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Q4 2018 Bank Earnings – Mortgage Morsels

Looking back on 2018, it may have been a challenging year for the housing and mortgage markets, but it would be hard to tell judging by the $45.3 billion in collective profits made by the Big Six banks.

They wrapped up the financial year with profits up an average of 13% over last year, even though their stock prices were down across the board.

Looking ahead to 2019, the banks are generally forecasting more tempered mortgage growth. And lowered expectations of Bank of Canada rate hikes this year could negatively affect net interest margins.

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

Q4 net income: $1.7 billion (+38% Y/Y)
Earnings per share: $2.57

  • BMO’s residential mortgage portfolio rose to $108 billion in Q4 from $107.2 billion a year earlier. The bank’s mortgage and amortizing HELOC portfolio are up 3% year-over-year.
  • 54% of BMO’s residential mortgage portfolio is insured, up from 51% a year ago.
  • The loan-to-value on the uninsured portfolio is 54%, up from 52% a year ago. For new originations in Q4, the LTV on the uninsured portfolio was 67%.
  • 68% of the portfolio has an effective remaining amortization of 25 years or less, down from 69% a year ago.
  • The condo mortgage portfolio stands at $15.5 billion (up from $15.2 billion in Q4 2017) with 40% insured (down from 45% a year ago).
  • The HELOC portfolio stands at $31.7 billion, with an LTV of 45%. Of the HELOC portfolio, 45% revolving and 55% is amortizing.
  • The 90-day delinquency rate was 19 bps, down from 20 bps in Q4 2017.
  • Net interest margin (NIM) in the quarter was 2.62%, up from 2.60% in Q3 and 2.59% in Q4 2017.

Source: BMO Q4 Investor Presentation

Conference Call

  • Cameron Fowler, Head of North American Personal and Business Banking, said, “From a product perspective, we’re focused on deposits, cards and mortgages where we’re significantly increasing our marketing and putting compelling offers and products forward and we’re seeing good momentum with quarter-on-quarter share gains here.”
  • The bank’s forecast for NIM to increase 1-2 bps per quarter in 2019 is dependent on “a couple of moves” by the Bank of Canada. “…we might go from being up give or take 2 bps a quarter to being flattish if we didn’t have the moves,” said Tom Flynn, Chief Financial Officer.

Source: BMO Conference Call



Q4 net income: $1.27 billion (8% Y/Y)
Earnings per share: $3.00

  • CIBC’s residential mortgage portfolio rose to $202 billion in Q4, up from $201 billion a year earlier, but down from $203 billion in Q3.
  • Of the portfolio, $28 billion is from the Greater Vancouver Area (unchanged from a year earlier), and $63 billion is from the Greater Toronto Area (up from $62 billion in Q4 2017).
  • Of the uninsured portfolio, the LTV was 64%, up from 53% a year ago. The overall average LTV in Canada is 53%.
  • The bank reported $7 billion in originations in the quarter, down from $12 billion a year ago.
  • The bank’s HELOC portfolio rose to $22.1 billion in the quarter, up from $21.7 billion a year earlier.
  • Net interest margin in Q4 was 245 bps, up from 236 bps in Q4 2017.
  • For uninsured mortgages, the arrears rate is 0.19%, up from 0.17% in Q4 2017. The arrears rate is 0.06% in the GVA (up from 0.05% a year ago) and 0.08% in the GTA (unchanged from 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 Q4 Investor Presentation

Conference Call

  • Asked about a ~50 bps loss of market share in the Canadian RESL business over the past year, Christina Kramer, Group Head of Personal and Small Business Banking, replied, “Our RESL growth rate has slowed as expected as we had communicated…there are always going to be some fluctuations in product-by-product results based on market factors. We are comfortable with what we’re actually seeing in terms of the progress we’re making in client relationships. Our retention rates remained strong and our CIBC brand commitment pipeline continues to be stronger than it was earlier this year. So, in terms of outlook, our current expectation is for our mortgage portfolio to grow in line with where we see the overall market growth trending.
  • Kramer confirmed the bank saw retention rates of around 90%, and added, “we’re also seeing our mid-term pay downs also improved. So we are seeing more mortgages go to full term.”

