Canada's big banks

Q1 2018 Bank Earnings – Mortgage Morsels

The first quarter bank earnings season has come and gone with little fanfare, at least on the mortgage front.

Earnings reports showed generally subdued mortgage activity at BMO and TD, although TD’s HELOC portfolio grew a full 16% from last year. Meanwhile CIBC reported a 9% annual increase in its mortgage portfolio.

Executives touched on topics ranging from mortgage rate increases and B-20, to housing prices and mortgage fraud.

As we do every quarter, we’ve picked 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

Q1 net income: $1.42 billion (-7% Y/Y)
Earnings per share: $2.12

  • BMO’s total Canadian residential mortgage portfolio was $106.4 billion in Q1, down from $106.7 billion in Q4 and up from $103.6 billion a year earlier.
  • Mortgage balances were up 2% year-over-year, reflecting “planned lower mortgage growth,” the banks said. Meanwhile proprietary channels were up 4%.
  • The bank’s mortgage portfolio represents 28% of its total loan book, down from 30% in Q4.
  • 50% of BMO’s residential mortgage portfolio is insured, up from 51% in Q4 and down from 57% a year ago.
  • The bank noted that while personal lending was up 2% year-over-year, they experienced “lower mortgage growth as planned.”
  • The loan-to-value on the uninsured portfolio is 54%, unchanged from a year ago. For new originations in Q4, the LTV on the uninsured portfolio was 68%.
  • 68% of the portfolio has an effective remaining amortization of 25 years or less, down from 70% a year ago.
  • The condo mortgage portfolio stands at $15.2 billion (up from $14.8 billion in Q1 2017) with 44% insured.
  • Loss rates for the trailing four-quarter period were less than 1 bp and the 90-day delinquency rate was 20 bps, down from 24 bps in Q1 2017.
  • Net interest margin (NIM) in the quarter was 2.60%, up from 2.59% in Q4 and 2.51% in Q1 2017.

Source: BMO Q1 Investor Presentation


Conference Call

  • “As mentioned last quarter, we have scaled back participation in the third-party mortgage market and continue to focus on growing through our own channels where mortgages were up 4% year-over-year,” said Thomas Flynn, Chief Financial Officer.
  • “Personal loans were up 4%, reflecting the purchase of a mortgage portfolio in the current quarter,” Flynn added. “Net interest margin was flat from the prior quarter and would have been up 6 basis points, excluding the impact from the mortgage purchase in the quarter.”
  • Asked about the bank’s de-emphasizing of third-party mortgage channels, Cameron Fowler, President, North American Personal & Business Banking, confirmed that 95% of the bank’s mortgage portfolio now comes from BMO-proprietary channels.
  • Asked about the reasoning behind the de-emphasizing of non-BMO channels, Fowler responded: “It’s a margin decision. It is an opportunity to deploy that capital elsewhere into higher-return areas and to focus more capital on primary customer base opportunity.
  • Pressed whether the non-BMO channels were seen as containing greater risk, Fowler said, “No…. we’re very, very confident with the controls we have. We made participation choices, as you recall, almost a decade ago about getting out of broker as a channel. But the controls that we have across the entire book, and in particular when we originate third-party, they’re up to even higher levels of scrutiny and that we double test those. And so, no, it’s got nothing to do with the confidence and the quality.”
  • Asked to reconcile media reports about overleveraged consumers with record-low loan loss rates at BMO and some of its peers, Surjit Rajpal, Chief Risk Officer, said the following: “A lot of folks outside of Canada that make assessments in Canada assume that something is going to break and break fast, and everything is going to collapse all at once. And that’s never the case [in terms of how a collapse flows through to economic indicators]. And I think it’s easy to write about and it’s sensational, but in reality, when housing as well as debt levels get spoken of, clearly, there is some merit to saying that they are high. But the issue here is that the unemployment levels are low. And with the kind of economy that you’re facing, these things will happen slowly even if they did. Even if there was a correction, things would happen slowly. I think there’s also a lack of understanding of the mortgage industry itself and how it manifests itself in bank results…And I think we’ve had a history that has proven that we do know how to manage the risk that we take on our books.”

Source: BMO Q1 Conference Call


Q1 net income: $1.33 billion (-6% Y/Y)
Earnings per share: $3.18

  • CIBC’s residential mortgage portfolio rose to $203 billion in Q1, up from $201 billion in Q4 and $186 billion in Q1 2017, or 9% year-over-year.
  • Of the $203-billion mortgage portfolio, $28 billion is from the Greater Vancouver Area (up from $25 billion a year earlier), and $63 billion is from the Greater Toronto Area (up from $52 billion in Q1 2017)
  • Of the uninsured portfolio, the LTV was 64%, unchanged from a year ago.
  • The bank reported $9 billion in originations in the quarter, down from $12 billion in Q1 2017.
  • The bank’s HELOC portfolio rose to $21.6 billion in the quarter, up from $20.4 billion a year earlier.
  • Net interest margin in Q1 was 235 bps, down 1 bp from Q4 and down from 238 bps in Q1 2017.
  • Of the bank’s total mortgage portfolio, 0.23% are in arrears by 90+ days, up from 0.15% in Q1 2017.
  • For uninsured mortgages, the arrears rate is 0.19%, unchanged from Q1 2017. The arrears rate is 0.07% in the GVA (up from 0.06% a year ago) and 0.10% in the GTA (up from 0.07% a year ago).
  • About 7% of the bank’s uninsured portfolio has a Beacon score of 650 or less (unchanged from last quarter). But only 1% of this mortgage portfolio has a Beacon score of 650 or lower and an LTV over 75%.

