down from 24 bps in Q1 and 26 bps a year ago.
  • BMO’s mortgage portfolio is distributed geographically as follows: 43% in Ontario; 19% in B.C; 15% in Alberta; and 14% in Quebec.
  • Net interest margin (NIM) in the quarter was 2.49%, down from 2.51% in Q1.

Source: BMO Q2 Investor Presentation

Conference Call

  • Asked to elaborate on his comments that economic conditions are strengthening and that he expects the outlook to remain benign, Surjit Rajpal, BMO’s Chief Risk Officer, replied: “We haven’t seen any pattern in any single sector that would cause us to sit up and say look, we need to worry about this on a basis that’s disproportionate. And I said the same thing about the Canadian housing market…it’s still continuing to perform well… What wouldn’t be a benign environment would be one where the economy stops growing and interest rates drop rapidly, both happening in unison. And we don’t see that happening but we do stress all our portfolios on the basis of conditions that we don’t see or foresee in the short-term.”

Source: BMO Conference Call



Q2 net income: $1.06 billion (+11.4% Y/Y)
Earnings per share: $2.64

  • CIBC’s residential mortgage portfolio rose to $190 billion in Q2, up from $186 billion in Q1 and $169 billion in Q2 2016.
  • Of the $190-billion mortgage portfolio, $26 billion is from the Greater Vancouver Area (up from $25 billion in Q1), and $56 billion is from the Greater Toronto Area (up from $54 billion in Q1).
  • Mortgage loans are up 12% from Q2 2016.
  • $11 billion of uninsured mortgages were originated in the second quarter. Of that amount, approximately 43% were to clients in the GTA and 14% to clients in the GVA.
  • The bank’s HELOC portfolio rose to $21 billion in the quarter, up from $19.7 billion a year earlier.
  • Net interest margin in Q2 was 236 bps, down from 239 bps in Q1, and 250 bps in Q2 2016. CIBC noted this was, “mainly due to business mix, reflecting strong mortgage growth. Spreads in our mortgage portfolio continued to be stable.”
  • Of the bank’s total mortgage portfolio, 0.25% are in arrears by 90+ days, down from 0.26% in Q1 and 0.27% in Q2 2016.
  • For uninsured mortgages, the arrears rate is 0.19%, unchanged from last quarter (0.06% in the GVA and 0.07% in the GTA).
  • About 8% of the bank’s uninsured portfolio has a Beacon score of 650 or less. But only 1% of this mortgage portfolio has a Beacon score of 650 or lower and an LTV over 75%.

Source: CIBC Q2 Investor Presentation


Conference Call

  • In response to the ongoing situation with Home Capital, CEO Victor Dodig reaffirmed CIBC’s strong mortgage portfolio quality: “It is important to note that CIBC does not originate subprime or even near-prime mortgage loans. As a large diversified and predominantly core deposit funded financial institution we also don’t face the same funding challenges as some of the alternative lending business models. That said, we continue to closely monitor the housing market.”
  • “Our late-stage delinquency rates across (our residential mortgage and HELOC portfolios) continue to remain low and stable with the Vancouver and Toronto areas performing significantly better than our Canadian average,” Dodig said.
  • Asked about the bank’s outlook for interest margin for the second half of the year, Dodig answered: “That takes us into what we would anticipate our relative mortgage growth to be relative to peer groups. And what we have talked about in the past is our relative difference is, we’ve been quite significantly expanding our distribution channels specifically, obviously, the mobile channel. Clients like to have the flexibility of meeting our sales force when, where and how they would like, and that channel has done particularly well.”
  • On the growth of the mobile sales force, he added: “We’re happy with our staff complement in the mobile channel. So that means, two quarters of stable numbers. It also means two more quarters where you’re going to have that year-over-year change still in the number of mobile advisors and the productivity gains that kind of go with the growth in that channel…(and) the trend line continues to be good as far as deeper relationships and attrition and client experience.”