Source: CIBC Conference Call



National Bank of Canada

Q4 net income: $566 million (8% Y/Y)
Earnings per share: $1.52 a share

  • The bank’s residential mortgage and HELOC portfolio rose 5% to $67.6 billion in Q4, up from $64.8 billion a year ago.
  • The average LTV on the HELOC and uninsured mortgage portfolio was 69%, unchanged from a year ago.
  • Quebec represented 54% of the mortgage book (down from 55% from a year ago), while Ontario made up 26% (unchanged) and Alberta 8% (unchanged).
  • Net interest margin in Q4 rose to 2.33%, up from 2.30% in Q4 2017.
  • The bank’s residential mortgage portfolio is 42% insured, down from 45% a year ago. The average LTV of the uninsured mortgage and HELOC portfolio was 59%, unchanged from a year ago.
  • Uninsured mortgages and HELOCs in the GTA and GTV represented 9% (up from 8% in Q4 2017) and 2% (unchanged) of the portfolio, respectively, and have an average LTV of 52% (up from 46% a year ago) and 47% (up from 42%), respectively.
  • 23.8% of the bank’s residential mortgage portfolio has a remaining amortization of 25–30 years (down from 26% in Q4 2017). Just 0.7% has a remaining amortization of 30–35 years (down from 1.3% a year ago).
  • Gross impaired loans ratio was 43 bps, down 1 bp from Q3 and attributable to the commercial banking portfolio.

Source: National Bank Q4 Investor Presentation

Conference Call

  • “[In 2018] we completed the repositioning of our distribution model translating to higher levels of mortgage originations and renewals,” said CEO Louis Vachon.
  • Asked what’s driving the bank’s high growth rate in the amortizing HELOC book, Vachon replied, “I think our overweight position in Quebec is probably what’s driving that, savings rate in Quebec is the highest in the country and we’re seeing consumer behaviour—very good consumer behaviour, pay downs on debt and switches from variable to fixed.”
  • Lucie Blanchet, Co-Head of Personal and Commercial Banking, added that the year-over-year increase in amortizing HELOCs is driven by consumers’ preference to lock in their rates in the rising rate environment.

Source: NBC Conference Call


Royal Bank of CanadaRBC

Q4 net income: $3.25 billion (15% Y/Y)
Earnings per share: $2.20

  • RBC’s residential mortgage and HELOC portfolios rose this quarter to $283.1 billion, up from $256 billion a year ago.
  • The mortgage portfolio was up 5% year-over-year.
  • 61% of its mortgages are uninsured, up from 56% a year ago. The average LTV on the uninsured portion is 50%.
  • 90+ day delinquencies in the residential mortgage portfolio were 0.19% (0.06% in both the GTA and GVA), unchanged from a year ago.
  • Average FICO scores of 795 on uninsured mortgages were up from 793 in Q4 2017.
  • The average remaining amortization of RBC’s residential mortgages is 18 years.
  • Condo exposure remains about 10% of the bank’s residential lending portfolio.
  • Net interest margin was 2.77%, up from 2.74% in Q3 and 2.65% in Q4 2017, “driven by higher deposit spreads,” the bank said.

Source: RBC Q4 Investor Presentation

Conference Call

  • Looking forward, we expect mortgage growth to be in the range of 3% to 5% for 2019,” said Rod Bolger, Chief Financial Officer. “The assumption in there is that we see about a 3% increase in home sales and a very moderate increase in home prices of 1%…In terms of where do we see it, Ontario particularly, GTA is stronger, really stronger in the East, and we’re seeing weakening volumes [in] Manitoba [and to the] west.”
  • On higher renewal rates in 2018, Neil McLaughlin, Group Head, Personal and Commercial Banking, said this: “…we’re still in the 90% range. In terms of the outlook, the real focus for us [is] retaining those mortgages, after we spend a cost to acquire them. I think we’ve probably seen most of the uplift in terms of—we’ve talked in the past about the B-20 impact; I think that’s probably mostly baked in. But…we still feel very good about our renewal rates compared to our competition.”
  • McLaughlin said renewal rates two years ago, before B-20 was implemented, would have been in the 87-88% range.
  • Asked about flat HELOC growth over the year, McLaughlin replied, “we’ve actually had our HELOC product shrinking as we see some flow of clients at renewal looking to lock that in our residential mortgage. That’s starting to slow…we’ve been sort of negative 2%, [but we’ll] start to see that come back to flat and then some slow growth over time.”