Source: CIBC Q1 Investor Presentation




National Bank of Canada

Q1 net income: $550 million (11% Y/Y)
Earnings per share: $1.46 a share


  • The bank’s residential mortgage and HELOC portfolio rose to $65.07 billion in Q1, up from $64.8 billion in Q4 and $63.3 billion in Q1 2017.
  • The residential mortgage portfolio is 44% insured, down from 45% last quarter and 48% a year ago.
  • The average loan-to-value on the HELOC and uninsured mortgage portfolio was 58%, down from 59% in Q1 2017.
  • Quebec represented 55% of the mortgage book (nearly unchanged from 55.4% a year ago), while Ontario made up 26% (up from 25%) and Alberta 8% (unchanged).
  • Net interest margin in Q1 was unchanged on the quarter at 2.30%, but up from 2.24% in Q1 2017.
  • Uninsured mortgages and HELOCs in the GTA and GTV represented 8% and 2% of the portfolio, respectively (unchanged from Q4), and have an average LTV of 50% (up from 46% in Q4) and 44% (up from 42% in Q4), respectively.
  • 25.5% of the bank’s residential mortgage portfolio has a remaining amortization of 25–30 years (down from 29.3% in Q1 2017). Just 1.1% has a remaining amortization of 30–35 years.
  • Gross impaired loans was 28 bps, down from 39 bps last year.
  • With NBC continuing to invest heavily in its digital transformation, CEO Louis Vachon praised the federal government’s recent cybersecurity investment announced in its latest budget. “National Bank is responsible for protecting its clients and our information and data, so we’re not looking to hide behind the government. However, should we come under attack by state actors, we do expect the appropriate government agencies to be able to react, and also, very importantly, to co-ordinate response with the private sector,” he said.
  • Vachon noted the bank’s client digital adoption rate is increasing rapidly and that self-serve transactions represent 87% of total activity.

Source: National Bank Q1 Investor Presentation


Royal Bank of CanadaRBC

Q1 net income: $3 billion (-1% Y/Y)
Earnings per share: $2.01

  • RBC’s residential mortgage portfolio rose to $258 billion, up from $256 billion in Q4 and from $244 billion a year ago.
  • The mortgage portfolio was up 6% year-over-year “with a small portion of the growth due to increased demand ahead of the implementation of the B-20 guidelines,” said CEO David McKay. “We continue to expect mortgage growth to moderate to the mid-single digits.
  • 44% of its mortgages are uninsured, down from 54% a year ago.
  • The bank noted that while Ontario and B.C. represent 43% and 18%, respectively (unchanged from the previous quarter), of Canadian residential mortgages, both provinces have lower LTV ratios than the Canadian average of 52%.
  • 90+ day delinquencies in the residential mortgage portfolio were 0.19%, unchanged from Q4 and down from 0.23% a year ago.
  • Less than 1% of the uninsured mortgage portfolio have a FICO score of less than 650 and an LTV ratio of more than 75%. The bank noted that 47% of uninsured mortgages have a FICO score of 800+, unchanged from Q4.
  • 72% of mortgages have a remaining amortization of 25 years or less, down from 72% in Q4. The average remaining amortization on mortgages is 18 years.
  • Net interest margin was 2.68%, up from 2.65% in Q4 and 2.61% in Q1 2017.

Source: RBC Q1 Investor Presentation


Conference Call

  • President and CEO David Mackay noted that the recent normalization seen in Toronto house prices is “healthy for the market.”
  • On B-20, Mackay said: “While it is too early to measure any long-term impact of the B-20 rules, we continue to believe in the fundamental strength of the Canadian economy because of our low unemployment rates, solid GDP growth, and healthy immigration levels…As always, we monitor risk profiles to manage through the cycle and we place emphasis on the quality of the borrower. We will not compromise in our risk profile just to add mortgage volume.
  • On the topic of delinquencies, Chief Risk Officer Mark Hughes said, “we remain comfortable in our clients’ ability to service their mortgage in this rising rate environment given our strong underwriting and credit monitoring practices. As you know, we already stress most of our new mortgages at a rate above the contract rate. Overall, our lending portfolios continue to perform within expectations, and for the remainder of 2018, we continue to expect our PCL ratio to trend in the 25- to 30-basis-point range–subject, of course, to quarterly volatility.”
  • Asked about uninsured mortgages in particular and how they’re faring after the new B-20 guidelines, Neil McLaughlin, Group Head P&CB, said, “[B-20] hasn’t really changed our outlook for the year from what we shared last quarter, so we’re maintaining a view of mid-single-digit growth for 2018. We mentioned last quarter we did start to see some pull forward of clients trying to get ahead of the regulation. We saw that throughout the entire quarter, and that ended up with origination slightly above Q1 ’17, so we are expecting some slowing in the second quarter, but we’re maintaining our outlook of mid-single digits, and essentially, the mix of insured to uninsured is about exactly where it’s been.”