Source: CIBC Q2 Investor Presentation



National Bank of Canada

Q2 net income: $484 million (130% Y/Y)
Earnings per share: $1.28 a share

  • The bank’s residential mortgage and HELOC portfolio rose to $69.5 billion in Q2, up from $69.1 billion in Q1 and $64 billion in Q2 2016.
  • The residential mortgage portfolio is 47% insured, down from 48% last quarter, but up from 42% a year ago.
  • The average loan-to-value on the HELOC and uninsured mortgage portfolio was 59%, unchanged from Q1 and up from 58% in Q2 2016.
  • Quebec represented 55% of the mortgage book (down from 55.4% in Q1), while Ontario made up 25% (unchanged) and Alberta 8% (unchanged).
  • Net interest margin in Q2 was unchanged quarter-over-quarter at 2.24%, but is up from 2.21% in Q2 2016.
  • Uninsured mortgages and HELOCs in the GTA and GTV represented 7% and 2% of the portfolio, respectively, and have an average LTV of 46%.
  • 28.6% of the bank’s residential mortgage portfolio has a remaining amortization of 25-30 years (down from 29.3% in Q1 and 34.4% a year ago). Another 49.4% has a remaining amortization of 20-25 years (up from 49.1% in Q1 and 41.4% a year ago).
  • National Bank announced it has tightened its mortgage standards by restricting the loans originated outside of Quebec through external broker partner Paradigm Quest. The new rules restrict lending to new immigrants and and home equity lines of credit (HELOCs) are no longer available unless clients deal directly with National. The move is aimed at reducing the bank’s risk profile.

Source: National Bank Q2 Investor Presentation


Conference Call

  • The Quebec housing market remains healthy with balanced supply and demand conditions supported by good employment growth and modest home price increases,” said Bill Bonnell, Chief Risk Officer. “Our view of the overall Quebec economy remains positive and we have seen the encouraging impacts across all of our portfolios.”
  • Asked why mortgage originations were down roughly $500 million from the last quarter, Diane Giard, EVP, P&C Banking, answered: “Remember, in Q1 we did announce a partnership with Paradigm Quest, and that really was changing the strategy with the mortgage broker. So, the indirect channel origination volumes are down year-over-year and they are mainly due to three reasons. Number one is market conditions; second is our strategy to restrain the risk box for indirect channel, mainly loans with Paradigm Quest; and three is toward disciplined approach with pricing. And I can say that after three months in that partnership, we see positive impact such as higher percentage of loans originated in the province of Quebec; higher proportion of our loans originated by our own sales force, which means that we have a more loyal customer base; and third is the higher proportion of those loans originated that are currently insured.”
  • Bonnell added that, “quarter-to-quarter you can see changes depending on portfolio insurance activity. And I think in the quarter, we didn’t have significant portfolio insurance activity. So, I wouldn’t look to quarter-over-quarter changes there.”
  • Asked about the bank’s mortgage growth outlook for the remainder of the year, and the bank’s view on reports of greater foreign activity in the Montreal housing market, Giard said this: “What we are expecting for the (remainder of the) year is pretty much the same as we are seeing now in terms of volume growth. So, we are expecting about 5% to 6%, which is somewhere we’ve seen since the beginning of the year. What you won’t see though is a change in originations. And that’s good news for us because we’re seeing more loans being made in Quebec… one thing I don’t want to do is (compromise) volume for pricing. And some of our competitors sometimes are presenting customers with (deep-discount) offers and I don’t want to go there. So, we are not playing that game and we will be maintaining a very disciplined pricing approach to growing our book and we will do so much more so in Quebec…we will also tend to focus more on insured loans and also we have as you know, restricted types of loans that we do outside of Quebec, and mainly through that channel. So, we are not doing the new immigrants as an example; we don’t do HELOCs anymore. So, those are the types of loans that we don’t do with Paradigm Quest outside of Quebec. So, you’ll see a better quality portfolio as you go forward.”