Source: RBC Conference Call



Q4 net income: $2.27 billion (8% Y/Y)
Earnings per share: $1.77

  • The total portfolio of residential retail mortgages rose 3% year-over-year to $213 billion in Q4. For the full year, balances are up 5%.
  • The portfolio comprised $185 billion in freehold properties (up from $180 billion a year ago) and $28 billion in condos (up from $26 billion a year ago).
  • 57% of the residential mortgage portfolio was uninsured in Q4, up from 49% in Q4 2017.
  • The average LTV of the uninsured portfolio was 54%, up from 51% in Q4 2017. Meanwhile, the LTV of new originations in the quarter was 63%, unchanged from Q3.
  • Net interest margin rose to 2.45%, up from 2.41% in Q4 2017, “primarily due to the impact of Bank of Canada rate increases,” the bank said.
  • 90+ day delinquencies in the residential mortgage portfolio were 0.20%, down from 0.21% a year ago.
  • 57% of the bank’s uninsured portfolio has a FICO score of 788 or greater. The average score is 787 nationwide, and 790 in both the GTA and GVA.

Source: Scotiabank Q4 Investor Presentation

Conference Call

  • Looking ahead to this year, CEO Brian Porter said, “We expect margins to be higher in 2019, supported by higher interest rates. The exact timing of rate increases will be a key determinant for the magnitude of any margin increase. Residential mortgages are also expected to grow at mid- single digits in 2019.
  • On the competitive landscape of the mortgage market, Porter said this: “I would readily say that we’re seeing a very competitive mortgage market. B-20 and higher rates—both necessary, and we think both long-term positive—have been disruptive in the short run. My view is participants in the mortgage industry spent probably much of 2018 defending the market share that they had before B-20 and rising rates. So, we’ll see how 2019 unfolds. We’ve always said that our appetite will be governed by our assessment of risk, our assessment of reward.”

Source: Scotiabank Conference Call


TD BankTD-Bank

Q4 net income: $2.96 billion (17% Y/Y)
Earnings per share: $1.63

  • TD’s residential mortgage portfolio rose to $194.1 billion in Q4, up from $191.8 in Q3 and $190.5 billion in Q4 2017.
  • The bank’s HELOC portfolio rose to $86.3 billion from $75 billion a year ago.
  • TD’s residential real estate secured lending (RESL) portfolio rose 7% year-over-year. The portfolio is 65% uninsured with a 52% LTV.
  • Gross impaired loans in the residential mortgage portfolio were $264 million in Q4, or 0.14% of the portfolio.
  • 87% of the bank’s RESL portfolio is amortizing and 59% of its HELOC portfolio is amortizing.
  • Net interest margin in the bank’s retail portfolio rose to 2.94% in Q4, up from 2.86% a year ago.
  • 51% of the bank’s residential mortgage portfolio is in Ontario, followed by the Prairies at 19%, B.C. at 18%, Quebec at 9% and just 3% in Atlantic Canada.

Source: TD Bank Q4 Investor Presentation

Conference Call

  • Looking ahead to 2019, Teri Currie, Group Head Canadian Personal Banking, said, “We would continue to be looking at mid-single digit growth for our proprietary total real estate secured lending portfolio in 2019… with [our] HELOC hybrid mortgage product, we’ve made many improvements to that product to make it a real mortgage substitute, a convenient and flexible option for the right customers. We’re fourth in market share in that category. And so, the growth in originations we’re seeing is about 90% to existing TD customers, and we’re comfortable that we will continue to grow our business in that regard to customers who love us for their day-to-day banking and have borrowing needs or borrowing elsewhere.”
  • Currie added: “We’ve continued to invest in our mobile mortgage specialists and have added just shy of 250 year-over-year. So, they’re an opportunity to meet our customers in their channel of choice. We’ve continued to invest in our Homeowner Journey end-to-end digital capabilities, and the preapproval capability that we launched just a few months ago has delivered strong preapproval volumes and is delivering good business as well.”
  • Currie noted that there was some pull forward from the B-20 effects early in the year, “so we could see the rate of growth a little bit lower in the first half, but still looking at mid-single digits for the full year.

Source: TD Conference Call


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