Source: RBC Conference Call


Q1 net income: $2.28 billion (17% Y/Y)
Earnings per share: $1.87


  • The total portfolio of residential retail mortgages rose to $208 billion in Q1, up from $206 billion in Q4 and $195 billion in Q1 2017.
  • The mortgage portfolio was up 6% over the previous year.
  • The portfolio comprised $181 billion in freehold properties (up from $172 billion a year ago) and $27 billion in condos (up from $23 billion a year ago).
  • 48% of the residential mortgage portfolio was insured in Q1, down from 56% in Q1 2017.
  • The average LTV of the uninsured portfolio was 53%, up from 51% in Q1 2017. Meanwhile, the LTV of new originations in the quarter was 64%.
  • Net interest margin was unchanged on the quarter at 2.41%, but up from 2.39% in Q1 2017.

Source: Scotiabank Q1 Investor Presentation


Conference Call

  • Given the recent resurgence of mortgage fraud in the news, bank executives were asked to describe the prevention and detection safeguards that are in place as well as the level of fraud the bank is seeing. James O’Sullivan, Group Head, Canadian Banking, noted the bank’s record-low delinquencies before adding, “within our broker channel and in our direct sales force channel we have specific claw-backs for credit and fraud issues. And so if we look at fraud, we have not seen an increase in fraud; in fact, it has been quite stable for some time.”
  • When TD Securities analyst Mario Mendonca said “we all know that you can have very low delinquencies and fraud at the same time,” Scotia CEO Brian Porter followed up by saying: “…for as long as I’ve been in this chair, there has been no distinguishable trends amongst or across [our three distribution] channels… We do have frauds, we have them every quarter, but mortgages has not surfaced as a product where we have seen meaningful amount of fraud whatsoever.”
  • Concerning the improvement in NIM last quarter and where the bank sees that going, O’Sullivan said, “The direction clearly is up…over the balance of this year, assuming there’s no further rate increases, we’d expect to see a further increase in the Canadian banking margin up to 5 basis points. Roughly each 25-basis point-increase in the Bank of Canada rate is worth roughly $60 million to $70 million to Canadian banking, kind of pre-tax.”

Source: Scotiabank Conference Call

TD BankTD-Bank

Q1 net income: $2.95 billion (15% Y/Y)
Earnings per share: $1.56

  • TD’s residential mortgage portfolio crept up to $190.6 billion in Q1, up slightly from $190.5 billion in Q4 and up 1.3% from a year ago.
  • The bank’s HELOC portfolio rose 16% year-over-year to $76.8 billion.
  • 52% of TD’s residential real estate portfolio was insured in Q1, down from 55% in Q1 2017.
  • The LTV of TD’s uninsured mortgage portfolio was 51% in Q1, up from 50% in Q4 and unchanged from a year ago.
  • Gross impaired loans in the residential mortgage portfolio were $274 million in the quarter, or 0.14% of the portfolio, down from 0.16% in the previous quarter.
  • Net interest margin in the bank’s retail portfolio rose to 2.88% in Q1, up from 2.86 bps in Q4 and 2.82% a year ago.

Source: TD Bank Q1 Investor Presentation


Conference Call

  • Asked for a breakdown of the HELOC portfolio in terms of how much is amortizing and how much is revolving, Theresa Currie, Group Head, Canadian Personal Banking, noted that of the overall portfolio, the revolving component is declining. She added that the 16% annual growth in the HELOC portfolio is “pretty much exclusively amortizing.
  • Asked about concerns about competitive dynamics in mortgage growth being inhibitors to margin expansion, Currie replied: “…the competitive nature of pricing has definitely had an impact on margins overall as you mentioned. I think we’re feeling very good about the growth of the portfolio overall, about our target of mid-single-digit total proprietary RESL growth going forward …”
  • And asked about where the bank sees its future in terms of the mortgage broker channel, Currie said the following: “We’re looking at the channels of choice for our customers going forward. So we’ve been building our digital mortgage origination capability and we will continue to do that. We’ve been investing in tools and capabilities for our branch network. We’ve continued to add to our face-to-face Mobile Mortgage sales force specialist. In fact, we added 95 in the quarter and we’re up 185 year-over-year in the quarter. And we continue to do business with brokers that we’ve on-boarded to our program. As it relates to brokers, there are a segment of customers who choose to go to mortgage brokers. And for the right broker and the right business, we want to do that business for those customers and onboard them to TD as well.
  • Concerning the bank’s relationship with originators going forward, President and CEO Bob Dorrance said: “We continue to monitor the third-party originators. And as they went their way through the changes in the marketplace, look at means by which we may continue to help fund them.

Source: TD Conference Call


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