(National Bank conference call)


Royal Bank of CanadaRBC

Q2 net income: $2.81 billion (9% Y/Y)
Earnings per share: $1.85

  • RBC’s residential mortgage portfolio rose to $246 billion, up from $244 billion in Q1.
  • 48% of its mortgages are uninsured, down from 54% in the last quarter.
  • The bank noted that while Ontario and B.C. represent 42% and 18% of Canadian residential mortgages, respectively, both provinces  have lower LTV ratios—49% (down from 50% in Q1) and 46% (down from 47%) respectively—than the Canadian average of 53% (down from 54% in Q1.
  • 90+ day delinquencies in the residential mortgage portfolio were 0.22%, down from 0.23% in Q1. “Delinquencies in oil-exposed provinces stabilized,” the bank said.
  • RBC’s condo exposure is 9.8% of its mortgage portfolio (unchanged from Q1).
  • Average FICO scores of 792 on uninsured mortgages were up from 790 in Q1. The bank noted that 47% of uninsured mortgages have a FICO score of 800+, up from 46% in Q1.
  • Average remaining amortization on mortgages is 18 years, unchanged from Q1.
  • Net interest margin was 2.62%, up 1 bp from the last quarter, “largely driven by seasonality in cards client activity that was partially offset by spread compression,” said Jennifer Tory, Chief Administrative Officer. “So we don’t expect this quarter represents a trend in NIM, as we’ve still not seen material changes in fundamentals that would indicate immediate upside in that category.”

Source: RBC Q1 Investor Presentation


Conference Call

  • Speaking to concerns about Canada’s housing market, RBC CEO David Mckay said this: “Overall, we believe the housing market will continue to be supported by steady population growth, which is partially driven by immigration, household income gains and low interest rates. While we recognize some of the concerns in the market, we remain confident in the Canadian economy, the strength of our mortgage book and our prudent credit adjudication processes. Our loan portfolio is well diversified and our client credit profiles are strong.”
  • Speaking specifically to concerns about house prices in the GTA and GTV, McKay said, “Given elevated house price appreciation over the past year, we continue to closely monitor new originations and the underlying debt serviceability of the borrower. We remain comfortable with our clients’ ability to repay based upon the following: the quality of our mortgage originations remain strong, with the average FICO score similar to our existing portfolio; LTVs at origination are lower for higher levels of property prices in the GTA and GVA; we employ a risk-based approach to property valuation, including employing more extensive appraisals for higher-value properties; approximately 1/3 of our clients are on an accelerated repayment plan; and finally, unemployment rates are low nationally.”
  • On the challenges facing Home Capital, McKay said, “…I think it is an anomaly in the sense that there originally wasn’t a credit reason to drive the liquidity challenges that Home Capital faced, but more a lack of confidence based on some disclosure… And I think there’s learnings for everybody in that issue in itself. But I do not believe that is a systemic risk to the overall mortgage market…”
  • “This past quarter, we acquired a higher amount of portfolio insurance as part of our ongoing balance sheet management activities,” McKay said. “Insured mortgages now represent 48% of our mortgage portfolio, which remains heavily weighted in Ontario and BC.”
  • Our secured lines of credit balances are continuing to be flat or a little bit down because clients are choosing to refinance those into their mortgages, given the low interest rates,” noted Jennifer Tory, Chief Administrative Officer.

(RBC Conference Call)



Q2 net income: $2.06 billion (+30% Y/Y)
Earnings per share: $1.62

  • The total portfolio of residential retail mortgages rose to $197 billion in Q2 from $195 billion in Q1, and $189 billion in Q2 2016.
  • The mortgage portfolio was up 3% over the previous year, or 4% excluding the Tangerine mortgage runoff.
  • The portfolio was comprised of $173 billion in freehold properties (up from $172 billion in Q1) and $24 billion in condos (up from $23 billion in Q1).
  • 54% of the residential mortgage portfolio was insured in Q2, down from 56% in Q1 and down from 62% in Q2 2016.
  • The average LTV of the uninsured portfolio was 51%, unchanged from Q1.
  • Net interest margin fell 1 bp quarter-over-quarter to 2.38%.

Source: Scotiabank Q2 Investor Presentation


Conference Call

  • CEO Brian Porter discussed the bank’s stress testing finding, saying, “We performed detailed stress testing on our housing and unsecured lending portfolios, which are heavily dependent on unemployment levels and interest rate spikes to drive higher losses. Our scenarios consider housing price declines up to 50% in the key markets of Toronto and Vancouver, with unemployment rates increasing by levels similar to prior recessionary periods. Our housing-related losses are negligible. And while unsecured does experience higher losses, this is still very manageable for the bank.”

(Scotiabank Conference Call)


TD BankTD-Bank

Q2 net income: $2.5 billion (+22% Y/Y)
Earnings per share: $1.34

  • TD’s residential mortgage portfolio stood at $188.1 billion, unchanged from Q1 and up from $185.7 billion a year ago.
  • The bank’s HELOC portfolio rose to $68 billion, up from $65.9 billion in Q1.
  • 51% of TD’s residential real estate portfolio was insured in Q2, down from 54% in Q1 and 55% in Q2 2016.
  • Within the residential mortgage portfolio, gross impaired loans fell to 0.19%, down from 0.21% in Q2.
  • Net interest margin in the bank’s retail portfolio was down 1 bp QoQ and YoY to 2.81%.

Source: TD Bank Q1 Investor Presentation


Conference Call

  • TD CEO Bharat Masrani commented on the bank’s efforts to innovate in order to improve the customer experience: “In February, we launched an integrated digital experience that guides customers through the home buying process. We’ve seen 120,000 unique visitors since launch with 1,500 appointments and calls generated to our branches and mobile mortgage specialist.”
  • Asked why the HELOC portfolio is growing faster (mid-single digit percentage increase year-over-year) vs. the mortgage book (1% growth), Teri Currie, Group Head, Personal Banking, replied, “this is part of our stated strategy in terms of growing our products where we have an embedded growth opportunity, so we’re quite pleased with the progress we’re making. FlexLine is the better product for the right customer in terms of being more flexible, and it’s also more profitable for us. We’ve been tilting our origination again for the right customers, so this is an origination story, at kind of almost 40% originations now in this category and so this is exactly aligned with our strategy.”

Source: TD Conference Call

Note: Transcripts are provided by a third party (Seeking Alpha) and their accuracy cannot be 100% assured.

  1. This is pretty weird. Most of these banks have almost no growth in their mortgage books. Scotia is up about 4% more or less based on Broker activity and RBC and TD are virtually at zero .

    Yet CIBC is up 12% and they have been on this run for the last 4 quarters.

    It would be as if GM were up 12% and Ford, Chrysler-Fiat, Toyota and Honda were all at 1% increase. The whole financial world would question how in the heck one company could be such a total outlier from the group. And yet no one seems to question how CIBC does it.

    Well, if you asked a big mortgage broker we could surely explain it. All I hear are crickets no pointed questions.

    1. Well, the two usual ways to gain market share in lending are lowering your rates or lowering your standards.

  2. Ron, as I read the article I wondered about the CIBC mortgage growth increase. I’m interested to know what you mean by: “Well, if you asked a big mortgage broker we could surely explain it. All I hear are crickets no pointed questions.” I must be missing something and I really want to know what you mean.

    1. Well, Ralph actually nailed it on both counts with special emphasis on the latter. The most interesting thing is that one of CIBC’s underwriting moves was actually smart. CIBC is the go to lender for individuals mortgaging student housing. Now, this used to be a big No No in mortgage underwriting but the world changed. Today student housing landlords have parents co-sign leases and they insist on receiving the equivalent of 12 months rent in 9 months. The make-up of students has also changed in many parts of Canada. Keggers have been replaced by actual studying as foreign students reach 50% of enrollment in some Universities. The economics of student housing is quite lucrative as opposed to a lot of other rental investments where negative cash flow is the norm because strong capital appreciation was assumed as a given. So CIBC made a smart move on that front but that is only the tip of the underwriting iceberg at CIBC.

  3. Without having the details in the actual financial statements to review, it’s hard to figure where the profits are all coming from truly. I am curious, both TD and Scotia are showing net profits not much less than RBC who is so much larger than them in asset size.
    Regardless, if over-all delinquency is down for the banks, that can be a good sign of where things are at as a country.
    Thanks for posting this article!

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